The Charles Schwab Corporation

Sebastien Callebaut -

Located in the United States, The Charles Schwab Corporation is a global provider of financial services. Both retail and institutional clients can take advantage of its banking, commercial banking, investment, consultancy and wealth management advisory services. It has more than 360 branches, the most of which are located in financial hubs in the United States and the United Kingdom.

  • As of December 31, 2021, the company had $ 8.1 trillion in client assets, 33.2 million active brokerage accounts, 2.2 million corporate retirement plan participants and 1.6m banking accounts
  • Today, the company is headquartered in Westlake, Texas, and it was established in San Francisco, California

DIVERSIFIED BANKING OFFERING

Schwab offers a broad range of products and services through intuitive end-to-end solutions including digital capabilities, these are:

  • Brokerage: an array of full-feature brokerage accounts with equity and fixed income trading, margin lending, options trading, future and forex trading, cash management capabilities including third-party certificates of deposit
  • Mutual Funds: third-party mutual funds through the Mutual Fund Marketplace, including non-transaction fees mutual funds through Schwab's Mutual Fund OneSource service which also includes proprietary mutual funds plus mutual fund trading and clearing services to broker-dealers
  • Exchange-Traded Funds: an extensive offering of ETFs including both proprietary and third-party ETFs
  • Advice Solutions: managed portfolios of both proprietary and third-party mutual funds and ETFs, separately managed accounts, customised personal advice for tailored portfolios, specialised planning, and full-time portfolio management
  • Banking: checking and savings accounts, first lien residential real estate mortgage loans, home equity lines of credit and pledge asset lines

These investing products and services are made available through two business segments – Investor Services and Advisor Services.

INVESTOR SERVICES FOR ALL

Charles Schwab initially founded the Company over 40 years ago to provide individual investors with access to the financial markets at a highly competitive cost. Since then, the company has expanded offerings over time in response to client needs, and the Investor Services segment now offers individual investors access to a broad set of products, tools, education, trading, and advisory solutions.

  • It provides advice and guidance through various relationship models and offers customer support to all of its clients, regardless of asset levels, via a multi-channel service delivery model, which includes online, mobile, telephone, and branch support
  • Central at Schwab is the belief in the importance of helping clients plan and achieve their financial goals. At the core of its offer is its broad set of relationship models that help personalize the investing journey for its clients and offer them the choice of where, when, and how they do business with the company
  • Financial Consultants, Active Trader Financial Consultants, and Wealth Consultants in Schwab's branches and regional centers therefor focus on building client relationships

It also has a range of roles to support clients with a broad set of specialized needs, including financial planning, managed investing, estate management, equity compensation and lending. Additionally, the company has teams focused on supporting the advice and education needs of all its clients irrespective of asset levels at Schwab.

ADVICE STARTING AT $ 5,000

Charles Schwab advisory solutions span a broad range of discretionary and non-discretionary choices, with minimum investments starting as low as $5,000, making it accessible to a broad set of investors.

  • Its premier advisory solution, Schwab Private Client, features a personal advice relationship with a designated Private Client Advisor, supported by a team of investment professionals who provide individualized service, a customized investment strategy developed in collaboration with the client, and ongoing guidance and execution
  • It also offer referrals to an independent RIA in the Schwab Advisor Network. These RIAS provide personalized portfolio management, financial planning, and wealth management solutions
  • For clients seeking a relationship in which investment decisions are fully delegated to a financial professional, Schwab offers several alternatives. It provides investors access to professional investment management in a diversified account that is invested exclusively in either mutual funds or ETFs through the Schwab Managed Portfolios and the Windhaven Investment Management Strategies, or equity securities and ETFs through the ThomasPartners Investment Management Strategies

For U.S. clients wishing to invest in foreign equities, Schwab offers a suite of global investing capabilities, including online access to certain foreign equity markets with the ability to trade in their local currencies. In addition, Schwab serves both foreign investors and non-English-speaking U.S. clients who wish to trade or invest in U.S. dollar-based securities.

SELF-SERVICE, DIGITAL & ZERO COMMISSIONS

It also offers clients a range of self-service education and support tools, providing quick and efficient access to a broad lineup of information, research, tools, and administrative services, which clients can access according to their needs. Educational tools include workshops, webcasts, podcasts, interactive courses, and online information about investing, from which Schwab does not earn revenue.

  • Additionally, it provides various online research and analysis tools that are designed to help clients achieve better investment outcomes. As an example of analysis tools available to clients, Schwab Equity Ratings is a quantitative model-based stock rating system that provides all clients with ratings on approximately 3,000 stocks, assigning each equity a single grade: A, B, C, D, F
  • Schwab Equity Ratings International is an international ranking methodology, covers stocks of approximately 4,000 foreign companies
  • Schwab Stock Slices is a service which enables investors to purchase a single stock slice, or up to 10 different stock slices at once, from the S&P 500 commission-free through its online channels

INTERESTS AND FEES DRIVING REVENUE

While the company removed the fees it takes on certain trades, its largest sources of sales are net interest revenue, asset management and administration fees and trading revenue.

  • Net interest revenue is the difference between interest generated on interest-earning assets and interest paid on funding sources. Schwab's primary funding source for interest-earning assets is uninvested client cash balances held on its balance sheet. Schwab's interest-earning assets are primarily comprised of high-quality fixed income securities, margin loans, and bank loans
  • The majority of asset management and administration fees are earned from proprietary money market mutual funds, proprietary and third-party mutual funds and ETFs, and fee-based advisory solutions
  • Trading revenue includes commissions earned for executing trades for clients in certain individual equities, options, futures, fixed income securities, and certain third-party mutual funds and ETFs; order flow revenue; and principal transaction revenue earned primarily from actions to support client trading in fixed income securities
  • Beginning in the fourth quarter of 2019, Schwab eliminated online trading commissions for U.S. and Canadian-listed stocks and ETFs, as well as the base charge on options

CHAIRED BY CHARLES R. SCHWAB

Charles Schwab was founded in 1971 by Charles Schwab who is now the co-Chairmain of the company. The company is led by Walter W. Bettinger II who is a director since 2008.

Charles R. Schwab

  • Charles Schwab is the founder of the company and served as its sole chief executive for most of its history since its founding in the early 1970s
  • Schwab served as Chief Executive Officer of the company from 1986 to 1997 and from 2004 until 2008. He served as Co-Chief Executive Officer of the company from 1998 to 2003. Schwab is Chairman of Charles Schwab Bank, SSB. Schwab served as Chairman and trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust, all registered investment companies, through 2015
  • He is a graduate of Stanford University, earning a Bachelor of Arts in economics and a Master of Business Administration from Stanford Graduate School of Business

Walter W. Bettinger II

  • Bettinger has been co-chair of The Charles Schwab Corporation with Charles R. Schwab since July 2022, and has served as Chief Executive Officer of and a member of the Board of Directors since 2008
  • He served as President of the company from 2008 until 2021. He also serves as a member of the Board of Directors of Charles Schwab Bank, SSB, a subsidiary of the company, and as Chairman of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Laudus Trust and Schwab Strategic Trust, all registered investment companies managed by an affiliate of the company. Prior to assuming his current role, he served as President and Chief Operating Officer of the company. He also served as Executive Vice President and President – Schwab Investor Services from 2005 until 2007, Executive Vice President and Chief Operating Officer – Individual Investor Enterprise from 2004 until 2005, Executive Vice President and President – Corporate Services from 2002 until 2004 and Executive Vice President and President – Retirement Plan Services from 2000 until 2002. Bettinger joined the company in 1995 as part of the acquisition of The Hampton Company, which he founded in 1983
  • Bettinger attended Delta State University in Cleveland, Mississippi and holds a bachelor of business administration degree with a major in finance, summa cum laude, from Ohio University. He has also completed the General Management program offered by the Harvard Business School

Jason Clague

  • Jason Clague is Managing Director, Head of Operations, responsible for overseeing all operational transactions for clients currently doing business with Charles Schwab & Co
  • Prior to his current role, Clague was responsible for trading activities, overseeing two teams—trading and trading operations. His area of focus included equity, options and fixed income capital markets trading, trading operations, margin services, security and market data platforms, and risk management. He also managed Schwab's fixed income product and trading teams, and was responsible for all aspects of Schwab's fixed income product offerings including trading, product management, risk management, and trading operations. Before joining Schwab in December of 2009, Clague spent four years at Barclays Global Investors in San Francisco (acquired by BlackRock in 2009) as global head of business strategy for the firm's cash and money market fund business. Prior to Barclays, he spent 10 years at J.P. Morgan, where he held a variety of management positions in institutional asset management and private banking groups in the firm's New York, Paris, and London offices
  • Clague earned a Bachelor of Arts from St. Lawrence University in Canton, New York, and his Master of Business Administration from Babson College in Wellesley, Massachusetts. Clague is a Chartered Financial Analyst (CFA) charter holder

FINANCIAL CHECK

Net income for the third quarter of 2022 was a record $2.0 billion compared with $1.8 billion for the second quarter of 2022, and $1.5 billion for the third quarter of 2021. Net income for the nine months ended September 30, 2022 was $5.2 billion, compared with $4.3 billion for the year-earlier period.

  • Schwab’s diversified financial model and a significant benefit from higher rates helped it generate record total revenues of $5.5 billion, up 20% on a year-over-year basis
  • Bolstered by record third quarter retail inflows, core net new assets equaled $115 billion for the period – a 7% annualized growth rate
  • Total client assets were $6.6 trillion at quarter-end, down 13% from a year ago, mainly driven by the $1.4 trillion impact of lower market valuations on client portfolios over the past 12 months
  • The company saw a 4% year-over-year rise in active brokerage accounts and ended the quarter at approximately 34 million brokerage accounts
  • Net interest revenue increased by 44% to $2.9 billion, as rising rates helped its net interest margin to expand sequentially by 35 basis points to 1.97%. This movement more than offset the 6% contraction in interest-earning assets driven by clients’ cash sorting behavior and their continued market engagement
  • Asset management and administration fees decreased 5% to $1.0 billion as the challenging equity markets weighed on client asset balances
  • Trading revenue also declined slightly to $930 million primarily due to a mix shift within client trading activity

THE BOTTOM LINE

The Good

  • Charles Schwab is a diversified giant which manages to drive sales across different environments
  • When rates rise, it efficiently manages to take advantage of higher interest rates to boost its interest revenue while keeping costs down
  • In more dovish settings, the company benefits from rising equity valuations and trading activity

The Bad

  • A broader slowdown in the economy could negatively hamper both its interest-generating business and trading activities

Disclaimer

Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Credits

Photo by Christian Wiediger on Unsplash.