The Compound and Friends - A Sit-Down with Rick Wurster, CEO of Charles Schwab

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Starting point is 00:01:43 Welcome to The Compound and Friends. All opinions expressed by Josh Brown, Michael Batnick, and their castmates are solely their own opinions and do not reflect the opinion of Ritholds wealth management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholds wealth management may maintain positions in the securities discussed in this podcast. You guys hype for this or what? Let me hear it. Let me hear it. Let's go. All right.

Starting point is 00:02:09 This is my favorite part of Future Proof where we get to bring our podcast to the live audience. We know a lot of you guys listen. Make some noise if you listen on Spotify. Let me hear. How about Apple Podcasts? Make some noise.

Starting point is 00:02:26 FTX. Yeah, anyone listening to it? No? Yeah, anyone listening on FTX? YouTube? YouTube? All right. Will this episode be available

Starting point is 00:02:35 in all three? It is my distinct pleasure. to bring you guys a conversation with someone who is, I think, sitting in the most important seat in the industry right now. Rick Worcester has been president and CEO of the Charles Schwab Corporation and a member of its board of directors since January 1st, 2025. Previously, he served as president for more than three years, overseeing Schwab's client enterprises, wealth and asset management, banking and trust services, technology and operations. Ladies and gentlemen, huge round of applause

Starting point is 00:03:13 for our guest, Rick Worcester. Are you excited for this? Well, Josh, I got to tell you, this is a career milestone today for a couple reasons. Number one, after that scissor reel, to be following all those big names is humbling.

Starting point is 00:03:30 Okay. And then second, as a Bostonian, I'd never, ever dreamed I'd be sitting on the stage in Miami Beach someone in their Knicks gear here. So I'm trying to take that in for, His Nick's clothing is tattooed on. It can't come off.

Starting point is 00:03:47 Guys, I want to set the table just by giving you a sense of the scale of Charles Schwab. And it is truly impressive in an industry and at an event. We have 1,700 companies here. Schwab truly stands head and shoulders above almost every company in financial services. $519 billion in core net new assets last year. Is that a record? Close to it? Yes, it was a big year for us.

Starting point is 00:04:17 519 billion we'll take. Incredible. Total client accounts last year grew by 6% year over year. 46.5 million new client accounts were open last year. 36% growth in managed investing net inflows and 22%

Starting point is 00:04:34 revenue growth versus the prior year 2004. How much of the credit on the scale of 1 to 10? do you want to personally take for that? Zero. It's my 32,000 colleagues, but mostly it's really, I want to pay tribute to the people in this room, which is, this is at a conference for advisors.

Starting point is 00:04:53 And what I love about this industry is the way the advisors put the clients front and center. And I really believe in this industry, if you put the client at the front of everything that you do, you're going to have a successful business. So I chalk up all those great numbers to putting the client front and center, to supporting the growth of advisors. and if we continue to do that, I'm sure we'll put up more records in the future. Let's talk about the advisor, the wealth management side. Wealth management assets alone at Charles Schwab were $5.2 trillion at the end of Q4,

Starting point is 00:05:24 which is about 44% of all of the assets on the platform. And then last year, the retail business grew 33% while the advisory side grew 42%. Was that surprising to you to see the pace of, advised assets growing a little bit in excess of retail or not necessarily? Well, I think advisors are winning. Clients have spoken and they love the fiduciary model. I always say there is a bull market for convenience. Clients in our country want ease.

Starting point is 00:05:55 You see it in every aspect of their life, whether it's how they're ordering goods, how they're ordering dinner, how people are going to get to the Miami airport. It's a lot easier than it used to be. And I think the ease button in our industry is the RIA channel. And no one puts the client more front and center from an advisory standpoint than the RRA. So it's not surprising because it's the confluence of being a fiduciary along with the convenience and expertise that's delivered. That's why we see such growth.

Starting point is 00:06:20 And so in addition to the RIA's growing, we're taking share. And so that combination led to really strong growth in the advisor space last year. I'm glad you said that you're taking share because whenever I see these numbers, a billion dollars a day into this or that, like where, like literally where is the money coming from? So Josh mentioned this, 42% growth in advisory assets. Is some of that coming over, you said the fiduciary model is winning? Is some of that coming over from the wire side? Is it some of it coming from people that finally decide they need an advisor? Like 42% on the asset size, that's a lot of money.

Starting point is 00:06:55 Where is it coming from? I think there's a few sources of growth for us. Number one, last year was a big year for breakaways. And Open Arc, to me, was a watershed moment where you had a really big team breakaway from Maryland with the support of Dynasty start a brand new business where all of us. sudden now they've got lots of equity in that business. That's the biggest breakaway ever. The biggest breakaway ever or so. Yeah, and I think if you're a big team sitting inside one of these big firms and you look at Open Arc and the success they've had making that transition and the

Starting point is 00:07:24 equity value that they now sit on, you've got to be thinking this might be a good option. So it was a big year for breakaways. It was a big year of organic growth for the RIAs. So we saw this community really grow in an accelerated rate and then we took share and we're growing at a nice clip. The way we measure you know, are we winning versus our competitors? We measure a transfer of asset ratio. We can see when an asset leaves us to another custodian, and we can see when assets come to us from other custodians, and we win over two times more from other custodians than leaves us.

Starting point is 00:07:55 So we're winning in the marketplace, but it's really your success that's fueling our growth. When you look at the asset flow back and forth between your competitors, does that bring you to do things in any different way? Or what is the main reason for following that data on a firm versus firm basis? Well, one, we feel like no one has supported this community for the last 35 years the way we have.

Starting point is 00:08:23 We are all in on supporting this community and always have been. Number two, we think we can do the most for this community of any custodian from a leading platform, great research and education, support if you need it on the tax trust, the state fixed income. If you need help with lending, your clients want to borrow, they can borrow through us. So we feel like we have the most comprehensive platform.

Starting point is 00:08:47 But while we feel that way, we want to measure and make sure that we're winning. And so we look to the right statistics to make sure that we always want to win in this business because your success matters so much to us. What we get out of bed excited about every day is knowing that you are winning and we're playing a role in that. And so we like to measure, are we doing well? I wanted to ask you, what are the things that Schwab does on the custody side for this wealth management community that you're most proud of? And what are those areas that you would say, I'm sure you would say all, but if you could zero

Starting point is 00:09:22 in on a few, what are the areas where you think Schwab is unmatched versus everyone else in the space. Consider this like a focus group of current or potential customers. Yeah, absolutely. Well, I love always getting feedback. So I love to hear from you if you feel differently. But I think number one thing that we are most proud of is that we get up every day with a singular mission of trying to make you all as successful as possible. Put the RIA front and center and the needs of your clients front and center. That's number one. Number two, we try to bring a comprehensive solution. We know you need a great platform. You may need technology. We've got more APIs than anyone else to plug into that we're bringing to you. We support you through consulting and education to help you

Starting point is 00:10:06 market and grow your business. We've got a product platform that we think can't be rivaled. We've got alternatives. We've got experts. We can get you on the phone with. So I think what has led to our success is that we have the most comprehensive offer in the market. And then finally, I think our growth in lending has been helpful because we know sitting in all of your shoes, you're competing against the Morgan Stanley person, the JP Morgan person. And they've got a great balance sheet they can leverage. And we don't want to have to make you go out to one of those banks and ask for a loan because as soon as you do, that firm's going to want the wealth business. So we're increasingly trying to lean into the balance sheet side to do as much as we can to help you. So you guys are ranked number

Starting point is 00:10:47 one in total client assets, RIA custodial assets, and daily average trades. But I know as a leader of a public company, you are not resting on your laurels. Is there what, what, I'm sure there is, what is the thing that you are most disappointed and that you are trying to provide better services that, for whatever reason, like, this is the thing that keeps needing improvement? We've got an aggressive agenda on a number of fronts. I think the thing that I would highlight were, for our, advisors that we're really leaning into is trying to make your lives as easy as possible.

Starting point is 00:11:22 Our account openings now, something like around 80% go through digital channels. Five years ago, that was a fraction of what it is today. And as a result, we've seen our client satisfaction scores. We measure, we ask for an easy score. How easy is it to do business with us? That's at an all-time high. I think these basics that are so important that you're doing 20, 30 times a day are so critical, and I think that's an area we're really leaning into to make sure we get right for you. If we can make your life easier serving your clients, we think we're going to be your custodial choice. The question's going to get harder now.

Starting point is 00:11:56 I'm ready. Bring it on, Josh. Okay. What would you say to an advisor in this audience who is currently shopping for a new relationship, and they're looking at Schwab, but somewhere in the back of their head, did you hire this helicopter to drown me out? because it's not going to work. You're going to talk about a competitor, then yes.

Starting point is 00:12:19 What would you say to the advisor who has in the back of their head, Schwab is obviously incredible, the breadth of service, the size, the scale, the customer service, the brand, but am I placing assets with a firm that seeks to compete with me, whether it's directly or indirectly? What would be your response to the group? here. Number one, if you ever find yourself in a situation where we are competing for a client, send me an email or call me. I make that offer to RAs every time I see them. What's your phone number? Well, I'll tell you my email. This is a live podcast. I'll save it for the live audience,

Starting point is 00:13:01 but no one ever calls because when it comes down to an actual client situation, we have very clear rules of the road and we preference the RIA in that, number one. Number two, collectively, we have a 14% share of the financial services landscape of retail wealth in our country, the RIAs in our retail business. There's 86% of the market we don't have that would be better served from someone in this audience or us serving them. So let's go after that together. We are all in on supporting your growth. Part of the reason why we've got a close to 400 billion now affiliate program where we've directed flows into our advisor network. It's part of the reason why we have a strong marketing program,

Starting point is 00:13:44 why we're out advertising about independence on CNBC and other channels. So we're trying to tell your story to help you win. We don't want to compete with you. And when we get into an individual situation where there is an issue, we stand down. Call me, let us know. We are all in...

Starting point is 00:14:00 Getting away from the individual situation where is a client in common, and I think we all understand that. Broadly speaking, clearly Part of Schwab's growth is going to involve direct advice to consumers, and I'm sure, like everything else you do, you'll do a great job with that. I think that's more of the thing that I think people,

Starting point is 00:14:22 I don't want to say, are worried about, but that's probably the answer that most of the people in the audience would love to hear from you. Yeah, I think when you think about one of our clients that goes into a wealth solution at Schwab, that relationship generally is cultivated over 10, 20, 30 years. They come to Schwab typically as a self-directed client,

Starting point is 00:14:41 Right. Their financial life becomes more complex and they come into us and say, hey, what do I do now? I have more money than I thought I'd have. Got a more complex financial life than I thought they'd have. And they love Schwab and they've been with us for 20 years. That's the client we serve with wealth. What you don't see us doing is going out and directly trying to win the wealth client into Schwab like an RIA does. And I think that's an important distinction.

Starting point is 00:15:05 We have an important wealth business that absolutely we're trying to grow. But we're using it to serve our existing Schwab clients. We've got six and a half trillion of retail client assets sitting on our platform, many of whom would be better off served by having more comprehensive advice. We agree on that. You recently doubled the asset minimum for companies that are in the referral program to $500 million, and you increase the threshold. It used to be you needed to have $500,000 to make that referral.

Starting point is 00:15:34 Now you increased it to $2 million. Why did you do that? It's a little bit like if anyone loves to play golf here, then when you redesign a golf course, you try to bring it back to the original intention of the designer. Maybe the trees have grown in a little bit too much. You need to cut them back. Maybe there's more trees than they used to be, so the greens aren't getting as much sun or wind as they need to to thrive. And I'd say that's what we did with our sand program. We thought, what is best for our clients and what do we need to do in order to make this successful?

Starting point is 00:16:02 When we started the program, $500,000 was a lot different than it is now. And so we really were adjusting the program for the asset growth that we've seen and for the distinctiveness that we think our advisors can bring to the program. What we see amongst the RAs in this audience and the RIAs that we support is they are really distinctive at all wealth levels, but particularly distinctive relative to what we can offer as wealth levels go up. And so we really are trying to focus the program on that. The second thing is the growth has really of that program is accelerated. Two years ago, we had referrals of around 14 billion. Last year, we had referrals of around 38 billion.

Starting point is 00:16:41 So in two years, it had gone up quite a bit. And so we want to make sure the program grows in a reasonable way. The final point I would make is that this gets a lot of attention, this referral program. Less than half of 1% participates in the referral program. And six firms out of the 16,200 firms that we support and whose businesses we try, try to make a difference in, there's about six firms that gather more than a billion dollars in that program. That announcement got a lot of media attention, financial media attention. Was there one thing or anything that you felt was misreported or misrepresented within this

Starting point is 00:17:21 announcement? Well, I hope not. I think what we were trying to do is really do something that made sense for clients, which is focus the RIA in on the clients that can be the most impactful for and grow the program in a responsible way. So I didn't see all the media attention, but We feel good about the actions that we made. We do want to serve clients that have been clients of Schwab for 10, 15, 20 years. Absolutely. We want to be able to provide well services to them. At the same time, we couldn't be more supportive of the 16,000 advisors that we serve and their growth.

Starting point is 00:17:52 I guess, dialing up the heat a little bit, because this is tricky. We're Nick Celtics. Bring it on. But you keep saying the client, and yes, the end client is your client, and we're also your client. And that's a hard thing to balance. Is it not? I don't think it's a hard thing to balance at all. We've done it every day for 35 years.

Starting point is 00:18:08 We've supported the needs of retail investors for 50 years. I don't think we've gotten to over $12 trillion of assets roughly split between our two businesses. See, Josh, I told you. Yeah, you were right. By not putting the best of interests of both at the forefront. It is very rare where we come across the situation. We're in conflict. And I think if the RAs that work with us, I think they know how much we care about their success

Starting point is 00:18:33 and how much we've seen this industry flourish, and I would like to think we've been a part of making that happen. Rick, we live in an age of mega RIAs. Some would say, in some case, I would not say this. Some would say, in some cases, it's hilarious to watch a bunch of breakaway brokers 15 years later rebuild the wirehouses they came from, but just change up the cap table. So now they're the owners.

Starting point is 00:19:02 It's a little bit animal farm. a little Orwellian to see, you know, some of the revolutionaries now become the thing that they rebelled against. But be that as it may. It's just a reality of the industry. When Schwab looks at the landscape and sees $600 billion RIAs

Starting point is 00:19:22 that, frankly, raised a lot of their first $10 billion through the referral program, is there any regret? Or are you proud of them and happy to continue to support them? Like, what is the dynamic with such gigantic firms that they now can almost dictate terms to all of their partners if they so chose? I'd say incredible pride in the fact that they've gotten to be that big and that successful. If you come back to our mission as a company, our goal is to help the end investor be as financially successful as they can be.

Starting point is 00:19:57 Everything we do from our platforms to our research, our education, our service, our support, everything is built around trying to make the end investors successful and live their best financial life. And so to see firms that have flourished through the independent model and are making a huge difference like this entire audience in the lives of their clients, that's incredibly gratifying because we do feel like we've played a part in that. And ultimately, people are living better financial lives as a result. I wish I brought this chart. My bad, I didn't. I've used this in the past. I just thought it was so emblematic of the environment that we're in.

Starting point is 00:20:32 So in 2022, Schwab's market cap was 22 times the size of Robin Hood. And recently, that fell to 1.2 in October. And I think that was a little bit ridiculous. No disrespect to Robin Hood. But that kind of sound,

Starting point is 00:20:49 that felt nuts that you guys were almost that parity. Now, last time I checked, you were back up to 2.4 times the size. But there's, There is a lot of competition. It is not just you and the other one anymore. Like, there is a lot of competition. So how are you thinking about staying ahead of the curve investing appropriately, not

Starting point is 00:21:06 over investing? We haven't seen a cycle. We haven't seen a downturn in a while. So how are you thinking about the services, the competition, all that sort of stuff? I think you asked about Robin Hood. I think we're 12 trillion. I think there's something like 300, 350 billion. So I think we're more like 30 times the size of it.

Starting point is 00:21:20 I understand. I just wanted to clarify that for the audience. About that? The second thing I'd say is that I don't particularly consider them to be a competitor, and that's not because of their size and I'm dismissing them. I think they're in a different business than we are. They're more of a transactional business, try to get people into the casino, get to them transact, get them into these prediction markets.

Starting point is 00:21:44 We're in the outcomes business. We're in a business of making you successful. We're in the business of making your end client successful through you, and we're in the business of making our retail investors successful. So when I think what we need to do to stay apart from the competition, it stay focused on what's going to drive long-term results for our investors and how are they going to be successful. If they do that and they're thriving,

Starting point is 00:22:06 they're going to stay with Schwab and they're going to be a part of us. To that point, one-third of your new client on boards last year were Gen Z. I don't think everyone understands that or gives you guys enough credit for that. The average age of a Schwab client has fallen by 10 years. It's now a mid-40s demographic. And that flies in the face of some of the narrative out there that every young investor is defaulting to one app. And it's not Schwab. You guys are proving it's the opposite.

Starting point is 00:22:39 So what I want to ask you is you guys are obviously winning market share amongst Gen Z, amongst this new class of investor. Do you want to talk about that strategy that's enabling you to compete there and still remain differentiated and not open a casino, so to speak? You want to talk about how you thread that needle? Yeah, we're winning with, we're crushing it with the young investor. And the reason we're crushing it with them is because we've got the combination of the platforms. We've got Think or Swim, which I think is the leading trading platform, great charting. I know you both love charts.

Starting point is 00:23:16 It's best charts on Think or Swim, I think. It's also more simpler trading venues if you want to trade on Schwab.com or in our mobile app. There's a trading venue for everybody at Schwab. There's research and education. That young investor that's looking to place their first options trade, we've got a thousand X traders that wake up every day ready to answer the phone for that investor to walk them through how to place that first options trade. We've got service. We answered the phone for advisors on average last year and an average of nine seven. For the retail investor, it was 26 seconds.

Starting point is 00:23:51 That's too long. We need a walkie-talkie. That's two rings, just for the record. So we've got that combination. I think one of the mischaracterations of Gen Z is that they're all looking to go to the casino and try to make money fast. And certainly there are a number of Gen Z who are doing that, but there's also a lot of thoughtful Gen Z investors, and they're coming to Schwab.

Starting point is 00:24:15 We're the most followed financial services firm on here. services firm on YouTube. And that's where they go to learn how to do anything, invest, change a tire on a bike. I mean, that's where they go and they're finding us and they're gravitating to Schwab. One third of our financial plans that we did last year for clients were for people under the age of 40. Is part of your agenda, I'm sorry, is part of your agenda to make sure, or do you maybe, maybe you don't care? But I was thinking, given those stats, do you want to be more vocal in the media about the fact that you are winning Gen Z? Or do you just let the results speak for themselves and not worry about the prevailing narrative? I do think we try to be vocal. I think

Starting point is 00:24:57 one of the things that I've personally tried to be vocal on is the difference between investing and gambling. What I worry about, I don't worry about the success of some competitors who are doing well with young investors. That's fine. I want young investors to get invested, to make money, to make investing a part of their life, like it is a part of your life. Think how much investing has done for each of your lives. And if we could get every young investor come out of college or in college to begin to think that way, it would make a huge difference.

Starting point is 00:25:24 But what I worry most about is that the message some are getting is, hey, the way to win is come back on the 10-game parlay of football this weekend, maybe buy a little crypto and off you go. Can we pause on that? I think you took out a full-page ad in a newspaper saying, something to the effect of

Starting point is 00:25:46 that's the difference between gambling and investing was that you guys or do I have that wrong? I think you're thinking of public.com they said something about don't find your bookie come to us or something I know the ad you're talking about. Well, wealth isn't won in a bet

Starting point is 00:26:04 or something to that effect. But we would agree with that kind of message. Yeah, well I was going to say you guys did not jump all in on the circus when the circus was in town in 2021, you guys sort of seemed to just stay the course and that ended up making you look very good in the aftermath. I want to be clear.

Starting point is 00:26:22 We have a lot of active traders that come to Schwab because we've got the best platform education research in the industry. And so we support active traders. But there's a difference between being an active trader, looking at the charts, looking at the fundamentals, having a point of view on a company, having a game plan for what you're going to do when things change and and again, betting on what the first song Bad Bunny is going to sing is.

Starting point is 00:26:47 So one of the main differences between the actual casino and the stock market is, yeah, you could treat the stock market like a casino. You could roll the dice 30 trades a day. It's free. You could do that if you want. But the key difference is the longer you stay inside the stock market, the more likely you are to win where obviously the casino is the exact opposite. it. One of the things that has, I think, I think a lot of the people are, frankly, drunk on

Starting point is 00:27:12 prediction markets. I understand why there's been a lot of early success. I understand, well, listen, is 80% of it sports betting at this point? Are you guys going to, and ever as a long time, is that on the roadmap of prediction markets? I'd break prediction markets. By the way, it's 90% plus sports gambling. There's three parts of prediction markets to me. Number one is the information you get from the odds embedded into different events happening. I think that's useful information for investors. So at some point we may display that at Schwab. You know, what's the likelihood of the inflation report being hot? Like, investors might want to know that. You would display it, but not necessarily offer bets on it. Well, the second part of prediction markets to me and how they started

Starting point is 00:27:58 was on financial related events. You want to take, you know you want to buy a Fed. What's the Fed going to do? What are mortgage rate's going to do if you're going to buy a house, maybe you want to hedge yourself. That's how they got started. And then the election came along and volume went through the roof and they said, how do we replicate this? And then they got into the third part of prediction markets, which is all sports. And that's where all the volume is. So I think as we think about those three parts of prediction markets, information I think is relevant and we'll make available. Financial predictions at some point we may do. And sports, we really want to stay away from. Because, again, our entire mission of our company, the reason all 33,000 people get out of bed every day is to make people better off in their financial life.

Starting point is 00:28:40 So here's what I like about prediction markets. I do believe that there is wisdom in crowds. He's such a junkie. No, no, listen. Well, yes, I am. Guilty is charged. I do believe that there is wisdom in crowds. And so, for example, if you were able to, because surveys are nonsense, because, right, there's no stakes.

Starting point is 00:28:59 So if people are able to put their money where their mouth is, And say, for example, so the Satrini research report a couple of weeks ago, will unemployment be over 10% by 2028? If no was at 97 cents, I would feel a lot better. If that was an active contract that you can monitor, I would look at it. If there was a way for investors to get, so investors can't get access to SpaceX, right? All of these exciting companies where getting into SPVs and SPVs, it's nonsense, right? We all understand that. But what if there was a market where will SpaceX IPO at a 400 billion, or,

Starting point is 00:29:32 trillion dollar valuation or whatever it was. Things like that where you can harness wisdom in the crowds where it's not insider information, I think there's value there. Yeah, I wouldn't disagree with that. I agree. The only part I would disagree with, if you want SpaceX shares, go to forge.com, we just bought them. And by the way, we are going to roll out their

Starting point is 00:29:48 capabilities first to advisors before we bring it the retail. Hang on, you can't get SpaceX on Forge. They've had SpaceX. For the audience of Forge, similar to Equities and which Morgan Stanley bought, These are platforms that allow people to buy and sell pre-IPO startup backed, you know, venture capital-backed companies. Somewhat similar. I think Forge is three to four times bigger, number one.

Starting point is 00:30:12 Number two, they're much bigger in direct shares. So Equity Zen is as a strong position in SPVs, whereas Forge is offering actual shares more. So private markets has been a thing, obviously. And we keep hearing from the suppliers of the private market. because there is so much end user demand. You are in a much better position than I am to say, is that true? Is there actually clients that really want,

Starting point is 00:30:42 whether it's infrastructure or private companies or whatever, how much demand is actually there? I think there's demand. There's a long education cycle as it relates to alternatives, as you likely know in working with your clients. We launched to retail an alternative platform about 18 months ago. And what we have found is that the sales cycle, in order to introduce a client to it, to have them talk to one of our alternatives experts, it takes a long time.

Starting point is 00:31:07 And so I think people need to be pragmatic about how long it's going to take for alternatives really to grow in retail. But I think it's great that they have the option. Over time, you should think that alternatives should deliver attractive risk-adjusted returns and be diversifying. And so in someone's portfolio could be added it. I want to talk about another competitor coming in at the high end of the, the market. Goldman Sachs, very interested in RAA custody now. I get the calls and the emails, as I'm sure a lot of people in the audience does. Does that change any of your plans for how

Starting point is 00:31:45 you want to help advisors service the ultra high-end client that they currently work with at Schwab today? You guys look at that and say, you know what, this is good, it actually validates the opportunity? What's your, what's your mentality around a player like a Goldman entering? Well, number one, I think we, we always want to affirm why we're in this industry, which is to drive your success. This isn't about us. We're not trying to put product into RIAs. The only thing we are doing is trying to bring all of our energy to make RIAs successful. So I think that's the starting point. Number two, in order to be, have the market share that we have and the growth that we have. We've got to be great at every segment. And so I think that,

Starting point is 00:32:30 you know, if there's, if there's a gap in the ultra high net worst segment, we're going to close it. I mean, I haven't necessarily heard that. I think some esoteric lending capabilities, sometimes I hear the need for that, and maybe that's something Goldman will offer. But if it's about product, like, you can get Goldman product as an RAA at Schwab. The last thing I would say about competition generally in this industry is there's been a lot of tries to compete with us. But the challenge is with our size and scale and the economic model, which is we don't charge for custody, it's really hard for new entrants to gain traction. And if you're one of these big firms that, you know, like Robin Hoodbought trade PMR,

Starting point is 00:33:14 they've got to be looking at the economics of this saying, why are we doing this? I mean, they make their average revenue on a client assets, 1.6, 1.6.1.5. point seven percent, we make 10 basis points in our advisor business. It's a thin margin business, and that's at our scale, five and a half trillion. So listen, we welcome all competition because ultimately it makes us better and makes the end investor better off. But I think as people enter, they've got to realize it's not easy swimming. So Robin Hood entering, they're coming into a business with lower margins than their bread and butter business. Without a doubt, I mean, I think you look at their revenue and divided by their client assets.

Starting point is 00:33:53 It's something like one point. So they earn a $1.60 out of every $100. $10.20 business they're coming into. We would earn $0.10. We earn $0.10 on average with $5.5 trillion of client assets. So that's with far more scale than anyone else. So it's just, it's hard for competitors to enter and be successful, which is why we've seen a lot try, but then they go away.

Starting point is 00:34:13 And I understand, I have a lot of respect for Goldman, and I'm friendly with John and David. And I understand. I think they're, if you're sitting there, they're an asset manager, they're a wealth manager. They want to get their product out there. And so it makes sense. But ultimately, I don't see them as a core competitor in the basics of the custodial business. Let's talk about AI. So in your latest earnings report, you said that you've got 220 plus artificial intelligence use cases.

Starting point is 00:34:40 I'm curious, not just for what you're seeing in the wealth space, but also what are you using internally to drive efficiencies? Yeah, AI is going to be huge. I think it's going to change things in our industry. It's going to change the way clients interact. We're using it, and I'll describe a few ways we're using it today. Number one, we're using it to make our professionals more efficient. So when any of you call an advisor now, that call is being recorded, where we used to spot check calls and provide coaching to our professionals, now we have AI that reads every transcript surfaces opportunities to coach our people. So we're making our people more. It's only going to take you to implement something like that. That was quick. And it's quick because we rely on external providers. I mean, one of the things, Josh, I know you and I have talked about is how there was that report on AI and how it hurt our stock and other stocks. We're going to get to that.

Starting point is 00:35:30 But what people don't realize is we love the innovation in AI because that means we put it on our platform and bring it to you. And we're leveraging all that stuff ourselves. So AI is making us more efficient in operating the business and answering phone calls. It will also change the way we interact with clients. There's no question that in five years, we're like going to have an agentic experience where you're coming on to sac.com, SchwabAdvisorCCenter.com, and you're speaking to something and getting your task done. Or the way we deliver tax trust and estate information is changing now. But an ownership stake in wealth.com, which is an AI firm that delivers trust using AI.

Starting point is 00:36:12 All this stuff is revolutionary and making a big difference. It's going to allow us to serve clients in a different way. Were you surprised by the reaction in the stock market to some of the announcements coming out of both competitors within the wealth tech space, but just anthropic in general? And watching the share price movements in gigantic corporations like Schwab, did that catch you by surprise? And what do you remember from that moment? Because it probably wasn't your favorite day of 2026. Well, the reaction was surprising to me. Me too.

Starting point is 00:36:50 Yeah, I looked at it and said, this is the craziest thing I've ever seen. Well, just the magnitude didn't make sense. I mean, we are ultimately someone that brings technology to our clients. We want technology innovation. So if there's a tax planning capability that's driven by AI that's great for clients, outstanding. That's not going to hurt our business. That's going to help our business.

Starting point is 00:37:10 So the idea that there was this tax capability out there, and that was going to undermine our business, it's fundamentally flawed because it's going to do nothing but help our business. So I think we're going to be a beneficiary of AI. We have the size and scale to make the investments to win. We know the RIAs are going to need to adapt to AI and use it to power their business and power their success. We also know you're going to be competing against agentic advisors in the future,

Starting point is 00:37:35 and we think we have the size and scale to be able to deliver all of that to you to make you successful in an AI world. That doesn't mean we have to build every piece of AI capability ourselves. It just means we need to bring it to you to empower you to succeed. I wanted to ask you, I think this is definitely relevant for people in the audience. You were asked about this on the call, on your earnings call, about the tax-advantaged, long-short strategies, and Fidelity paused the onboarding, I think, in December, and it doesn't sound like it's unpausing anytime soon. That's a big and growing part of our business.

Starting point is 00:38:12 These go $1.30-30 funds. Yeah, so are you, yeah, the long, short extensions that I think drive a lot of value for clients. What's your plans there? We are seeing tremendous growth in that area through all of you. I mean, all of you are seeing a lot of growth, and it's coming to us because there's not really anyone else that can support it. You're not going to rug us, are you? No. No, I think, you know, we benefit from the fact that we've got a big balance sheet.

Starting point is 00:38:37 We're a public company. We can access markets. And so we can support the balance sheet growth that's support. supports the leverage behind the strategy. So we are supportive of it. And you can see why it makes a ton of sense and why I think it's going to continue to grow. We have, I'll speak to our retail business for a moment. We have 70% of our retail clients that have a large concentrated position. And I'm sure a lot of your clients have benefited from single stocks that have gone well above where they expected. So they're sitting on these enormous gains. This portfolio makes a ton of sense.

Starting point is 00:39:10 We're going to support it. And I just want everyone in this audience to know that's an RIA, bring your new assets to us. We'd love to support you. Good answer. I want to close with some career stuff for the people listening at home and the people in the audience here and maybe industry specific, but maybe just generally. You must be in the midst of as many conversations as I am about the future of work, the future of the advice business, the future of the human advisor within the advice business. business, what are you thinking, what are you telling people, what are you hearing on this disruption theme, which clearly is the predominant cause of both excitement and anxiety, I would

Starting point is 00:39:53 say, in our industry in 2026. Well, I think you've got to embrace it, number one. I'm trying to embrace it, but then I get nervous again. But I think you've got to embrace AI, and it's just like the internet. The internet was coming along. If you didn't like it, you couldn't stop it. And if you were in a business that was going to be hurt by it. It didn't matter what you felt about it. You were going to be hurt by it. And so I think you've got to embrace it. Number two, you've got to have a strategy for it. I think there's going to be lots of ways that you can use AI to build your business. What would you be doing then? What the strategy? You're a you're an RIA founder,

Starting point is 00:40:28 have a few advisor employees, a couple of billion dollars. What would be your formulation of an AI, AI ready plan for that person? Okay. Number one. One, I would be getting rid of a lot of the manual work that supports every part of the value chain of being an advisor. Rick said fire all of your staff. Oh, no. I want to be clear. I didn't say it. No, he didn't say that.

Starting point is 00:40:49 What I mean is like trust tax and estate work. You want to get your trust done today. You go out to an attorney, spend thousands and thousands of dollars, takes lots of time. We use, with our clients, something called Wealth.com. It's completely driven by A. It's a way. Yeah, it's a great product. Shout to Wealth.

Starting point is 00:41:05 And that's going to be true across planning, research, tax, trust, estates, investing, rebalancing. Every part will have an AI component. And if I was an advisor, I'd be thinking about how to get that in my technology stack and then how to direct my people to the really important role in advisor plays about maintaining the relationship, being there for clients, working with them through the emotional part of investing because that's incredibly valuable. When you see the market tank and your client comes in and says, I want to sell everything, that's the moment where you shine. Maybe you'll be able to differentiate your yourself on planning in the future, but it's probably going to be driven by AI. You might as well

Starting point is 00:41:42 embrace it. Focus on the relationship, focus on the emotions. And then I would be using it offensively because all of you likely work with wealthy clients because it scales your business. It makes sense. I think AI is going to provide the ability for you to start with clients younger and at lower wealth levels. It will ultimately become your wealthier clients that need more handholding as their life becomes more complex. So I'd be embracing it from an offensive. Are advisors ultimately going to be displaced by AI? I think there will be AI wealth advisors and we all need to recognize that, plan for that, and have a strategy for how to address that, number one. Wait, what do you mean AI wealth advisors? Like literally robots that look like

Starting point is 00:42:24 humans or what do you mean? Agentic wealth management where the line is interacting with. Yeah, Josh did a great job. He's, look, he's on TV all the time. He's better spoken than I am. Maybe just handsomer. I don't know. But I think there will be advisors, yeah, A advisors that you're just dealing with on your computer where there's not a personal, but no different, by the way, than robo advising. And robo advising has not displaced the growth of the RAA. I think we're the biggest robo in the world, and we've got $100 billion. We've got $5.5 trillion on our RIA platform. So, but there will be, I think, some people that just want to deal with the agentic experience, particularly when they're young

Starting point is 00:43:04 and their life is less complex. But that's going to change. And but I think that's the opportunity. built an agentic experience, get clients younger, less wealthy. Some of those are going to become the big clients you're getting today. And I think making that transition and having that capability ready is going to be important. That's pretty much exactly what I think. So we're up, we're on the same page in that regard. I think firms are going to be more open-minded to working with younger clients at lower minimums because so much of that process will be automated. So I completely agree. Guys, round of applause for Rick Worcester. All right. Nicole will kill me If I don't let you know that Idon Shop.com is the official compound merchandise store.

Starting point is 00:43:45 If you don't catch a t-shirt, Rick, you're going to throw some shirts with us? Absolutely. All right. If you don't catch one, you can go there and grab one. You guys have been amazing. Thank you so much for joining us. Give yourselves a round of applause. Thank you.

Starting point is 00:43:58 We love you.

The Compound and Friends - A Sit-Down with Rick Wurster, CEO of Charles Schwab

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