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Schwab, Fidelity & TD Ameritrade: New Features for IFA Clients

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As an independent registered investment advisor, IFA is set up to eliminate basic conflicts of interest that too often surface when a firm tries to both manage a client's wealth as well as act as an investment broker.

We've written a lot about the advantages of operating as a true fiduciary. But a few key side benefits remain under many of our clients' radar. In particular, IFA's independence has given its advisors an opportunity to work with some of the biggest players in financial services.

IFA's outside business network includes large brokerages that handle back-office functions such as processing transactions and serving as custodians of our clients' assets.

This separation of duties allows us to keep our financial and investment recommendations as objective and conflict-free as possible. After all, trading and custody operations come with their own set of fees and charges. Unfortunately, reports of unscrupulous brokers getting slapped by regulators for bad deeds are numerous.

Working with an IFA advisor who strives at all times to act in a client's' best interests comes with another set of plusses. As our wealth management firm has grown in size, so has its reach with opening new lines of service for our investors.

Below are a few highlights of the latest financial services and programs that our custodians are currently making available to IFA clients. (Please feel free to consult with your advisor for program specifics as they become available through our expanding wealth platform.)


Schwab Bank, a wholly owned subsidiary of Charles Schwab Corp. that operates alongside its broker-dealer, offers a full suite of home lending products through Quicken Loans. As part of that program, IFA clients working through their advisors can get up to 25 basis points in discounts on certain types of loans.

Loans open to these types of "exclusive" rates are adjustable rate mortgages and 15-year "jumbo" loans.

The ARMs work just like the name implies – rates fluctuate for a certain period according to Libor rates. A "jumbo" loan refers to higher-dollar valued loans, which can vary by location. In much of California, for example, such loans are classified as those exceeding $679,650.

An important caveat is that Schwab Bank's 0.25% discount can be impacted on refinancing deals by amount of a client's assets that are held through its broker-dealer. Other possible tiered discount pricing details should be closely scrutinized and discussed with your IFA advisor before making any final decisions.

The bank also provides a "pledged" asset line, or PAL, which allows IFA clients to borrow against their investment accounts held at Schwab. This type of credit line can be set up ahead of time to be available for emergencies and other unexpected expenses.

No extra costs are involved to establish this type of credit line and interest only comes into play once funds are put into use. In some situations, this could make sense since in order to meet a short-term expense, clients wouldn't need to sell their investments.

TD Ameritrade

Another major brokerage that works with IFA to process and transact securities held in client accounts is TD Ameritrade. While it doesn't offer a direct mortgage lending discount to IFA clients, the broker-dealer has a securities lending program for investors through TD Bank.

The separately operated bank essentially allows IFA's advisors to work with clients so they can "pledge" a certain amount of their taxable assets to use as collateral for a line-of-credit or securitized loan. Such lending services can be used for anything from injecting cash into a business to buying property and boats.

Securitized loans, however, are distinct from mortgage lending, which typically requires a loan to be backed by actual real estate holdings.

The other major feature to keep in mind: Securitized loans can't be used to purchase additional securities in the same brokerage account. Such a restriction helps distinguish this type of loan from a practice known as margin lending, where investors can borrow against securities in their taxable accounts. Unlike securities lending, using margin can allow someone to purchase additional securities for their portfolio with the borrowed money.

IFA's advisors don't support use of margin lending since it exposes portfolios to greater risk by promoting leveraging of client assets, an active strategy that's based on pure speculation in order to beat market indexes.

Also, securities-backed loans are priced differently since each is benchmarked to Libor rates. These are based on short-term lending rates that banks charge each other to create liquidity across global financial markets. By contrast, margin loan rates are set at a particular brokerage's own internal discretion and can be much more expensive.

In fact, securities lending is a common "bridge financing-like" type of loan practice that we've seen clients use over the years. It can turn out to be a relatively cost-effective way to fund a range of different lending needs.

At the same time, the case for such loans is highly dependent on each individual set of circumstances. But our advisors do stand ready to help review a family's unique financial situation and can objectively discuss what such an option might provide on a client-by-client basis.


Fidelity has also established certain service arrangements with banks and other financial institutions.

On the mortgage side, the asset manager and custodian says it can help IFA's advisors and their clients work through U.S. Bank to receive "highly individualized" service in consideration of qualifying for loan amounts based on various personal and business lending circumstances.  

For example, Fidelity officials say they find that U.S. Bank works with a lot of home as well as business owners on construction loans. They also find the bank is well-positioned for large capital outlays such as buying yachts and jets for corporate or private use.

Also, Fidelity works with both U.S. Bank and Goldman Sachs on a program for so-called non-purpose loans. These act much like securities loans and can be used for a wide variety of personal and business lending activities. In combination with IFA's advisors, Fidelity says such a network can be used to help check various tiered pricing schedules to find the best rates for each individual situation.

This is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, service, or considered to be tax advice. There are no guarantees investment strategies will be successful. Investing involves risks, including possible loss of principal.