Schwab shares spike but its new CEO mostly plays defense after analysts ask why its RIA clients hit net-new asset growth norms and Schwab retail is stuck at 3.5% growth

Rick Wurster passed his first Wall Street test with flying colors yesterday as he reported results, and answered questions, sending Charles Schwab Corp. shares (SCHW) past $80, up from $72 as recently as a week ago. 

Schwab grew assets overall by 19% in 2024 – wind-aided by the S&P 500 index, up 23%, and the Nasdaq Composite Index, up 29% over the same time. Total assets passed the $10-trillion milestone, putting it in the same company as Vanguard, Blackrock, and Fidelity.

With such a reliance on market gains, however, analysts grilled the new Schwab CEO about net new asset (NNA) growth rates of just 3.5% in-house, particularly given that the third-party RIAs it services grew almost 43% faster, at 5% growth in NNA.

Schwab's net new assets from RIAs was $62.2 billion in the fourth quarter, significantly more than Schwab retail's $46.2 billion. The RIAs generated NNA of $53.6 billion in the third quarter, compared to just $37.2 billion for Schwab retail.

Analysts have been more accustomed to 5% to 7% annual NNA gains in Schwab retail.

“The gap in retail is still fairly wide,” said Wolfe Research analyst Steve Chubak. “It might be helpful if you could just unpack some of the building blocks supporting the closure of that gap.”

The Wurster “unpacking” lasted 567 words and focused on the heavy lift of earning the trust of TD Ameritrade (TDA) clients and how Schwab is channeling Apple's business model to grow within its existing client base.

Need to nail it 

The good news, he explains, is that the signs of growing trust are moving in the right direction.

“We have gone from negative flows with our Ameritrade clients – as we expected some outflows at the beginning of the integration -- towards slightly positive to more and more positive,” Wurster said.

 “We're exactly where we thought we would be in this transition, which is taking a set of clients that represent half of our brokerage accounts from one experience to a different experience, getting them used to that, getting them comfortable with that, and importantly, building a relationship with those clients,” he added. 

Wurster hints that Schwab may also need to recoup lost branch presence to regain TDA client trust.

“It's really going to be important that we nail it for these Ameritrade clients,” he adds. “We are investing in more and more relationships and more in our physical footprint because we think that will help accelerate the building of trust between us and some of those legacy clients.”

Cross-selling opportunities

In its zeal to cut TD Ameritrade redundancies post the TDA merger, Schwab shuttered 79%, or 205 out of 260, of TDA branches before the mass closings that took place under predecessor Walt Bettinger, whom Wurster replaced on Jan. 1. 

More branches mean more people.

“In 2025 … We will hire hundreds of new financial consultants, and expand our physical branch network in a meaningful and thoughtful way in the year ahead,” Wurster said in his opening remarks yesterday (Jan 21). 

Wurster asked Chubak to think more broadly about Schwab's model for future growth – where more revenues derive from more cross-selling to Schwab's existing 44 million clients, much like Apple.

“To me, it's a little bit akin to what Apple has done outside of iPhone growth. They've found many, many ways to grow with their existing client base. And to me, we're in the exact same spot.” 

Understanding expectations

Rather than apps, Schwab proposes a supermarket of services more like banks, RIAs, and brokerages – trading and lending on one platform.

He cites “the bull market for advice that exists, whether it's helping them meet their lending solutions; where we lend to only a fraction of the clients at our firm, and we could be doing more, and we've built and progress towards being able to do more. 

"There are opportunities for us in trading. There are opportunities for us to support RIAs in tax, trust, and estate-like services.”

Not totally clear on Wurster's answer, Deutsche Bank's Brian Bedell tried again to understand the growth expected at Schwab.

“Do you think you can get back to that 5% level at some point this year?" he asked. 

"I know the 5% to 7% is sort of the long-term target, but just looking at the development with that and the new products you're offering, including the alts platform, do you think you can get back to that 5% range, say, sometime as early as the second half?”

Wurster replied: “We finished at 4.3% for the year in terms of percentages. We expect that to be higher in 2025. We are also confident that over the long run, 5% to 7% remains the right number.”

Qualified confidence

Bedell must have been convinced. After the call, he raised his firm's price target on Schwab to $105 from $98.

Wells Fargo analyst Michael Brown also raised his rating after hearing Wurster.

He referred to Schwab's "unwavering expectation" for 5% to 7% NNA growth. 

The Schwab brand was not ‘impaired’ by adding TD Ameritrade, Brown said with qualified confidence in an analyst note.

"While confidence in a target doesn't guarantee success, we believe it supports the notion that recent softness is not a reflection of lasting brand impairment," he said.

Truist analyst David Smith stood pat on his buy rating, based on a company projection for full-year adjusted earnings between $4.10 and $4.20 a share, topping the FactSet consensus estimate of $4.01 a share.

Schwab's stock rise was aided by beating Wall Street’s fourth-quarter earnings estimate and the possibility that the company would buy back stock for the first time in at least a year, according to reports.