Schwab’s subscription pricing draws younger clients, more lucrative accounts
Schwab’s robo advisor — which has added $1 billion in new client assets in the last three months — is attracting younger clients with bigger accounts, Bernie Clark, head of Schwab’s RIA channel, told attendees at the SourceMedia In|Vest conference.
About 37% of clients on the digital advice platform are new to Schwab, Clark said, refuting a comment made by Barry Ritholtz earlier that morning that suggested the company was simply moving money from “left pocket to right pocket.”
“Please make no mistake about it — $1 billion is real money,” Clark said.
A “high percentage” of Schwab’s new robo clients are millennials, according to Clark. The average account size is also larger now — about $300,000 to $400,000. He did not specify what the average account size was prior to the March launch of Schwab’s new pricing model.
“We think the digital offering, the self-help digital offering, with these added plans as well as portfolios, is a way in the future for many mass affluent [clients] — and others who want to actually self direct themselves,” Clark said.
This digital offering may not always be a subscription-based model, Clark said, although he noted that Schwab is satisfied with the early results of the program.
Across the industry, “[subscription pricing] is the way of the now. Will it be the way of the future? We’ll see," said Clark. He notes that J.P. Morgan Chase CEO Jamie Dimon has described the bank as "a collection of subscription services."
"You wouldn't have heard that even just a short couple of years ago,” Clark said.
Even with about $3.5 trillion in client assets, Schwab has less than 10% of the overall U.S. wealth market, Clark said.
“We're all just scratching the surface, and new ways of doing business are going to be so critically important in the future,” he said.
RIAs are becoming more receptive to the benefits of digital advice, however. “Advisors are coming to the game, but really they’ve been looking at it as a next gen tool,” Clark said. Ideally, the appeal of digital offerings will expand beyond young investors: “Great technologies attract clients of all ages,” he said.
Clark warned that there will continue to be pressure on various pricing models.
“One of the challenges in the industry is so much of the industry bases [its] pricing on assets, and so much of the value comes outside of the assets,” Clark said, adding later: “I think that's a reconciliation that we'll see coming in the future.”
As for the potential $2 billion purchase of USAA’s wealth and brokerage units?
“We certainly won’t comment on rumors in the marketplace, but thanks for asking,” Clark said.