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Schwab Exec Outlines Service 'Challenges,' Plans for Improvement

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Charles Schwab remains upbeat about its ongoing integration with TD Ameritrade this year, but is reviewing some of the decisions it’s made on that front as part of its efforts to improve client service, Walt Bettinger, the firm’s CEO and president, said during the firm’s Winter Business Update webcast.

Meanwhile, Bernie Clark, head of Schwab’s RIA business, called the industry’s lack of diversity a major worry.

Despite a challenging year, Schwab reported strong earnings for 2020 and, with its TD Ameritrade acquisition finalized on Oct. 6., it’s set up for even stronger results in the future, Bettinger said. The company is “healthy and strong  we have a solid balance sheet and a winning strategy,” he said.

Client Service Challenges

“Just to be clear, that’s not to say that in 2020 everything was ideal,” Bettinger conceded. “With client engagement volumes at multiples of prior peak levels, it has clearly been a challenge to serve our clients in the manner and timeliness that we aspire to and that they’ve grown accustomed to expect from us.”

Last year, “service delivery to clients was uneven at best and disappointing to us as well as clients at times,” he said. “Frankly, the volumes overwhelmed even our most aggressive projections.”

As a result, the average time to answer a client phone call grew from about 30 seconds in 2019 to about 2 minutes in 2020 and was “well beyond that in times of high stress and volatility,” he said.

On top of that, average handle time — the amount of time spent on the phone with each client— also grew, from about 8 minutes to nearly 10.5 minutes because of the complexity of issues clients were engaging with the company on, he said. “Those challenges are continuing into this year.”

The dip in client service metrics was not surprising to hear, given that advisors recently reported 45-minute wait times on the phone and weeks-long delays on service tickets, among other service problems with Schwab and TD Ameritrade in recent months.

The company will “continue to make investments in scale and in system stability and in client service and I do remain confident in our strategies and commitment to delivering outstanding client experiences,” Bettinger said Tuesday.

For one thing, “we’re carefully reviewing some of the decisions around the TD Ameritrade integration, because we want to ensure that we don’t take steps that would risk any further degradation in our service quality,” he said.

“As part of that, we’re examining locations that we might have previously thought we wouldn’t maintain” that Schwab may opt to keep open, Bettinger said.

However, he was quick to add: “We remain as committed as ever to saving the $1.8 [billion] to $2 billion of expenses that would otherwise come from our combined run rates” through the completion of the integration with TD Ameritrade.

2020 Earnings

In 2020, “new clients joined Schwab in record numbers and existing clients brought their assets to Schwab in record numbers,” Bettinger said.

Schwab topped financial analysts’ expectations for both earnings and sales in the fourth quarter of 2020, its first quarterly report following the TD Ameritrade acquisition.

The firm’s clients are increasing their use of mobile platforms, meanwhile, with usage up about 50% at Schwab and over 70% at legacy TD Ameritrade, Bettinger stated.

2021 Strategies, Goals

This year, the “same three strategic initiatives are guiding our efforts,” Bettinger also said.

The first key initiative is to increase scale and efficiency, which includes making continued progress on the TD Ameritrade integration and adding new digital capabilities, he said.

The second initiative is its monetization efforts that include a greater emphasis on thematic investing and direct indexing, as well as changes to its third-party approach to relationships with asset managers, according to the CEO.

The third initiative entails client segmentation efforts and includes its Schwab Stock Slices fractional shares offering, launched last year, and high-net-worth services, he said.

TD Ameritrade’s thinkorswim, meanwhile, “will be our premier trading platform once we have integration complete,” Bettinger explained.

Schwab Advisor Services

Bernie Clark, executive vice president of Advisor Services at Schwab, pointed to another growth opportunity for the firm.

The RIA sector of the market is a $6 trillion industry, he said, citing Cerulli data. Meanwhile, the independent broker-dealer segment is a $7 trillion sector and there is also “about $10 trillion sitting in the banks and wirehouses,” he noted.

The market share — about 13% of the U.S. retail investment market in client assets — that “Charles Schwab commands now can grow dramatically,” especially with its addition of TD Ameritrade, he said, adding: “We have a huge opportunity here to grow this space even more and bring more assets.”

“We can spend a whole day talking about the need [for] the development of people,” he also told viewers, adding: “One of my biggest worries in this space is the fact that we have to have more diversity. We have to have more individuals coming into this space. We have to excite the next generations. We have to excite the CFP programs that exist on campuses.”

On the latter front, Schwab is “doing an awful lot with universities now on behalf of the advisors”  to help bring more accredited planners into the financial services sector, he noted.

Meanwhile, the desire to maximize client-facing time is driving advisors to delegate investment selections to third parties, he told viewers. Advisors are spending most of their time (55%) on client-facing activities, while administrative activities are “somewhat of a burden, especially on smaller firms” taking up 23% of their time, he said referring to Cerulli data.

“The investment management bucket is the one I’ve been watching very closely now for years,” he said, noting advisors are spending 18% of their time on that. “It’s not that it’s unimportant — but they don’t see it as the major part of their differentiation and their relationship and, hence, they’re looking for sometimes other alternatives” to provide that service, he said.

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