TD Ameritrade To Schwab Conversion Tips For Financial Advisors

The TD Ameritrade/Charles Schwab conversion is fast approaching, with the conversion scheduled to be initiated – and completed! – over the 2023 Labor Day holiday weekend (September 2-4, 2023), and I've been getting inquiries about some of the operational intricacies that will be involved in the process.

I do not, nor have I ever, worked for TD Ameritrade or Schwab. However, I do consider myself a subject matter expert when it comes to transitioning a book of business from one platform to another, and I have assisted many individual advisors and teams with transitions to and from both TD Ameritrade and Schwab (as well as other custodians including Fidelity, Pershing, and Raymond James). Therefore, I have direct experience with both platforms and first-hand knowledge of their processes, procedures, technology, transition support, and paperwork requirements.

After thoroughly reading through the TD Ameritrade Transition Planning Guide (123 pages) and the Schwab Advisor Conversion Checklist (31 pages), as well as all the additional resources provided via links in both documents, I crafted a series of tips based on what I learned from my reading and ventured to share that content on LinkedIn to help financial advisors and their firms who use these platforms manage the transition more smoothly.

To see the complete series as I originally shared on LinkedIn, follow or connect with me: https://www.linkedin.com/in/grier-rubeling/. For copies of the documents provided to me, as well as additional tips, resources, and the ability to book a consultation (with regards to the conversion), visit my website at https://www.advisortransitionservices.com/schwab-conversion. To reach out directly to me to schedule a consultation unrelated to the conversion, email me at [email protected].

What follows is a recap of the content shared through LinkedIn, with all 9 tips in one convenient article!

Conversion Tip #1: IRA Contributions And Distributions

WHAT YOU NEED TO KNOW: Schwab Advisor Center is only going to reflect IRA contribution and distribution information for post-conversion transactions.

WHAT DOES THIS MEAN? Any contributions made to, or distributions made from, a client account prior to the conversion will not be reflected in a client's year-to-date information on their Schwab statement, Schwab Alliance, Schwab mobile app, or Schwab Advisor Center.

WHY IS THIS IMPORTANT? Clients who either make annual one-time contributions or distributions, or who have recurring contributions or distributions set up, will not have one central place that will reflect the overall picture for 2023.

THE BAD NEWS: Manual calculations will need to be done to add the pre-conversion amounts to the post-conversion amounts to get the total amounts. 2 tax documents will be issued – one from each institution.

THE GOOD NEWS: Veo One will remain accessible throughout the year and partially into 2024, so the pre-conversion contribution and distribution amounts will be available to access.

SUGGESTED ACTION: Download and print the Veo One contribution/distribution list by going to "Menu" > "Consolidated View" > "RMDs". Make note of the clients with recurring contributions or distributions so you can reconcile the data in Schwab Advisor Center once it converts.

For those who make annual contributions or take distributions that are not set up as recurring transactions, choose whether those should be done before or after the conversion. If done before, download a record of those transactions. If done after, the new system will reflect the transactions. This includes traditional RMDs and Inherited IRA RMDs.

CONCLUSION: This conversion is not going to be easy. Not everything is going to transition perfectly from one platform to another. Pay attention to the small details so your normal business operations are not affected more than they need to be.

Conversion Tip #2: Rep Codes To Master Numbers

WHAT YOU NEED TO KNOW: TD Ameritrade organizes client accounts under advisor rep codes. An individual rep code can be created each time a new grouping of accounts needs to be organized or opened. Schwab has a similar setup, but the groupings are of accounts under what they call a "master number". Each rep code is going to be automatically converted to a master number during the conversion. All the accounts linked under each rep code will carry over and be linked under the corresponding new master numbers.

WHAT DOES THIS MEAN? All account groupings will stay the same, but the rep codes will be going away. Instead, you will have master numbers that are 8 digits each. If you are currently custodied on both the TD platform and the Schwab platform, all the TD accounts that are converted will remain separate from your existing Schwab accounts. A new master number will be created in all scenarios.

WHY IS THIS IMPORTANT? You will no longer be able to reference TD rep codes. Not for account groupings, billing, account servicing, etc. You will need to learn the new master numbers.

THE BAD NEWS: TD's current rep codes are short and easy to remember. However, they're converting to 8-digit master numbers that all start with "08". Memorizing 8-digit master numbers is much more difficult, and because there are no letters, it can be confusing when trying to figure out which master number goes with which rep, account, money manager, etc.

THE GOOD NEWS: Schwab is providing firms and any third-party technology providers with a cross-reference file that lists every rep code and its corresponding master account number.

SUGGESTED ACTION: Print the cross-reference file and tape it up somewhere where you can see it at all times. You will need to reference this regularly. Check the status of all current rep codes. If they are active, a master number will be created. If they are inactive, or nearly so, close them. Otherwise, a master number will be generated for them. If you plan to consolidate account groupings, do so before the conversion, so fewer master numbers will need to be created. Add detailed descriptions of each of your rep codes and new master numbers to your cross-reference file.

CONCLUSION: Technically, there is no action required when it comes to the conversion of rep codes. However, Schwab's master number system is much more confusing and will likely require an adjustment period. So, prepare what you can in advance, clean up your current system, and set yourself up for success.

Conversion Tip #3: Outstanding Checks

WHAT YOU NEED TO KNOW: Checks that are made out to TD Ameritrade will be accepted for approximately 90 days post-conversion. When deposited into the TD account, the cash will be swept into the new Schwab account the next business day. If the client has checking features on their TD advisory account and uses a checkbook to write checks, those outstanding checks will continue to process for approximately 90 days post-conversion as well.

WHAT DOES THIS MEAN? Any checks that are scheduled to be deposited into or paid from your client accounts will not be stopped until approximately the end of November. However, after that time, checks will be required to be deposited into or written from the new accounts at Schwab. Those account numbers will change; this includes the routing and checking account numbers, as well as the advisory account numbers. New checks will be issued for use on accounts with checking features.

WHY IS THIS IMPORTANT? If you have clients who have checks issued from their employers, insurance firms, annuity contracts, etc., they will be required to change the instructions with those institutions. The checks will need to be payable to Schwab, reflecting the new routing and account numbers (for electronic deposits), as well as being sent to Schwab's mailing address (for physical checks sent directly through the mail). Clients will also need to stop using their current checkbooks and start using the new ones issued to them.

THE BAD NEWS: The process of changing recurring money movements from outside institutions may be labor-intensive. It may require your clients to sign paperwork that is specific to the outside firms and not to Schwab. It's a process you have little control over since the forms will have to be processed by third parties.

THE GOOD NEWS: You have 90 days to address the issue. That should be plenty of time to get everything changed over.

SUGGESTED ACTION: Pull a list now of all incoming deposits into your client accounts. Figure out which ones are standing instructions that you need to initiate versus ones that are automatically scheduled by third parties. Contact the outside institutions to gather the necessary documentation that needs to be completed by the client. That way, once you have access to the new account numbers, you can just enter the missing information, get client signatures, and send the paperwork for processing. Also, make your client aware of the situation and have them either put a pause on their check writing from their advisory accounts or move up their payments to get them all in now.

CONCLUSION: Not every book of business is going to be terribly inconvenienced by this conversion. However, there are certain aspects of the process that will affect advisors with particular client or account types. The process is not going to treat every RIA the same. It's your responsibility to figure out what portions are going to affect your business and to prepare as best as possible.

Conversion Tip #4: Third-Party Direct Deposits

WHAT YOU NEED TO KNOW: Any incoming cash will be delayed because it needs to sweep from the TD account to the Schwab account.

WHAT DOES THIS MEAN? Any clients that have ACH transactions set up to come into their TD accounts from outside institutions will need to contact those outside institutions to have the ACH instructions changed. This will need to be done during the 90 days between when the conversion takes place and the approximate cutoff date implemented by Schwab.

WHY IS THIS IMPORTANT? There are some transactions that are not controlled by TD or Schwab. Instead, the instructions are set up by the outside institutions and thus cannot be set up on the Schwab account the same way they were on the TD account without intervention by the client. Meaning that if the client doesn't take any action, the transactions will eventually start to kick back.

THE BAD NEWS: Since new checking account numbers will be generated, requests will need to be submitted with that information and will have to be made with third parties.

THE GOOD NEWS: You have approximately 90 days to handle the situation and change anything that needs to be changed.

SUGGESTED ACTION: Identify all client accounts that have incoming ACHs that are not initiated on the TD side. Reach out to those third-party institutions and collect the paperwork necessary to complete and update the banking information on those transfers. Once the new account numbers are provided, complete the paperwork, get it signed by clients, and submit it to the outside institutions as soon as possible.

CONCLUSION: Your advisory accounts are going to be converted from TD to Schwab. The ACH profiles you have set up will be converted as well. However, if you have ACH transactions hitting accounts that are not currently initiated by TD, those will not convert over to the Schwab account. It's important to know the difference between transactions initiated internally and those initiated externally.

Conversion Tip #5: Statement Bundling

WHAT YOU NEED TO KNOW: Schwab will automatically bundle your clients' statements for matching account owners with identical Taxpayer Identification Numbers (TINs) and the same statement format. If your clients were previously enrolled in any other statement bundling to streamline your paper statements, you will need to re-enroll them post-conversion.

WHAT DOES THIS MEAN? Statements for a particular client will automatically bundle so the paper statements get mailed in the same envelope. However, the only thing that will bundle are statements for that one individual (and seemingly revocable living trusts under the same TIN). If you have clients with different TINs bundled together, you will be responsible for replicating the bundle at Schwab post-conversion. Which means that spouses' statements will probably not automatically bundle even if they live at the same address.

WHY IS THIS IMPORTANT? It's human nature to resist change, and this process is going to initiate a lot of changes for clients. Their accounts are going to be converted to another platform; they'll have new account numbers, new statements, new login information, and a new user experience. Those who choose to receive paper statements in the mail are used to seeing them a certain way, and if you do nothing, it could mess with their expectations even more than necessary.

THE BAD NEWS: You will need to take action post-conversion to re-enroll your clients for statement bundling. This may require a signature from your clients (this is my own assumption based on what I know the normal process to be – there is no mention that I can find in the conversion documents that states otherwise).

THE GOOD NEWS: Statement bundling preferences are only important to clients who are not enrolled in paperless delivery options. It should be noted that clients who want to remain paperless will have to enroll in Schwab Alliance and choose their paperless delivery options so they do not receive statements in the mail.

SUGGESTED ACTION: Identify the clients who are not currently enrolled in paperless delivery and determine whether or not they have statement bundling preferences selected on their TD accounts. Compile a list of clients that will require action from you at Schwab. Prefill as much information as you can in the Schwab document called "Statement Bundling Letter of Authorization Form" for each household.

I would also suggest pulling a list of clients currently enrolled in paperless preferences so you can make sure that those clients enroll in Schwab Alliance and select their preferences on the Schwab side. This might also be a good time to convince as many non-paperless clients as you can to use Schwab Alliance and select e-delivery.

CONCLUSION: This conversion is a transition, and transitions are the perfect time to check in with clients and determine their ideal preferences. If they already need to take action in the process, they might as well have all the facts and options available to them. Make sure the lines of communication are open and you manage expectations properly.

Conversion Tip #6: Sundry Accounts For Fee Billing

WHAT YOU NEED TO KNOW: Your TD Sundry Accounts will convert automatically to Schwab Management Fee accounts, but the Schwab accounts do not have all the same features and allowances as the TD accounts. Schwab management fee accounts can only be used for debiting management fees and processing management fee reversals. The accounts are intended to be pass-through only. They cannot be used to initiate trades or hold securities, and they do not allow the addition of checking or debit features.

WHAT DOES THIS MEAN? If your current TD Sundry Accounts are being used for purposes other than debiting management fees and processing fee reversals, you will need to open additional accounts to allow those additional features. A management fee account will automatically be created for every existing Sundry Account that you have on the TD platform.

Because this one-to-one automatic creation will take place, you will not be able to use an existing Schwab management fee account. Once the conversion is complete, you may consolidate any existing accounts with the ones created during the conversion, but you cannot prevent accounts from being created altogether.

WHY IS THIS IMPORTANT? Automations involving TD Sundry Accounts that may currently be taking place may not be permitted with the Schwab Management Fee accounts that will be set up and, without adjustments, could create some problems for you. It would be best to fix the issues ahead of time in order to convert seamlessly and avoid any billing issues during your first cycle.

THE BAD NEWS: If you use your current TD Sundry Account as a corporate account to manage your firm's billing and expenses, you can no longer do so. You will need to open a new corporate account that cash from management fees can be moved into, but doing so will require action on your part.

THE GOOD NEWS: If your current TD Sundry Accounts are being used as pass-through accounts only, you're all set. A new Schwab management fee account will be opened for each TD Sundry Account and no action will be needed on your part. Even the current money movement instructions on file will convert.

SUGGESTED ACTION: Pull a list of all TD Sundry Accounts you have for your firm. Check to make sure that none of them have checking or debit features added to them. Make sure none have securities held in them. In fact, make sure they are empty of cash.

If you need accounts with checking features or the ability to purchase/hold securities, open new corporate accounts and transfer existing funds into those accounts. Check the standing instructions on file for the accounts and make sure they're appropriately assigned to the accounts with the features you require.

If you have TD Sundry Accounts that are not currently active or needed, close them now so matching accounts on the Schwab side are not opened at all. Make sure none of the accounts have third-party-initiated instructions attached to them. If they do, make a list so you can reach out to the third parties and change the banking information (see Tips #3 & #4).

CONCLUSION: The running theme of this conversion is that as much as possible is being done to convert accounts 'as-is', but there are certain things that just cannot be done exactly the same. It's important to understand what those things are, how to prepare in advance, and what might need to be done post-conversion. Fee billing is something that could significantly affect your normal business operations. Attention needs to be paid to the details.

Conversion Tip #7: Tax Withholding Elections

WHAT YOU NEED TO KNOW: Schwab does not support Tax Withholding Elections (TWEs) set to a dollar amount. They also do not support multiple TWEs for a single account.

WHAT DOES THIS MEAN? Any accounts that have standing TWEs selected will need to be set up as a percentage, not a dollar amount.

WHY IS THIS IMPORTANT? Reporting TWEs in an unsupported format could adversely affect existing or future distribution instructions.

THE BAD NEWS: If you currently have any accounts with standing TWEs on file that are set to dollar amounts or that have more than one TWE selected, those accounts will automatically reset to the state and Federal standard default minimums for the client's physical address of record. That could mean that a client's current recurring distributions could be negatively affected.

THE GOOD NEWS: Setting TWEs to percentages is a much more common practice than setting them to dollar amounts. It's also not very common to have multiple TWEs. For those distributions with one designated TWE that is designated as percentages, nothing will need to change at all. Those instructions will be converted to the new accounts and the distributions will continue unaffected. This includes standing instructions and recurring distributions.

SUGGESTED ACTION: Pull a list of all standing and recurring distributions. Check the TWEs on each account and determine if any have multiple sets of instructions or are set up to withhold specific dollar amounts instead of percentages. Complete new TD paperwork to change the existing instructions on file and have clients sign the forms. Submit them as soon as possible to change the instructions on the TD side. If completed, those instructions will convert as-is over to the new Schwab accounts.

CONCLUSION: This is another topic that favors proactive versus reactive actions. It might not affect a single account that you have, or if you have your practice set up a certain way, it could affect a lot of your accounts. Don't assume you know which situation you're in. Check to be sure.

If distributions are not fixed pre-conversion, you will still be able to fix the instructions on the Schwab side, but you will only have the grace period between when the conversion happens and when the first distribution is made. If not updated, those distributions will still be made, but the withholding will reflect the clients' state and Federal default percentages, which could be significantly different than the clients' preferences.

Conversion Tip #8: Cost Basis Preferences & History

WHAT YOU NEED TO KNOW: "In most cases, your accounting method settings will convert to match the TD account settings." But for a statement that starts out so promising, the Schwab Transition Guideline then devotes 6 whole pages to the subject. Some of the most important points are as follows:

• If you have multiple default lot-selection methods for different security classes at TD, the default will be set to FIFO upon the conversion.
• With regards to transfers out, TD waits 3 days to send the cost basis information to the contra firm. As for Schwab, they send the cost basis information immediately based on the account default, and if something gets changed, they send a second file with updated information after the fact.
• For historical realized gain/loss history, there will be a single sign-on link to Gainskeeper on Schwab Advisor Center and Schwab Alliance for legacy TD accounts.

WHAT DOES THIS MEAN? There probably won't be much for you to do to adjust your cost basis settings for client accounts. However, there are always exceptions to the rule. It's best to understand the nuances and review them in depth to determine if they affect your business.

WHY IS THIS IMPORTANT? Those who generally adjust tax-lot defaults are doing so for a specific reason. The fact that those whose personalized preferences are going to reset to FIFO is significant because FIFO is the original default for TD and Schwab. It is certainly not always the most tax-efficient method, and those who change it are likely those most concerned about tax efficiency to begin with.

THE BAD NEWS: Schwab does not support the selection of different cost-basis methods for different securities in an account. You will need to change the defaults to a method that Schwab accommodates if your current options are not able to convert.

THE GOOD NEWS: If you have one default lot-selection method for all security classes (stocks, bonds, options) at TD, it will carry over automatically and there is nothing at all you need to do.

SUGGESTED ACTION: Read pages 35-40 of the Schwab Transition Planning Guide to get the full picture of what action might be needed for this particular subject. To view your current TD cost basis settings on Veo One, go to "Set Up and Admin"> "Cost Basis". From there, you can review your Tax Lot ID settings at either the rep code or account level.

The Planning Guide does say that changes need to be made by August 18, 2023, to convert, so my suggested action is to review and record the current preferences and change them post-conversion if needed to match what they are now. However, changing them at TD now is not guaranteed to convert them to Schwab because of that deadline.

CONCLUSION: Unfortunately, my conclusion on this one is that I wanted to skip over it altogether because of the potential complexities, but that was also the same reason I felt compelled to highlight it. It's a complex subject matter that could significantly affect a firm's current operations but also might not at all. Individual research is highly recommended.

Conversion Tip #9: Open (Non-Mutual Fund) Trade Orders

WHAT YOU NEED TO KNOW: All open Good-Til-Canceled (GTC) and Good-Til-Date (GTD) orders (unless they are for mutual funds) in a TD account will be canceled at conversion. The order must be resubmitted if the advisor/client wants an open order post-conversion.

WHAT DOES THIS MEAN? If you have open orders in the system, you will need to enter them at Schwab because they will not convert. It goes without saying that this is a time-sensitive issue that requires swift action.

WHY IS THIS IMPORTANT? A lot of open orders that are GTC or GTD were probably initiated by client requests. Thus, your client has the expectation that a security is going to be purchased or sold when there's a triggering event. If that trade does not happen, it could damage a client relationship (and may even be the basis for a potential legal issue), especially if the client requested a future trade that doesn't happen and results in a significant shift in the value of a security.

THE BAD NEWS: Open orders (except for those involving mutual fund trades) are going to be canceled during the conversion.

THE GOOD NEWS: Open mutual fund trades will convert automatically, so those don't need to be under consideration.

SUGGESTED ACTION: Check for any open trade orders requested by clients. Reach out to clients to make sure the orders are still wanted and delete any now that the client no longer wants. Create a record of any orders that need to be re-entered on the Schwab side. Upon completion of the conversion, immediately re-create the open orders in the system to avoid any potential triggering events during the time the trade was not in the system.

CONCLUSION: This could be a non-issue for advisors that don't place individual trades for clients who require future instructions. However, open orders aren't necessarily looked at on a daily basis. They might even be something a client asks for one time and that an advisor forgets about. They could even be 'in-case-of-emergency' precautions. But imagine if that 'emergency' were to happen shortly after the conversion takes place and you didn't have the open orders re-entered. The potential for catastrophe is there, so take the time to make sure it's not an event that could happen to you.

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While I consider these 9 tips to be some of the most important topics about the upcoming TD-to-Schwab conversion to discuss, they are not the only topics that should be reviewed. I highly recommend that you read the documents you were provided with to determine any additional subjects that apply to your situation. If you'd prefer to have a discussion instead, visit my website to schedule a consultation. I'm happy to review the points I learned in my pursuit of information.

Hopefully, this information helped you be better prepared for the events to come. I know a lot of advisors are concerned about the loss of Veo One, TD Ameritrade's account management and trading platform. And with the conversion happening all at once, there might be a strain on Schwab's human resources for a period of time, but I think everything will eventually work out in the end as Schwab has a reputation for being very third-party friendly with regards to integrations.

Additionally, advisors can read the monthly Nerd's Eye View articles that cover the latest in financial advisor tech and review the Kitces.com Financial Advisor Technology Map updated every month to reflect the firms focused on making the advisor and client experience better for everyone. Lean on the experts to help you find new resources, and best of luck with your team's upcoming conversion!