Schwab’s Advisory Business Grows Despite Bank Deposit Losses

Schwab’s earnings beat analyst expectations and its first-quarter net income was up 14 percent compared to a year ago.


Bloomberg / Michael Nagle

Charles Schwab’s advisor business played a pivotal part in growth of the company last quarter, even as its banking side was hit with deposit losses as customers sought out better returns in other investments.

Deposits at Schwab fell 11 percent, or $41 billion, compared to the previous quarter. However, net income for the first-quarter of 2023 was $1.6 billion, up 14 percent from the same period last year. Schwab gained $132 billion in net new assets, according to the company.

The company’s advisor service segment made up the majority of all new assets with a first-quarter record of $71 billion in net flows and 70 new advisor teams. Schwab clients opened 1 million new brokerage accounts, bringing the total to 34 million active accounts.

“We are winning in the marketplace among clients, anyone suggesting otherwise is mistaken. Simply put, our franchise strength and financial model remain very much intact,” Walt Bettinger, co-chairman of the board and CEO of Schwab, said during an earnings call. (Altruist, a VC-backed startup custodian founded in 2018 that raised $112 million last week, recently claimed to now to be third largest RIA custodian by number of firms behind Schwab and Fidelity).

“We have substantial liquidity. We have capital well in excess of regulatory requirements, and our strong profit margins deliver ongoing organic capital formation, which can be used to meet future capital needs. We have industry leading levels of FDIC insured balances at our bank [and] at our investor’s bank. Our balance sheet and investments were and are conservatively managed and managed in a manner consistent with how we have managed our bank balance sheet for the last two decades,” Bettinger said during the call.

As a cautionary move, Schwab also announced that it would pause its active stock buyback program.

Schwab sees both its advisory side and its custodial side as an integral part of its future growth.

The company has just started to transition its TD Ameritrade advisors and clients to the Schwab platform (Schwab bought TD Ameritrade in 2020). As part of its first run, Schwab transitioned 500,000 client accounts, including several RIAs, in February. Rick Wurster, president of the Charles Schwab Corporation who overseas Advisor Services, said during the call that Schwab is on track to transition 13 million clients representing 97 percent of TD Ameritrade clients this year.

Schwab Wealth Advisory, Schwab’s own RIA, had $3.2 billion in net flows. The company has calculated that every 1 percent increase in advice use drives $125 million to $200 million of incremental annual revenue.

“In periods of uncertainty and heightened volatility, advisors win. They win because they are trusted fiduciaries with the client’s best interest in mind and we win because we are the trusted partner of RIAs,” Wurster said.

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