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Schwab set to offer ‘a lot more’ banking capabilities

SAN DIEGO – After shaking up the financial services industry last month by eliminating commissions for all online trades, Charles Schwab & Co. is setting its sights on building out its lending services.

Schwab will be providing advisors with “a lot more” banking capabilities, CEO Walt Bettinger said in his keynote talk at the company’s annual Impact conference.

While Schwab already has a bank, the company will be getting into “different types of lending” that RIAs can offer, possibly including mortgage lending, unsecured loans for clients and loans to advisors’ firms, Bettinger said.

He did not provide a timeline for the rollout of the new services, but said advisors would be “hearing lots more” in the coming months.

Walt Bettinger Schwab pic from Impact 2019.jpg
Schwab CEO Walt Bettinger addresses advisors at the firm's annual Impact conference.

Lending will become “increasingly more important” to the company, added Bernie Clark, head of Schwab Advisor Services. As a result, advisors will soon be able to give clients a more “fully integrated experience … and true banking functions,” Clark said.

Schwab will have plenty of competition, however.

A host of fintech and tech providers are targeting banking and see it as ripe for disruption, according to a recent Forrester study.

Digital lenders more than doubled their market share in the past four years, with consumers across the credit spectrum increasingly turning to fintechs like LendingClub and Social Finance, according to a study by Experian.

Some wealth management firms have already made the transition. Envestnet is set to debut a credit exchange by the end of the year, opening up access to prequalified loans for clients and another avenue for advisors to provide additional services.

As for Schwab’s decision to eliminate commissions, the move means that “price is no longer a major differentiator” in the advisory industry, according to Bettinger.

Other types of trading, rebalancing and tax loss harvesting will also be heading toward commoditization, Bettinger predicted, though he added that “customization, planning and life planning [for clients] will not be commoditized” and will be increasingly critical for advisors.

“We’re going to continue to see the RIA model expand,” Bettinger said. “It’s a better mousetrap. It’s a better model, and removes a vast array of conflicts that exist in so many of the other models. “

Bettinger also reassured the approximately 5,000 advisors at the conference that Schwab’s decision to go to zero commission pricing — which he said was the result of “20 years of planning” — was taken only when the firm was confident there would be no trade-offs or diminishment in quality of service.

Eliminating commissions was the culmination of founder and chairman Charles Schwab’s vision of bringing stock trading to the masses, Clark said.

At the end of the keynote session, Schwab, who just published a new book titled “Invested” described his battles with Wall Street when he launched the firm more than 40 years ago.

Still combative, Schwab said that while the wirehouse firms still had billions in assets, his firm should be able “to get most of that.” He also expressed an interest in selling fractional shares and offering “income management” accounts for older clients.

As for his old nemesis commissions, Schwab said that two decades from now “people won’t know what they were.”

Additional reporting - Sean Allocca

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