Charles Schwab executives said the transition of TD Ameritrade clients to Schwab's platform was going exactly as they expected during the firm's summer business update on Tuesday.
According to Walt Bettinger, co-chairman and CEO of Charles Schwab, by the end of the second quarter of 2024, TD Ameritrade's former clients had switched from negative to positive flows. This included financial advisors who previously used TD Ameritrade's custodial services and have begun bringing new net assets to Schwab.
Schwab completed its acquisition of TD Ameritrade in 2020, but the full integration of TD Ameritrade's remaining clients took place this May.
Additionally, by the end of the year, Schwab expects to realize the remaining 10% in cost savings synergies from the TD Ameritrade transaction, according to President Rick Wurster.
“The Ameritrade integration is a clear example of how we greatly increased our scale while reducing costs,” he said.
Schwab completed the transition of the last group of TD Ameritrade clients during the second quarter, totaling approximately $1.9 trillion in assets and over 17 million client accounts. According to Bettinger, the levels of churn from the TD Ameritrade transaction were “well below other integrations in the industry, as well as our estimates at the time of the acquisition,” which included 5% to 6% in divestitures and 4% in income. corrosion.
“While it's still early days, customer response to the combined platform has been even stronger than we expected,” he added.
Bettinger cited that promoter scores among TD Ameritrade's former retail clients rose 50 points in the nine months after the conversion was completed. Promoter scores for advisor services, including clients of former TD Ameritrade advisors, have returned to pre-conversion levels.
TD Ameritrade retail clients who converted to Schwab's platform in 2023 are now bringing in assets on a net basis, he noted. Net investment flows managed by this group of clients now account for about 30% of the combined platform, Schwab estimates. Overall, net investment flows managed by Schwab during the second quarter increased by 48% compared to the same period in 2023.
Year to date, Schwab's net new assets totaled over $150 billion. New managed net investment flows for the period totaled about $25 billion, representing a 56% increase over 2023, according to Wurster.
“However, the level of net new assets still remains below our target range,” Bettinger said. “Clearly this reflects that we are reaching an inflection point as the downturn continues to ease and we rebuild back to new firm-wide net asset levels in our target range of 5% to 7%.”
Bettinger clarified that Schwab's asset inflows from existing clients were growing at the target rate, but the firm is working to shift net new asset growth from former TD Ameritrade clients from simply positive to the same growth rate as the rest. of Schwab's customer base.
Net new asset flows from RIAs totaled approximately $88 billion year-to-date and represented VNRs of various sizes. For example, 42% of net new assets came from RIAs with AUM between $500 million and $4 billion, 36% from RIAs with less than $500 million in AUM, and 22% from RIAs with $5 billion in AUM or more a lot.
“For years, we've emphasized that Schwab Advisor Services is a premier offering for RIAs of all sizes, and we're equally committed to each advisor segment,” said Bettinger.
Bettinger also announced that over the next few years, Schwab will offer lending services to its retail investors and RIA clients, something advisers have been asking for for some time. Most of Schwab's competitors have the ability to help customers with their borrowing needs, Bettinger noted. In today's landscape, not doing so puts firms at a strategic disadvantage, he said.
Schwab's lending service will be available exclusively to its customers and will include residential mortgages, HELOCs and secured asset lines. The firm plans to use the deposits in part to help finance customer loans.
According to Wurster, Schwab also plans to invest in technology, including AI, to lower its costs.
“We remain well positioned for continued growth,” Wurster said. “While there are some factors that may affect asset pickup in the short term — things like the macro economy, seasonality and some behavioral changes we see in Ameritrade's former client base — we believe our recipe for growth throughout the cycle remains intact. “
Over the long term, Schwab expects to experience annual net new asset growth of 5% to 7%. This would include 3% to 5% growth from existing customers and 2% to 3% growth from new customers.
The update was part of Schwab's earnings release on Tuesday. The bank's shares were down 8.9% at 11:56 a.m. in New York, the biggest intraday drop since March 2023 and making it the worst performer on the S&P 500, according to Bloomberg, on news that the bank will should shrink. to protect profits.