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 of the board and CEO of Charles Schwab, by the end of the second quarter of 2024, former TD Ameritrade clients had moved from negative to positive asset flows. That included financial advisors who formerly used TD Ameritrade’s custodial services and have begun bringing net new assets to Schwab.
Schwab completed the acquisition of TD Ameritrade in 2020, but the full integration of remaining TD Ameritrade clients took place this May.
In addition, according to President Rick Wurster, by the end of the year, Schwab expects to realize the remaining 10% in run-rate expense synergies from the TD Ameritrade transaction.
“The Ameritrade integration is a clear example of how we vastly increased our scale while cutting costs,” he said.
Schwab completed the transition of the last remaining TD Ameritrade client group during the second quarter, totaling approximately $1.9 trillion in assets and over 17 million client accounts. According to Bettinger, the attrition levels 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 asset attrition and 4% in revenue attrition.
“While it’s still somewhat early, the client response to the combined platform has been even stronger than we anticipated,” he added.
Bettinger cited that promoter scores among former TD Ameritrade retail clients rose 50 points in the nine months after the conversion was completed. Promoter scores for advisor services, including the former TD Ameritrade advisor clients, 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. Managed investing net flows from this group of clients now make up about 30% of the combined platform, Schwab estimates. Overall, Schwab’s managed investing net flows during the second quarter rose 48% compared to the same period in 2023.
Year-to-date, Schwab’s net new assets reached over $150 billion. New managed investing net flows for the period totaled approximately $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 attrition continues to abate and we rebuild back to firm-wide net new asset levels in our targeted 5% to 7% range.”
Bettinger clarified that Schwab’s asset inflows from existing clients were growing at the targeted rate, but the firm is working on moving net new asset growth from former TD Ameritrade clients from merely positive into the same growth rate as the rest of Schwab’s client base.
Net new asset flows from RIAs totaled approximately $88 billion year-to-date and represented RIAs of varying sizes. For example, 42% of net new assets came from RIAs with AUMs 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.
“For years, we’ve emphasized that Schwab Advisor Services is the premier offering for RIAs of all sizes, and we are equally committed to each segment of advisors,” Bettinger said.
Bettinger also announced that over the coming years, Schwab will be offering lending services to both its retail investor and RIA clients, as that is something advisors have been asking about for some time. Most of Schwab’s competitors have the capability 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 clients and will include residential mortgages, HELOC and pledged asset lines. The firm plans to partly use deposits to help fund client 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 several factors that can influence asset gathering in the near term—things like the macro-economic, seasonality and some behavioral differences we see in the former Ameritrade client base—we believe our through-the-cycle growth recipe remains intact.”
In the long term, Schwab expects to experience annualized net new asset growth of 5% to 7%. That would include 3% to 5% growth from existing clients and 2% to 3% growth from new clients.
The update was part of Schwab's earnings release on Tuesday. The bank’s shares plummeted 8.9% at 11:56 a.m. in New York, the biggest intraday drop since March 2023 and one that made it the worst performer in the S&P 500 Index, according to Bloomberg, on the news that the bank would need to shrink to protect profits.