Charles Schwab CEO talks why bonds are 'cool again,' investor nervousness, and crypto

Charles Schwab is increasing its engagement with clients, who are trading 30% more than last year, with margin balances up and increased options use. Clients' balances are at record highs, but they express nervousness about the market's elevation. The company emphasizes "time in the market" over "timing the market" and notes that retail investors have been instrumental in this year's rally, buying at lows and proving to be right about market direction.

Retail investors are increasingly engaged in research and education, consuming coaching content at record levels and showing a greater demand for advice. There's also a renewed interest in fixed income, with investors exploring bond strategies to mitigate reinvestment risk. The company offers various ways to invest in bonds, including directly, through ETFs, and managed accounts.

The company is also preparing for a significant push into the crypto space, planning to launch spot crypto in the first half of next year. This move is expected to bring back clients who previously used other platforms for crypto investments. The company is also winning with young investors, with one in six new clients under 24, and is actively present on platforms like TikTok, Instagram, and YouTube. The company's long-term orientation, driven by a focus on client well-being and fee reduction, underpins its success.

• Clients are trading 30% more than last year, with increased margin balances and options usage.
• Retail investors have been key in this year's market rally, showing astute buying at lows.
• There's a growing demand for financial advice and a renewed interest in fixed income among retail investors.
• Charles Schwab is set to launch spot crypto in the first half of next year, expecting to attract clients back to its platform.
• The company emphasizes a long-term orientation, prioritizing client well-being and fee reduction over short-term gains.

Related Video Summary

• CRITICAL WARNING TO ALL INVESTORS
• Go from $10,000 to $1M in just 3 years
• Employment Crisis Deepens: How Will Markets Respond? | Adam Kobeissi
• 3 Passive Income Assets The Rich Are Buying Right Now (While You’re Working)

Client Engagement and Market Sentiment [00:18]

• Clients are actively trading, with a 30% increase compared to the previous year.
• Margin balances have risen, and there's increased utilization of options.
• Investor sentiment is characterized by high balances but also nervousness about the elevated market levels.
• The market's rise is attributed to strong fundamentals and growth in big tech companies.

The company observes a significant uptick in client trading activity and engagement, noting that while clients are financially benefiting from the market's performance, there's a concurrent sense of apprehension regarding its current height.

"Our our clients are really engaged. They're trading at about 30% more than they were last year. Uh we see margin balances up. We see more use of uh options. Our investors are really engaged in the market and I think there's a variety of things driving the market higher including some of the big tech names that now make up a fair amount of the index."

Market Timing vs. Time in the Market [01:21]

• Clients often inquire about exiting the market when they feel it has reached unprecedented levels.
• The company's consistent advice is to focus on "time in the market" rather than "timing the market."
• Timing the market is challenging, requiring being correct twice: exiting at the right time and re-entering at the right time.

The core message conveyed to clients is the importance of consistent investment over trying to predict market peaks and troughs, a strategy deemed exceptionally difficult to execute successfully.

"And the point we always make to clients is it's about time in the market as opposed to timing the market. The hard part about timing the market is you've got to be right twice. You've got to get out at the right time and then you've got to be able to get back in at the right time. And that's very hard to do."

Retail Investor Evolution [01:55]

• Retail investors are perceived as having led the market this year, buying at earlier lows.
• Contrary to past perceptions, retail investors are not making mistakes and have been largely correct in their market calls.
• The stereotype of an uneducated retail investor trading from a basement is outdated.
• Modern retail investors are engaged, research-oriented, and actively seek education.

The narrative around retail investors has shifted, with current data showing them to be informed, engaged, and instrumental in market movements, debunking older stereotypes.

"I think that uh actually in a lot of ways retail investors have led the markets this year. They were the ones buying at the the low in April and people were pointing at retail investors saying, "Oh gosh, retail investors are making a mistake." But we're 30% higher than we were back then. And and credit to the retail investor. I think they've been on a a right about a lot of things over the past few years."

Demand for Advice and Fixed Income Interest [03:00]

• There's an increasing demand for financial advice from retail investors.
• Clients are seeking guidance for their overall financial lives.
• A notable trend is a renewed interest in fixed income and bonds.
• This interest stems from declining money fund yields, prompting investors to consider bond strategies with more duration to avoid reinvestment risks.

Retail investors are actively seeking professional advice and exploring fixed income as a viable investment option, driven by current economic conditions and a desire for portfolio diversification.

"Um the other thing we see from retail investors this year is more demand for advice. more and more clients are wanting help in their financial life and so we're providing it to them. The other thing that's come up more recently that we're seeing from retail investors is a renewed interest in fixed income."

Impact of Interest Rate Cuts [04:10]

• Lowering interest rates is generally beneficial for markets due to a lower discount rate and a less restrictive Fed policy.
• This environment encourages money to flow into assets.
• Rate cuts are expected to be supportive of markets, especially in a robust economy.
• The company's business performs well across various interest rate environments, with earnings accelerating.

The reduction in interest rates is anticipated to positively impact market performance and is seen as supportive of continued market growth, with the company’s business model proving resilient across different rate scenarios.

"Historically, rates coming down have generally been beneficial for markets. You get a lower discount rate, you get a more less restrictive Fed money goes into assets. And so, I think all else being equal, I would expect in a lowering interest rate cycle in a in an economy that's still pretty robust for that to be supportive of markets."

Hybrid Approach: Digital and Human Interaction [05:21]

• The company aims to meet clients where they are, offering both digital and human advisory services.
• Digital logins have reached record numbers, with clients engaging digitally for 80% of their day-to-day financial activities.
• Clients still value in-person interactions for significant life events or when needing to review their long-term financial plans.
• The company provides access to its 400 retail centers for face-to-face consultations.

A blended approach, combining the convenience of digital platforms with the personalized support of human advisors, is central to the company's client engagement strategy, recognizing that clients often desire both.

"We want to meet a client where they are. And that means we engage with clients digitally. We've had record numbers of digital loginins about 500 million uh a quarter, which is a is a record. We have lots of clients who want to engage with us digitally 80% of the time for their day-to-day uh you know money movements and uh stock purchases but once a year they want to know where am I relative to my plan how am I doing or there's a big issue a life event that they face."

Crypto Expansion Plans [06:46]

• Crypto is a significant part of the investing conversation and client inquiries.
• The company plans to provide education on what crypto is and its potential role in a portfolio.
• Clients are already invested in crypto, holding 20% of the nation's crypto ETF assets.
• Spot crypto is slated for launch in the first half of next year, a move expected to retain clients who previously moved assets to other platforms for crypto investments.
• This move does not increase risk on the company's balance sheet as these are client securities.

The company is making a strategic entry into the crypto market, focusing on education and offering direct crypto investment options, aiming to consolidate client assets and services within its ecosystem.

"Well, crypto's become a a big part of the investing conversation and and and I certainly hear it when I'm out talking to clients. What are we doing in crypto? How are we going to help them?"

Winning with Young Investors [09:22]

• One in six new clients acquired this year is under 24 years old, indicating success with younger demographics.
• The company actively engages with young investors on social media platforms like TikTok, Instagram, and YouTube.
• Young investors joining the platform gain access to extensive research, education, and support from experienced traders.

The company is successfully attracting and serving younger investors by meeting them on their preferred platforms and providing comprehensive resources to support their investment journeys.

"We we've brought in one in six of our new to firm clients this year is under the age of 24. We are we are winning with the young investor. We're and we're on Tik Tok, Instagram. We're the most followed financial services company on YouTube."

Long-Term Orientation and Quarterly Earnings Debate [10:22]

• The company operates with a long-term orientation, focusing on client well-being to drive shareholder value.
• This approach is influenced by former CEOs who emphasized a long-term outlook.
• While acknowledging the debate around semi-annual earnings reporting, the company believes in regular transparency.
• The company provides monthly reports detailing client activity, net new assets, and trading volumes.
• The CEO emphasizes that daily decisions are guided by doing right by clients, a principle exemplified by past fee reductions for client benefit.

The company’s philosophy is rooted in a long-term perspective, prioritizing client interests, which is seen as the foundation for sustained success and is reflected in its operational and strategic decisions, including fee structures.

"We've always managed Schwab with a long-term outlook about how do we do right by the client and if we make the right decisions for clients ultimately that will lead to good economics for our shareholders."