Schwab beats estimates, but advisers see drop-off in inflows

Charles Schwab Corp., the largest independent brokerage by client assets, reported a third-quarter profit that beat the average analyst estimate. Net new assets coming into the brokerage's Advisor Services unit tailed off in the third quarter, however. The company today reported that the advisers with assets under custody at the firm brought in a tepid — for Schwab — $8 billion in net new assets. That's the lowest level since the second quarter of 2009. In an email to InvestmentNews, Schwab spokesman Greg Gable said the company's advisers experienced "some seasonal summer slowdown coupled with … continued economic uncertainty that limits people's willingness or ability to put more of their money to work in investments." Schwab-affiliated advisers, however, continue to be the chief driver of net new asset growth at the firm. The company's discount-broker business, known as Investor Services, attracted just $2.3 billion of net new assets for the quarter. Total assets in Schwab's individual-investor business got a 13% boost, though, to $644.6 billion in the third quarter. That increase was driven by market appreciation and an accounting change that led some assets from Advisor Services to be reclassified as Investor Services assets, Mr. Gable said. Total adviser-directed assets, which had been running ahead of the discount business, came to $609.9 billion at the end of September. Adding in some other institutional assets, total client assets at Schwab reached $1.47 trillion at the end of the quarter. Schwab provides custody services for about 6,000 retail advisory firms. Overall, the brokerage's third-quarter net income fell to $124 million, or 10 cents a share. That's down substantially from the $200 million, or 17 cents a share, the company generated a year earlier. The average analyst estimate was 9 cents a share. The brokerage has been weathering a near-zero interest rate environment since December 2008. About one-third of last year's revenue came from interest earned on cash in its bank and money market funds, while about 45% was from fees for managing and administering assets. Third-quarter results included a charge of about $132 million to cover losses related to 2008 investments in mortgage-backed securities in its money market funds, as the company had disclosed last month. [Bloomberg contributed to this article]