Speaker 1: This is Bloomberg Business Week, Daily reporting from the magazine
Speaker 1: that helps global leaders stay ahead with insight on the people, companies,
Speaker 1: and trends shaping today's complex economy. Plus global business, finance
Speaker 1: and tech news as it happens. Bloomberg Business Week Daily
Speaker 1: with Carol Masser and Tim Steneveek on Bloomberg Radio.
Speaker 2: Hi, everyone, welcome to a special edition of Bloomberg Business Week.
Speaker 2: We are looking at some of our favorite guests from
Speaker 2: the Schwab Impact twenty twenty five event held this past
Speaker 2: week in Denver, Colorado. This event brings together advisors from
Speaker 2: around the country and those in the industry that support
Speaker 2: them with services and tools.
Speaker 3: Coming up, we're going to hear from some familiar names
Speaker 3: folks like Liz Anne Saunders and Kevin Gordon and more.
Speaker 3: Plus so look at how AI is changing the investing landscape.
Speaker 2: Yeah, we're going to talk about AI a lot. We
Speaker 2: begin with Schwab CEO Rick Wurster. Well some deal flow,
Speaker 2: Charles Schwab agreeing to buy Forge Global Holdings. It's a
Speaker 2: marketplace for buying and holding shares at private companies. It's
Speaker 2: about a six hundred and sixty million dollars deal we're
Speaker 2: talking about forty five dollars a share, that's about seventy
Speaker 2: two percent above the closing price on Wednesday. So delighted.
Speaker 2: I didn't expect to be talking to you so soon,
Speaker 2: but I'm delighted that you made time for us. Rick Worster,
Speaker 2: of course, president CEO of Charles Schwab here at Impact
Speaker 2: twenty twenty five. It is your annual event for independent advisors,
Speaker 2: and I'm sure that they're kind of curious about this deal.
Speaker 2: Why now and why this company?
Speaker 4: Well, we're thrilled to be able to democratize access to
Speaker 4: private investing. This is a market that forever has been
Speaker 4: for the high net worth and the ultra high networth,
Speaker 4: and with the acquisition of Forge, we'll be able to
Speaker 4: bring access to private companies to every investor. And so
Speaker 4: we're thrilled about that. Second, it continues our history of innovation,
Speaker 4: and our innovation has always centered around what we what
Speaker 4: can we do to provide more access, more opportunity to
Speaker 4: our clients so they can grow and improve their net worth.
Speaker 4: So we're just thrilled about this. And Forge was to
Speaker 4: the firm we really wanted to work with.
Speaker 2: It's been a lot of speculation about this company.
Speaker 4: Yes, as you know, yes, well, you know there's stock
Speaker 4: who's down ninety percent off its highs and at the
Speaker 4: same time, they're the leader in the private company marketplace,
Speaker 4: and so for us to be able to acquire the
Speaker 4: leading company that has.
Speaker 5: The deepest relationships with the private.
Speaker 4: Companies and who have the stock opportunity, it's just phenomenal
Speaker 4: for us.
Speaker 2: Rick, was it a bit competitive? And I'm just thinking
Speaker 2: about the premium that you guys paid. I'm thinking of
Speaker 2: was it Morgan Stanley just did a deal to buy
Speaker 2: equity Zen, which is another similar platform, So it does
Speaker 2: feel like big firms are jockeying to provide this access
Speaker 2: to their investors. So was there pressure to do this
Speaker 2: deal and get it done now?
Speaker 4: Well, as a public company, Forge has to run a
Speaker 4: process and so absolutely this was a competitive process.
Speaker 2: They've been pretty I think transparent about this.
Speaker 3: Yes.
Speaker 4: From our standpoint though, we think we're paying a very
Speaker 4: reasonable price where it's five times revenue less than what
Speaker 4: we trade on a revenue basis, and the opportunity for
Speaker 4: us in private markets is so much bigger than what
Speaker 4: we're paying for the company. We're paying six hundred and
Speaker 4: sixty million dollars for the company. This market could be huge,
Speaker 4: and when we bring our forty six million clients to
Speaker 4: this marketplace, I think the opportunity to grow our economics
Speaker 4: is significant. But most importantly and why we did this
Speaker 4: deal was not about making money.
Speaker 6: Relative to the purchase price.
Speaker 4: It was about democratizing access to private investing and to
Speaker 4: helping our clients grow their wealth.
Speaker 2: Will this only be for accredited investors or what's the
Speaker 2: plan in terms of new product placement or product offerings
Speaker 2: to offer it up to the retail investor.
Speaker 4: What I'm so excited about is we're going to have
Speaker 4: an opportunity for every type of investor to invest in
Speaker 4: alternatives with this acquisition. Well, three ways that clients can
Speaker 4: invest today. We already have for both our rias and
Speaker 4: retail clients a menu of alternative managers, the leaders that
Speaker 4: you're aware of, some of the big names in private
Speaker 4: equity and venture capital. That's one way our clients can invest.
Speaker 4: The second way is through this acquisition of Forge, which
Speaker 4: owns an asset management company, we will in the first
Speaker 4: core of next year, launch an indexed fund that is
Speaker 4: an index of the sixty biggest private companies and any
Speaker 4: investor with any wealth if they have interests in that,
Speaker 4: we'll be able to invest. And then third, for accredited investors,
Speaker 4: we will have a marketplace opportunity for those investors to
Speaker 4: buy individual private companies and invest in those companies directly.
Speaker 4: That does require you being an accredited investor.
Speaker 2: A couple of questions I want to ask you, So,
Speaker 2: how does it kind of improve your ability to win
Speaker 2: more wallet share when it comes specifically to clients. We
Speaker 2: know that retail investors have been clamoring for more access
Speaker 2: to private markets.
Speaker 4: I think we've gone I.
Speaker 2: Know it's not about money, yeah, or I know it's
Speaker 2: not about in terms of the price you paid, but
Speaker 2: it is about right, Like you want to make sure
Speaker 2: your clients are happy and they're getting all the offerings.
Speaker 2: So I'm just curious, how does it help you win
Speaker 2: more share?
Speaker 4: Over the last ten years, we've become a premier destination
Speaker 4: for high net worth and alternate high networth clients. And
Speaker 4: the reason for that is we have a product offer
Speaker 4: that can't be matched, whether it's access to privates, lending
Speaker 4: capabilities that are straightforward, fast efficient with great rates, wealth
Speaker 4: support on their tax, trust and estate needs, and access
Speaker 4: to live individuals to speak to. They can walk into
Speaker 4: one of our four hundred branches all across the country,
Speaker 4: have a conversation with a real life person about their
Speaker 4: financial needs, have a discussion about financial planning and what's
Speaker 4: going on in their life. And so we really have
Speaker 4: become over the last decade a premier destination for high
Speaker 4: network clients. And this acquisition just adds to our capabilities.
Speaker 2: What about from your rias? And I think about all
Speaker 2: the independent advisors who are here. This is what this
Speaker 2: event is all about. So how much does this kind
Speaker 2: of help them in their pitch to clients? And I'm
Speaker 2: just curious, is this to some extent in response to
Speaker 2: what you've been hearing from independent advisors?
Speaker 4: It absolutely is, And this is a game changer for
Speaker 4: us in the RIA space. Today, we have five trillion
Speaker 4: dollars of RIA assets that we custody. One point two
Speaker 4: percent of them sit in alternatives. We know there's more
Speaker 4: demand that number probably should be closer to five, six
Speaker 4: or seven percent, And with this acquisition, we've now given
Speaker 4: them three different ways to get invested, and I expect
Speaker 4: over the coming years we'll see that one percent grow
Speaker 4: more towards the five percent. So the rias are thrilled.
Speaker 4: They've wanted us to do more and alternatives, and I
Speaker 4: think with this acquisition.
Speaker 6: We've nailed it.
Speaker 2: And you said the new client offering, it's next year,
Speaker 2: we'll see it early part of next year.
Speaker 4: Well, Forge is up and going today, so hopefully some
Speaker 4: of our clients will go find it and start getting
Speaker 4: invested if that's what they want to do.
Speaker 3: But but I.
Speaker 2: Have non accredited I think about like.
Speaker 4: That will We're going to launch the fund in the
Speaker 4: first quarter of next year, that's the current plan, and
Speaker 4: then we'll continue to roll out their services in the
Speaker 4: coming months.
Speaker 2: Again, you know, the other side of this rick is,
Speaker 2: you know, concerns about hurdles in terms of transparency and
Speaker 2: investors really understanding what they're buying when they tap into
Speaker 2: anything in the private markets. So are there any kind
Speaker 2: of hurdles that you anticipate, regulatory or otherwise.
Speaker 4: That's why we really wanted to work with Forge, Okay,
Speaker 4: because Forge is the market leader in providing robust research
Speaker 4: to clients, and so clients will be able to access
Speaker 4: that level of research through four. In addition to that,
Speaker 4: we've also stood up a team of alternative investment experts
Speaker 4: at our firm that any client can call and talk
Speaker 4: to about, you know, a question they have about a
Speaker 4: type of alternative or a particular investment that they want
Speaker 4: to make. And so we really are trying to do
Speaker 4: everything we can to support clients. This is a great
Speaker 4: opportunity for clients to be diversified, to grow their wealth
Speaker 4: in a new asset class. But at the same time,
Speaker 4: we want to make sure we do everything we can
Speaker 4: that they for them to be able to do this
Speaker 4: in a thoughtful, well researched way.
Speaker 2: Is there a company you're most excited about that's on
Speaker 2: the Forge platform or that might be on the Forge platform.
Speaker 7: At some point?
Speaker 2: I mean, there's opening, there's anthropic. Is there any company
Speaker 2: that you're really excited about?
Speaker 4: Not a particular one I'm interested in, but I am
Speaker 4: thrilled that there are a lot of people on our
Speaker 4: platform and a lot of people that listen to your
Speaker 4: show that are active in markets and they want to
Speaker 4: get into cracking because they love crypto or you know,
Speaker 4: they love el On Musk and want to get into SpaceX.
Speaker 2: So that sex is another one.
Speaker 7: Yeah.
Speaker 4: I think that's what so interesting is that we find
Speaker 4: a lot of our investors do have these passions and
Speaker 4: now they're going to be able to invest in them
Speaker 4: through private companies.
Speaker 2: So we know you took over in January, this is
Speaker 2: your first deal. Is there more em and a to come?
Speaker 6: Like?
Speaker 2: How are you thinking about what else you need to
Speaker 2: bring under the Schwab umbrella.
Speaker 4: Well, with forty six million clients on our platform, we
Speaker 4: have an incredible opportunity to continue to add capabilities to
Speaker 4: serve and meet more of their financial life. The average
Speaker 4: fifty year older than fifty year old client has seven
Speaker 4: financial services relationships in their life, so we want to
Speaker 4: add more and more capabilities so they can handle more
Speaker 4: of their financial life at Schwab. And as we add
Speaker 4: those capabilities, we'll either build them, we can partner, or
Speaker 4: we can buy and so we'll look at all three
Speaker 4: of those. But we want to round out our capabilities
Speaker 4: and do everything we can to stand behind our clients
Speaker 4: and make a difference in their financial life.
Speaker 2: And just one last question, mostly small, probably tack ons.
Speaker 2: I mean, you guys already have digested a large company,
Speaker 2: so I'm just curious or could it be a pretty
Speaker 2: significant and an a deal.
Speaker 4: You know it's going to depend when again and we'll
Speaker 4: look at build by partner based on what capabilities we
Speaker 4: want to add, but I think we're open to just
Speaker 4: about anything. We want to grow our company. We want
Speaker 4: to do the best job we can serve in clients.
Speaker 4: We want to make a difference in their lives, and
Speaker 4: if there's a company or capability out there that we
Speaker 4: can add to our platform that's going to make a difference,
Speaker 4: we're going to do it well.
Speaker 3: The market environment right now, we want to dive right
Speaker 3: in there, because really this week we've heard from different
Speaker 3: Wall Street executives that an overdue collection of weighed on
Speaker 3: the market this week so reduced expectations at that rate, cuts,
Speaker 3: a prolonged government shutdown. Michael Burry added to the negative
Speaker 3: tone with his disclosure of farish wagers on talent here
Speaker 3: and Nvidia. How do you see today's environment from sort
Speaker 3: of a risk reward perspective.
Speaker 4: We try to focus our clients on the long term.
Speaker 4: I think that owning securities and assets over long periods
Speaker 4: of time will generally go up. It's really hard to
Speaker 4: get the timing of markets down because you have to
Speaker 4: make two correct calls.
Speaker 5: First.
Speaker 4: You got to nail it to get out at the
Speaker 4: right time, which is really hard. In the strength of
Speaker 4: the kind of market we've had in the momentum, we've
Speaker 4: had to get out at the right times incredibly hard,
Speaker 4: and then you've got to be able to get back
Speaker 4: in at the right time or you miss out. I
Speaker 4: was down in Charlotte, North Carolina, visiting with some clients
Speaker 4: and I heard from one client who back in twenty
Speaker 4: sixteen didn't like the presidential administration and so had sold
Speaker 4: out of stocks. And this was back when we were
Speaker 4: having a pullback, and they said, would now be a
Speaker 4: good time to get back in the market, and they'd
Speaker 4: set out a huge amount of gains over a short
Speaker 4: term point of view. We try to have clients avoid that.
Speaker 4: Clients can stay in the market and tolerate some volatility.
Speaker 4: We think over the long run that gets rewarded because
Speaker 4: it is so hard to call the markets both when
Speaker 4: to get out and when.
Speaker 3: To get back in.
Speaker 2: So as you walk around the floor and you're talking
Speaker 2: to advisors, I mean, what are they talking about, you know,
Speaker 2: in terms of timely advice that you're getting maybe from
Speaker 2: the advisors and what they are kind of hearing from
Speaker 2: their clients.
Speaker 4: I think one of the most pressing topics from investors
Speaker 4: today is how to navigate concentrated positions, the S and
Speaker 4: p's as it's concentrated, as it's.
Speaker 2: Ever been right, the mag seven, the big tech, Yes.
Speaker 4: And it's created a tremendous wealth for lots of retail investors,
Speaker 4: and now they're wondering how to diversify their portfolio and
Speaker 4: to do so in a way to minimize their tax burden.
Speaker 4: And there's all kinds of strategies that they can work
Speaker 4: with their advisor on to create a more diversity portfolio
Speaker 4: without having to pay a tremendous amount in capitalating.
Speaker 2: How hard is it, though, that when clients are like,
Speaker 2: but why would I want to get out of Nvidia
Speaker 2: when I've seen what they've been doing for how many years?
Speaker 8: Like?
Speaker 2: How tough is that? Because we constantly have conversations of
Speaker 2: people saying it's time to you know, broad nab back
Speaker 2: off the big tech, and then it's the big tech
Speaker 2: with so much momentum.
Speaker 4: Well, you're absolutely right, and it's a really hard conversation
Speaker 4: to have and oftentimes we don't win it, but we
Speaker 4: want to make sure the client is cognizant of the
Speaker 4: risk and the choice that they're making and to be
Speaker 4: fair to those investors, they've been right by sticking with
Speaker 4: their concentrated position for the most part, because the names
Speaker 4: that have driven the market higher have been the same
Speaker 4: ones here for a while, and so many people are
Speaker 4: stuck with it and they are sitting on more gains
Speaker 4: and they might have anticipated.
Speaker 3: So let's go further into the retail trader, because they've
Speaker 3: grown about twenty percent of the US equity market today.
Speaker 3: I'm curious about sentiment trends, like how the structure of
Speaker 3: this trend, how resilient are retail traders in an eventual downturn. Why.
Speaker 4: I think retail traders have been the ones leading the
Speaker 4: market higher and have been the ones buying the ditch.
Speaker 4: And I think they were out actually in many ways,
Speaker 4: out ahead of the institutional buyers. And so I think
Speaker 4: you have a retail buyer that has strong hands and
Speaker 4: we'll stick through the market. So we'll see how it
Speaker 4: all plays out. But markets go up and down, and
Speaker 4: retail investors will inevitably, you know, make some decisions in
Speaker 4: there that's best for them.
Speaker 3: That's Rick Worster, president and CEO of Schwab, coming up
Speaker 3: more from our conversations at the Schwab Impact twenty twenty
Speaker 3: five events in Denver, Colorado.
Speaker 2: Up next, we hear from Schwab Chief Investment Strategist Liz
Speaker 2: Anne Saunders and what she expects in markets for the
Speaker 2: rest of the year.
Speaker 3: This is Bloomberg.
Speaker 1: This is Bloomberg Business Week Daily with Carol Masser and
Speaker 1: Tim Steneveek on Bloomberg Radio.
Speaker 2: We are back here on a special edition of Bloomberg
Speaker 2: Business Week. It's all about some of the highlights from
Speaker 2: Schwab Impact twenty twenty five. It was held this past
Speaker 2: week in Denver, Colorado. It's all about bringing together financial
Speaker 2: advisors from around the country. Those in the industry too
Speaker 2: that support them with various applications, services and tools. And
Speaker 2: up next we hear from a voice that has followed
Speaker 2: financial markets, Tim for a long long time.
Speaker 3: Our conversation on markets with Schwab Chief Investment Strategist Liz
Speaker 3: and Saunders.
Speaker 9: I'm so glad you're here.
Speaker 10: Thank you.
Speaker 9: Welcome to our cozy, little event.
Speaker 2: Five people.
Speaker 3: It's not cozy and it's not little, but we are
Speaker 3: happy to be here. It's a huge event. It was
Speaker 3: huge last year in San Francisco. It was huge before
Speaker 3: that in Philadelphia, you were shaking your head when I
Speaker 3: was saying everything is awesome.
Speaker 6: Well, it's it's a.
Speaker 9: Bit of a tale of two markets.
Speaker 11: You've got cap weighted index returns and the lack of
Speaker 11: any significant downside, particularly since the April eighth closing low.
Speaker 9: But here's an example.
Speaker 11: The average member within the SMP just since April eight
Speaker 11: has had a sixteen percent now actually seventeen percent draw down.
Speaker 11: The average member within the Nasdaq since April eighth, when
Speaker 11: the nasdac's up fifty some odd percent, has had a
Speaker 11: average maximum drawdown of thirty six.
Speaker 2: So this breath isn't there.
Speaker 11: The breath isn't there, But there's a lot of churn
Speaker 11: and rotation going on under the surface that you don't
Speaker 11: pick up if you're only looking at the index level returns.
Speaker 2: Are we starting to see signs where investors are kind
Speaker 2: of questioning some of the valuations that are out there,
Speaker 2: the AI spend and whether we're getting the return on
Speaker 2: investment on it. Tell us you're thinking.
Speaker 9: OK, I think the margin of era has narrowed a bit.
Speaker 11: There's obviously sensitivity, whether it is diminution in return on
Speaker 11: US capital, whether you're seeing pressure on margins obviously, the
Speaker 11: concern about the circularity of financing and the fact that
Speaker 11: so far that's a real thing.
Speaker 2: I mean, we are kind of blown away. What feels
Speaker 2: like it's all in the family.
Speaker 3: Yeah, here's five billion dollars, so you can buy five
Speaker 3: billion dollars with the stuff from us, right, You guys.
Speaker 11: Like Bloomberg had this incredible visual that I think made
Speaker 11: it on Michael Burry's post.
Speaker 9: Yes, but it's that is such a great visual.
Speaker 11: I've seen more simplistic ones of a power strip with
Speaker 11: the plug plugged into the power strip.
Speaker 2: Yeah, but that's exactly true, right.
Speaker 11: And I think you know, the boom so far has
Speaker 11: been financed out of cash flows. It's been largely equity financed.
Speaker 11: But now you've got as to just pick on the
Speaker 11: MAG seven cohort MAG seven free cash low growth has
Speaker 11: gone from more than sixty percent year over year six
Speaker 11: quarters ago to now two quarters in a row of
Speaker 11: negative and so you're starting to see more deals financed
Speaker 11: with that.
Speaker 9: That's not necessarily a bad thing. It's just a different environment.
Speaker 2: But that I do want met in alpha that right,
Speaker 2: didn't they just recently do with oversubscribe, Like there's lots
Speaker 2: of investor interests, but I do like, I don't know,
Speaker 2: Liz what we just have to keep an eye.
Speaker 11: On it, or I think you evaluation is a is
Speaker 11: a tough one. I think valuations and I'm going to
Speaker 11: say this generally, not just specific to AI stocks or
Speaker 11: Max seven. It's not a market timing tool. It's more
Speaker 11: it's more a temperature gauge than it is a timing gauge.
Speaker 11: It's almost an indicator of sentiment. There are times where
Speaker 11: valuations can get stretched, and they can get more ridiculously stretched,
Speaker 11: and the market still has a long runway ahead of it.
Speaker 11: So I think it represents some of the anks that's
Speaker 11: coming into the.
Speaker 9: Narrative right now.
Speaker 11: But it doesn't necessarily pretend impending doom. It's just a
Speaker 11: it's a cost saver AI and it boosts margins. So
Speaker 11: we had we had the really focus solely on the
Speaker 11: hyperscalers and the chips, and then more recently it's gone.
Speaker 9: Into the energy usage in the data centers.
Speaker 11: Now, I think where you're actually getting meat on the
Speaker 11: bones in terms of productivity statistics, in terms of the
Speaker 11: beneficial to costs is the users of AI.
Speaker 9: And I think that is likely to continue.
Speaker 3: But then does it create this destructive element in our
Speaker 3: society as a result of those entry level jobs, those
Speaker 3: white collar jobs, those blue collar jobs that end up
Speaker 3: being completely eliminated. I mean, I know we're talking about
Speaker 3: a future that none of us can see. But we
Speaker 3: had an interesting conversation with David Weston last week and
Speaker 3: he was basically like, how do we have this payoff
Speaker 3: without the money savings from getting rid of all these employees.
Speaker 9: Basically, I think that we're.
Speaker 11: In a moment of creative destruction to quote Trumpeter. Yeah,
Speaker 11: and that happens anytime we have a major innovation or
Speaker 11: we've shifted our economy from being an ag economy to
Speaker 11: industrial industrial to innovate.
Speaker 9: And that happens. But ultimately new types of jobs are created.
Speaker 11: I actually think that companies that don't adopt AI are
Speaker 11: going to have more job losses. I think what we
Speaker 11: need to bring in is what AI doesn't yet provide
Speaker 11: and maybe won't ever, you know, the seeds creativity and
Speaker 11: culture and community and connection context. So I think there's
Speaker 11: still I still think AI. Yes, it is replacing certain
Speaker 11: kinds of jobs, but I think it's replacing tasks more
Speaker 11: than it's replacing full occupations. But I think workers have
Speaker 11: to adapt to it and adopt it and bring it
Speaker 11: into their lives or they will be left behind.
Speaker 3: You know.
Speaker 2: I pulled up my phone because someone came up to
Speaker 2: us and Dwayne, who is a financial advisor, he's here,
Speaker 2: and he said, you guys did something on AI. I did.
Speaker 2: We did something at an event and we had somebody
Speaker 2: who showed how to use AI and you said. After that,
Speaker 2: I went home and started playing machacchi.
Speaker 3: Because I have the panel you did at this conference
Speaker 3: last year in San Francisco.
Speaker 2: No, it wasn't. No, I don't think so.
Speaker 3: Okay, well it was something, but anyway, there's a lot
Speaker 3: of stuff.
Speaker 2: But what he said is he was able to ask
Speaker 2: a questions. Do analytics so much faster? It was accurate
Speaker 2: And he said it just took less time and I
Speaker 2: actually produced better returns for my clients, which was pretty
Speaker 2: cool stuff.
Speaker 11: It is a game changer. But the hallucination rates are
Speaker 11: still high enough. There are low school digits, but high
Speaker 11: enough that I think it was Gene Munster, he spoke
Speaker 11: right before me at a recent conference. Who who said,
Speaker 11: you know, llms are like an intern. They do a
Speaker 11: lot of them work for you, but you kind of
Speaker 11: have to check their work.
Speaker 2: Got to keep an eye on them next six to
Speaker 2: twelve months. What do you think the investment environment looks like.
Speaker 11: I think these bifurcations that have pervaded the economy, even
Speaker 11: the inflation data and obviously the stock market, I don't
Speaker 11: see a.
Speaker 9: Convergence to any significant degree.
Speaker 11: I think you're going to still see those bifurcations, whether
Speaker 11: it's from a capex perspective, AI or non AI, asset
Speaker 11: owners versus non asset owners, high income consumers versus low
Speaker 11: income consumers, tariff impact goods versus non tariff impact goods
Speaker 11: from an inflation standpoint, and then obviously all those by vifircations.
Speaker 9: What I would watch for that may be interesting is
Speaker 9: we could have.
Speaker 11: A situation where if some of the megacap names, some
Speaker 11: of the leadership names, continue to have some sort of
Speaker 11: pullback phase, watch what the rest of the market does.
Speaker 11: I don't think it's going to be extreme as late
Speaker 11: twenty twenty two. But what was interesting about that low
Speaker 11: in October of twenty twenty two relative to the low
Speaker 11: prior to that in June of twenty twenty two, is
Speaker 11: that when you had the real crush, there was greater
Speaker 11: participation under the surface.
Speaker 9: That's what you want to look for.
Speaker 3: That SCHWAB chief investment strategist Liz and Saunders. We turned
Speaker 3: out to our common conversation with Schwabs Jelina Kerr, head
Speaker 3: of Advisor Experience in Wealth Solutions.
Speaker 12: My world is responsible for all things digital and investment products,
Speaker 12: banking solutions, and how you harness those together and help
Speaker 12: advisors extend them into their client base, especially the ULTRAHI
Speaker 12: network clients.
Speaker 5: Who demand a lot of it a lot.
Speaker 3: I was just I was shocked to see you've been
Speaker 3: at SCHWAP for more than thirty years.
Speaker 9: I'm an old timer.
Speaker 3: You're on the advisor services trading desks. The role of
Speaker 3: an advisor thirty years ago versus now, I mean those
Speaker 3: are like.
Speaker 2: Two different jobs, vastly different.
Speaker 3: Yeah, what are the expectations right now versus what they
Speaker 3: were thirty years ago?
Speaker 12: The expectations are, frankly a little overwhelming due to the
Speaker 12: complexity of AI technology. Trying to figure out how to
Speaker 12: scale your business and still serve your clients. Those two
Speaker 12: things don't always just flow together seamlessly, right, and so
Speaker 12: the demands on advisors to really understand all the solutions
Speaker 12: that are out there. I think can get overwhelmed. I
Speaker 12: mean it gets overwhelming for me and I do it
Speaker 12: every day in my day to day job. So I
Speaker 12: think just their ability to think and learn on their
Speaker 12: feet as they're talking to different clients who have different needs,
Speaker 12: because that customization trend is no joke.
Speaker 2: Either does AI help with customization or does AI help
Speaker 2: you in your world at all?
Speaker 12: AI does help us in our world. We are taking
Speaker 12: it more from an internal view right now. So think
Speaker 12: about our service professionals trying to enable them, making sure
Speaker 12: they serve advisors. We've got an a knowledge assistant that's
Speaker 12: powered by AI note taking those sorts of basic tasks
Speaker 12: we are using in house, and we are working with
Speaker 12: advisors to make sure they know what's out there and
Speaker 12: how they can take advantage of it right in a
Speaker 12: safe way.
Speaker 9: Right, you want to measure twice, cut once when it
Speaker 9: comes to.
Speaker 2: So, yeah, we're still finding our way.
Speaker 3: What about alternatives? This is not a world that thirty
Speaker 3: years ago, you know, people were thinking about private credit,
Speaker 3: venture capital, private equity in their portfolios. Yeah, now it's
Speaker 3: like what that's table sticks, It's no.
Speaker 2: Longer high yield as being like kind of something out there.
Speaker 2: It's very different, it is, and alts are a huge
Speaker 2: part of that.
Speaker 12: I think some of the complexity though, is how do
Speaker 12: you connect the alts to the rest.
Speaker 9: Of the portfolio.
Speaker 12: If you've got a sixty forty alts have a role
Speaker 12: to play there, but it's not very seamless or operationally sound.
Speaker 9: At this point.
Speaker 2: What do they want in terms of alternative I mean,
Speaker 2: when we think about alternatives, we think about real estate,
Speaker 2: you think about some hard assets. I'm just curious, though,
Speaker 2: in a world where crypto is a bigger part of
Speaker 2: investing the private markets world, is it just it seems
Speaker 2: like NonStop that people have talked about for the last
Speaker 2: few years. What do they want in terms of alternatives?
Speaker 2: It really runs the gammut. I mean, I don't want
Speaker 2: to give you an answer that's a non answer.
Speaker 12: But in a way, when you think about some advisors
Speaker 12: who are just really wanting to start inserting it, but
Speaker 12: they want to do it in a very well known
Speaker 12: name way, then you've got all the other all the
Speaker 12: way to the other end of the spectrum. Advisors who
Speaker 12: are creating their own right alts and weaving that into
Speaker 12: the platform. But what we're most hearing is they want
Speaker 12: model flexibility and scale, so they want to be able
Speaker 12: to pull the alts into the model, do all the
Speaker 12: management and construction of all of those things in an
Speaker 12: automated way. And with a liquid securities, that's a bit
Speaker 12: of a challenge, but we're all working through it.
Speaker 2: There's some great leadership with some of our partners.
Speaker 3: But that's so important for your clients because those are sticky.
Speaker 3: Those are what cause clients not to move to a
Speaker 3: different RAA. That's right, because you can't just get out
Speaker 3: of them.
Speaker 9: No, no, you cannot.
Speaker 12: And I think that's why advisors are at their heart
Speaker 12: right their fiduciary responsibility is to make sure their clients
Speaker 12: know they are a liquid you're going to be in
Speaker 12: this for a while, and they want to make sure
Speaker 12: they're educating their clients so that they're not hitting a
Speaker 12: point where the client's like, oh, yeah, give me.
Speaker 2: All that money.
Speaker 3: Sorry, can't do it right now.
Speaker 5: So advisors have always been careful and cautious.
Speaker 12: But given the fact that these have now gone from
Speaker 12: like a traditional five percent component of the allocation to
Speaker 12: ten to twenty, like it's growing and it's out there.
Speaker 2: Chilia just got about twenty five to thirty seconds as
Speaker 2: you walk the floor. What are you hearing from advisors
Speaker 2: that you're just picking up on in terms of trends
Speaker 2: with themes and just quickly yeah, really quickly.
Speaker 12: Automation which does tie back to the AI thing, but
Speaker 12: automation of those tasks construction management, transactional things that are
Speaker 12: not adding value and using API connectivity to do that.
Speaker 12: It's table stakes, yet people need help implementing them.
Speaker 2: That's Jillianna Kerr, Schwab's head of Advisor Experience and Wealth Solutions.
Speaker 2: Coming up more from Schwab Impact twenty twenty five held
Speaker 2: earlier this past week. Up next, we move on from
Speaker 2: equities to fixed income and hear from Schwabs Kathy Jones.
Speaker 3: This is Bloomberg.
Speaker 1: This is Bloomberg Business Week Daily with Carol Masser and
Speaker 1: Tim Stenoveek on Bloomberg Radio.
Speaker 2: Let's get back to some of our conversations that were
Speaker 2: this past week at the Schwab Impact twenty twenty five event.
Speaker 2: It was held in Denver, Colorado.
Speaker 3: We turn now to our conversation on fixed income with
Speaker 3: Schwab's chief fixed Income strategist Kathy Jones.
Speaker 7: You know, in general, the economy seems to be chugging
Speaker 7: along great. Okay, it's not great for everybody, but in
Speaker 7: aggregate it's good enough. Inflation is stuck at three percent
Speaker 7: and kind of edging higher.
Speaker 9: Where do we go from here?
Speaker 7: If you've got inflation at three percent maybe moving up
Speaker 7: in a four percent ten year yield, you know that's
Speaker 7: equilibrium right now.
Speaker 9: We need something to change.
Speaker 2: And do you think it's going to change?
Speaker 7: I think in twenty twenty six we'll probably get enough
Speaker 7: slow in growth and some easing and inflation that will
Speaker 7: seeields come down. But I think the market was just
Speaker 7: way over its skis expecting the FED to cut over
Speaker 7: and over again. And it is very difficult to forecast
Speaker 7: all the time. But now between Daras on tarosof no data,
Speaker 7: policy shut down, policy making shut down, you know, I
Speaker 7: think the market's just.
Speaker 9: Kind of the bomb.
Speaker 7: Markets kind of just going going, WHOA, we're pretty well priced.
Speaker 7: Let's just sit here and wait for things to happen.
Speaker 2: Well, So then does that increase the chances Kathy, you
Speaker 2: think of the having a policy misstep here.
Speaker 7: It's certainly a possibility, But I think my impression that
Speaker 7: I get from Paul and from many of the other
Speaker 7: members is look, we're back to that's navigating on a
Speaker 7: cloudy night thing. Right, we don't have information, the Papa
Speaker 7: head isn't clear, and we've taken a couple of steps.
Speaker 7: We're not restrictive anymore. So now we pause and we
Speaker 7: wait and see what happens. Would go slow.
Speaker 2: I'm a sailer and I've navigated at night and it
Speaker 2: can be kind of not so great. You can hit
Speaker 2: a rock, or you could hit something because you just
Speaker 2: don't read something correctly, or things can be smooth sailing.
Speaker 2: So is there a chance though that I don't like it?
Speaker 2: I think so many people are shocked at that the
Speaker 2: economy is still growing and we're kind of doing all right,
Speaker 2: and the market continues, the equity market to hit highs,
Speaker 2: not necessarily what everybody was predicting a few months ago.
Speaker 2: But I just do wonder what's the thing we could
Speaker 2: be missing?
Speaker 7: Well right now, financial conditions have been very supportive, and
Speaker 7: I think that's another reason the Fed can kind of wait.
Speaker 7: They're saying, well, where there's no evidence that the level
Speaker 7: of interest rates is holding back the economy, people can
Speaker 7: borrow as much as.
Speaker 2: Like housing still yeah, maybe, but I mean, you.
Speaker 7: Know, even housing starting to kind of recover because prices
Speaker 7: are adjusting.
Speaker 2: So, you know, what is the thing that gets us?
Speaker 7: It's never the thing you're looking at in ther face, right,
Speaker 7: it's the thing.
Speaker 2: You don't know.
Speaker 7: I'm worried about the buildup of that, you know, behind
Speaker 7: the scenes and the shadow banking.
Speaker 6: System, private credit, you know, to some extent.
Speaker 7: We know that the quality isn't great there, and we
Speaker 7: know that some some firms are struggling.
Speaker 3: So how would how would a crisis like that in
Speaker 3: private credit manifest?
Speaker 7: You know? I think the issue is who's lending to
Speaker 7: the private credit folks?
Speaker 3: Don't the banks lend to the private credit folks? Yeah,
Speaker 3: so right, what's their exposure?
Speaker 7: Well, we don't know, you know it because private credit
Speaker 7: is private. You know, it's hard to know the quality
Speaker 7: of the assets in any given day.
Speaker 2: Your face is really telling. Are you concerned that the
Speaker 2: exposure by the banks is a lot more than we know?
Speaker 7: I think the banks, you know, no, I think the
Speaker 7: banks are the major banks are fine because against their will,
Speaker 7: they've been forced to hold a lot of capital since.
Speaker 9: The Basil rules, And so I think the banks.
Speaker 7: Are okay, but it does get to be sort of
Speaker 7: a cascade, right, you know, one thing leads to another,
Speaker 7: leads to another. A lot of interwoven lending takes place,
Speaker 7: and there's hidden leverage, and that's where you worry about
Speaker 7: things starting to change. I don't have any party to
Speaker 7: be on the spot. I know, I don't have any
Speaker 7: particular like this guy's gonna blow up.
Speaker 2: We have a story to tell.
Speaker 7: I'm just these are the ways in the past we've
Speaker 7: run into trouble. Somebody gets over leveraged, as the prices
Speaker 7: get out of whack, people are over confident, and then
Speaker 7: things change.
Speaker 3: Right. So it kind of brings us back to the
Speaker 3: FED and how the FED works in an environment such
Speaker 3: as this, in an environment where it's not getting much data.
Speaker 3: We did hear from Lisa Cook this week. She said
Speaker 3: she sees the risk of further labor market weaknesses greater
Speaker 3: than the risk of inflation. Will pick up. Chicago Fed
Speaker 3: Presidentcy Schools we said he was more nervous about inflation.
Speaker 7: Who's right, Yeah, we'll sign We'll find out.
Speaker 3: I'll find out when we reach our destination.
Speaker 7: Yeah, you know, I'm more in Goldsby's camp right now.
Speaker 7: Although the labor market is clearly softened. Some of that
Speaker 7: is supply side, right, So we got the ADP numbers
Speaker 7: today is a positive number. Who's just saying that that
Speaker 7: number isn't consistent with equilibrium in the in.
Speaker 3: The labor So were these numbers accurate now?
Speaker 7: Because well, ADP is as accurate as we can we
Speaker 7: can get right now. Yeah, but at the moment.
Speaker 3: But when we used to get government data, we used
Speaker 3: to get the ADP numbers on you know, the day before,
Speaker 3: a couple of days before, I don't even remember the world. Yeah,
Speaker 3: we get earlier, and then we'd get the numbers from
Speaker 3: the government and they would oftentimes not even be close
Speaker 3: to one another.
Speaker 7: Yeah, and that's true. I think part of that is
Speaker 7: ADP is private sector only. They didn't include government workers,
Speaker 7: so there's that discrepancy, and you know, yeah, their surveys
Speaker 7: are different, but it's all we've got to go on.
Speaker 7: So it looks like that they're picking back up a
Speaker 7: little bit and that's good news. The is M figures
Speaker 7: of the man fractioning figures were okay today, with prices
Speaker 7: paid continuing to fe that.
Speaker 2: Schwab's chief fixed income strategist, Kathy Jones. We turned out
Speaker 2: to our conversation with Sam Kang, head of Family Office
Speaker 2: and Premier Wealth Group.
Speaker 3: So you've got it's interesting because you've got a small
Speaker 3: number of clients but a lot of assets. I mean
Speaker 3: we're talking one hundred clients and two hundred billion dollars
Speaker 3: in assets under management. Talk about these relationships because are
Speaker 3: you working directly with the ultra high net worth individuals
Speaker 3: or are their family offices serving as a conduit to you?
Speaker 13: Yeah, well we work with both, So updated numbers, we
Speaker 13: are actually now at about one hundred and forty relationships.
Speaker 13: We've now grown to two hundred and sixty billion just
Speaker 13: within the family office, so thirty percent growth just this year.
Speaker 13: In terms of assets, we've grown by fifty percent year
Speaker 13: over year, So there is a huge command to your question.
Speaker 13: We work directly with single family offices as well as
Speaker 13: professor managed multi family offices.
Speaker 3: What is the definition right now of both hind net
Speaker 3: worth individual.
Speaker 13: Yeah, so typically there's a wide range, but typically what
Speaker 13: we see is twenty million in investable assets, which really
Speaker 13: is about thirty thirty million in net worth.
Speaker 2: You know, is it often the case of just managing
Speaker 2: everything and anything and then the past of that generational wealth. Like,
Speaker 2: give us an idea of what this all entails, because
Speaker 2: it's a lot of moving pieces, if.
Speaker 13: Correct, Absolutely, it's a lot of moving pieces. It is
Speaker 13: beyond just financial planning and investments. It gets into reporting,
Speaker 13: but it goes far beyond that. It gets into family dynamics,
Speaker 13: family constitutions. Philanthropy that you just spoke about is a
Speaker 13: key factor in terms of that estate planning. You set
Speaker 13: family constitutions, meaning what so creating the core values of
Speaker 13: a family to identify how you want to spend that
Speaker 13: money down through in how you want to pass that
Speaker 13: wealth bounty generations. So this is really critical, especially with
Speaker 13: the wealth transfer that's happening. Latest reports roughly about one
Speaker 13: hundred and twenty four trillion dollars will be changing hands
Speaker 13: over the next two to three decades. That's roughly about
Speaker 13: two to three trillion per year for the next decade
Speaker 13: or so. So what we see is a huge demand,
Speaker 13: especially in the ultra high net worth to create these
Speaker 13: family constitutions so that they have a plan of how
Speaker 13: they will pass.
Speaker 6: On the wealth.
Speaker 2: You know, it's fascinating because we always I think when
Speaker 2: we talked about the passing on of generational wealth. We
Speaker 2: talked about like your offspring right your kids basically, but
Speaker 2: we've also had a lot of conversations about.
Speaker 3: The way you're going sex spouses depending on the agreements anyway,
Speaker 3: go ahead and make them tight.
Speaker 2: No, but passing on to women who tend to live
Speaker 2: longer and maybe their spouse their husband dies. But so
Speaker 2: talk to us about the specifics.
Speaker 9: Is a lot of it.
Speaker 2: Big families, lots of family members, is a lot of it.
Speaker 2: Thinking about maybe the husband passing it off to the
Speaker 2: way give us an idea of what so.
Speaker 13: First of all, typically people just think it's passing down
Speaker 13: to the second and third generation.
Speaker 6: What's going to happen for us is the media passing
Speaker 6: down to the spouse.
Speaker 13: So as you're saying, roughly about fort five percent of
Speaker 13: that wealth is going to go to that spouse first
Speaker 13: and then it will get into the second and third generation. So, uh,
Speaker 13: there's multiple families that will be involved in this conversation.
Speaker 13: We also see, you know, when we think about the
Speaker 13: transfer of wealth, there is a lot of conversations about
Speaker 13: how you create the overall plan in terms of not
Speaker 13: just the investments, how you think about that investments over
Speaker 13: two to three decades. But what you want to do
Speaker 13: with that money? And do you want to use the
Speaker 13: fort philanthropy? Do you want to create other businesses? So
Speaker 13: there's a lot of conversations along that line.
Speaker 3: Okay, let's cut to the chase here, death, divorced taxes.
Speaker 3: Those are the things that are you know, those are
Speaker 3: the things that are like on the redar of family offices.
Speaker 2: We know that.
Speaker 3: But I've also heard stories of like, all right, we
Speaker 3: need the head of our family office to find a
Speaker 3: new yacht captain right now, Bermuda. What's the craziest people.
Speaker 2: Who do that around?
Speaker 7: Yeah?
Speaker 5: So so what's that that?
Speaker 7: That is?
Speaker 14: That?
Speaker 13: That isn't the actual We've heard stories where a family
Speaker 13: fired their entire crew. One day, they come to the
Speaker 13: family office and they say, I need a new crew
Speaker 13: by tomorrow.
Speaker 6: So this is the key distinction.
Speaker 13: There are a lot of independent rias that want to
Speaker 13: get into the family office space.
Speaker 6: What it really is, it's the very first call that
Speaker 6: these families make.
Speaker 13: So you not only need to be there for their
Speaker 13: financial planning, their investments, but you really need to be
Speaker 13: thorough about all the capabilities that you need to be
Speaker 13: able to support our whole families so who are.
Speaker 2: The people support that do that? So are we talking lawyers, Like,
Speaker 2: give us an idea of who has to be all
Speaker 2: involved in that?
Speaker 13: Yeah, So at the center and think of it as
Speaker 13: a hubbet spoke model. Right, So if the center is
Speaker 13: a trusted advisor, we call that more of an expert generalist.
Speaker 13: That person then would reach out to lawyers, it state planners.
Speaker 6: It could be.
Speaker 13: Aviation loans, it could be bill paid, lifestyle constant services,
Speaker 13: healthcare conct of years.
Speaker 6: So it really goes the complete spectrum.
Speaker 3: Hey, last question, our team reporting that at least a
Speaker 3: fifth of the world's five hundred richest people now have
Speaker 3: a family office helping preserve fortunes totally more than four
Speaker 3: trillion dollars. That's according to the Bloomberg Billionaires Index. That
Speaker 3: was surprising to me. Why don't they all have family offices?
Speaker 3: Only a fifth of them do?
Speaker 13: Well, I think there's more and more interest in creating
Speaker 13: that family office. So along that lines, it's estimated that
Speaker 13: seventeen trillion is within the ultra high network market, but
Speaker 13: only about five to six trillion is managed by a
Speaker 13: family office.
Speaker 6: So I do think that there is a growing trend
Speaker 6: for these services.
Speaker 3: That's Sam Kang, Schwab's head a family office and premier
Speaker 3: wealth group that does it for this hour of the
Speaker 3: special edition of Bloomberg Business Week, looking at some of
Speaker 3: our favorite conversations from Schwab Impact twenty twenty five in Denver, Colorado.
Speaker 2: We're not done yet, still to come. More on markets
Speaker 2: with Schwab's head of macro Research and Strategy. We're talking
Speaker 2: about Kevin Gordon.
Speaker 3: Plus Fred Kaine, or managing direct of Relationship Management for
Speaker 3: DAF Giving three sixty. We'll discuss the growth of charitable
Speaker 3: giving and use of donor advised funds. You're listening to
Speaker 3: Bloomberg Business Week.
Speaker 2: I'm Tim Stenebek and I'm Carol Masser.
Speaker 9: Stay with us.
Speaker 2: Today's top stories and global business headlines are coming up
Speaker 2: right now.
Speaker 1: This is Bloomberg Business Week Daily reporting from the magazine
Speaker 1: that helps global leaders stay ahead with insight on the people,
Speaker 1: companies and trends shaping today's complex economy, plus global business,
Speaker 1: finance and tech news as it happens. Bloomberg Business Week
Speaker 1: Daily with Carol Masser and Tim Steneveek on Bloomberg Radio.
Speaker 2: We're back on a special edition of Bloomberg Business Week.
Speaker 2: It's all about some of our conversations from the Schwab
Speaker 2: Impact twenty twenty five event held this past week in Denver, Colorado. Now,
Speaker 2: this event, held every year, is all about bringing together
Speaker 2: registered investment advisors, financial advisors from across the United States
Speaker 2: and those in the industry that support them with services
Speaker 2: and tools.
Speaker 3: We begin with our conversation this hour Wishwab's head of
Speaker 3: macro Research and Strategy, Kevin Gordon.
Speaker 2: There's kind of this internal turmoil right now in terms
Speaker 2: of the environment. Is it inflation we have to worry about.
Speaker 2: We saw that companies announced the most job cuts for
Speaker 2: any October and worth in two decades. This from Challenger,
Speaker 2: Gray and Christmas, and they did talk about an AI
Speaker 2: component to it. I can't figure out where we are.
Speaker 10: What do you think?
Speaker 15: You know, It's like the flavor changes almost literally every day.
Speaker 15: I mean it was much more labor driven. You had
Speaker 15: the Challenger data you mentioned, but you also had data
Speaker 15: from Avellio Labs, which has become much more important to
Speaker 15: look at in terms of private sector providers and what
Speaker 15: they're looking at for job growth. And what they showed
Speaker 15: for October was the decline of nine thousand for payrolls.
Speaker 15: But you know, for me, the labor market stuff is
Speaker 15: almost this hall of mirrors because all of the different
Speaker 15: indicators tell you completely different things as to what's going
Speaker 15: on the the labor market. If you look at claims data,
Speaker 15: which we're not getting at the national level, but if
Speaker 15: you aggregate everything at the state level, it still looks
Speaker 15: relatively healthy. It's stayed relatively low and stable. If you
Speaker 15: look at ADP for October surprise to the upside. If
Speaker 15: you look at something like Rebellio though week, if you
Speaker 15: look at something like Challenger, also weak. The interesting thing
Speaker 15: with Challenger is, and we always try to make this
Speaker 15: important distinction and emphasis for investors there layoff announcements. They're
Speaker 15: not exactly cuts themselves. So there is a little bit
Speaker 15: of a lag there in terms.
Speaker 3: Of what you can expect. Yeah, oftentimes ninety days, right.
Speaker 15: Plus I think the one thing that is I will
Speaker 15: say maybe a little bit more worrisome with the one
Speaker 15: for October relative to what we saw earlier this year,
Speaker 15: because there was a huge pickup and Challenger job cut
Speaker 15: announcements earlier this year, but most of that was at
Speaker 15: the federal level that was focused on what everything was
Speaker 15: going on regarding do this one's a little bit more
Speaker 15: broad based. As you mentioned, with the AI overlay, the
Speaker 15: concentration for the sectors was mostly in tech and warehousing.
Speaker 6: So clearly this costs.
Speaker 2: Cutting going on by companies, which is never a good feeling, no,
Speaker 2: And I think what's what's been interesting so far It's
Speaker 2: been relatively where it's gone sector by sector.
Speaker 15: It hasn't been broad based across the economy, which I know.
Speaker 15: I've talked about this with you guys a lot and
Speaker 15: Lazanne you know who I work with closely on this,
Speaker 15: are the sort of this concept and thesis of rolling
Speaker 15: recessions in the economy. You're still experiencing that to some
Speaker 15: extent where it's not filtering up to the to the
Speaker 15: surface and it's not aggregating together to give you a
Speaker 15: full blown traditional recession. But it's still happening at pockets.
Speaker 3: We know where as Lizan, we all call our Lizanne
Speaker 3: Saunders too. That's the Lizann you're referring to. So Kevin
Speaker 3: going from the corporate world and thinking about, Okay, what
Speaker 3: are companies doing with employees, How are they hiring, how
Speaker 3: are they firing, how are they announcing this to consumer
Speaker 3: spending because the consumer powers this economy. Yeah, we're getting
Speaker 3: some troubling anecdotes. What do you see?
Speaker 15: You know, what's interesting is that when you look at
Speaker 15: I mean, this is where the labor market's so crucial
Speaker 15: to understand the differences between the stock and the flow.
Speaker 15: So the stock of labor is still relatively healthy. I mean,
Speaker 15: you look at a mostly fully employed America and that's
Speaker 15: where we're at.
Speaker 6: Any of the layoff.
Speaker 15: Activity we've seen, it's just at the mark and relatively minimal.
Speaker 15: So if you see relatively low layoffs despite a very
Speaker 15: low hiring rate, which we're basically at cycle lows, the
Speaker 15: fact that the stock of labor is strong means that
Speaker 15: the aggregate income growth month to month, assuming you stay employed,
Speaker 15: is relatively strong. So that's why real spending is still positive.
Speaker 15: But to your point about some of these anecdotes and
Speaker 15: some of these cracks under the surface, they are starting
Speaker 15: to widen a little bit more, especially if you look
Speaker 15: at that bottom half of the what everybody calls now
Speaker 15: the K shaped sort of economy.
Speaker 2: There are economists look at that bottom wrong.
Speaker 15: You could break it down by wealth level, I like
Speaker 15: the FED data and looking at sort of percentile levels.
Speaker 2: Of well in terms of overall economic growth and what
Speaker 2: the FED like, how do you think about This is
Speaker 2: the tough part because you know there's a social answer
Speaker 2: and then they're sight well.
Speaker 15: The multiplier effect up the wealth and the income spectrum
Speaker 15: is just much stronger.
Speaker 10: That's just the math.
Speaker 15: And when you look at how well asset markets have
Speaker 15: done over the past couple of years, even this year,
Speaker 15: the bounce from the April lows, I mean, if you're
Speaker 15: benefiting from that as an asset owner, we have household
Speaker 15: exposure to equities at an all time high, beyond where
Speaker 15: we were just slightly, but still beyond where we were
Speaker 15: at at the peak in two thousand. So the wealth
Speaker 15: effect and the power of the market in terms of
Speaker 15: an economic driver has become quite strong and quite potent.
Speaker 15: So I think when you add that together with what
Speaker 15: is traditionally an economy that has become more or I
Speaker 15: shouldn't say traditionally, but over time has become more powered
Speaker 15: by that wealthy cohort, then you've got a pretty strong effect.
Speaker 3: When you say full employment, do you how do you
Speaker 3: define that? And how does the FED define that?
Speaker 15: Because relatively low and employment rate to history compared to history,
Speaker 15: there has been a little bit of an uptick. But
Speaker 15: you look at that and you look at overall payrolls
Speaker 15: and we're still right around you know, all time time.
Speaker 3: But does it mean the person who's who's has the
Speaker 3: computer science undergraduate degree is working in computer science or
Speaker 3: working at Chipotle?
Speaker 6: Oh yeah, exactly.
Speaker 15: Fully, the question just sort of in nominal terms, looking
Speaker 15: at it face value, a job being a job, whether
Speaker 15: that job is perfectly matched with what the person is doing.
Speaker 3: That's a little bit of how do we measure that well,
Speaker 3: because it doesn't that seems like a concern right now.
Speaker 15: Well, then I think is going to show up, probably
Speaker 15: start to show up a lot more within the next year,
Speaker 15: in a lot of the labor flows that we're going
Speaker 15: to get because one of the you know, one of
Speaker 15: the longer term concerns I have for the labor market
Speaker 15: is what's happening right now in some of the churn
Speaker 15: with the pretty significant decline in immigration, but also not
Speaker 15: sort of the lack of replacement a lot of a
Speaker 15: lot of those jobs.
Speaker 6: We're just not seeing that happen. And you see that.
Speaker 15: Happening in you know, youth unemployment, black unemployment, it's really
Speaker 15: starting to spread in some of those pockets. So the
Speaker 15: areas that were supposed to benefit, you know, throughout this year,
Speaker 15: as you had more of a domestic strengthening in the
Speaker 15: in the fate of born labor force, it's not yet happening.
Speaker 15: So it's a little bit lagged. I hope it's delayed
Speaker 15: and not completely derailed. But I think in the next year,
Speaker 15: figuring out replacements for a lot of those lost jobs,
Speaker 15: that's going to be key.
Speaker 3: And the reason I brought up the Chipotle computer science
Speaker 3: exactly well, always aungry, but that was what's be cited
Speaker 3: in that New York Times article back in August. Yes,
Speaker 3: computer science degrees having trouble finding those computer science jobs.
Speaker 2: It's kind of this interesting environment we are when we
Speaker 2: look at the labor force. Hey, one of the things
Speaker 2: I want to ask you your team shared with us
Speaker 2: that you believe Tina is back, and it's not the
Speaker 2: Tina that we think about. There is no alternative in
Speaker 2: terms of like US difequities. Yeah, but it's something we
Speaker 2: started off with US government data. It is important no alternative.
Speaker 3: I mean the depth and the breadth of the government data.
Speaker 15: You just can't imagine and I think, you know, so far,
Speaker 15: thank goodness with the markets have been sort of, maybe
Speaker 15: in a negative way, whistling sort of passed the graveyard
Speaker 15: of no government data, but you know, they've been able
Speaker 15: to manage through with corporate earnings. I think that's been
Speaker 15: a nice bridge to get us to when the shutdown ends.
Speaker 15: I think though, you know, the longer this goes on,
Speaker 15: I think what we have to keep in mind, and
Speaker 15: what we've really been emphasizing to our clients is that
Speaker 15: you know, when you don't collect this data, yes you
Speaker 15: can go back and retroactively get it, but it's not
Speaker 15: going to be clean. So you're going basically almost a
Speaker 15: quarter without this really key data. So you're going to
Speaker 15: have a delayed third quarter GDP report, you're going to
Speaker 15: have missing data in a way for the fourth quarter,
Speaker 15: and then you have benchmark revisions coming in February, which
Speaker 15: kind of throws another wrench into this.
Speaker 3: That's Kevin Gordon, Schwab's head of macro Research and Strategy,
Speaker 3: on site at Schwab Impact twenty five.
Speaker 2: We turned out to our conversation with Schwab's Lisa Salvey,
Speaker 2: head of Bususiness Consulting in education. We held a Bloomberg
Speaker 2: AI Finance summit. It was just last month. We asked
Speaker 2: attendees in financial services, which area do you believe augentic
Speaker 2: AI holds the greatest potential to impact? And of course
Speaker 2: the agentic AI. We're talking about AI systems that can
Speaker 2: autonomously and maybe sounds a little scary, but autonomously plan
Speaker 2: and execute multi step tasks with minimal human oversight. Yes,
Speaker 2: that's a definition.
Speaker 3: That's great.
Speaker 2: But I know, I know, take over my world. I'm
Speaker 2: ready for it. So here's what the folks at that
Speaker 2: summit said the findings. Sixty two percent, Tim said the
Speaker 2: greatest potential would be an automating repetitive complex tasks and workflows.
Speaker 3: Twenty three percent said generating alpha through faster deeper insights,
Speaker 3: eleven percent supporting strategic decision making across the enterprise, and
Speaker 3: then four percent Carol personalizing client experiences at scale.
Speaker 2: All right, so let's see what our next guest has
Speaker 2: to say. She worked within Nebedda Advisors and their firms.
Speaker 2: Lisa Salvey's head of business Consulting and Education at Schwab
Speaker 2: Advisor Services. What did you think about those results?
Speaker 16: They're interesting to me I'm I lead a marketing study
Speaker 16: here for ORAS specifically, it's like industry leading amount of data.
Speaker 16: We had about thirteen hundred firms participate this year. Sixty
Speaker 16: eight percent of our firms are using AI in some form.
Speaker 16: Twenty twenty five obviously that was the year of the
Speaker 16: note taker, right, so that's kind of the story. I
Speaker 16: think it's on like a basic level, they're using it.
Speaker 16: It depends, so basic is just not taking right. And
Speaker 16: then now we're seeing more integration into the CRM system,
Speaker 16: so we're starting to see that and it's starting to populate.
Speaker 2: Tasks and next steps.
Speaker 16: So a lot of firms are saying that's saving them
Speaker 16: thirty minutes per client meeting, so that's a real ROI
Speaker 16: we're seeing, which you don't always see with AI all
Speaker 16: the time up to you know, I had one firm
Speaker 16: last week tell me two and a half hours of
Speaker 16: time savings.
Speaker 9: So that's kind of the year what we've seen this year.
Speaker 16: I think next year is going to be more of
Speaker 16: a two pillar type of year where you're going to
Speaker 16: see a lot of bottoms up type of projects and
Speaker 16: kind of citizen programming with the AI tools that are
Speaker 16: available within firms. But We're also going to start to
Speaker 16: see looking at larger scale projects that can actually build
Speaker 16: a transformative change or time savings in the organization. That
Speaker 16: will be approached more like a project agentic agents and agentic.
Speaker 16: That's kind of we're we're just stepping into that.
Speaker 2: Pa're trying to play with that.
Speaker 9: Some firms have it. Yeah, it's still very rare.
Speaker 16: I think what I would like to see firms do
Speaker 16: is really start to focus on well, two things.
Speaker 9: The boring one the data.
Speaker 16: You got to get that data really good because AI
Speaker 16: doesn't fix that data, it just amplifies it.
Speaker 3: Oh we know, yeah, I know, what about the finding
Speaker 3: alpha part of this, because that's interesting.
Speaker 16: I don't hear that very much from registered investment advisors.
Speaker 16: I don't hear as much on the investment side. I
Speaker 16: hear it more on reading research reports giving them something
Speaker 16: to react to and on the poor fullio management site.
Speaker 2: I will say one advisor came up to us and
Speaker 2: was talking about actually something I had done at a
Speaker 2: different event where somebody showed a demo and then got
Speaker 2: into like AI in a big way and said it
Speaker 2: did a lot of things like computations, different things and tasks,
Speaker 2: and he was able to create better performance for his
Speaker 2: investors because it just happened quicker and there are things
Speaker 2: he wouldn't normally maybe do or spend the time on
Speaker 2: because he just couldn't, and that he did and then yeah,
Speaker 2: it did create It's interesting, it's where are you comfortable?
Speaker 9: So, yeah, a lot of advisors.
Speaker 16: Are not wanting it to hit the client yet. Yeah,
Speaker 16: so that's where that's going to be where we see
Speaker 16: some progression. But if you can create really comprehensive plans
Speaker 16: and advisors need to be prepared to their clients are
Speaker 16: going to start doing it and come in with something
Speaker 16: and that they're going to have to react to.
Speaker 3: When do you think we start talking about AI, Like
Speaker 3: we don't talk about the Internet today, the idea that
Speaker 3: it's just this layer of technology that we're all using.
Speaker 10: I think I think it's still changing so rapidly.
Speaker 16: We're still seeing so many changes that we're going to
Speaker 16: be talking about it for a little while, especially as
Speaker 16: we get to that agentic layer. So first we're going
Speaker 16: to have projects. Then we're going to have agents that
Speaker 16: just do things like one off tasks like read a
Speaker 16: research report on its own and email it to you
Speaker 16: without you asking it to do it. Then we get
Speaker 16: to what you guys were talking about at the beginning,
Speaker 16: the agentic layer. We have a whole bunch of these
Speaker 16: like bots that are doing things on their own and
Speaker 16: making decisions.
Speaker 6: We have a ways to go that.
Speaker 3: Schwab's Lisa Salvi, head of Business Consulting and Education. Coming up.
Speaker 3: More from our conversations at the Schwab Impact twenty twenty
Speaker 3: five event in Denver, Colorado.
Speaker 2: Up next, we hear from Omar Agular. He is the
Speaker 2: CEO of Schwab Asset Management.
Speaker 3: That's next. This is Bloomberg.
Speaker 1: This is Bloomberg Business Week Daily with Carol Masser and
Speaker 1: Tim Stenoveek on Bloomberg Radio.
Speaker 2: Back here on Bloomberg BusinessWeek Daily, looking at some of
Speaker 2: our favorite conversations and highlights from the Schwab Impact twenty
Speaker 2: twenty five event it was held to him this past week.
Speaker 2: Of course in Denver, Colorado. It was a little chilli
Speaker 2: out there, well it was.
Speaker 3: Yeah, it's Colorado. It's the foothills of the Rockies.
Speaker 2: That's so true.
Speaker 3: Yeah, three hundred days of sunshine a year though, so
Speaker 3: it's not bad.
Speaker 2: No, it's nice to be out west.
Speaker 3: We turned now to our conversation with Omar Aguilar, CEO
Speaker 3: of schwab Asset Management. Well, let's talk about this year,
Speaker 3: because as we were chatting ahead of this interview, you
Speaker 3: made the joke, I wish we could just end the
Speaker 3: year right here, because it's been a good year. It's
Speaker 3: been a good year, but what is that portend for
Speaker 3: the next you know, two months.
Speaker 17: It's been great for investors. It's been great for investors
Speaker 17: to actually see that. I would probably say there were
Speaker 17: many points throughout the year where we all wish things
Speaker 17: were actually going to be different, and I don't think
Speaker 17: anybody anticipated, you know, that we're going to be at
Speaker 17: the stage, you know, so far into this year. You know,
Speaker 17: from the beginning of the year, the uncertainty around administration
Speaker 17: to liberation day to recovery to you know, the rise
Speaker 17: of AI, to the economy, the consumer, all the way
Speaker 17: to where we are now. It's such such as being
Speaker 17: a ride that I think investors have taken advantage of.
Speaker 2: You know, I was thinking about your background and I
Speaker 2: just want to lay that what you've got twenty five
Speaker 2: years of investment management experience and equity markets. You've seen
Speaker 2: a lot of cycles, and I know, I think I
Speaker 2: often reach out to you guys to ask you about this.
Speaker 2: What do you make of some of the recent stress
Speaker 2: that we've seen omar whether it was concerns about credit,
Speaker 2: some of the regional bank issues. Again, we've heard different
Speaker 2: stories about whether or not credit concerns were something that
Speaker 2: might linger for a little bit. And then there's the private,
Speaker 2: you know, credit market. So how do you see it
Speaker 2: and do you see it at all impacting kind of
Speaker 2: the tone of trade and activity on your platforms?
Speaker 3: Yes, it is.
Speaker 17: It is interesting because yes, I have seen a lot
Speaker 17: of technics.
Speaker 2: I have too, So we're just like a good bottle
Speaker 2: of wine.
Speaker 3: You know, my gray hairs, you know, you know I
Speaker 3: take a pride of it.
Speaker 17: But but yes, you know, it's interesting because you know
Speaker 17: what we what I have seen historically, is you actually
Speaker 17: go through the source of what is actually maybe the
Speaker 17: reasons why something cracks. There will always be in every
Speaker 17: single cycle, you know, areas of rest that are what
Speaker 17: we call ideasyncratic.
Speaker 3: That's just such a fancy word, but you.
Speaker 17: Know what that means is that there will always going
Speaker 17: to be things that will happen that will make people nervous,
Speaker 17: and we just need to understand whether it's systemic or
Speaker 17: is just isolated to a certain area. Interesting enough, you
Speaker 17: mentioned about, you know, the particular the credit market. You know,
Speaker 17: the credit market has been incredibly resilient since two thousand
Speaker 17: and eight, and I think when you look at the
Speaker 17: current even the high yield market, you know, is not
Speaker 17: as junky as it used to be. You know, I
Speaker 17: remember back in you know, two thousand and five, two
Speaker 17: thousand and six or two thousand and you know one
Speaker 17: in two thousand and two, those were periods where you
Speaker 17: will really feel that there was a lot of delinquencies,
Speaker 17: there was a lot of rest, there was a lot
Speaker 17: of uncertainty around them. When you look at it today,
Speaker 17: you know, the delinquencies are growing, but not outside of
Speaker 17: the normal you will have in this part of the cycle.
Speaker 2: Is think that's not happening well.
Speaker 3: And a lot of that has to do with corporate America.
Speaker 17: You know, their balance sheets are fairly, fairly strong, and
Speaker 17: the amount of leverage that you see in corporate America
Speaker 17: has is basically to the lowest in many decades. So
Speaker 17: what that actually means is that yes, companies that are
Speaker 17: taking excess leverage to steps risk and they're more risky
Speaker 17: and the way they manage their business. You know, they're
Speaker 17: clearly more at the risk end, but the majority of
Speaker 17: America it's actually pretty solid in terms of how they
Speaker 17: manage their balance sheets. And in fact, a lot of
Speaker 17: the reasons we were talking about, you know, in other
Speaker 17: forums about the reasons why tires have not been having
Speaker 17: the impact as big as it has been is because
Speaker 17: profit margins have been very, very benign and have been
Speaker 17: not been affected as much.
Speaker 3: So does that mean that it's only a matter of
Speaker 3: time before we actually see inflation as a result of
Speaker 3: these carets. When these companies say we're not gonna we're
Speaker 3: not going to pad the impact anymore with our with
Speaker 3: our healthy profit margins, we're ready to pass these on, well.
Speaker 17: We're ready seeing some of that. We're ready seeing two things.
Speaker 17: One is we're ready seeing companies that are they're not
Speaker 17: going to have a choice, but actually passed through those
Speaker 17: increasing process to the consumers. You know, we have seen
Speaker 17: those companies that have the biggest you know, opportunities and
Speaker 17: the biggest, widest margins. They are they're already good, but
Speaker 17: there are ones that are getting a squeeze and a
Speaker 17: squeeze we're already see some of that already in the
Speaker 17: early parts of this earning season. The second part that
Speaker 17: we're serving is consumption, you know, consumers and the demand
Speaker 17: destruction starting to happen.
Speaker 3: You're starting to see a little bit in.
Speaker 17: Terms of like you know, airlines and the tickets and
Speaker 17: you know, you see that actually on my way here
Speaker 17: for the first time the plane was not full. That
Speaker 17: that was unique because you know, for the entire year,
Speaker 17: you know, you always go there and it's actually big,
Speaker 17: big chunk of it. So you can see a little
Speaker 17: bit of that consumption starting to just get affected by it.
Speaker 3: This happened to us last month on our way back
Speaker 3: from Los Angeles. The person at the gate said, this
Speaker 3: is crazy. It's been full pretty much until now. The
Speaker 3: flight was empty heading back.
Speaker 2: Yeah.
Speaker 3: Again, it's an anecdote by hearing it from airlines yet.
Speaker 2: But the airlines have and so smart about keeping those
Speaker 2: planes packed right, and so to me it seems like
Speaker 2: a clear indicator. I know, I said, you've seen a
Speaker 2: lot of cycles, but I think about your background Lehman Brothers,
Speaker 2: Merrill Lynch. These are firms that are no longer around,
Speaker 2: you know, post GFC, the Great Financial Crisis, so I
Speaker 2: guess I always try to think, you know, what are
Speaker 2: we missing in an environment where so many people are
Speaker 2: like it's okay, it's okay, it's okay, and I'm like,
Speaker 2: what are the possible risks do you think for investors
Speaker 2: in this environment?
Speaker 3: Well, we have seen and actually we saw this in
Speaker 3: the last six weeks.
Speaker 17: If you if you look at the performance of those
Speaker 17: companies that did not do not have positive earnings, negative
Speaker 17: earnings companies in small and MidCap sectors, they outperform by
Speaker 17: almost twenty percent in.
Speaker 3: A short period of time. So what is called the
Speaker 3: junk rap.
Speaker 17: And in many cases, the concern is that this component
Speaker 17: of excess goes into areas that goes like that, and
Speaker 17: that volatility is not healthy.
Speaker 2: Omar, thank you, always always appreciated. Omar Agailar. He's CEO
Speaker 2: and CIO of Schwap Asset Management. All right, so let's
Speaker 2: share some numbers with you.
Speaker 9: Check this out.
Speaker 2: Sixteen thousand independent advisory firms, five trillion ten in assets
Speaker 2: under management.
Speaker 3: That's the business that John Beatty overseas. He's managing director
Speaker 3: and head of Schwab Advisor of Services. He joined us
Speaker 3: on site here at Schwab Impact twenty twenty five in Denver, Colorado. John,
Speaker 3: you've been at Schwab for close to thirty years.
Speaker 5: Let's say twenty eight, Just so tell myself too. Okay,
Speaker 5: it's twenty.
Speaker 3: Eight, twenty eight years. You've been a member of the
Speaker 3: advisor services team for sixteen years. It's correct an ria
Speaker 3: today versus what it was sixteen years ago. They want
Speaker 3: different things.
Speaker 5: Well, it's amazing.
Speaker 14: When I first joined Schwab twenty eight years ago in
Speaker 14: the advisor business, we custodied a one hundred billion dollars
Speaker 14: for assets. Now it's five trillion dollars.
Speaker 3: So that just gives you where is that in market share?
Speaker 14: So advisor services Charles Schwab has about forty four percent
Speaker 14: market share of independent advisors, doubled the nearest competitor.
Speaker 5: So we were first to the space back.
Speaker 14: Then almost thirty eight years ago and have really focused
Speaker 14: in on it and made a main priority here at Schwab.
Speaker 5: And we've been rewarded by our clients with their growth.
Speaker 3: You know, my in laws are we're talking about their
Speaker 3: financial advisor, and I was telling about this conference that
Speaker 3: I was coming to, and they said, we had a
Speaker 3: choice when we signed up with this financial advisor who
Speaker 3: we wanted as a custodian. We could choose Schwab, we
Speaker 3: could choose another company. Is that that was surprising them.
Speaker 3: I didn't know that RIA has had relationships with different custodians.
Speaker 14: Yes, RA industry is the industry of independent advisors, and
Speaker 14: independence means that they have choice is who their providers are,
Speaker 14: whether that's custodian or asset management, fintech providers in their
Speaker 14: back office. I think that is actually the secret sauce
Speaker 14: in the RAA space and that everybody has to be
Speaker 14: at their best every day to maintain their seat at
Speaker 14: the table, whether it's us as a custodian against our competitors,
Speaker 14: or a fintech provider in the back office an asset manager.
Speaker 14: So everybody's at their best. That means consumers are getting
Speaker 14: a great experience.
Speaker 2: Keeps everybody lead me and competitive. So what do investment
Speaker 2: advisors really need from you guys today?
Speaker 14: So really, where the hallmark is, where the foundation and
Speaker 14: relationship is our custody experience, which means opening accounts, moving money,
Speaker 14: doing trades. The basics that the advisors want to be
Speaker 14: brilliant in how.
Speaker 2: They serve their clients, so easy, secure, what.
Speaker 14: Easy, secure, accurate, All of those things matter important and
Speaker 14: the last thing an advisor wants to do is have
Speaker 14: their custodia or any of their providers embarrass them in
Speaker 14: front of their clients. So we have to be at
Speaker 14: a ninety nine percent accuracy rate and everything we do
Speaker 14: for advisors, and that's why we're winning in the marketplace
Speaker 14: is those brilliant experiences that we provide.
Speaker 2: What's the toughest thing in making sure that you guys
Speaker 2: are hitting on all those things, the accuracy, the security,
Speaker 2: all of it.
Speaker 14: Yeah, it's really the move from paper to digital and
Speaker 14: that's that's a change management thing in our industry. So
Speaker 14: we've made great progress in the last five years on that. Now,
Speaker 14: for example, moving money wires ACCH transactions, we're ninety three.
Speaker 14: It's the ability to move money overnight without a wire,
Speaker 14: got it?
Speaker 3: Yes, forget me.
Speaker 14: Yeah, it's an industry academ Sorry about that, but we're
Speaker 14: at ninety three percent rate there where just five years
Speaker 14: ago that was less than fifty percent. So what what
Speaker 14: what digital brings is it brings faster, more accurate, less
Speaker 14: errors in the ecosystem, new accounts. You know, we're opening
Speaker 14: on a digital platform at about a fifty to sixty
Speaker 14: percent rate. We'd love to get that in the eighty
Speaker 14: to nineties, so that brings modern experiences for the investor.
Speaker 5: As well as the advisor.
Speaker 3: I was talking to one of the independent advisors before
Speaker 3: our program started and he was telling me, He's like, Okay,
Speaker 3: I've got this whole machine that runs Linux, that just
Speaker 3: runs my Bloomberg terminal, separate machine, separate keyboard. Then I've
Speaker 3: got my other two monitors, so two monitors over there,
Speaker 3: and then I've got my other two monitors with basically
Speaker 3: the Schwab dashboard and everything that that Schwab offers that
Speaker 3: I can then offer to clients.
Speaker 4: What is that?
Speaker 3: Oh, it's what is that tool? What is that dashboard?
Speaker 14: So our website is the place where we serve advisors
Speaker 14: digitally Schwab Advisorcenter dot com.
Speaker 5: In that tool, you'll find all.
Speaker 14: The logistics of custody, moving money, opening accounts. We have
Speaker 14: trading capabilities on that website and a lot of other
Speaker 14: features that advisors can dig in. You know, the industry
Speaker 14: has changed over over the years, and now we have
Speaker 14: our I rebounld capability, which is a is a automated
Speaker 14: rebalancing tool.
Speaker 5: We have model market center where advisors can tap into
Speaker 5: pre built portfolios.
Speaker 14: So advisors are really looking to outsource some of the
Speaker 14: things that you used to do in house so that
Speaker 14: they can use their time in other ways with investors
Speaker 14: around planning a state tax, those value added places.
Speaker 2: How much in terms of advisors from what you guys
Speaker 2: are seeing, how much are they doing like face to
Speaker 2: face or phone calls or actual conversations versus so much
Speaker 2: that they can do either digitally, Like I'm just curious what.
Speaker 5: That mix is.
Speaker 2: Well, it has to be a combination that they want
Speaker 2: to free up time to do yes, yes.
Speaker 14: And there's nothing that replaces being in person with your client.
Speaker 14: And we had Kesseleigh talking about the need for social interaction.
Speaker 14: So what really advisors are trying to bring is a
Speaker 14: recipe of digital experiences that take the less value activities
Speaker 14: moving money and transactional work so that they can use
Speaker 14: their in time person with clients on more of the
Speaker 14: intellectual psychological aspects of investing. AI very briefly, Yes, going
Speaker 14: to be really important as we go forward. Now, Yet, well,
Speaker 14: we see advisors about fifty percent of advisors are already
Speaker 14: using AI enabled tools in their back office. These are
Speaker 14: things like recording meetings with clients and taking notes. We
Speaker 14: see them using tools to read contracts and give summariason.
Speaker 14: So it's basic AI, but it's the beginning. And you
Speaker 14: know this is an entrepreneurial community and so they're leaning
Speaker 14: into these types of services.
Speaker 2: How much back and forth is they're with advisors and
Speaker 2: you guys about what we need in terms of AI.
Speaker 5: It's about our ecosystem.
Speaker 14: We want to AI enable them on the custody side,
Speaker 14: and then they need to AI enable their experience with
Speaker 14: their clients related to the portfolio and other aspects. So
Speaker 14: it's going to play a big role in this industries
Speaker 14: we go forward, John, thanks so much for joining us.
Speaker 2: Their chatbot that's like, hey, Chuck, how do I do this?
Speaker 14: We have a knowledge center tool that our service reps
Speaker 14: use that is a and I enabled that makes us
Speaker 14: smarter on the phones with advisors.
Speaker 5: We'll turn that onto advisors at some point.
Speaker 2: Okay, not yet, once the learning is done right, all right,
Speaker 2: some baby, thank you so much, really appreciate it. Managing Director,
Speaker 2: head of Advisors Services at Schwab.
Speaker 3: Coming up more from our conversations at the Schwab Impact
Speaker 3: twenty twenty five events in Denver, Colorado. Coming up Fred
Speaker 3: kaine Or, managing director of relationship management for DAFT Giving
Speaker 3: three sixty talking about the growth of charitable giving and
Speaker 3: the use of donor advised funds.
Speaker 2: That's coming up next. This is bloomber.
Speaker 1: This is Bloomberg Business Week Daily with Carol Masser and
Speaker 1: Tim Stenoveek on Bloomberg Radio.
Speaker 2: We're back here on Bloomberg Business Week looking at some
Speaker 2: of our favorite conversations. It was all happening at Schwab
Speaker 2: Impact twenty twenty five, the event held in Denver, Colorado
Speaker 2: this past week.
Speaker 3: We turn now to our conversation with Fred Knor, Managing
Speaker 3: director of relationship management for DAFT Giving three sixty. We
Speaker 3: talked about a lot, specifically the growth of childable giving
Speaker 3: and the use of so called donor advised funds.
Speaker 8: A donor advised fund is essentially an account set up
Speaker 8: to facilitate charitable giving. A donor advice fund is comprised
Speaker 8: of three different components, contribute, invest, and grant, so a donor,
Speaker 8: with the support of its advisor. His advisor or her
Speaker 8: advisor contributes cash, securities, appreciated assets including real estate, collectibles,
Speaker 8: private business interests, and alike. We accept those contributions, we
Speaker 8: liquidate them. If they're appreciated assets, we deposit them into
Speaker 8: the account. They invest those assets for growth while they're
Speaker 8: in the account, and then when they're ready to grant
Speaker 8: them to the charity of choice, they can do so
Speaker 8: in a matter of a couple of days. And the
Speaker 8: beauty of the account is from a contributions perspective, it
Speaker 8: affords the donor and immediate fair market value tax deduction
Speaker 8: at the time that the contribution is made, and they
Speaker 8: potentially avoid capital gains tax that they would otherwise pay
Speaker 8: if they were to sell those assets first and donate
Speaker 8: the pro sits into the account thereafter.
Speaker 3: Should everybody be considering donor advised fonds or do you
Speaker 3: need to have a certain level of wealth for it
Speaker 3: to make sense?
Speaker 2: It's going to say yes, yes, really though really yes.
Speaker 3: I mean now, it's a good question.
Speaker 8: A lot of people think that, you know, a donor
Speaker 8: advice fund account is set up for the ultra high
Speaker 8: net worth and the ultra wealthy, and the answer is no,
Speaker 8: it's not. There's no minimum to open an account. You
Speaker 8: can have an account with effect a zero balance. Many
Speaker 8: people open an account for testamentary purposes. They will fund
Speaker 8: it upon their passing to fulfill their charitable legacy. When
Speaker 8: you're young, you don't necessarily have a lot of assets
Speaker 8: to give to charity. So you don't have to give
Speaker 8: five thousand, ten thousand to open an account. You can
Speaker 8: open it with a zero balance, and you can fund
Speaker 8: it over time when you have the assets.
Speaker 3: Ready to give.
Speaker 2: But why open it early if you don't really have
Speaker 2: anything to contribute to it.
Speaker 8: It's a great question uestion. And they do it for
Speaker 8: a variety of different reasons. Like I said, one is
Speaker 8: when it's used for testamentary purposes. When a person is
Speaker 8: planning their legacy. When they're planning sort of they're trying
Speaker 8: to think about what they want their legacy, charitable legacy
Speaker 8: to be beyond their lifetime, they would fund upon their passing.
Speaker 8: The donor advice Fund account would be named as at
Speaker 8: fishary of their trust or their estate, and an amount
Speaker 8: would be put into that with the understanding of exactly
Speaker 8: how and where they want that be distributed to charities
Speaker 8: of choice.
Speaker 3: So that's what I want to talk about is control here.
Speaker 3: How much control does the person who put the assets
Speaker 3: in there, who had the assets who don'tate the assets
Speaker 3: have where those assets go or where that money goes.
Speaker 6: That's a great question.
Speaker 8: So technically, when the assets are put into the donor
Speaker 8: device fund account, they relinquish control of those assets because
Speaker 8: those assets we are, as you said at the beginning,
Speaker 8: we are a five oh one C three nonprofit. They
Speaker 8: are effectively making a contribution to a nonprofit organization, and
Speaker 8: at that time they relinquishly control those assets. However, they
Speaker 8: are the ones that recommend the investment strategy when the
Speaker 8: assets are in the account, because we want to make
Speaker 8: sure that they're invested in a manner that's consistent with
Speaker 8: their personal goals and objectives. And they recommend grants when
Speaker 8: they choose to have grants go to the charities that
Speaker 8: they choose to support. So in other words, it's not
Speaker 8: them making the grant. They are recommending to us, as
Speaker 8: the if you will, owners of those assets, where they
Speaker 8: want those grants to be made and how, and so
Speaker 8: while they reliquist the control for a variety of reasons,
Speaker 8: when they actually make the contribution, they make the recommendations
Speaker 8: on how to invest and where, and they make the
Speaker 8: recommendations on where to.
Speaker 2: Grants and when so two questions, where do they Where
Speaker 2: are folks often saying here's where we want those assets invested,
Speaker 2: and then where are they saying they want to donate.
Speaker 8: That's a great question, and there are a number of
Speaker 8: different investment options and it really is up to ultimately
Speaker 8: the donor and the advisors supporting the donor on how
Speaker 8: they choose to balance their portfolio in terms of an
Speaker 8: investment strategy.
Speaker 2: Many of because I wonder if it's about growth or
Speaker 2: it's just about maintaining the principle or a little bit
Speaker 2: of both.
Speaker 8: Yes, it's both. Mostly it's both. People want to do
Speaker 8: a variety of different things. They want to maintain the balance,
Speaker 8: they want to grow it over time. And an interesting
Speaker 8: is is we have seen almost four billion dollars in
Speaker 8: growth and incremental growth as a result of utilizing a
Speaker 8: very effective and prudent investment approach while the assets are
Speaker 8: in the account, so above and beyond what they've contributed.
Speaker 8: As a result of, you know, really effective and thoughtful
Speaker 8: investment of those assets, we've seen about four billion additional
Speaker 8: dollars ultimately made available to go to charities.
Speaker 2: So I interrupted you, so where are folks investing? And
Speaker 2: then where are they donating, so they're investing in a
Speaker 2: variety of ways.
Speaker 8: Some people want to invest around impact investing, for example,
Speaker 8: they want to do things with SRI s G.
Speaker 6: Actually that's even growing.
Speaker 8: Impact is an evolving term and it means different things
Speaker 8: to different people, but yeah, that's a big thing. Others
Speaker 8: are investing in sort of much more conservative investment options
Speaker 8: where they're much more focused on maintaining the balance and
Speaker 8: making sure that you know, it's not subject to the same.
Speaker 3: Investment volatility as others.
Speaker 8: So it really the answer to your question is that
Speaker 8: they're investing in whatever way they feel most comfortable investing
Speaker 8: those assets if it's for impact and that impact has
Speaker 8: you know, as social returns in addition to financial return
Speaker 8: and in other cases it's just really maintaining the balance,
Speaker 8: making sure that they have those assets there to be
Speaker 8: able to grant a charity whenever they choose, and.
Speaker 3: Then ultimately where does that money go.
Speaker 6: So yeah, so then the third component is granting.
Speaker 8: So we allow grants to any organization that is a
Speaker 8: five oh one C three nonprofit and good standing with
Speaker 8: the IRS. Our database. We rely on the IRS database
Speaker 8: that is about two million strong right now. So really
Speaker 8: it's up to and it's in the flexibility of solution.
Speaker 8: It goes to wherever they choose to support it. It
Speaker 8: could be their house of worship, it could be their
Speaker 8: alma mater, it could be providing grants to disaster relief
Speaker 8: organizations when floods occur in Texas or fires occur in California.
Speaker 8: So it's really incredibly flexible in terms of where and
Speaker 8: how they grant it.
Speaker 2: Any place that they cannot donate just real.
Speaker 8: Quickly, it's not really as long as it's a five
Speaker 8: oh one C three a nonprofit organization and good standing
Speaker 8: with the irs generally speaking, those that we fulfill those
Speaker 8: grant recommendations.
Speaker 2: All right, so appreciate this is really fun. Fred, thank
Speaker 2: you so much.
Speaker 6: Thank you guys very much for the time.
Speaker 2: He is managing director of Relationship Management for DAFT Giving
Speaker 2: three sixteen independent five oh one C three Public Charity
Speaker 2: fully known as Schwab Charitable Tim and I here at
Speaker 2: Schwab Impact twenty twenty five. Now you might recall over
Speaker 2: the summer it was in August President Trump signing an
Speaker 2: executive order directing the Labor Department to reevaluate guidance to
Speaker 2: fiduciaries to get them more comfortable with including private credit,
Speaker 2: digital assets, and other alternative assets in their retirement plans. Now,
Speaker 2: the SEC may also issue some new rules or guidance
Speaker 2: to change the definition of accredited investor or qualified purchasers.
Speaker 2: There's a lot going on that could open up a
Speaker 2: lot of different types of assets to retail investors. It's
Speaker 2: something that we've gotten into with the Schwab CEO and.
Speaker 3: Kind of on pause right now, at least at the
Speaker 3: SEC level because the government shut down. Yes, but still
Speaker 3: this seems to be the direction that things are.
Speaker 2: Moving all right. We have a great guest to get
Speaker 2: into on all of this with some thoughts and here
Speaker 2: at Denver in Denver at Schwab Impact twenty twenty five,
Speaker 2: Kyla Culver, she's head of real and Controls for Schwab
Speaker 2: Advisor Services. Good to have you here. There's a lot
Speaker 2: going on that could change, or there's a lot that
Speaker 2: is going on that means we won't see changes. How
Speaker 2: are you assessing kind of the regulatory environment and things
Speaker 2: that could change what investors can be investing in.
Speaker 10: So I feel like for advisors it's a lot of
Speaker 10: whiplash right now. If we look at the prior administration
Speaker 10: and SEC Chair Gensler, there was constantly new rules coming out,
Speaker 10: and it was just like regulation overload for people. And
Speaker 10: now under Paul Atkins, we're expecting to see a reduced
Speaker 10: pace of regulation. So we see it as a good
Speaker 10: opportunity for advisors to really focus on getting back to
Speaker 10: basics and making sure that their compliance programs are up
Speaker 10: to date, that all of their ADVs are accurate, what
Speaker 10: are as they're disclosure documents that have to file with
Speaker 10: the SEC. Really just making sure that like their house
Speaker 10: is in order so that because if we're not under
Speaker 10: a constant flood of new things coming out and then
Speaker 10: you know, we heard you talking about about the executive
Speaker 10: order related to four to one k's and being able
Speaker 10: to hold alternatives different things in four to one K accounts.
Speaker 10: That's something that you know, some advisors have interest in
Speaker 10: for their clients, and it's going to really depend on
Speaker 10: the plan, Like is this something that the plan chooses
Speaker 10: to allow for that client or you know, for their
Speaker 10: plan participants, or does the plan not want.
Speaker 2: To allow that.
Speaker 3: What direction do you see that moving in? If it
Speaker 3: does get approved, if it if it happens, if the
Speaker 3: SEC says okay, this is totally fine. Is everyone going
Speaker 3: to be Is it going to be like us having
Speaker 3: stocks and bonds.
Speaker 9: In our life?
Speaker 10: I don't think it will be for everybody.
Speaker 3: I think that we see it well everybody at the option.
Speaker 10: Well, it's going to be up to the plan administrator.
Speaker 10: So who's ever sponsoring that plan. They're the fiduciary. They've
Speaker 10: got the ability to say you're allowed to invest in X,
Speaker 10: or you're allowed to invest in you know, not allowed.
Speaker 3: So would I be at the company level for a
Speaker 3: certain company and it's employees, or would it be at
Speaker 3: the whoever they decide as the planned administrator like an
Speaker 3: empower for example, it's.
Speaker 10: Really like the planned sponsor who's choosing that.
Speaker 2: So why would a plan sponsor say no? Why would
Speaker 2: a plan sponsor say yes?
Speaker 10: I think they would say yes if they wanted to
Speaker 10: give their their participants, you know, additional choices. Some plan
Speaker 10: sponsors may say no. You know, we see it on
Speaker 10: the Schwab side where we've got some plan sponsors that
Speaker 10: have opted into our Personal Choice Retirement account offering where
Speaker 10: you can basically have your four oh one K and
Speaker 10: you know, self direct it invest in stocks and bonds
Speaker 10: and things that are outside of the allocate the plan allocation.
Speaker 10: It just really depends on their their comfort level. Like
Speaker 10: from a conservative perspective, you might say, we want to
Speaker 10: stick more with you know, these funds that we've chosen.
Speaker 3: Is it a good thing?
Speaker 9: I think it's you know, choice.
Speaker 10: Is always a good thing. So more freedom of choice.
Speaker 10: But as long as people are doing it smartly with it,
Speaker 10: you know, the advice of an investment advisor. I think
Speaker 10: it's a sparked decision, but I think there's always additional
Speaker 10: risk there.
Speaker 2: Well, the risks are right in terms of all assets.
Speaker 2: Some things are not as liquid or as others, and
Speaker 2: you need to understand that if YNGI to be able
Speaker 2: to get out of something it's not liquid like stocks
Speaker 2: and bonds exactly in many ways.
Speaker 10: And that's why I think doing things with the advice
Speaker 10: of a professional versus just you know, your friend told
Speaker 10: you this was a good investment, it makes more sense
Speaker 10: that way.
Speaker 3: On the regulatory front, and having advisors have less regulation
Speaker 3: right now, does more fall on them in terms of
Speaker 3: making sure that they're doing what's right because those those
Speaker 3: regulations aren't necessarily in place, and I know kind of
Speaker 3: a judgment for me to say, you know, quate regulations
Speaker 3: with right, that's not what I need to do. But
Speaker 3: we know, we know the DNA that that Paul Atkins
Speaker 3: has the SEC chair when it comes to this stuff,
Speaker 3: and he's much more laisse faire than other SEC in
Speaker 3: the past.
Speaker 10: Yeah, So what what we keep reminding advisors of is
Speaker 10: just because there's you know, all this noise about deregulation
Speaker 10: and less new regulations, you still have to follow the
Speaker 10: fiduciary duty you still have. You know, there's still regulations
Speaker 10: on the books, there's still rules. Who still have to
Speaker 10: do all the things and be making sure you're in
Speaker 10: the best interest of your client. So just because it's
Speaker 10: a more like laise fair kind of environment doesn't mean
Speaker 10: you still don't have principles that you have to adhere to.
Speaker 2: That Schwab's Kayla Culver, head of Risk and Controls over
Speaker 2: at Schwab Advisor Services.
Speaker 3: And that does it. For this special edition of Bloomberg
Speaker 3: Business Week featuring some of our conversations and the highlights
Speaker 3: from the Schwab Impact twenty twenty five from the Schwab
Speaker 3: Impact twenty twenty five event in Denver, Colorado, this past week.
Speaker 2: For all of them, be sure to check it out
Speaker 2: at Bloomberg dot com and wherever you get your podcasts. Hey,
Speaker 2: and also be sure to tune into Bloomberg Business Week
Speaker 2: Daily Monday through Friday starting at two pm Wall Street
Speaker 2: Time on Bloomberg TV, Bloomberg Radio, and on Serius XM
Speaker 2: Channel one twenty one. And you can listen to us
Speaker 2: on Applecarplay and Android Auto. It's freeing the Apple app
Speaker 2: Store or on Google Play.
Speaker 3: You can also watch our daily broadcast on YouTube. Just
Speaker 3: search Bloomberg Podcasts, and we're simulcast on Bloomberg Originals available
Speaker 3: at Bloomberg dot com, Slash Originals, and streaming platforms like Roku, Amazon,
Speaker 3: Fire TV, Samsung TV Plus and more.
Speaker 2: Find our Bloomberg BusinessWeek Daily podcast at Bloomberg dot com, Apple,
Speaker 2: or wherever you get your podcasts, and the latest edition
Speaker 2: of the magazine. It is available on newsstands now at
Speaker 2: Bloomberg dot com and always always on the Bloomberg terminal.
Speaker 2: I'm Carol Masser and.
Speaker 3: I'm tim Stenaveeck. Have a good and safe weekend, everyone,
Speaker 3: stay with us. Today's top stories and global business headlines
Speaker 3: are coming up right now.