Day Two live from Schwab Impact in San Francisco

Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Business Wait inside from the reporters and editors who bring you America's most trusted business magazine, plus global business finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.

All right, well, Charles Schwab. The company recently out with earnings, the stock rolling on the news. Couple of analysts actually raising their price targets on the company following that report. Core net new assets brought to Schwab by new and existing clients came in at twenty four point six billion. Total client assets are now approaching tim ten trillion dollars.

That's stock near a fifty two week high, up about sixteen percent. I gets say eighteen percent, yeah today as of today. With more on the company and the business. Joining us here at Schwab Impact is Rick Worcester. He's current president of Charles Schwab, also incoming CEO of Charles Schwab taking the ceospot comt January first. He's here with us on site in San Francisco. Good to be with you the big annual event.

How are you.

I'm loving it here at the event, forty five hundred people here. There's so much energy and it's all focused on helping the everyday American.

So let's talk a little bit about that and start there. What are you hearing. What's the big theme you're hearing this year as you walk around?

The big theme to me is always what can we collectively do to make a difference in the lives of every day investors. You mentioned the number ten trillion dollars. It's an overwhelming number, but behind every one of those dollars, it's a grandparent who's trying to help contribute to their grandkids' education. It's a family that's trying to take a nice vacation that they've been saving for. That's what matters to us.

I love that you say that, because as I walk around and talk to some of the advisors, you know, there're may be a billion dollar shop, a two billion, maybe even smaller, and they're always kind of apologizing. I'm like, no, you're the guys who are managing everybody's money. I kind of love that perspective absolutely.

And the thing about this community, we serve fifteen thousand advisors. They're in most communities across our countries, sitting down the table to the table with people helping them understand how to live their best financial life, and the power of that is so impressive.

Rick, One thing that has come up. We did a great broadcast from here yesterday, and no doubt about it, the elections continue to come up. How are you thinking about the elections the impact that a new administration, new people running different regulatory bottle bodies. Certainly that plan to the financial industry, how it might impact Schwap.

Well, there's a lot of potential change at play. We've heard a lot of proposals. It will be really interesting and important to watch how those play out. And we stand ready to do whatever we can to help the everyday investor. That's our focus.

And all things change much because of a new White House and a new team. Do you anticipate from what we've heard on the campaign trail and some of the people that are being considered for positions.

I certainly think that there will be change. Absolutely. I think with any administration there's change. And we've been through all sorts of presidential cycles and election cycles, and at the end of the day, what it means for us is we adapt and we do whatever we can to help the end the end client.

Why are you thinking about this from a regulatory perspective? We did here today that SEC cherry Gary Gensler is going to step down by January twentieth. Certainly the crypto community cheering that. How do you look at a change in leadership at the SEC?

Well, for us, our company is built on trust and has been for fifty years. Our entire industry is built on trust. If people can't trust their financial institution, the whole premise of what we do goes away. And so I think regulators play a really important role in that, and we've always had a great relationship with regulators. I think from our perspective, we want regulation that is thoughtful and makes sense for the end investor. And when that's

Rick, What does it mean for crypto? And I'm curious if you guys see yourself getting into the crypto business. Here we are approaching one hundred thousand dollars. We have a president who initially maybe our president elect, who maybe wasn't so into crypto, is now very interesting.

Hey got his own crypto company.

What about for Schwab? What's the play here? Do you see yourself getting into it?

Well, we're in the crypto business today. We have lots of different ways for clients to participate. They can buy et s today, they can buy bitcoin futures, they can buy closed end funds. I think we will get into this, into spot crypto when the regulatory environment changes, and we do anticipate that it will change, and we're getting ready for that eventuality.

Is there some I don't know? Has crypto? Is it growing up in your view?

I don't know. You know, it's an interesting asset class and people have really gravitated towards it. And you know, we never like to judge what people want to invest in. People on our platform, we think are very thoughtful investors, very sharp. They make decisions about what they want to invest in. And crypto has certainly caught many's attention and and they've made a lot of money doing it. I have not bought crypto, and now I feel silly. So they've been the ones making all this money.

On crypto thinking about buying it now.

Me personally know, but we certainly support our clients that want to do that.

You know, you answered my next question, which is going to be do you own any crypto? But talk a little bit about that, because it's always interesting hearing from somebody in in your space about their views on something. What's holding you back?

Well, I think what's holding me back is just a question around the true value of crypto. I you know, I like to invest in stocks, and with stocks, you there's there's cash flows you can rely upon, There's there's dividends that accrue to you. With with crypto, it's it's less certain what that will be, and it's it's less certain how to value it. So to me, on a personal level, that's what makes crypto not something that I invest in. At the same time, we encourage our investors

So far they've been right.

We'll see.

It's one we're going to continue to follow. It moves around a lot. It is a competitive space. Just this week I just want to look at my know it's Robin Hood andeing they're moving to the RIA space. I'm curious about how you were thinking about Schwab for the next fifty years as you get ready to take over as CEO and not a new thing traditional investors, they're getting older, younger investors how they want to play and

Well, for fifty years, our central theme has been to see through client size and do right by them, and we attract a lot of young investors to Schwab. In fact, sixty percent of our new to firm clients every year

Newer investors got to ask you about the training side and talking with advisors here. I was up on the stage doing a panel on artificial intelligence, and so many people came up to me afterwards and they're like, we got to talk to Schwab because I think we need a Schwab chatbot. AI though, is impacting everything? How are you also, I don't know, acknowledging thinking about how that needs to be incorporated into what you offer up the advisory space.

Yes, so that comment about wanting an AI chatbot, what they don't recognize is that actually, behind the scenes, we

But is there another level that you continue to think about? Okay, where does this go in helping advisors in terms of portfolio management are building out their businesses?

I think AI will have a really big impact on our industry. I think it will do a lot to help us better serve clients, to empower our professionals to give them the right information at the right time. I think it will also allow us collectively to help serve clients that we couldn't otherwise. We have fifteen million retail clients. We can only have a person to person relationship with

Hey, before we let you go, I want to talk a little bit about the balance sheet, because you basically said you're trying to shrink the bank's balance sheet and not hold as many loans on the balance sheet. Given what happened a couple of years ago, close to two years ago with the regional banking crisis in the way you guys were brought into that, just give us an update there on what you're going to do when you become CEO.

Well, I want to clarify we never said we wanted to shrink our balance sheet. What we did allude to and I think what you're referring to is on an earnings call, we said, as our balance sheet grows, we would consider using a third party bank to take on some of those deposits. That's something that could make sense for us because of the way the economics work, we have to hold capital against deposits. We can send some of those deposits to another bank and earn a better

Challenging here, certainly for Schwab with the regional bank crisis and so on and so forth. We talked about a lot on Bloomberg just got about thirty seconds. Are we pasted it? Do you feel confident or what's more to be done? In terms of the impact that we've seen in the past year.

I've never been more optimistic about our business than we are today. We're number one or number two and the two fastest growing segments of the financial services landscape, and our client satisfaction scores have never been higher. Than they are today. So we're hitting on all cylinders as we roll into twenty twenty five, and I couldn't be more excit about it.

Fifteen seconds. What's the most interesting thing in the investment space do you think right now?

I think the engagement among clients. It's just wonderful to see how engaged they are in markets in their financial life. When people own their tomorrow, they tend to have great financial outcomes.

Rick, thank you so much. I know there's a lot going on. I know this is a big event, but I'm carving out some space for us. We really appreciate it.

Well. Thanks for making a commitment to be here. We love having you here.

It's a great perspective that we get to come and take back to New York and kind of share with some of our other guests. Rick Weister, current president of Charles Schwab taking over CEO on January first. This is Bloomberg from Impact.

You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five pm Eastern Listen on Apple card Play and then brought auto with a Bloomberg Business act or wants us live on YouTube?

All right?

As we just heared in our conversation with Rick Weister, Schwab alone has about almost potentially in dollars in assets. Those assets essentially split evenly between retail investors and advisors. Now, as for the many registered independent advisors that Schwab works with and provides more than fifteen thousand independent advisory firms with over four trillion in assets under management, and what Swab does you know? This by now provides us a

More overseeing all that side of the business. John Body is head of Advisor Services and a member of Charles Schwab's executive committee. He joined us here at Impact twenty twenty four in San Francisco. How are you.

I'm doing great pleasure to join you today. We are having a great time here at the conference. Lots of optimism, great vibes.

Okay, well, let's talk a little bit about that, and I want to jump right into it. We got a good bit of time with you. But you have a big job overseeing all this side of the business. So I think retail investors don't really understand. But a big part of that is what happened with TDM or Trade and that purchase. Wow, at this point almost five years ago, it's amazing. Are you fully integrated? Has everything been fully brought over to Schwab.

We have been through the whole process and certainly we did the conversion labor Day of last year, and since then we have been working through the opportunities for improvement, the feedback from our clients through that conversion, finding opportunities to enhance the platform for them, and so that is.

In the rear view mirror now.

So what is the bit what was or has been the biggest bit of feedback you've got from these clients. What changes have you made as a result of what you've heard from them?

You know, we went into the acquisition with the aspiration to bring the best of both platforms together and we did that. But for advisors moving from one platform to another platform, it's changed, right, So they had to learn a new system. And while they were learning that, they gave us feedback on how the technology works for them, where we could find ease of doing business, more scale and efficiency so that they could spend more time with

One thing I want to ask you is, okay, so technology things that advisors need? Did a panel here earlier about AI, and I can't tell you how many advisors came up to me and are like, oh my god, I wasn't using chat, GPT I downloaded and I've just been twenty minutes playing around with it. How is AI generative, AI LM large language models? How are you thinking about what you need to be offering up to your advisors.

Yes, we are leaning into it cautiously optimistic, going at it with a good pace. Our first place of opportunity,

One thing, though, I got to say, is people are worried advisors are worried that they're going to be replaced by generative AI. So I know there's hype, I know there's reality, but the conversations I'm having is that, yes, some jobs are going to go away, there will be new ones created as a result. So how are you also thinking about maybe that fear among many of your clients.

Well, we think, you know, as we have with lots of technology, there's a cycle to it, and certainly things that are basic or that can be automated will be great opportunities for artificial intelligence. But that will just allow people to spend opportunities and value added services in places that AI won't be able to go. And we think that investing is a relationship. Business people want to talk to a human, maybe a long time before AI could replace them.

Sometimes I don't want to talk to a human. I'm just going to put it out there, but I get it, Yeah, get it. Yeah, I mean magic, Your money is personal.

Yeah, investing is technical, but it's also emotional, right, Yeah, And so I'm not sure when AI will be able to handle somebody's emotions as it relates to the reaction to markets ups and downs, to be able to counsel somebody in that way. So we think that that's where the human intelligence plays a big role in the future.

To what extent do you help with portfolio construction behind the scenes with the rias or is that left completely to them.

Yeah, our job is a custodian to advisors to give them a platform where they can express their views on investing, whether that's through different kinds of products, ETFs, mutual funds. Certainly, alternative investments is a growing part of the portfolio today, even cryptos being discussed some between US and advisors while we're here. It's the newer part of the marketplace. And then it's the automation of investing, trading systems, rebalancing systems.

That's where we can.

Add value so that they can do their job of picking the investments and building the right portfolios based on the personal needs of one investor versus another investor.

How much when you look at the growth that we've seen in the wealth management business and client assets coming in, how do you think about it going forward? You know, we talked about the aging population, transfer of well younger generation. What's your perspective on that?

A ton of opportunity for advisors. So we see the RAA channels about a nine trillion dollar business right now. We think that by twenty thirty four it could be a twenty trillion dollar business based on math and the momentum around growth. Right now, there's thirty seven trillion dollars of investable assets sitting in the traditional advice models, and that's the market opportunity for the independent advisor who brings a fiduciary a type of advice model to the marketplace.

Of your business is about getting new rias on the platform, getting them to leave other custodial platforms coming to you, versus growth of their own platforms.

I'm glad you asked that it's about eighty twenty equation. Certainly, individual investors are waking up to the fiduciary model and choosing to work with independent advisors, but we see advisors in those traditional channels waking up to the business opportunity as well and exiting those channels to join the RIA space, registering with the SEC or their local state, starting their

What are you seeing in the advisory space. I mean, just as you said, you know, new folks coming in. But is it smaller firms that continue to dominate, or is it smaller firms combining to be bigger firms. I'm just curious about the competitive landscape.

We serve fifteen thousand advisors nationwide. As you said, small firms one hundred million dollars of lasts of assets under management and firms with one hundred billion dollars of assets under management.

That's the bulk, the bulk of it.

It's always the eighty twenty rule, right, so have eighty percent of the assets. And as you know, M and A activity is grown in this space, and that's private equity and capital coming in to support a fast growing market, and we think that's a positive. But we also know there's a lot of fiercely independent entrepreneurs who are self capitalizing their businesses and growing as well.

So consolidation in the space net good for you we think it's it's positive. Yes, what happens if these companies consolidate and then they go to a different platform though, or they're you know, they get bought by a larger company that uses a different platform.

We're in We're in all parts of the market, so we can benefit whether they choose to be a small firm, a mid sized firm, or a large firm. So we can support any type of advisory firm in the marketplace. So when firms choose to come together to bring scale and efficiency to their business, we're there with them to support that. Sometimes advisors want to break away and start their own firm. We can help them launch those firms.

But does their scale give them more more leverage over fees that they pay? You are they able to.

Most of the fees have been ringed out of this business, so there's not much to negotiate anymore. So, you know, we're focused on aggregation the origin of stop right. Yeah, it's about going to get the markets here. In terms of assets, the monetization aspect of it is pretty worked out in the marketplace, so not a lot of discussion in that aspect of it.

You know, we talked with recquerster about the election outcome, politics, who will be in charge, what kind of policies. I don't know. How does that impact you on a day day basis or longer term in terms of thinking about what you need to be doing.

Yeah, we're focused on investing. That's our core competency and.

Everybody says that. But election, you know, politics, it does matter in terms of policies, right, and who are the regulators and the types of things that come down. I mean, the market's initially seem like it's pro business, pro markets, but we shall see in reality.

Yeah, and there's lots of different takes on that depending on which advisor you talk to. And that's the beauty of the open architecture is that there can be different perspectives and investors can find the perspective that they enjoy and invest with those folks, and advisors can move from one firm to another firm. But it is quite optimistic here, so I think everybody's looking to go forward from from from this point forward.

I have to say Tim and I think loved coming to investment folks or events like this that you guys do, because you get people from all around the country. People managing you know, big offices, smaller offices, medium sized offices. You know, what is it that you are seeing in your business? What's going on? What you're hearing here on the ground that tells you about I don't know, market sentiments, market behavior. Are there more risks out there? Are there

I think one of the areas of opportunity that I'm hearing advisors talk about is is the opportunity to enhance performance through tax harvesting and creating alpha by managing portfolios in a tax advantage kind of way. I think that's a place of differentiation for advisors and for the asset management community to earn opportunity with these advisors. Certainly that serves investors very well, right, So, I think that could be the next frontier in the financial services industry.

Give us a prediction of what we'll be talking about if we're sitting across from each other a year from now at Schwab Impact twenty twenty five to be held in.

Bor Or Tvedi. I'm just saying just an idea.

If you keep it in the US, I hate to crush your dreams.

But we're going to be in Denver next year.

Oh yeah, yeahs fu, Yeah, and I think we're going to be talking about the momentum of the marketplace and how advisors are finding differentiation and earning more opportunity and serving more investors, helping investors reach their financial dreams. And that's what it's all about for us. And as we have that shared vision with these advisors here, do.

You get all the talent you need the workers? Is that twenty seconds? Are you finding all the skills that you need in people?

As you know, we are actively involved with university so we sponsor thirty five different universities nationwide and their financial planning programs.

Yeah.

We think advisors going to hire seventy to eighty thousand new employees in the next five years. So the talent is the fuel to growth and we're focused on it.

All right, Great stuff, John, Thank you so much, glad to be here. Good that you could stop by, Baby, head of Advisor Services, a member of Charles Schwab's executive committee.

You're listening to the Bloomberg Business Week podcast. Listen live each weekday starting at two pm Eastern on Apple car Play and Android Auto with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa, play Bloomberg eleven thirtymacle.

A Journal.

Now about you.

Let me drive?

Oh no, no, no, no, who's going to drive?

Honey?

Please, I'll do the travels.

Excuse me, I want to drive. It's a good question.

This is the drive to the clothes dot music, Well, bunch other down on Bloomberg Radio.

Tick tack?

Oh is it already?

Yeah, I'm this Drewer show that we're doing.

I know, we feel really good and we're like a little off in terms of the market clothes.

I'm always off.

No, you're not. You're always on.

It's like it's like lunchtime here in California, which is a great place to be by the way, when you're following the equity markets.

In New York.

I know, right, everything kind of ends at you know, two o'clock.

Go ahead, have lunch.

Yeah, it's kind of nice and markets. As we just heard from Charlie, we're just kind of rolling over our best levels of the session. When it comes to the S and P five hundred, it's the daw that's the Oprah former. I know you can debate whether or not you like the doo, but nonetheless it's up about one percent. Let's get to our drive to the closed guest. Jelina

How are you? I'm great, Thanks for having me here.

So tell us about some of the conversations you have with John about you know, what you're hearing from advisors, what they want, what they need, what's the churn you know back at Schwab offices about Okay, what do we need to be focusing on.

I think it's a bit of a collision of sort of two things, two forces that are going to come to They're not in a scary collision, but a really good sort of combination of things. And that's technology and scale paired with personalization. And I think it's it's really interesting because there are a ton of tech solutions out there.

Third party providers.

There are so many solutions, yet I think advisors are asking us to think about how they harness those solutions together for their clients.

What does personalization mean? I can't. I feel like we've been talking about personalization in finance for a long time, So what exactly does that mean for you on this Thursday here in San Francisco.

Yeah, bit of a buzzword, right, So for us, I think it means finding the solutions for unique client needs and that's what it really means. So it comes down to not you know, I know who you are when you show up in this piece of technology or that

Where do you come in though? When it comes to personalization, because these arias who you support, they're the ones who are the ones doing the personalization for their clients.

Where do you come in.

I mean, we continue to be very pro open architecture. If they want a solution that we haven't yet explored, we're willing to look at it.

I think, though, what we have to do now is make sure we're.

Making that as simple as possible, because if we just keep layering tech on tech on tech, those things don't work together the right way, and they have to work together for people first and foremost.

So you got to skinny it down a little.

Do you care if they use like a SCHWABYTF versus a Vanguardi TIF.

Completely agnostic to the offer solution. We're proud of our solutions. We do have some great optionality in the wealth management space so to third party providers, and it's all about really finding what advisors need.

You began your career on the Schwab trading desk Schwab Desert. But I do also think about you know, it's so funny when people are even in broadcast. I'm like, you know, go and do as many different jobs and then you really kind of understand the industry, tell us about that experience and how that has helped you to where you are today, and understand, you know, kind of understand what's needed.

Yeah, for me, that is how I got where I am.

I've been at Schwab for thirty years and I've done just about every job, all of it in the advisor space. So I got to grow up watching this industry grow up, right, and seeing both client service delivery, what do advisors need when they are calling us and relying on us for a.

Solution, as well as what those solutions need to be.

And that's kind of where I sit now, is trying to bring these offer solutions to the table, whether it's tech, whether it's a product solution, got to harmonize it.

So it's been a cool journey.

What would the Jelina thirty years ago be like? Kind of shocked about what's going on in advisory services today?

Oh wow?

I think the proliferation of technology really and not to harp on technology too much, but I think ria space has been growing so quickly that you have seen such opportunistic advancements, and so I think looking back thirty years ago, thinking, okay, you know, back then, you've got to trade on a faxed piece of paper, right, That's where we've come from. Now you could get it via a fixed connection, you could.

Do it direct on the website.

You can submit something through your own portfolio management system.

So I think that complexity that I.

Talked about a few minutes ago, it's here, it's real, and we've got to help sort of simplify and smooth out that ecosystem for advisors so they can spend time on their clients, which is the most important thing.

What's interesting is Schwab has its own advisors also, so I could walk into a Charles Schwab brick and mortar location in many different cities and towns across the country, or I could use a registered investment advisor who on the back end is a Charlie Schwab product. As for custodial purpose, which one do you prefer?

I gotta say I don't have a preference. It's really it comes back to the client's needs and what they desire. Some clients want to work with somebody in a physical location that they can walk into, touch, So you feel RaaS can do that. We can also do that in other parts of our business.

Ecosystem. But really, let me put it this way.

We have in our in our space four and a half trillion dollars worth of assets under custody for half of the company's size.

Our company believes in.

The power of rias as well as what we do on the retail side, and there's there's plenty of opportunity, thirty seven trillion dollars worth of opportunity out there for us all to serve those people and meet their needs.

And it's really about the clients, all right. So I got to say, coming off that AI panel that I did this morning, somebody came up to me, one of the advisors, Schwab needs its own CHATCYPT using information that Schwab already has, tying it into performance and to the analysis in future analysis.

Is spot on, and we're working on this right now. So we're going to start internally. We're doing a chat GPT like solution for our service professionals so that when advisors are talking to us right they get the right answer the first time. But what we're going to do is extend that into our Internet solutions so that advisors can access that directly too.

So we're we're on track.

For that what does it look like?

It really just looks like a knowledge assistant.

You ask you questions, much like in the session this morning, where they're typing in the questions and it's going to feed you.

Back the best way.

How are you training it?

A lot of trial and error. Actually, we have been practicing on it for six or eight months. The early hit rates certainly some failure rates. We've seen that go up by about forty percent. So started with about forty percent accuracy or about eighty five percent accuracy now, so it's continuously learning because people just keep feeding questions.

But who's feeding questions to it?

And is it our employees?

So but when I call, if I call, if I'm a customer of Charles Schwab and I call Charles Schwab, would you be able to use use my question to somebody on the phone then to help train that AI.

Yes, And that's exactly what's happening.

They're using it on the phone and typing it in in response to a client inquiry.

So it's really cool.

Does it get to the point where it listens to me and then automatically gives the answer to whoever I'm talking to?

Yes, our voice technology actually can pick up not just on what they're saying, but the emotion of what they're saying too, and cla flag, Hey we need to talk to a different way because you're getting frustrated or upset.

Do you feel like in terms of AI, we're just scratching the surface of how it's going to affect investment advisors and your interaction with them.

One percent scratching the surface. We're starting in these safe places like the example we just used. I feel like it's a ways off before we can really rely on that for portfolio solutions. Yeah, that's a ways off. And there's regulation we've got to consider.

Okay, Yeah, which is why we talked about regulation in Washington with recordster Jelina. Thank you, This is fine, Julina. If you all kurse, She's managing director of Client Experience at Schwab Advisor Services. You are listening and watching Bluemberg BusinessWeek here in San Francisco.

This is the Bloomberg Business Week podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live weekday afternoons from two to five pm Eastern on Bloomberg dot com, the iHeartRadio app. Tune in and the Bloomberg Business App. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal