From entering the home stretch of a
On the earnings front, Schwab announced net income of $2 billion for the fourth quarter of 2022, a 25% increase from the $1.6 billion recorded in the fourth quarter of 2021. Net income for the year was a record $7.2 billion, up 23% compared to 2021.
But the winter update on Jan. 27 was an opportunity for Schwab senior leaders to disclose details on the merger with TD Ameritrade that will soon impact the lives of thousands of advisors and their clients, and to outline their strategic priorities for 2023.
Here are some highlights from the more than four-hour event held Friday.
By the numbers
Schwab CEO Walt Bettinger set the stage by framing the difficult circumstances the company faced throughout 2022. He then pointed to the company's performance as an example of Schwab's "all-weather business model" paying off.
"You see that illustrated perfectly in the last two years. In 2021, you had an extraordinary year for equity markets. We dealt with near record low interest rates, and we delivered record financial results," he said. "When you flip over to 2022, you had a near record year in terms of equity market pain or difficulty. And then we had some of the (most) rapid increases in interest rates that we've experienced. And we delivered record financial results."
Bettinger said investors operated with a bear market mentality throughout last year. But Schwab's clients remained heavily engaged, allowing the company to generate $428 billion in core net new assets over the past 12 months.
It was a point of pride for the CEO, despite that key number shrinking significantly from the record $558.2 billion in core net new assets posted to close 2021.
Schwab's total client assets ended the year at $7.05 trillion as the company's asset gathering was offset by $1.5 trillion in lower market values over the past 12 months. The company added more than 4 million new brokerage accounts, pushing total accounts to nearly 34 million by December 31, 2022.
The company is celebrating momentum within the retail channel, achieving record core inflows in six different months. Schwab Advisor Services attracted more than 350 transitioning advisor teams, the second highest total ever reported by the company.
Bettinger also addressed the ongoing TD Ameritrade acquisition, saying that he was encouraged by the response from clients as the formal conversion of the two companies — a mammoth logistical and technological undertaking — is just weeks away.
"We know that this is a big, complicated conversion. No one has ever converted a brokerage business anywhere near this size or scale in the history of our industry. But we feel very confident about where we are," he said. "Our test results of late have been delivering 99.9% accuracy. We don't expect it to be perfect. We try to be very realistic about that. But we do remain quite confident that overall will be a wonderful experience. And when it all is said and done, the clients at both former Schwab as well as the former Ameritrade will have better experience, better tools, better capabilities than either one has had before."
TD Ameritrade merger remains on track
Schwab Chief Operating Officer Joe Martinetto provided an update on the giant undertaking that is now in its third year of work.
"We can, to the extent possible, pull some of those questions forward before conversion and get them addressed before the clients come over so that when they actually are converted they don't then find themselves in sort of a cold experience," he said.
And the temperature of that experience will be taken very soon. Martinetto said Schwab is on track to convert about 500,000 client accounts in February, with the process to begin during President's Day weekend overroughly three weeks.
He added that three larger groups of clients will be moved throughout the remainder of 2023 with target dates of Memorial Day weekend, Labor Day weekend and a weekend in early November.
The transition will end with a small group of client accounts moving over during the first half of 2024. The goal is to avoid investing and trading disruptions for clients and advisors.
Labor Day will be the date to save for wealth managers as advisors and their clients' accounts convert in a September 2023" transition group."
"We have, in total, somewhere between 18 and 20 million accounts that we're going to be moving over the course of this entire integration. And the number moves around a little bit because clients are still opening new accounts (and) we're still doing work to clean up accounts on the platform," Martinetto said, noting that the President's Day transition group is intentionally smaller and made up of people who are not the most active users of the platform.
"But it's an opportunity for us to move the assets, bring them onto the platform, test the service experience and make sure all the technology is working the way we expect before we engage in some of the larger transition groups later in the year."
While Labor Day belongs to advisors, Memorial Day will predominantly address non-advised retail clients.
Schwab also isn't leaving anything to chance in terms of letting clients know what is happening, and when. Martinetto said that more than 10 million communications have been distributed to clients to help them plan and prepare, and that the company is training 11,000 employees to support clients through the transition.
"So we've done a lot of good work to try to take as much friction out of this system as possible to ease that transition process for the clients," he said.
Over the next three to five years, Schwab sees significant opportunities to optimize and modernize its technology post-integration.
Areas of focus include ongoing automation and efficiency improvements, modernization of books and records for the broker dealer and workplace solutions and rationalization of data centers and applications.
Making a promise to advisors
As he took the stage, Schwab Advisor Services Head Bernie Clark started by reminding everyone sharing the room with him and watching the webinar from afar of the pledge Schwab first made to the independent advisor community roughly a month before the COVID-19pandemic changed everything in March 2020.
That pledge, he said, is to deliver industry leading custody services with no AUM minimums or custody fees; support advisors with top tier tech and open architecture; deliver in-depth practice management consulting and insights for every firm on the platform; and offer an account opening process that is digital and streamlined.
Why restate the rah-rah three years later? He said as Schwab prepares to welcome new professionals to the family, it is important to tell them "who we are."
"And it's so critically important because these are businesses. These are people who entrust their franchise to us as the custodian. And they don't know us," he said. "Some seven or eight thousand of them, they're coming over. And maybe they've read some of the articles or been told some of the stories about who we are. And that was the whole purpose of the pledge. What are we going to do now that we've taken this large share of the marketplace? And how are we going to help them continue to grow their franchises?"
Clark next highlighted the cooperation needed across the space to be successful in the modern environment. There are growing expectations from affluent investors, and as RIAs evolve to meet investor needs, providers must step up to support the growing needs for both RIAs and their clients.
He believes that cooperation is happening at Schwab. Along with attracting 353 transitioning advisor teams, Schwab Advisor Services saw $224 billion in net new assets in 2022. Both of those totals were down from 364 and $315 billion in 2021.
However, the average size of transitioning teams grew from $90 million in 2021 to $102 million in 2022, marking two consecutive years of growth.
