Our US correspondent looks at the change at the top of the US brokerage and financial services giant.      

(This article, by our US correspondent, Charles Paikert, focuses on the changes under way at the Charles Schwab organisation. Given that this business operates in other nations besides the US, we thought readers of our other editions might enjoy this analysis.)

In the wake of Walt Bettinger’s resignation as Charles Schwab CEO, his successor Rick Wurster faces a simple but profound challenge: Don’t mess a good thing up!

Since becoming CEO in 2008, Bettinger’s track record has been truly impressive: Schwab’s market capitalisation soared from $18 billion to $119 billion and client assets grew from $1.14 trillion to $9.74 trillion. 

Bettinger oversaw both the company’s mammoth acquisition of rival TD Ameritrade, ensuring its dominance as the country’s largest RIA custodian and the elimination of commissions on trading, a move that solidified Schwab’s position as the leading retail brokerage firm in the US.

“It’s really difficult for any leader to come in and walk the fine line between putting their stamp on the business while at the same time not messing with an underlying recipe that’s been incredibly successful over the past 16 years,” Andy Besheer, managing principal of Besheer & Associates, said.

Of course, Bettinger’s reign was hardly without blemishes.

High interest rates over the past several years have taken a toll on Schwab’s revenue, profits and investment portfolio. Schwab’s stock has declined by nearly 6 per cent this year, after a 17 per cent drop in 2023.

Schwab has also taken heat for harvesting (some would say skimming) net interest income from client cash accounts as part of its cash sweeps and its less than stellar banking business. Bank deposits have fallen and Bettinger had to steady the ship in March 2023 when Charles Schwab Bank suffered substantial paper losses following a series of debilitating fed rate hikes and the Silicon Valley Bank debacle.

Custody challenges
Wurster, the 51-year old Schwab president who has an economics degree from Villanova University and an MBA from Dartmouth College, comes from an asset management background.

Before joining Schwab in 2016, Wurster worked at Wellington Management and McKinsey & Company in the consulting firm’s asset management practice. He went on to head Schwab Asset Management Solutions and as president has been responsible for overseeing Schwab’s client enterprises, wealth and asset management, banking and trust services, technology and operations.

Wurster’s lack of experience with Schwab’s RIA custody business may be his biggest challenge, according to industry observers.

“The stakes are high,” said industry consultant Timothy Welsh, president of Nexus Strategy. “Advisors do not know who Rick Wurster is and where he stands on supporting their businesses. Now that Bernie Clark is also no longer there, advisors have no direct access to anyone in leadership who knows and cares about the RIA business.

“In the past, this has led to paranoia and grumbling from RIAs that they potentially have no voice and that Schwab retail will gain at their expense from the massive profits they generate. I believe RIAs will give Wurster a grace period of about six months. If he doesn’t bow to their demands for continued investment in the platform, then look for them to continue to wonder, and most importantly, wander to the competition.”

How to stay on top?
And while Schwab is by far the industry’s largest custodian with an estimated $1.3 trillion in assets and 3.6 million custody accounts across around 7,000 RIAs, it faces strong competition, not only from legacy leaders like Fidelity and BNY/Pershing, but from a host of hungry and innovative challengers, including Altruist, Betterment, Interactive Brokers, Axos Advisor Services, SEI and many others.

Indeed, “our economy is littered with scores of examples in many industries where the dominant provider lost their position or even went out of business for failure to innovate, let alone keep pace,” Mark Tibergien, the former CEO of Pershing Advisor Solutions who is now an industry consultant, noted.

Tibergien gives Schwab high marks for being first to market with brokerage-based custody and taking the business “to another level” with its acquisition of TD Ameritrade.

But remaining an industry leader requires “a new type of vision and leadership,” he maintained, “one that is connected more closely with the desires of the end client, and a more scalable business model.”

Financial services companies tend to confuse scale and size, according to Tibergien. “Those who focus on the latter are like overweight runners competing in a marathon,” he explains. “Those who focus on the former often lose sight of what the customer wants and expects. Companies who are in first position are often confused between looking forward or looking back. This paralysis provides opportunity for dynamic organisations to change the competitive landscape.”

"Simply put, Schwab needs to keep reinventing itself,” said industry consultant Alois Pirker. “Their biggest challenge is: When you’re the top dog, where do you go from there?”

As for Wurster, “He’s going to need to give advisors a chance to get to know him better and feel really comfortable that they’re a key component of his vision, as they’ve been for Bettinger,” says Besheer.