CHICAGO - Get ready for more artificial intelligence, health savings accounts and industry consolidation. And be prepared for disruption when it comes to cybersecurity, cryptocurrency and commissions.

That was Charles Schwab CEO Walt Bettinger's keynote message to nearly 2,000 advisors assembled at McCormick Place for the firm's annual Impact conference.

Answering questions from advisors with Schwab EVP and head of advisor services Bernie Clark, Bettinger said advisors should expect an increase in the spread of AI and digital technology, which will become ubiquitous as a tool. The key question for advisors, he said, will be striking "the right balance between technology and people."

HSAs are poised to become "the big wave of the future," Bettinger said, as health care costs continue to be a primary concern for most clients. As individuals assume "more accountability" for health care, he noted, HSAs will become more "compelling and ubiquitous" and an increasingly important part of a financial plan.

When asked about consolidation, Bettinger acknowledged that financial advisory industry "appears to have excess capacity." As a result, he continued, "ongoing consolidation" appears inevitable.

Nonetheless, Bettinger stressed that Schwab is more concerned with finding a "strategic fit" with another financial firm than simply looking to boost revenue. And Clark said it was highly unlikely the industry would end up having only "five huge firms."

CYBERSECURITY CHALLENGES
Cybersecurity was one of the biggest concerns facing advisors, Bettinger said. Unfortunately, "guaranteeing protection against cybersecurity is like timing the market," he conceded. "It's all but impossible."

Schwab EVP Bernie Clark (left) and CEO Walt Bettinger take questions from advisors at IMPACT conference.
Schwab EVP Bernie Clark (left) and CEO Walt Bettinger take questions from advisors at IMPACT conference.

Nonetheless, Schwab is spending "hundreds of millions of dollars" to improve its cybersecurity, Bettinger said, and advisors should expect big changes. "The days of log-ins and passwords are going away," he explained, and will be replaced by new security features like biometrics and scanning.

Despite the growing popularity of cryptocurrencies such as bitcoin, Bettinger said he had doubts about their long-term future.

Governments are highly dependent on their own currencies, he noted. It is unlikely governments around the world would allow cryptocurrencies to grow to a size that would challenge local currencies, he said.

Asked by advisors if the ever-shrinking cost of commissions would fall to zero, Bettinger said, in effect, no, but it will come close.

HOW FAR WILL COMMISSIONS DROP?
A commission rate of zero would mean a firm like Schwab would have to subsidize that loss of revenue from another part of the business. "We're not interested in driving commissions down to zero," he stated.

However, he noted that commissions were a "commodity service, which means that prices tend to decline."

Robo advice driving asset allocation, Bettinger warned, should be considered a tool, not a differentiator.

"The idea of differentiation based on asset allocation is not likely to be successful, he said. "Everyone will have digital technology. The question is how do you combine it with people?"

Asked if he thought a wirehouse would ever morph into an RIA, Bettinger said that while brokerage firms were increasingly trying to look like RIAs, a legal transformation would be difficult, considering the major "structural changes" involved.

Bettinger also said the company was moving toward completely paperless onboarding, but faced regulatory issues. And the firm's television advertising campaign touting independent advisors would continue "as long as it continues to be effective," he said.

BIG CHANGES MEAN 'BIGGER QUESTIONS'
In his opening remarks, Clark stressed the enormous changes in society, healthcare and technology that advisors will be facing, including AI, longer life expectancy and increasing utilization of robotics.

Clark encouraged advisors to “understand more about which changes will matter most to your clients” by asking “bigger questions” and expanding areas of expertise.

“Go beyond financial planning and portfolio management,” Clark said. “Expand your circle of influence to include new experts with additional types of specialization. Think about bringing on people who aren’t typical financial hires and be ready to provide counsel and connect your clients to the right resources.”