Hurley: What’s Schwab’s future role in cybersecurity?
Clark: It’s an interesting area. There’s no end game; it’s evolving continuously. We recently launched a Cybersecurity Resource Center that offers a suite of resources and tools to help advisors develop, strengthen and maintain cyber defense.
Cybersecurity is something that keeps all of us awake at night. And we all have a role—it will evolve and change, and our entire ecosystem will continue to grow up around the needs that arise.
Our job is to stay on the forefront and help to ensure that advisors are using all the capabilities around them. We will continue to educate and support the infrastructure that develops.
Hurley: Is there a business there in helping them manage cybersecurity?
Clark: There is, and firms will pay for it. There was a day when a lot of large firms didn’t have a chief compliance officer. Instead, they rotated [the duty] amongst partners. Now most have compliance officers, and most also hire audit firms that conduct mock audits. They’re paying for those services.
Cybersecurity is going to be similar, but there is an opportunity to offer a bigger solution at the start. Instead of just a chief compliance officer, large firms will have a safety and security officer. On the small firm side, there’s going to have to be sort of the McAfee type of approach that’s more turnkey.
Hurley: How are referral programs going to work 10 years from now?
Clark: We haven’t for decades sold the referral program. It is a complementary, nice-to-have type of thing. If you ask Walt Bettinger [Schwab’s president and CEO], he will tell you that advisors are the solution for the ultra-high-net-worth and customized relationship. It is a strategic component of our overall business model. Our referral program has referred more assets than anyone else in the industry, with more than $6 billion each year.
Hurley: Is Schwab still pursuing this notion of franchise-operated branches?
Clark: Yes. Our footprint needs to grow; we have just under 30 franchise locations, and we’ve had success with them. We plan on continuing that growth.
Hurley: What is the profile of future winners in the independent advice space?
Clark: They are going to be technically competent, scalable and use technology from start to finish. They will connect with their clients directly and digitally, when and where the clients’ needs arise. They’ll have a minimum of three generations of owners.
Future winners will build on the services that served the boomer and millennials to serve Generation Z. They’ll know banking products and lending. They’ll know the needs of people who are accumulating wealth and the needs of those who have just received wealth and don’t know what to do with it. The fastest growers will be those who can provide the most services and capabilities for their clients. I really can’t overstate the importance of efficiency and scale, which are both critical to future growth.
Hurley: What will be the future technology platform for wealth managers?
Clark: Advisors have told us that they believe technology will have a profound effect on the way RIA firms do business over the next 10 years. Technology is an enabler. And the importance of technology is determined by what the person using it considers to be value-added.
We know the next generation will want to have the ability to validate details within their accounts and have access to information at any time. They will want technology on their own terms. Advisor technology will need to mirror the technology clients have in other areas of their lives. Clients will compare technology available from their advisor to what they experience with companies like Uber and Amazon.
Hurley: What about robo-advisors?
Clark: To me, it’s great digital technology. It is democratization and aiding more people to access the markets in a more intelligent way. I don’t worry about robo-advisors taking wealth manager clients. It is the depth of wealth manager relationships with clients that drives the assets to them and keeps clients. Robo-advisors are using artificial intelligence, which will continue to grow when it comes to the construction of portfolios and in planning, but they will grow in an algorithmic way. The relationship that goes along with the technology is critical, and that’s not something technology can ever replace.
Hurley: Are advisors threatened by the robo model?
Clark: They’re not. Technology is only part of the formula. Advisors’ clients want the relationship first and foremost.
Hurley: Schwab is by any measure an extraordinarily successful wealth manager while at the same time the largest custodian for advisors. How do you balance these roles in the future?
Clark: The businesses are very complementary. We are doing a lot of work in the marketplace in trying to unseat assets from the wirehouses. Our new national advertising program on behalf of advisors is pretty aggressive, and we’re seeing great results since it launched this past summer. Internally our businesses have never been more aligned. We built a core Schwab Intelligent Portfolios (SIP) automated investing offer for retail last year. We were able to step in and build a module on top of that for advisors and bring it out three months later, without the cost of having to build the core. We did the same thing with mobile.
Hurley: In other words, when you build new technology for your retail business, it enhances what you do with advisors.
Clark: Sometimes retail builds a chassis we can build onto, and sometimes we build something retail can take advantage of as well.
Hurley: If you owned a wealth management business, what should be keeping you up at night right now? What should you be worried about?
Clark: Two directions on this one, both challenging. Cyber is a big stinking deal, and people must accept that there’s no end game. Regulation is the other wild card here with the new administration.
Hurley: What is the most surprising thing that you’ve seen happen in the last 10 years?
Clark: Today, our advisors think of us as an extension of their business. Advisors are fiercely independent, and 10 years ago that would have never been the case as they did not want to align with anyone. But today, we’re proud to partner with them closer than ever on driving future success.
Hurley: How do you allocate your resources?
Clark: There’s a certain amount of segmentation that factors into all of this. We treat every relationship individually as they come through the door.
A big bet we made was building the Institutional Intelligent Portfolios platform. We could nimbly allocate disproportionate resources to this project because we saw an opportunity to help advisors create scale and ease of doing business in an area that might benefit a certain size of client or type of client. We think about the whole business, balancing it both horizontally and vertically.
Hurley: Where does Schwab see its greatest growth opportunity in the industry?
Clark: We will take advantage of opportunities in the industry by staying true to our “Through Clients’ Eyes” strategy and doing the right thing for each of our clients.
Hurley: What do you think would be the most surprising thing over the next decade in the industry?
Clark: The client-driven behavioral change. Clients who have the same goals as the generations before them are going to use wildly different approaches. They will spread their wealth across a couple of advisors. There will be more cross-collaboration.
Everyone talks about the divergence of the generations. I think we’re going to see the convergence of them, instead. I think we’ll see best-in-class technologies, solutions and capabilities serve cross-generationally.
Hurley: Thank you very much.
Clark: Thank you.