Schwab: Size Isn’t Everything

Despite industry consolidation, 80% of Schwab’s advisory-firm clients manage less than $300 million in assets.

By Rethinking65

Editor’s Note: This article is part of a series that Rethinking65 is doing on viewpoints of industry leaders who attended the Schwab Impact 2023 conference.

Although mergers and acquisitions among financial advisory firms have dominated the headlines in recent years and a greater number of big players have emerged, the industry remains significantly fractured, Schwab’s top executives pointed out during the Schwab Impact 2023 conference.

“Eighty percent of our firms are under $300 million, and yet I read incessantly that we don’t work with small firms,” Bernie Clark, head of advisor services told thousands of advisors attending the opening keynote address on October 25 in Philadelphia.

“I don’t personally think that $300 million is a small firm, but we are focused on making sure that we are there,” said Clark. “We’re here for all advisors — all sizes, all shapes, all forms.” He noted that Schwab is working hard at building models around firms of all sizes. But “more important than size is: What are your needs and capabilities? What are your sophistications? How can we augment all of that?”

Clark was joined on stage by Walt Bettinger, co-chair of Schwab’s board of directors, and Rick Wurster, president of the Charles Schwab Corp.

‘We will stand down’

Bettinger dispelled the concern that Schwab, which also has wealth management and advisory services, is looking to steal clients from RIAs.

“In the very, very rare circumstance that you may find yourself in competition with someone on the retail side of Schwab, call me, email me,” he said. “We will stand down on the retail side. We respect the relationship that we have with you.”

In the decade that Bettinger has shared this message with advisors, “I probably got two calls,” he said. “And in both of these cases, the advisor ended up winning the client relationship and served them incredibly well.”

The Schwab team also acknowledged the advisor industry’s potential for huge growth. Wurster noted that customers increasingly want expertise that’ll integrate different planning aspects including taxes, trust and estate work, and generational transfers. “The work you do is incredibly important to your clients and to our country,” he said.

An apology to TD Ameritrade advisors

The executives also apologized for some difficulties with integrating TD Ameritrade advisors onto its platform.

“We’re never going to ask you for forgiveness. Every now and then we’re going to ask you for a bit of patience,” said Clark. He also noted that Schwab is working to support everyone.

“You can’t simply put people in seats to serve you. You have to put knowledge in seats,” he said. “We look at you as a collection of $4 trillion in assets and 15,000 advisors.”

Over Labor Day Weekend, Schwab completed its single largest conversion event in its history: It transitioned $1.3 trillion in client assets from more than 7,000 RIAs from TD Ameritrade and 3.6 million retail accounts.

Market moves

On Oct. 16, Schwab announced its third quarter earnings dropped 45% from the year-earlier period, to $1.1 billion from $2 billion. For the nine months ended Sept. 30, earnings dropped approximately 23%, to $4 billion from $5.2 billion in 2022.

During the keynote, Bettinger brought up the financial challenges that Schwab faced last spring when interest rates rose so quickly. “When rates go up that far that fast, any financial institution including Schwab is going to have unrealized losses,” he said. “I’ve said this on CNBC but I’ll repeat it again: It is a complete misnomer to say that we had extended our duration of our balance sheet because rates were low. That is false.”

“Our duration across the firm has been about 2 ½ years for the last 20 years,” he said. “We don’t try to guess and time interest rate markets. Why? Because we think that’s a loser’s game. It’s sort of like trying to guess and time the stock market.”

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