Schwab CEO: Personalized Investing ‘Coming at Us Like a Freight Train’

What You Need to Know

Schwab's CEO, Walt Bettinger, said advisors should step up their personalization efforts for clients.
Bettinger provided an optimistic forecast for the RIA sector.
Advisors must be very careful how they use their client data, he also warned.

Despite ongoing challenges, there are significant opportunities for growth in the RIA sector, as long as advisors continue to not only offer value through personalization to their clients but also step up their personalization efforts, according to Charles Schwab CEO Walt Bettinger.

“Personalized investing is coming at all of us like a freight train,” he said Tuesday during the opening session of his company’s second-straight all virtual Schwab Impact conference.

After all, he told viewers: “The idea that I’m going to take my money and simply turn it over to some fund or an ETF and just trust that that manager or maybe trust that that index is going to invest the way I want” is no longer realistic.

“I won’t go so far as to say those days are gone … but they’re going to be challenged because technology is bringing the opportunity for personalization to everyone: to large investors, to medium investors, small investors and the whole range of RIAs also,” he explained.

Schwab is piloting a direct indexing program, Schwab Personalized Indexing, that it plans to launch in 2022.

The ‘Growth Engine’ for RIAs

RIAs have been offering personalization for many of their clients for a long time, Bettinger noted. But many investors today, he said, are “looking for an even higher level of personalization. Sometimes they want it from a social investing standpoint. Sometimes it’s to isolate off investments that maybe they’re overconcentrated in.”

And “we all want to be part of that freight train as it plows its way through the market,” he added.

Agreeing, Bernie Clark, head of Schwab Advisor Services, said: “Personalized service is a growth engine for RIAs” and it is “time for it to go full throttle.” We are seeing personalization “everywhere, in every industry,” he said.

“The standard for excellence is being close to your clients, being able to connect with them,” according to Clark. That, he said, “creates a wide-open highway of opportunity for RIAs because their value proposition has always been built on creating a personalized experience.”

The ‘North Star’ for Client Relationships

“Although it’s a competitive environment, I feel really confident about our ability to keep winning the talent wars and keep delivering quality people to support the growth of the RIA community,” Bettinger also said.

Despite the changes, “there’s three things that stand out to me that are timeless: values, trust and empathy,” he told viewers. “Values are really the North Star in a client relationship,” he said.

Meanwhile, “from an empathy standpoint, most successful firms understand that they need to meet their clients where their clients’ needs are,” he said. “It’s not a matter of stuffing a client into a certain business model. But, rather, it’s understanding that client’s needs and building your model around it.”

The ‘Better Mousetrap’

Stressing the “importance of RIAs in our overall strategy at Schwab,” Bettinger said: “The RIA is positioned incredibly well for the future …. I’ve been saying for 15 years that the RIA model is simply a better mousetrap … for high-net worth and ultra-high-net worth clients, particularly those with complex needs.”

Conveniently for advisors, “in this day and age it seems like virtually everyone has complex needs,” he said. “So I think the profession is positioned well. It’s designed to grow. We see that affluent investors they want transparency; they want someone with a fiduciary position who puts their interests at the forefront.”

Looking to the future, he said: “I see great opportunity for growth in the RIA world. Yeah, we have some challenges that we’re always going to face but we have a very small share of the market. I think it’s $50-$55 trillion and probably $30-$35 trillion of that is already in an advisory relationship but only seven or eight with RIAs.”

Therefore, it seems like “we’re just scratching the surface; we’ve got a whole lot in front of us of market share that we can win together,” he said.

Although $7-$8 trillion seems like “a smaller number than it needs to be,” Clark said that represents a “tripling in the last decade; I could not have predicted that kind of growth either and the RIA profession has been growing at a 12% rate per year.”

Avoid ‘Creepy Data’

Bettinger posed several questions to advisors. For one: “What are the opportunities that you as an advisor are looking at for personalization across every part of your business?”

Other key questions: “Are there questions that you’re regularly asking your clients? When are you asking them? How do you engage with them in the discovery and then ensure that you can stay abreast of their values and their needs as they evolve over time?”

The next set of questions for advisors is about what he called the “big D,” asking: “How are you using data to anticipate your clients’ needs and to serve them better? How do you get data? How do analyze it? Do you make sure that, in the process, you avoid … doing things that are creepy with data?”

Advisors “want data to be utilized to serve your clients and help you better interpret and make sure that you can serve them in the way that is in their best interest,” he explained.

Noting that he expects to return to a live conference next year, Clark said over 10,000 people registered to view Schwab Impact over the course of its two days.