(October 12) – “For a quarter of a century, Charles Schwab Corp. has had the Midas touch selling small investors on everything from cheap stock trading to mutual-fund supermarkets,” writes Ken Brown in today’s Wall Street Journal.

“Now the financial-services firm faces its toughest sales job yet.”

“San Francisco-based Schwab is trying to persuade the 6,000 independent financial advisers who act as its disparate but effective brokerage force that the firm’s acquisition of highbrow U.S. Trust Corp. seven months ago won’t take away some of their business.”

“It has been an uphill battle. Initially, the advisers feared that Schwab was going to steal their business, citing the deal as evidence that Schwab has always considered these independent contractors to be a temporary fix until it figures out how to offer all that investment advice that the Merrill Lynches of the world have provided for years.”

” ‘Ultimately the biggest concern for us as independent advisers is are they going to go after our business?’ said Tom Lydon, president of Global Trends Investments, an advisory firm in Newport Beach, Calif.”

“It is a $243 billion question. The advisers, who keep their clients’ assets at Schwab while trading through the firm and using its other services, control nearly a quarter of Schwab’s $1 trillion in assets.”

“Last month, Schwab sought to answer it. The firm’s top brass schmoozed with nearly 1,200 of these advisers at its annual investment conference, held this year in Denver, the mutual-fund capital of the West. The officials took pains to show how U.S. Trust would benefit advisers, promoting a soon-to-be-launched private stock fund, stock research and trust services.”

“In buying U.S. Trust, a blue-blood asset-management firm whose average client has a net worth of about $7 million, Schwab made a play for wealthy investors. But the $2.7 billion deal left Schwab’s list of customers looking something like a barbell. While it has millions of smaller investors and a good presence in the rarefied air of U.S. Trust’s market, the firm lacks direct control of the group in the middle, covering the huge number of people with $250,000 to $5 million in assets. The average no-frills direct Schwab account has assets of just $110,000.”

“That gap is filled by the advisers, who oversee accounts with an average of $250,000. Called investment managers or financial planners, the advisers are a wildly diverse lot. Getting them to agree on anything, as Schwab executives will tell you, is harder than getting a dozen cats to march in step.”