Investor taste for trading fell off in the second quarter, Charles Schwab Corp. reported today, but assets at Schwab Advisor Services continued to climb. Daily average trades for clients at the country’s largest “discount” brokerage (if that term still is acceptable given Schwab’s breadth of offerings) stood at 397,100, off 9 percent year over year and off 16 percent from the first quarter of the year. It bumped trading revenue down by 12 percent YOY to $205 million. Schwab still posted higher revenue and profit numbers for the quarter that were in line with analysts’ estimates.
Client assets at Advisor Services hit $697.8 billion, up 17 percent YOY, while net new assets reached $10.6 billion, up 4 percent. (Part of the net new asset figure was boosted by $1.5 billion through the acquisition of Windhaven Investment Management in the fourth quarter.)
“Although the economic recovery is progressing slower than hoped, clients remain solidly engaged with their investments, as cash holdings at Schwab have declined to pre-crisis levels,” Chief Executive Walt Bettinger said in a statement. The company said its planned $1 billion acquisition of optionsXpress was still on track to close in the third quarter. (For a May webinar on options to reduce risk and enhance income, click here.) Bettinger will speak more on the company’s outlook at an analyst conference call on Friday. Total assets at Schwab were $1.655 trillion, up 22 percent year over year.
Christopher Maimone, an analyst who follows the company for Standard & Poor’s, said he didn’t find many surprises in Schwab’s earnings report. Interest income growth is being stunted by low rates, which in turn are being held in check by middling economic growth and concerns that the recovery is stalling.
Schwab prefers asset-based revenues to more volatile trading revenues, Maimone said. “I think management’s outlook is that they’re well-positioned for the long run, given they’ve been able to grow client accounts in this environment, and they will benefit more than their peers in the long run from interest rate increases because of the way they’ve structured their business,” he said. “In recent weeks, there’s been a lot more fear in the market so I think that’s why the shares have traded down recently.”
Indeed, the sequential comparisons for the Advisor Services assets fell short of the year-over-year statistics. Second-quarter assets were up just 1 percent from first quarter, while net new assets actually fell 25 percent. Aite Group Research Director Alois Pirker said the year-over-year trends are more significant, particularly the $15.4 billion in total net new assets, a figure that includes retail investor funds.
“Let’s be realistic here. Those are awesome new money figures,” he said. “Wires would love $15.4 billion in net new money.” Schwab is well-positioned for growth in the RIA segment, having brought on 163 breakaway broker teams last year representing $13 billion in assets, he said.
Both Schwab’s online and RIA platforms have benefited from large Wall Street firms being in trouble, he said. “As those large firms regain momentum, does that mean RIA custody and the RIA market and the online brokerage firms are cooling down again? So far there hasn’t been much sign of that. The first half of this year has been a clear continuation of this growth.”
Schwab reported net income of $238 million on net revenue of $1.19 billion in the second quarter, compared to net income a year earlier of $205 million on revenue of $1.08 billion. Competitor TD Ameritrade Holdings reports its quarterly results tomorrow.