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Schwab Beats Estimates as Flows Slow in Advisor Services: Q1 Earnings

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Charles Schwab beat earnings expectations and reported net income of $964 million, or $0.69 per share, up 23% from last year. Revenue rose 14% year over year to $2.72 billion.

“New brokerage accounts totaled 386,000 during the quarter, and client account openings have now exceeded 100,000 for 28 consecutive months,” according to CEO Walt Bettinger. “In addition, clients entrusted us with total core net new assets of $51.7 billion for the quarter, representing a 6% annualized growth rate.”

The San Francisco-based firm now has nearly $3.6 trillion of client assets. Assets held in the Advisor Services business are roughly $1.7 trillion.

As for net new asset flows, the Advisor Services unit attracted $22.5 billion in the first quarter, down 15% from $26.6 billion in the fourth quarter of 2018 and 30% off flows of $32.0 billion a year earlier.

Intelligent Portfolios Premium

Schwab released earnings less than three weeks after announcing a new subscription model for some of its services.

Schwab Intelligent Advisory will be renamed Schwab Intelligent Portfolios Premium and will cost $30 a month rather than 0.28% of assets each year; it includes “unlimited” support from a certified financial planner, a $25,000 investment minimum and a $300 initial planning fee.

Investors using rival Vanguard’s Personal Advisor Services (launched in 2015) are charged 0.30% per year and have a $50,000 minimum — which means annual charges start at $150.

According to Cynthia Loh, Schwab’s vice president of digital advice and innovation, subscription-based pricing is “second nature to many of us … from streaming media services to fitness and personal training memberships. We think people should have the opportunity to pay for financial planning the same way.”

Loh has been with Schwab since September 2017. Earlier, she was with robo-advisor Betterment. “These changes are a result of client feedback and our commitment to meet consumer expectations for simplicity, transparency and value,” she added.

Those using the premium service also will pay operating expenses on the ETFs in their Schwab Intelligent Portfolios, which include Schwab ETFs and funds from outside providers. They will not pay commissions.

In late March, industry consultant and former Schwab executive Tim Welsh remarked, “Once again, Schwab is setting the floor for pricing on advice, creating more challenges for advisors to be able to justify their 1% fees.”

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