Charles Schwab to get more aggressive around lending, income

The company plans to roll out services in these areas for financial advisers and their clients in the near future, according to executives

Nov 5, 2019 @ 12:01 am

By Greg Iacurci

Discount broker Charles Schwab Corp. is becoming more aggressive around the lending and income services it offers to financial advisers and their clients, with plans to roll out services in these areas in the near future, according to company executives.

Walt Bettinger, president and CEO of Charles Schwab, the largest custodian of client assets for financial advisers, said that the company hasn't been aggressive in terms of banking and lending services in the past, but that the debt side of clients' balance sheets is becoming more important.

He and Bernie Clark, head of Schwab Advisor Services, said their viewpoint has changed and that the company aims to get into different types of lending -- including more sophisticated mortgage lending and unsecured lending for clients, as well as banking for advisers -- because it doesn't want advisers to be at a disadvantage in these areas.

"We've had some evolving thinking on this the past few years," said Mr. Bettinger, who spoke with Mr. Clark Tuesday morning at the Schwab Impact conference in San Diego. Mr. Bettinger added that he wants "to do everything we can do within reason" around lending.

Schwab, Mr. Bettinger said, has "some work under way with a premier team of bankers across the country."

Mr. Clark said the new services are on the "horizon," but didn't stipulate an exact time frame.

[Recommended video: Schwab's Sonders: What's top of mind for advisers?]

Concurrently, Charles Schwab, the firm's founder and chairman of the board, said the company is spending a lot of time around income management and aims to introduce a service within the next year that advisers can use with clients.

"The income area is really difficult," Mr. Schwab told conference attendees.

Fidelity Investments, for example, last week announced that it's rolling out technology next year to help 401(k) plan participants draw down their retirement accounts.

These developments come in the wake of Charles Schwab's elimination of commissions for most online trades on Oct. 7, a move that led several competitors, including TD Ameritrade,ETrade Financial Corp. and Fidelity Investments, to do the same.

"Change is afoot in our industry," Mr. Bettinger said. "I think we're going to see intensifying competition."

Prices for financial transactions will "no longer be a major differentiator," nor will services advisers provide such as asset allocation and tax-loss harvesting, which have become or are quickly becoming commodities, he added.

Mr. Bettinger also pushed back against the notion that the revenue impact from eliminating commissions for trades would cause the company to pull back on adviser service. Schwab CFO Peter Crawford estimated the move on commissions – which applies to individual investors and financial advisers using the Schwab platform – would reduce quarterly revenues by between $90 million and $100 million, which is less than 4% of the company's total net revenues.

"The pricing we announced Oct. 1 was the culmination of at least 20 years of planning, certainly in the 13 years I've been in an executive leadership role," he said.

Mr. Clark, pointing to industry change, also cited the increasing number of notable mergers and acquisitions in the industry, such as Goldman Sachs buying United Capital in May for $750 million – which he noted was the largest deal Goldman has done in two decades -- and private-equity firm Hellman & Friedman merging Financial Engines and Edelman Financial together.

"We're seeing mega deals happening quite frequently," Mr. Clark said.

[More: New Schwab adviser technology chief Andrew Salesky brings veteran pressure to his team]

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