Schwab ‘killing it’ as US millennials embrace robo advice


In an onstage interview at Fortune Magazine’s Brainstorm Finance conference, Charles Schwab CEO Walt Bettinger disputed that his legacy brokerage firm was at a disadvantage in serving what he described as the ‘hoodies-and-Allbirds’ crowd, as US millennials embrace robo advice.


‘We’re bringing in hundreds of thousands of millennials every year,’ said Bettinger , ‘what’s more, If you map out [the investing needs] of Gen Y and Gen X, they don’t look very different in the products and services they seek. ‘The behavior of millennials is quite consistent with other generations.’

Originally a discount brokerage, Schwab has evolved—offering ‘high touch’ wealth management and advice services alongside very cheap mutual fund and ETF trading.

‘About 53% of our new-to-firm accounts are millennials,’ he said. ‘What’s really important is that it’s not just any millennial…our average retail household has in the vicinity of $350,000 [in assets]. So the average millennial we’re winning has that level of affluence today already.’

Schwab’s has logged significant gains in recent years under Bettinger’s leadership after a tough patch during the financial crisis; revenue growth has averaged 13% over the past three years, falling just short of $11 billion in 2018; and profit growth was 20% annually over the same period.

Let’s not kid ourselves: Everybody’s paying, nothing is free…it’s just a matter of how you pay

The company has $3.7 trillion under management, in 15m brokerage, bank and retirement accounts; Schwab has recently rolled out a range of leading-edge fintech products and services that millennials have gravitated toward

The firm is a pioneer in using artificial intelligence (AI) to steer customer service and, in some cases, investment advice; its Intelligent Portfolios robo-adviser service has been growing steadily, though it accounts for only around 1% of Schwab customer assets.

Schwab faces competition in both the robo-adviser space and in its stock- and fund-trading businesses from start-ups offering very-low- or zero-commission trading, including Betterment, Robinhood and Wealthfront.

Bettinger had some praise for those operations: ‘The consumer probably wins at the end,’ he said. ‘Models like a Wealthfront or a Betterment in some cases do better for consumers than many consumers could get from an investment advisory model in years past.’

At the same time he was sceptical that those companies would be able to pressure Schwab to lower its own prices over the long run: ‘Let’s not kid ourselves: Everybody’s paying, nothing is free…it’s just a matter of how you pay,’ he said. ‘If you are an accountholder at a firm that is charging a zero commission, you’re just paying in other ways—whether it’s in yields on cash, whether it’s in quality of execution.’

Venture capital funding is enabling those startups to keep fees low or nonexistent, he noted, but that wouldn’t be sustainable in the long run: ‘We’re planning for a multi-decade time frame.’


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