In October, Charles Schwab reported a notable decrease in core net new assets to $11.3 billion, reflecting a decline from the previous month's $27.1 billion and significantly lower than the $42 billion recorded in October 2022.
This downturn is primarily attributed to the ongoing attrition of TD Ameritrade clients and delayed tax disbursements in certain states, notably California.
The migration of TD Ameritrade customers and advisors to Schwab's platform has been a challenging process, marred by technical issues and other complications. Advisors who had planned to leave Schwab before Labor Day, coinciding with the company's massive migration effort, are now likely to stay for an extended period due to the complexities involved in changing custodians.
The acquisition of TD Ameritrade in 2020 significantly expanded Schwab's online brokerage and advisory custody operations. Despite the customer attrition, the impact has been less severe than initially anticipated.
Schwab's stock has shown resilience, increasing by about 3% and trading at approximately $55.75 per share. This uptick is partly due to a drop in interest rates triggered by a lower-than-expected CPI report. However, the company's shares have declined significantly this year, affected by concerns about deposit outflows and increasing interest expenses.
Schwab, like other wealth management firms, faces challenges from cash sorting, where customers transfer funds from low-yield bank accounts to higher-yielding options, impacting the company's revenue generation. To manage its liquidity, Schwab has occasionally resorted to short-term, high-cost borrowings. Nonetheless, the situation is showing signs of improvement, with a slight increase in client cash as a percentage of client assets.
Analysts are optimistic about the easing of cash sorting, anticipating reduced pressure on Schwab's earnings in the coming year. According to William Blair analyst Jeff Schmitt, the average daily pace of cash realignment has decreased, and he expects this trend to continue.
In response to these challenges, Schwab has implemented cost-cutting measures, including a workforce reduction of about 5% to 6%. Despite these changes, Schwab remains a leading custodian for registered investment advisors and operates one of the largest discount brokerage firms in the U.S.
As of the end of October, the company managed total client assets of $7.65 trillion, a 9% increase from the previous year but a slight decrease from September 2023. Additionally, Schwab added 284,000 new brokerage accounts in the last month, indicating continued growth in this area.
