Charles Schwab Corp. (SCHW), which now custodies $1.6 trillion of assets for 7,500 advisory-business clients, plans to keep expanding amid volatile markets and increasing chatter of a looming recession. “I see continued growth—and interestingly enough, volatile markets, and even recessionary bear markets, are very good for this model,” Bernie Clark, the head of Charles Schwab Advisor Services, told Barron’s in a recent interview.
+ 15.5% (YTD)
– 13.3% (1-year)
+ 79.2% (5-year)
+ 274% (10-year)
What it Means for Investors
Over the past two years, Schwab has ramped up its asset holdings from its prior pace of $60-billion to $70 billion net new assets a year to more than $100 billion per year. Much of that increase has come from organic growth of advisors, and Clark believes his firm will continue to see increases in those numbers.
The financial custodian has also refocused its growth strategy in the last couple of years. Traditionally, Schwab has grown 80% through organic growth and 20% through new-to-industry acquisitions. Over the past two years the firm has been more aggressive in bringing on new teams, and last year they were more like 70/30 rather than the traditional 80/20. Clark hopes the new direction will be a continued winner.
Some of the big challenges moving forward include ensuring the gender and ethnic diversity of new talent in order to appeal to an equally diverse range of clients, ensuring that payment for services equate to the value of those services, and introducing technology in a way that doesn’t necessarily entail having to sacrifice close advisor/client relationships. “We have been awarded a lot of business because of the ability to talk directly with people and have relationships. A lot of our competitors have tried to solve through technology. In our model, technology complements relationships,” Clark said.
The biggest near-term challenge for Schwab will be weathering bear markets and a recessionary economic environment in which price competition with rivals like Fidelity and TD Ameritrade will likely heat up. Even industry giants will have to find ways to be resourceful enough in order to continue growing their earnings and keeping their stock price rising.