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Schwab Q2 Profits Jump 28% on Record Revenue

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Charles Schwab Corp. (SCHW) reported a 28% increase in net income to $452 million for the second quarter, on a 17% increase in revenue to $1.82 billion compared to 2015’s Q2 results. Both revenue and profits were record highs for Schwab.

CEO Walt Bettinger said in a statement that the results “mark yet another period of standout financial performance for Schwab,” which he said reflected the “power of our successful ‘through clients’ eyes’ strategy and disciplined financial management, particularly in the face of an unsettled economic environment and interest rates that remain near historic lows.” Schwab did report an 8% work force increase to the equivalent of 16,100 employees in the quarter.

Assets in its RIA custodial unit, Schwab Advisor Services, were up 4% over 2015’s second quarter, to $1.206 trillion, and 2% over 2016’s first-quarter assets, according to the company. Bettinger said the company brought in $26.6 billion in “core net new assets” in the quarter and $58.6 billion for the first six months of 2016, “continuing our pattern of solid organic growth on top of a sizeable base.” 

Schwab’s pretax profit margin of 39.4% in the quarter “was the highest since our record performance in 2008,” when Schwab had $1.20 trillion total in client assets, Bettinger said. Total client assets at the end of 2016′s Q2 were $2.622 trillion. That healthy profit margin was the “13th consecutive quarter in excess of 30%,” which Bettinger characterized as a “significant improvement from the sub-30% margins that followed the crisis.”

Client assets in Schwab’s Intelligent Portfolios all-ETF digital advice platform — including the retail Schwab Intelligent Portfolios and the advisor Institutional Intelligent Portfolios — ended the quarter at $8.2 billion, up $1.6 billion from the first quarter.

As for highlights of the first six months in its advisor business, Bettinger cited the company’s national advertising campaign directed to high-net-worth investors on behalf of RIAs, along with the reboot of Schwab’s Independent Advisor Learning Center for advisors that includes a searchable directory of Schwab-affiliated RIAs. Finally, the company cited introduction of a biometric voice ID service that allows advisor clients to voice a passphrase to connect to Schwab Alliance service teams.

In an interview with ThinkAdvisor when the ad campaign was launched, Bettinger said the timing of the open-ended campaign was “right for the marketplace,” citing the Department of Labor’s recent fiduciary rule and “the increasing awareness of consumers” of the importance of having advisors who act in the best interests of their clients.

CFO Joe Martinetto noted that despite a late surge in trading volume, trading revenue was down 1% year over year to $201 million, and announced a one-cent, or 17%, increase in the company’s quarterly cash dividend beginning with the second quarter.

In its retail division — Schwab Investor Services — new retail brokerage accounts declined 3% from 2015’s second quarter to 170,000, though total accounts rose 4% to 7.0 million. Its branch advisors held “financial planning conversations” with 33,000 clients in the quarter, a 14% increase. The company said 15 “financial consultants graduated from our inaugural FC Academy, a 24-month developmental rotational program preparing recent college graduates for a career in one of our branch offices.”

— Check out Strong Advisor-Client Relationships Drive Growth During ‘Sideways’ Markets on ThinkAdvisor.


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