(Barron's) - Assets in Schwab’s advisor channel dipped in the first quarter of 2022 as the wealth management giant posted diminished profits and executives acknowledged the impact of the challenging business environment that has characterized the start of the year.
Charles Schwab (SCH) ended the first period this year with $3.6 trillion in assets on the books in its Advisor Services businesses—the firm’s custody platform for registered investment advisors—down 3% sequentially from the fourth quarter in 2021, but up 13% from the same period last year.
Schwab’s Investor Services division, through which it serves clients directly, fared slightly worse, with assets off 4% from the fourth quarter of 2021, but also 13% ahead of the year-earlier period.
The numbers were starker where Schwab broke out new asset growth, as the Advisor Services and Investor Services units together saw new asset inflows drop by 10% from the previous quarter and by 10% from the first quarter in 2021.
Those figures came amid a generally disappointing quarter for Schwab, which reported net income of $1.4 billion, off from $1.6 billion last quarter, and down from $1.5 billion in the first quarter of 2021.
Adjusted earnings checked in at 77 cents per share, well below the consensus forecast of 84 cents. Schwab’s quarterly revenue of $4.67 billion fell short of the $4.83 billion analysts were projecting. At around midday Monday, shares of Schwab were down more than $7 per share to $75.50, a drop of nearly 9%.
Schwab CEO Walt Bettinger said that “business momentum remained quite strong” for the company throughout the period, but acknowledged it has been a difficult operating environment.
“We helped clients face a complex set of crosscurrents, which included an ongoing economic recovery supported by continued progress against the Covid pandemic, rising inflation, geopolitical turmoil driven by the Russian invasion of Ukraine, the Fed initiating its first tightening cycle since late 2015, and more volatile equity markets,” Bettinger said in a statement.
Bettinger highlighted Schwab’s focus on customized investing as a bright spot and a potential source for future revenue growth, citing the expanded offering of Schwab Personalized Investing (SPI) to advisors and investors during the quarter, as well as the launch of thematic stock lists, which offer guidance to help self-directed investors select companies to invest in that align with their values.
In the mutual fund space, Schwab touted its efforts to simplify the fund-selection process and lower expenses, including a partnership with T. Rowe Price, through which advisors who custody with Schwab can access the least expensive classes of institutional fund shares with no transaction fees.
“We see SPI and our thematic lists as initial steps in giving clients more power in personalizing their investments to reflect their unique circumstances and perspectives,” Bettinger said. “Similarly, simplifying the research experience for clients when selecting mutual funds gives them more power to build their financial futures with investments that make sense for them.”
By Kenneth Corbin
