While Schwab seems to be hitting on all cylinders now, the firm could face increased competition.
Bettinger said the custody industry will have to scale up to remain competitive, and the retail trading business will become increasingly commoditized.
“On the [retail] trading side, long term, it is a very difficult place to build the franchise and grow … given likely price compression in that largely commodity-oriented space,” he said.
As for the firm’s move to lower fees and commissions last February, Bettinger said there were no plans to go lower unless competitors forced its hand.
“The strategy last February was not to compete on price, but rather to just take price off the table,” he said. “We wanted price to no longer be a barrier” in coming to Schwab.
Bettinger blasted a Wall Street Journal article from last month reporting that the large discount brokers nudge branch personnel to push more expensive fee-based business.
“The fundamental premise of that article is that … we as a company must have an economic incentive and [therefore] incent our representatives to recommend advisory-based solutions because it’s better for us,” he said. “The fundamental premise of that … article, at least as it applies to Charles Schwab, is wrong. And I say that in capital letters. W-R-O-N-G. Wrong.”
Profit margins for self-directed investors are actually higher than margins for advised clients, Bettinger said.
“What we know is that clients get better outcomes when they are in our advisory solutions,” he added. “They stay in the market better, end up with better performance, are better diversified.”
Based on time studies that show more time is needed to handle advisory clients, “we created a modest differential in the pay, because if we didn’t, our financial consultants would have little if any incentive to ever talk to a client about advisory, [which has] a better outcome,” Bettinger said.