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Speaker 1: Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Speaker 2: Let's actually though about Kibe, Jim King, did you know that?
Speaker 3: I did not know that?
Speaker 2: All right, we'll talk about that. We know that today.
Speaker 2: It's a gift go to Schwab because this is where
Speaker 2: we find ourselves at Impact twenty twenty three. There's so
Speaker 2: much going on, a good reason why investors are made
Speaker 2: that something hasn't broken in the economy yet. Because the
Speaker 2: last time US government bond yields climb so far, so fast,
Speaker 2: the nation plunged into back to back recessions. So that
Speaker 2: is part of kind of our backdrop. Let's get to
Speaker 2: it though. We are here at Philadelphia, at the Philadelphia
Speaker 2: Convention Center, at Schwab Impact twenty twenty three and with
Speaker 2: us as Rick Worcester, he's president of Charles Schwab. I
Speaker 2: want to say thank you for joining us, but thank
Speaker 2: you for having us.
Speaker 4: We thank you for having me on.
Speaker 2: It's so delightful to be here it's great to have
Speaker 2: you here in a day where I kind of laugh
Speaker 2: with you. It's a shame nothing is going on, but
Speaker 2: it's a really interesting environment geopolitically. Obviously we're you know,
Speaker 2: front and center watching what's going on around the world,
Speaker 2: but also within the investment environment, how do you make
Speaker 2: sense you and your team back at schwab about kind
Speaker 2: of how to prioritize what investors are going to care
Speaker 2: most about and what's going to impact your world specifically.
Speaker 5: Sure, well, Sutinly, when we think about the global events,
Speaker 5: the first thing I think about is the human suffering
Speaker 5: and the difficulties that a lot of people have had
Speaker 5: to endure recently. From a market standpoint, we want that
Speaker 5: volatility can be challenging to clients, and one of the
Speaker 5: things that we say in an environment like this is
Speaker 5: seek out an advisor. And we're sitting here, of course,
Speaker 5: at our thirty third annual Impact Conference for advisors, and
Speaker 5: they help clients thrive through environments like this. So it's
Speaker 5: a challenging environment for the world. Certainly, it creates uncertainty
Speaker 5: and some volatility, but I think advisors can help a
Speaker 5: lot of our clients through periods like this.
Speaker 3: What are you hearing from advisors right now about the
Speaker 3: questions that their clients have. I mean, we're not only
Speaker 3: in a challenging world for financial markets, but we're in
Speaker 3: a challenging world for advisors. They're robo advisors. I mean,
Speaker 3: Schwab has its own robo advisor, its rob intelligence portfolio.
Speaker 3: What are you hearing from these people whose businesses are
Speaker 3: being challenged right now?
Speaker 5: Well, the thing I would say about the advisor market
Speaker 5: is that there's a bull market for advice more and
Speaker 5: more clients because of everything that's going on in the world,
Speaker 5: because of what's happening in markets, because people are trying
Speaker 5: to integrate markets into taxes and their trusts or states
Speaker 5: passing wealth along.
Speaker 4: There is a bull market for help and guidance.
Speaker 5: And so it's a market in which advisors are thriving
Speaker 5: and the area is really growing.
Speaker 2: Rick, what's the most interesting demographic in terms of the
Speaker 2: investing public right now for you guys, Well, to me.
Speaker 5: It's got to be the base boomers. The baby boomers
Speaker 5: have amassed a lot of wealth and more and more
Speaker 5: retiring every day, and they want that help and guidance
Speaker 5: to help them get through retirement and navigate all the
Speaker 5: things in front of them. So to me, that's the
Speaker 5: most interesting demographic. But at SCHWAB, we want to meet
Speaker 5: the needs of every demographic, whether it's a young investor,
Speaker 5: a baby boomer. We need to be exceptional at meeting
Speaker 5: the needs of all of those different demographics.
Speaker 2: Yeah, it's kind of interesting, right for like a younger investor.
Speaker 2: We talk a lot about. We had a guest on
Speaker 2: this past week of just you know, trying to assess
Speaker 2: are we in a recession? And you know, while technically
Speaker 2: the numbers that we've got growth in the US, you know,
Speaker 2: strong consumer spending numbers, still, retail sales.
Speaker 3: Numbers, employment is strong.
Speaker 2: Employment is strong. Having said that, she said, you know,
Speaker 2: I'm coming from Wisconsin again, somebody who manages money. She said, Yep,
Speaker 2: they're working, but folks can't buy a home because they
Speaker 2: can't afford it with the mortgage rates. They've got one
Speaker 2: thousand dollars a month car payments, So they in essence
Speaker 2: feel like it's a recession for them. So I'm just
Speaker 2: curious from your people who want to invest with you
Speaker 2: guys and work on your platforms, you know, what is
Speaker 2: it that they're doing looking to save money concerned principle,
Speaker 2: or be more aggressive in this environment because they see
Speaker 2: some opportunities amid the volatility.
Speaker 5: Well, first, the first part of the question, there's no
Speaker 5: question this environment has been difficult for investors and difficult
Speaker 5: for people trying to live in the world. There's been
Speaker 5: a lot of inflation the uh you know, the FED
Speaker 5: has raised interest rates dramatically and quickly, but that was
Speaker 5: after letting inflation run a little bit, and so it
Speaker 5: has squeezed individuals. At the same time, markets are not
Speaker 5: that far away, particularly the S and P or the
Speaker 5: NASTAC not far away from all time highs. So there
Speaker 5: is a lot of wealth being created along the way.
Speaker 5: And from our perspective, we're here to solve to serve
Speaker 5: all investors. Our goal is to help clients navigate their
Speaker 5: financial life, to make them better off and help them
Speaker 5: get to where they want to be.
Speaker 2: But do they want to be more conservative in this invironment? Like,
Speaker 2: I'm just curious in an environment where we talk. You know,
Speaker 2: a money market pays you, you know what everybody keeps.
Speaker 3: Saying more than five percent?
Speaker 2: Why not put it there right without the risk. I'm
Speaker 2: just curious what you're seeing in terms of those trends.
Speaker 5: I would say that the call volumes on our fixed
Speaker 5: income line have gone up ten times what they were
Speaker 5: about eighteen months ago. So there's no question that there's
Speaker 5: a lot of interest in yield right now. And why
Speaker 5: not you get a two and a half percent real
Speaker 5: yield on the twenty year now on I think you
Speaker 5: have to go back quite a while before that was
Speaker 5: the case.
Speaker 3: Kind of folts perfectly into my next question, which is
Speaker 3: about the business and about cash in the business. Schwab
Speaker 3: recently reported earnings deposits down twenty eight percent in the
Speaker 3: third quarter, was better than analysts forecast, still though a
Speaker 3: drop of more than two hundred and eighty four billion dollars.
Speaker 3: How much money do you see staying in the schwap
Speaker 3: ecosystem right now, even if you know cash sleep is occurring,
Speaker 3: but people can get you know, more than five percent
Speaker 3: in money markets.
Speaker 5: Well, what I would say is we want clients to
Speaker 5: do the right thing for them and their situation. We
Speaker 5: bring all you know, the clients leave cash in their accounts,
Speaker 5: We leave it there until we know what they want
Speaker 5: to do with it, and so they make a decision
Speaker 5: that they want more yield, they should go and do that.
Speaker 5: So the money leaving our bank, it's staying at Schwab,
Speaker 5: it's going and buying government bonds, or it's going into
Speaker 5: a money market fund. But that money is staying at Schwab,
Speaker 5: and it's going to places where it can earn a
Speaker 5: higher yield.
Speaker 3: Then why were deposits down so much if it's staying
Speaker 3: at Schwab.
Speaker 5: Because it's coming out of our bank and finding its
Speaker 5: way into higher yielding money market funds or fixingcome investments.
Speaker 5: And that's exactly what we would want for clients. It's
Speaker 5: not the best thing for our profits, but we want
Speaker 5: the best thing that's for our clients. And so that
Speaker 5: money movement is healthy for our clients.
Speaker 2: Right, banking key to revenue. Right, we know that right
Speaker 2: from the last earnings report, is money still continuing to
Speaker 2: come out of that unit?
Speaker 5: Well, what I would say is that if you think
Speaker 5: about what's happening clients are looking at. You know, if
Speaker 5: you went back to when interest rates were quite low,
Speaker 5: they would have a lot of cash in their portfolios
Speaker 5: and they would say, there's no need to move this cash.
Speaker 5: I'm just going to leave it here. It's going to
Speaker 5: earn zero here, It's going to earn zer anywhere else.
Speaker 5: As the FED has lifted interest rates and yields are
Speaker 5: now more attractive, people have looked at their balances and said, well, gosh,
Speaker 5: why would I leave it here earning earning less unless
Speaker 5: they needed to transact or they know they're going to
Speaker 5: spend it on something. But for the portion of their
Speaker 5: cash that they know is longer term cash, they can
Speaker 5: get better, they can get more yield somewhere else. So
Speaker 5: it's moved. And I would just wrap up by saying
Speaker 5: we think a lot of the movements occurred because that
Speaker 5: yield's been high for a while, so people have made
Speaker 5: that transition, and we're starting to see a strong deceleration
Speaker 5: of the pace of cash realignment.
Speaker 2: So it's still coming out, but at a slower pace,
Speaker 2: much slower pace.
Speaker 5: And in fact, last month was the first month where
Speaker 5: in our bank sweep we saw a positive growth in
Speaker 5: bank some more money coming into the bank than leaving
Speaker 5: the bank for the first time in a while. So
Speaker 5: from a business standpoint, that's positive. But again, what we
Speaker 5: want is clients to find the right investment for them.
Speaker 2: Does it make you nervous though? As we get ready
Speaker 2: for a GDP report, that's backward looking. Mind you another
Speaker 2: read on inflation that in terms of what that could
Speaker 2: mean for monetary policy, we do think we're getting close
Speaker 2: to our peeking rates. But nonetheless, whether again and if
Speaker 2: we see signs of inflation, if we see more signs
Speaker 2: of growth, whether or not that that means ultimately you're
Speaker 2: going to see more money coming out because the money
Speaker 2: markets just kind of get more and more attractive.
Speaker 5: Yeah, it could be we're back in one of these
Speaker 5: cycles where where bad news is good news. You know,
Speaker 5: I feel like we might be back in that because
Speaker 5: good news may lead to the higher rate environment. That
Speaker 5: could be you know, it could hurt the economy certainly.
Speaker 3: Okay, So what about creating new products that help people
Speaker 3: keep their cash at SCHWAB. I'm wondering, if there are
Speaker 3: so many high yield accounts available at other financial institutions
Speaker 3: right now, what are the conversations happening behind the scenes
Speaker 3: about creating those sorts of products at Schwab.
Speaker 5: Now, what I would say is, we have all kinds
Speaker 5: of cash products for clients, and we're not having an
Speaker 5: issue with cash leaving the firm. We've we've brought in
Speaker 5: over two hundred billion dollars of net new assets to
Speaker 5: the firm, and a lot of it has found its
Speaker 5: way into fixed income or money funds. The issue is
Speaker 5: just where they're saving it, but it's not leaving the firm.
Speaker 5: So I think there's no better place and no broader
Speaker 5: array of fixed income and money fund ones than we
Speaker 5: have at Schwab. So that, certainly, we always want to
Speaker 5: bring out new and relevant products, but we're doing a
Speaker 5: really nice job today of keeping those clients here at Schwab.
Speaker 2: Impacts the top line growth.
Speaker 4: We've been happy when.
Speaker 2: This five percent rate environment is over.
Speaker 4: Well, I don't have two and a half percent.
Speaker 5: Really, I feel like, you know that's not a bad
Speaker 5: deal for savers and investors.
Speaker 2: I want to ask you about your tenures so far. Right,
Speaker 2: you came in around twenty seventeen, twenty eighteen. I'm just
Speaker 2: thinking about kind of where the world was at that point.
Speaker 2: Not too shabby, right, and then all of a sudden,
Speaker 2: we move into a FED starts to raise rates, the
Speaker 2: pandemic hits. It's a whole other world, right, the FED
Speaker 2: cuts dramatically, we have the economy, everything just shuts down,
Speaker 2: and then we see markets bounce back in a big way.
Speaker 2: I mean, how do you think about kind of our
Speaker 2: visibility going forward in terms of the market environment. Do
Speaker 2: we really have a good grasp or is it hard
Speaker 2: to considering that trajectory and trying to figure out kind
Speaker 2: of what happens after a pandemic and all of the
Speaker 2: stimulus and crazy activity that went on.
Speaker 5: Well, we've certainly seen a lot in the last five
Speaker 5: or six years, haven't we. Yeah, you know, a pandemic
Speaker 5: timing was good, Yeah, all kinds of different market environments.
Speaker 3: You know.
Speaker 5: Our advice to clients at Schwab is to is to
Speaker 5: come up with a plan, stick to that plan, and
Speaker 5: if you need to help, seek the help of an
Speaker 5: advisor who can help guide you through it.
Speaker 4: But it's we believe it's.
Speaker 5: Hard to time the markets and and outthink you know
Speaker 5: what's going to happen.
Speaker 4: Are we going to be in a recession? Not in recession?
Speaker 5: Of course, we have an opinion on those things, but
Speaker 5: we're not always right, and we want investors to stay
Speaker 5: the course, have a plan, stick to it, and work
Speaker 5: with an advisor if that makes sense for them.
Speaker 3: What's your opinion on where we're going on the on
Speaker 3: the markets?
Speaker 5: Yeah, I mean I think at some point monetary policy
Speaker 5: has to lead to a more restrictive economy.
Speaker 2: But US recession or soft landing.
Speaker 5: I am not an economist. I'm not going to make
Speaker 5: that call. But you know, listen to Liz Anne Saunders
Speaker 5: or Jeff clientob they do a really nice job of
Speaker 5: calling the markets and and and the economy.
Speaker 2: As someone who manages though it is very part of
Speaker 2: the c suite right here, who covers you know and
Speaker 2: runs this company. What's top of mind for you guys,
Speaker 2: whether it's employees, whether it's cost cutting, what is it
Speaker 2: to me?
Speaker 5: It's opportunity. We have so much opportunity to delight our
Speaker 5: clients and make them better off in their financial life.
Speaker 5: But what I worry about at night is are we
Speaker 5: doing enough? And are we doing it fast enough? I
Speaker 5: just think we are blessed to have thirty five million
Speaker 5: clients that we serve on a daily basis, and I
Speaker 5: want to make sure we do everything in our power
Speaker 5: to make them as well off.
Speaker 4: As they can be.
Speaker 3: Can you talk a little bit about customer service? I
Speaker 3: have full disclosure. I'm a Schwab client, so I've.
Speaker 4: Experienced thank you for your business.
Speaker 3: And one thing that is notable it's like to me,
Speaker 3: it's like Carol, when we talk about American Express, you
Speaker 3: call Schwab in the person answers, you call American Express
Speaker 3: and a person answers. Can you talk about the investments
Speaker 3: that you make in customer service so people have those
Speaker 3: interactions just in the last minute that we have.
Speaker 4: Yeah, client service is critical to us.
Speaker 5: It's one of the things that really differentiates Schwab from
Speaker 5: some of our Vermar competitors. We've answered the phone this year,
Speaker 5: on average in less than thirty seconds. I can't get
Speaker 5: anyone to pick up my phone call in thirty seconds,
Speaker 5: certainly not my teenage daughter, so we ext her.
Speaker 4: Yeah, we make it.
Speaker 5: Yeah, it's really important to us that we answer the phones,
Speaker 5: that we're there for the clients and that we're delivering
Speaker 5: what they need. We are a client focused business. We
Speaker 5: only succeed when our clients.
Speaker 2: Succeed, So no worry about AI taking over.
Speaker 5: Hey, it's going to be really helpful to all those
Speaker 5: people answering the phones. I think they're going to make
Speaker 5: them more efficient. They're going to help them get an
Speaker 5: answer to the exist as an assist. They're going to help
Speaker 5: you get an answer more quickly. They're going to help
Speaker 5: you get a better answer, but they'll be in the background,
Speaker 5: supporting that person you're.
Speaker 2: Talking to, all right, love to hear that rather than
Speaker 2: taking over. Rick, thank you so much, really appreciate it.
Speaker 4: Thanks for having me on.
Speaker 2: Thank you for having us, Rick Wurster. He's a president
Speaker 2: of course of Charles Schwab onside EDH Schwab Impact. We're
Speaker 2: just getting started though. On this Wednesday, Carol Master along
Speaker 2: with Tim Stenewick, and you're listening and watching Bloomberg Business Week.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
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Speaker 3: Well. One of the most read on the Bloomberg Terminal
Speaker 3: over earlier this week all about the challenges that active
Speaker 3: asset managers are facing Carol even Matt Levine wrote about
Speaker 3: this in his column on Monday. Across the one hundred
Speaker 3: trillion dollar asset management industry, money managers have been confronted
Speaker 3: by a tectonic shift when it comes to investor appetite.
Speaker 3: They're looking for cheaper, passive strategies at least heard this
Speaker 3: before right over the last decade.
Speaker 2: Absolutely, and now they're facing something even more dire. The
Speaker 2: unprecedented run of bull markets may be a thing of
Speaker 2: the past. We've got a good guest to get into
Speaker 2: all of this, who actually is going to talk about
Speaker 2: how maybe people want simple investing, which I find really fascinating.
Speaker 2: Joe Grogan. He has head of distribution over at Wisdom Tree.
Speaker 2: He works with some of the largest custodial platforms that
Speaker 2: are out there. He's here on site with us in Philadelphia.
Speaker 2: Wisdom Tree, by the way, it's an asset management firm.
Speaker 2: You know who they are. They offer up a lot
Speaker 2: of ETFs and are among those financial firms filing for
Speaker 2: a spot bitcoin ETF, which I'm really interested.
Speaker 3: We'll spend the whole We'll spend the whole interview talking
Speaker 3: about bitcoin.
Speaker 2: You know how many people come up to you and
Speaker 2: be like, let's talk about that bitcoiny TAF.
Speaker 6: Well, first of all, thank you very much for having
Speaker 6: You're welcome. It happens quite a bit. It happens at
Speaker 6: the booth, that happens pretty much everywhere we go. And
Speaker 6: the same answer right now, we really can't speak to.
Speaker 2: That, is there is there interest a little bit?
Speaker 3: Is there a well, talk to me about interest around
Speaker 3: the product. Speak about that. I mean, have you ever
Speaker 3: launched a product that has had this much attention, this
Speaker 3: much interest.
Speaker 6: It's certainly overwhelming, for sure, the amount of interest that
Speaker 6: gets for whatever reason that may be, it's out there.
Speaker 6: It's it's pretty amazing. It's a lot of interest. Maybe
Speaker 6: not that much of an appetite that we've seen in
Speaker 6: the US, but there's certainly appetite in Europe and Canada.
Speaker 6: We've seen it. You know, we have a few in Europe.
Speaker 6: But as far as the launching the one in the
Speaker 6: US goes, I leave that with our lawyers and our
Speaker 6: church General Council until we get through the SEC.
Speaker 2: Can we just say, though, is it going to be
Speaker 2: like cannabis? And they overseight like, is it going to
Speaker 2: be every like? Is it something? Or do you feel
Speaker 2: like there's a lot of attention now to try and
Speaker 2: kind of figure this one out.
Speaker 6: You've seen a lot of attention, especially with the rise
Speaker 6: in the last you know, week or two. I mean,
Speaker 6: it's been amazing to see a meteoric rise in crypto
Speaker 6: and what does that mean for the average investor. I
Speaker 6: mean to your original comment about simplicity, how do you
Speaker 6: make that simple?
Speaker 2: Well, that's why I'm trying to get my head around
Speaker 2: those two things.
Speaker 6: Absolutely.
Speaker 2: And you know, we talked to a lot of folks
Speaker 2: in the digital world, if you will, Bitcoin world, crypto world,
Speaker 2: and they're like, you know, it's so pure in all
Speaker 2: those things, but it's complicated.
Speaker 6: It's extremely complicated.
Speaker 3: You don't have your cold storage all set up.
Speaker 7: I do not.
Speaker 2: So that's so tell me this, you know, interest and
Speaker 2: desire for things more simplistic. Yeah, and then you have this.
Speaker 6: Well, let's put crypto aside and talk about simplicity and
Speaker 6: what that means. I mean, we're seeing this huge shift
Speaker 6: towards simplicity away from the real complex type of investment strategies.
Speaker 6: And I think the biggest reason behind that is the
Speaker 6: average consumer or the investor. They can't understand these products,
Speaker 6: they can't manage them, So how are they going to
Speaker 6: actually try to understand them, work with them and put
Speaker 6: them into portfolios? You know? So as we go to
Speaker 6: a simpler process, a simpler type of formula, it doesn't
Speaker 6: mean we're losing sophistication.
Speaker 2: Well, that's what I want to ask what do you mean?
Speaker 2: They want a simpler like, what is it? Are you
Speaker 2: talking about the process itself or the investment itself?
Speaker 6: You know, it's more the investment itself, okay, right. They
Speaker 6: want to understand the underlying investment, how it works. You know,
Speaker 6: back in the days, over the last few years, we've
Speaker 6: seen a lot of option based strategies, a lot of
Speaker 6: derivative tape strategies, very complicated, very tough to understand. If
Speaker 6: the market goes up, these go down. How does that work?
Speaker 6: Now it's really well, what about the traditional stock and
Speaker 6: bond portfolios? What about these portfolios that we can better understand?
Speaker 2: That's what people want.
Speaker 6: Well, they're looking for that. They're looking for the quality
Speaker 6: type investments. We're seeing a big shift of quality in
Speaker 6: our in our business. That's what they're looking for.
Speaker 3: If people don't understand something, does it belong in their portfolio?
Speaker 6: That's a great question.
Speaker 3: I know what Warren Buffet would say, Yeah, it's a.
Speaker 2: Great Lynch would have said it right decades ago.
Speaker 6: Absolutely, Peter Lynch, I used to work in fidelity for
Speaker 6: quite a while, and yeah, you know he always said,
Speaker 6: if you can go into a store and you see
Speaker 6: buyers buying those products. That's problem be the investment you want.
Speaker 6: That's simple of a philosophy.
Speaker 2: All right, So where does that go then? If we
Speaker 2: get a little bit more simpler, plain vanilla, what does
Speaker 2: it mean?
Speaker 6: Well, I think you're going to see people, you know,
Speaker 6: having the core part of their portfolio really based around
Speaker 6: a real simpler type investment style, and then they'll take
Speaker 6: a smaller percentage and maybe go to the alternative side,
Speaker 6: or go to the crypto side or something of that nature.
Speaker 2: Well, this is what's interesting too, because I think about
Speaker 2: you know, Tim and I've been at Milk in the
Speaker 2: last couple of years, and it's just it's all about
Speaker 2: private markets.
Speaker 3: Absolutely, private markets and private chats.
Speaker 2: Private eat That's okay, that's really well said. But I mean,
Speaker 2: I guess it's simpler. It's just lending right outside the
Speaker 2: kind of traditional infrastructure. Is that part of the simpler
Speaker 2: investing demand?
Speaker 6: Well, you're also talking about a very high net worth
Speaker 6: you know demographic over there, yep, So they do have
Speaker 6: access to those portfolios. Your general population generally doesn't have access.
Speaker 2: But should they and their demand?
Speaker 6: Do you think this should be a democracy democratization of
Speaker 6: certain products and I think should brought down to the
Speaker 6: lower level, of course, and I think that's what wisdom
Speaker 6: Tree is very good at is trying to provide access
Speaker 6: to different types of asset classes, benchmarks, et cetera in
Speaker 6: a simplified way.
Speaker 3: So talk to us about model portfolios getting a ton
Speaker 3: of attention right now, yep. Well, first of all, explain
Speaker 3: what they are to people who might not be familiar
Speaker 3: with model portfolios.
Speaker 6: Model portfolios are there's not an advisor out there that
Speaker 6: doesn't run a model portfolio for the clients. You know,
Speaker 6: a person may be invested with an advisor and they're
Speaker 6: going to be in a model portfolio. It's scalable, it's efficient,
Speaker 6: but also it's risk mitigating. So and what I mean
Speaker 6: by that is the advisor, whether they do it themselves
Speaker 6: outsource that they would look at investing in sixty percent
Speaker 6: equities forty percent bonds, and of that mix they might
Speaker 6: be you know, some growth equities, value equities, but really
Speaker 6: they build a portfolio that can withstand different cycles. We're
Speaker 6: seeing a pretty ugly market today, and I can guarantee
Speaker 6: you if you are just holding a singular stock versus
Speaker 6: a model, the model at fare better today. So it's
Speaker 6: just more risk standpoint. Now, great, if that model was
Speaker 6: just all hyper growth securities whatever and not really true
Speaker 6: diverse flid model, they might have difficulty.
Speaker 2: I do wonder about, like how much you know in
Speaker 2: a zero rate environment for so long, everybody got a
Speaker 2: little bit lazy, right, And also, you know this idea
Speaker 2: of you know, principal preservation kind of went away because
Speaker 2: you just didn't need to think about it. It's a
Speaker 2: different environment.
Speaker 6: Anybody could have made money in the last ten years.
Speaker 6: If you didn't make money in the market in the
Speaker 6: last ten years, you did something wrong, real wrong, right
Speaker 6: Right nowadays where you've seen fixed actually fixed income actually
Speaker 6: provide a return. I saw a study today that said
Speaker 6: cash has the best return of the last twelve to
Speaker 6: eighteen months. So that's a much different dynamic than say
Speaker 6: ten years ago or two years ago, whereas just all
Speaker 6: growth funds all the way right now, like, if you're
Speaker 6: not invested in very ultra short term fixed income or
Speaker 6: cash products to balance everything else off, you probably have
Speaker 6: a negative portfolio.
Speaker 3: What's the biggest question you're hearing from your clients right now?
Speaker 6: What do I do?
Speaker 3: What are you saying? What do you like? What do
Speaker 3: I do, or like, what do you what do you
Speaker 3: actually do?
Speaker 4: Exactly?
Speaker 3: It is?
Speaker 6: What are you doing listen the investment? Like our advisors,
Speaker 6: I mean, you know, they have limited access to certain things.
Speaker 6: They're too busy managing their relationships and helping their own
Speaker 6: company grow to really get a deep look at the market,
Speaker 6: so they rely on us, Whereas we have a group
Speaker 6: of thirty individuals that in our research department that all
Speaker 6: they do is watch the markets and try to understand
Speaker 6: how can we better place our investors our advisors into
Speaker 6: products that will stand the test of time.
Speaker 2: What's the time that you refer to though in past
Speaker 2: history that's similar to this cycle? Or is there nothing
Speaker 2: to go back to? Because I feel like anybody who's
Speaker 2: seen a lot of cycles is a lot more sanguine
Speaker 2: about kind of where we are today?
Speaker 6: Are you saying that I.
Speaker 7: Have?
Speaker 2: But I do think it gives you some perspective. We've
Speaker 2: got about thirty seconds back. But I do think about
Speaker 2: how you lean on anything that we've gone through.
Speaker 6: The you know, the last three to five years is
Speaker 6: much different than anything we've ever seen. Everything went up
Speaker 6: and much different. You really have to take a lot
Speaker 6: on the term perspective to understand what the market cycles
Speaker 6: go through, because this has it's been a fictitious market
Speaker 6: cycle last five eight years. So if you go back
Speaker 6: further the night, you'll get a better understanding of what
Speaker 6: market cycles should look like. What's normal.
Speaker 2: Is there one that you refer back to?
Speaker 6: Not really. It depends on the ass healthful, It depends
Speaker 6: on the asset class. If it's pixing, come but it's it,
Speaker 6: go back ten years. If it's growth, go back five.
Speaker 2: More optimistic, more pessimistic. Right now in terms of the investment,
Speaker 2: Alec just got about.
Speaker 6: Fifteen cautiously optimistic.
Speaker 2: That's not a ques. That's not an answer. This was fun.
Speaker 2: Thank you very much, really yeah so much.
Speaker 3: Thank you so good to see you. Thank you so much.
Speaker 3: Joe Grogan is head of distribution at wisterm Tree. He's
Speaker 3: with us here at Schwab Impact in Philadelphia.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 1: live weekday afternoons from three to six Easter on Bloomberg Radio,
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Speaker 2: We are in Philadelphia. It's SHWAB Inpact twenty twenty three,
Speaker 2: and got to say, I feel like we have the
Speaker 2: perfect guest because we have talked so much about the
Speaker 2: fixed income world and it's a tricky one with us.
Speaker 2: Is Kathy Jones, Managing director and chief Fixed in comestrateg
Speaker 2: just at Schwab Center for Financial Research on site with
Speaker 2: us here at the SHWAB Impact Conference. Are you really
Speaker 2: popular at that conference?
Speaker 3: She's like, finally my time has come. It's been ten
Speaker 3: years of zero interest rates and now everyone wants to
Speaker 3: talk about yields.
Speaker 7: Everyone wants to talk about yields.
Speaker 8: I don't know if that makes me popular, but yeah,
Speaker 8: there's a renewed interest in fixed income these days, which
Speaker 8: is pretty you know, it's pretty fun.
Speaker 3: Is that an understatement of renewed interest?
Speaker 7: Yeah?
Speaker 3: I mean, at least in our own programming, Carol, it's
Speaker 3: like much more than a reneude interest. Every day on
Speaker 3: our planning call, WET, we're saying our first guests needs
Speaker 3: to be about ra We need to have someone on
Speaker 3: to talk about rates. And there's a reason.
Speaker 8: Yeah, you know, we've had huge volatility, not only in
Speaker 8: the rate of change, in the increase in rates, but
Speaker 8: the level has gone up to you know, a level
Speaker 8: we haven't seen in well over a decade. And I
Speaker 8: think it has taken most people by surprise in both ways,
Speaker 8: that the rate of change was so rapid and that
Speaker 8: the level is so high and staying so high. So
Speaker 8: it's really just sort of changed the landscape very very quickly.
Speaker 8: And this last leg up since say September, has been,
Speaker 8: you know, quite a big shock to the market.
Speaker 2: Kathy, I feel like people are also increasingly talking about
Speaker 2: it. It's not just about yield, it's also about price, and
Speaker 2: I just wonder how that's kind of making it a
Speaker 2: little bit more interesting.
Speaker 8: Well, you know, I think that that's a little bit misplaced.
Speaker 8: So when you look at bonds, if you know, if
Speaker 8: you hold a maturity, you're going to get your principle
Speaker 8: back at power plus your interest.
Speaker 3: Yeah, it might take twenty eight years, but.
Speaker 8: Well, you know, you shouldn't probably worry about price, probably
Speaker 8: shouldn't buy thirty year bonds, right, and most people don't.
Speaker 8: I mean, let's face it, that's not usually the time
Speaker 8: horizon most people invest in. So I think what you
Speaker 8: need to look at when you look at bonds is
Speaker 8: a total return, and that's the income that you receive
Speaker 8: plus or minus the price change over a period of time.
Speaker 8: And that's where the narrative gets kind of thrown off
Speaker 8: with people talking about, oh, my goodness, it's forty percent.
Speaker 7: Decline or something. Right, you know, the AAG is down
Speaker 7: two and a half percent this year. It was down
Speaker 7: thirteen last year, which was a terrible year, but.
Speaker 8: Down two and a half percent. I mean stocks do
Speaker 8: that in ten minutes sometimes, right, So you know, it's
Speaker 8: a whole different asset class that way. And I think
Speaker 8: focusing on the price decline unless your mark to market,
Speaker 8: you're some institution that you know for whom that's leveraged,
Speaker 8: and that's important, right, It's not really something you should
Speaker 8: probably spend a lot of time on.
Speaker 3: You said, last year was it bad year for bonds.
Speaker 3: So is this year, and so was the year before
Speaker 3: last year. So this could be the third year in
Speaker 3: a row that bonds have just performed very poorly. What
Speaker 3: does twenty four look like for you?
Speaker 8: Well, you know, we're starting to work on our twenty
Speaker 8: twenty four outlook and it's challenging.
Speaker 7: It is always challenging, but this year is particularly challenging,
Speaker 7: and I think so our base case is that the
Speaker 7: economy does slow down.
Speaker 8: We have a bump here in the third quarter, but
Speaker 8: the relation continues to fall, which it has been falling,
Speaker 8: that the FED is pretty much done in hiking rates
Speaker 8: because of those factors slower growth, less inflation, and that
Speaker 8: bond deals start to come down. Maybe the FED cuts
Speaker 8: a couple of times in mid to late twenty twenty four.
Speaker 7: You know, longer term yealds start to fall.
Speaker 8: We're not looking for a return to very low yields,
Speaker 8: but certainly a positive retail next year. And you know,
Speaker 8: we've seen a lot of opportunity.
Speaker 7: In in that now.
Speaker 8: We've been running scenarios, so part of what I'm doing
Speaker 8: here at Impact is showing different scenarios so that advisors
Speaker 8: can kind of plan around that. But the good news is,
Speaker 8: you know, a one to five year bond ladder, even
Speaker 8: one to ten year bond letter under most circumstances, should
Speaker 8: have a positive return.
Speaker 2: It's interesting you talk about scenarios because I feel like
Speaker 2: I hear that increasingly that there's I think even J.
Speaker 2: Powell can see that there's a lot of different scenarios
Speaker 2: ahead of us, which makes it very hard for anyone
Speaker 2: who has to make calls or make projections or outlooks
Speaker 2: at this point. What's you think the riskiest kind of
Speaker 2: outlook from here? Is it recession? Hard recession?
Speaker 8: Well for the bond market, no, right, that's right. If
Speaker 8: you're in high quality bonds, your fire session will be fine,
Speaker 8: will be a place to hide. I think the riskiest
Speaker 8: would be if we were to see you know, more inflation,
Speaker 8: some sort of inflation shock, whether it's oil prices or
Speaker 8: something that happens, you know, exogynous to the underlying economy
Speaker 8: that the FED can't handle. Then you know, you could
Speaker 8: you could have real dispersion in terms of performance, and
Speaker 8: it'd be easy to be in the wrong place.
Speaker 7: At the wrong time.
Speaker 3: You know. There was a guest on Bloomberg TV a
Speaker 3: little early today who referenced the lack of foreign buyers
Speaker 3: when it comes to US treasuries, How concerning should we
Speaker 3: how concerned should we be about that?
Speaker 8: I will push back on that notion. You know, I
Speaker 8: follow the data pretty closely. It's not the data is
Speaker 8: not smooth, and you have to look in very different places.
Speaker 8: But on the Bloomberg terminal, when you look at the
Speaker 8: TICK data, say, for.
Speaker 7: China, they are buying bonds.
Speaker 8: When you look at the total holdings foreign investors, it's
Speaker 8: still it's still very steady. So some of the decline
Speaker 8: in so called purchasing is because it's marked to market.
Speaker 8: The price is as you mentioned, the price is down.
Speaker 8: It's looking like they're selling or they're not buying, but
Speaker 8: actually they're just holding. So I will push back against
Speaker 8: that idea.
Speaker 2: But what is it more problematic that the VET isn't
Speaker 2: buying and that we're also a lot of new issuance
Speaker 2: coming into the market, probably more coming.
Speaker 8: That's a bigger dynamic, right, because we've lost the price
Speaker 8: incentive buyer and we have a lot more issuance. Again,
Speaker 8: on supply historically not a big concern when I have
Speaker 8: spent many decades trying to find a correlation statistically between
Speaker 8: supply and yield, and I can tell you there's nothing reable.
Speaker 7: No, seriously, seriously.
Speaker 2: I mean that's important.
Speaker 7: I've been doing this since the late seventies. Yeah, and
Speaker 7: I have tried to do this.
Speaker 8: I've been sitting on trading desks where you know, it's
Speaker 8: always like, oh, we auction's coming.
Speaker 7: We got to back up. This has got to happen,
Speaker 7: that's gonna happen. It's kind of fifty to fifty.
Speaker 2: That's interesting because it's such a big part of the
Speaker 2: narrative right now, I know, so what is the important narrative?
Speaker 2: I listen. Our last guest was kind of laughing at
Speaker 2: me because I said something about having lived through many
Speaker 2: different market cycles. It's like, are you telling me I'm old?
Speaker 2: I'm like no, but I just feel like there is
Speaker 2: something to having seen none. Every market cycle is the same,
Speaker 2: no doubt about it. This one's a crazy one coming
Speaker 2: off the pandemic and everything that went along with it.
Speaker 2: But is there a market cycle that you kind of
Speaker 2: lean on to say, maybe this helps me understand a
Speaker 2: little bit about where we are, or you can tell
Speaker 2: me no.
Speaker 8: Yeah, Well, you know, part of what I'm talking about
Speaker 8: tomorrow my session is how.
Speaker 7: Different this cycle is from most.
Speaker 8: It reminds me a little bit more, you know, in
Speaker 8: some ways of the nineties when green Span doubled the
Speaker 8: FED funds rate in a year from three to six percent,
Speaker 8: but inflation was pretty quiet at that stage.
Speaker 7: Of the game. That wasn't as volatile as it is now.
Speaker 8: So this is more like a combination of other cycles,
Speaker 8: but it's not the same.
Speaker 3: I'm still trying to get out from you what twenty
Speaker 3: four looks like in what longer term looks.
Speaker 2: Like, because you know you've started like working.
Speaker 3: Yeah, like what are the things, what are the things
Speaker 3: that you're taking into account right now? What are you
Speaker 3: what's going into that worksheet that that you're working up
Speaker 3: right now for your outlook.
Speaker 8: So the three major drivers of bond yields tend to
Speaker 8: be FED policy, economic growth, and inflation. I feel like
Speaker 8: all those are working in a positive direction. Next year
Speaker 8: a FED policy it's either higher for longer from here
Speaker 8: or it's you know, down a little bit, So that
Speaker 8: should work, like someone, thank you, been a lot of talking.
Speaker 8: And then the second one, inflation is coming down. When
Speaker 8: you look at the core PCE, it's down quite a
Speaker 8: bit on a three month rate of change basis, and
Speaker 8: all the inflation.
Speaker 7: Charts are you know, turning over.
Speaker 8: And then you know we have economic growth and that's
Speaker 8: been the surprise. The third quarter bomp of growth has
Speaker 8: been I think the thing that threw everybody off.
Speaker 3: So that given what you just said, would you say
Speaker 3: that yields have peaked the cycle?
Speaker 2: Give her a longer questions, so she can here, would.
Speaker 3: You, well, why don't why don't we talk a little
Speaker 3: bit about that everyone everyone's always told me to ask
Speaker 3: shorter questions. Everything that Kathy just told us. You know,
Speaker 3: things are moving in the right direction. Would you say
Speaker 3: that yields have peaked in this cycle?
Speaker 7: You know, I.
Speaker 8: Believed it before and they went back up. So I'm
Speaker 8: a little I'm a little gun shy to make that call.
Speaker 8: The way the market's behaving, it doesn't act like the
Speaker 8: peak is in okay, And that's more and more sort
Speaker 8: of a technical not a fundamental point of view. There's
Speaker 8: just it goes up too easily. There's like an air
Speaker 8: pocket whenever yields go up.
Speaker 2: So have you ruled out six percent?
Speaker 3: Yes?
Speaker 8: I don't have well, I have six percent of the
Speaker 8: I oh no, I have six percent FED funds in
Speaker 8: one of my scenarios. But the tenure doesn't get there
Speaker 8: because then you reinvert, you know, really invert.
Speaker 7: The curve if the FED goes to six percent.
Speaker 3: So I want to make sure I heard that right.
Speaker 3: You don't you don't see this cycle six percent on
Speaker 3: the tenure?
Speaker 7: Yeah, I don't.
Speaker 8: I don't have it built in because you think about
Speaker 8: all the tightening that has happened, not here alone.
Speaker 7: But all over the world.
Speaker 8: We have, you know, Germany's in recession, we have a
Speaker 8: slow down, China is still struggling with this debt overload.
Speaker 8: You ask yourself, where is the growth and inflation going
Speaker 8: to come from with all the tightening and financial conditions
Speaker 8: that's taken place.
Speaker 7: That would get us to six percent.
Speaker 8: We'd have to have a pretty robust kind of surprise
Speaker 8: or some external shock that was so huge, and.
Speaker 2: I just see price it.
Speaker 8: Yeah, but even oil price, I mean, it's a tax, right,
Speaker 8: so even an oil price shock probably wouldn't do it.
Speaker 2: I think us getting into military conflicts increasingly.
Speaker 7: Yeah, I me.
Speaker 8: Or you could you can construct the nineteen forties fifties
Speaker 8: kind of scenario if you want to.
Speaker 2: That's the second time, yeah, in a week that we've
Speaker 2: had people make references.
Speaker 8: Yeah, yeah, I mean that would be the scenario I think,
Speaker 8: But that also involved the treasury owning, you know, owning bond,
Speaker 8: buying bonds, and holding down yields to finance the expenditures.
Speaker 8: So I'm not sure that would get us a six percent.
Speaker 8: So it's it's hard. It's hard to really construct that scenario,
Speaker 8: but it's in kind of our our worst cases. The
Speaker 8: FED gets to six percent, but the yield curve inverts.
Speaker 7: More when that happens.
Speaker 3: What about a recession.
Speaker 8: Call, Yeah, you know, it's it's a it's a tough again.
Speaker 8: Another one of those tough calls is the cycles so
Speaker 8: strange compared to what we've seen in the past. But
Speaker 8: you know, there's a there's certainly a risk of recession,
Speaker 8: particularly the tighter things are for the longer and you know.
Speaker 7: You are steeing stress.
Speaker 3: You know.
Speaker 8: One of the things I like to do is read
Speaker 8: the comments in the regional FED reports. Yah, yeah, yeah, yeah,
Speaker 8: just amazing Bige Book and the Beige Book. But the
Speaker 8: regional comments in the regionals are just in Dallas particularly,
Speaker 8: they're very spicy.
Speaker 7: Yeah.
Speaker 9: You get a lot of great comments out.
Speaker 7: Of there, Kathy. Yeah, this is what I do in
Speaker 7: my free times. I we love it.
Speaker 2: Yeah. But but what what you're well, what do you get?
Speaker 7: Yeah? Yeah.
Speaker 8: Instead of inflation being the big concern, which it was
Speaker 8: six to twelve months ago, well now it's a slowdown.
Speaker 8: It's commercial real estate, it's the auto sector and the
Speaker 8: difficulty of borrowers to get financing it's companies worrying about
Speaker 8: small companies worrying about their finance costs. So there's been
Speaker 8: a real shift in tone, and I think that that's
Speaker 8: telling you that the rate hikes are fighting.
Speaker 3: But we're not seeing that play out yet in the
Speaker 3: labor market.
Speaker 2: No, we're not.
Speaker 8: Which again, very strange cycle that way. Normally you would
Speaker 8: by now have seen more softness in the labor market.
Speaker 7: This cycle has been different.
Speaker 2: You can go anywhere in the fixed income world. What
Speaker 2: do you like where in the world, Well, that's you know,
Speaker 2: from when we're off air, No, but I mean municipals, corporates.
Speaker 2: But we talk so much, of course about the treasury curve,
Speaker 2: as we should, But where would you go or where
Speaker 2: do you see the best opportunities?
Speaker 8: So we like a mix of high credit quality bonds.
Speaker 8: It's treasuries, government backed security, some mbs, investment grade corporates,
Speaker 8: investment grade communis. And you're talking about putting the other
Speaker 8: portfolio with the duration of maybe five or six that
Speaker 8: you're getting five and a half six percent returns.
Speaker 7: That's not a bad thing.
Speaker 2: Where don't you want to be?
Speaker 9: Right now?
Speaker 7: High yield I'm bang loans.
Speaker 2: Interesting bank loans to smaller credit risks, too much credit risk.
Speaker 2: All right, we gotta leave it there.
Speaker 3: What hey, we're getting some breaking news.
Speaker 2: Meta earning me.
Speaker 3: Meta earnings are.
Speaker 2: Out, Sharing Jones, Thank you so much.
Speaker 3: Thank you, Kathy, Meta platform seeing shares of fourth quarter
Speaker 3: revenue coming in within estimates thirty six point five billion
Speaker 3: to forty billion dollars. Meta shares down as much as
Speaker 3: four percent ahead of earnings, but going up now, Carol,
Speaker 3: about three person two and a half percent.
Speaker 2: Yeah, and this is all you know already after our
Speaker 2: four percent decline in today's regular session. So we're seeing
Speaker 2: definitely what medicines higher infrastructure related costs next year twenty
Speaker 2: twenty four total expenses of about ninety four to ninety
Speaker 2: nine billion. The estimate was for ninety six point five
Speaker 2: to three.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
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Speaker 2: We are at Schwab Impact twenty twenty three, and you
Speaker 2: just look around us and there are just lots of exhibits,
Speaker 2: lots of booths.
Speaker 3: Lots of advisors.
Speaker 2: Lots of advisors, that's what I would say, who are
Speaker 2: figuring out how to maybe do what they do in
Speaker 2: a smarter way, more efficient way.
Speaker 3: I've never been around more advisors in my life.
Speaker 4: Here.
Speaker 7: Do you feel well advised?
Speaker 3: I was advised on the way to the bathroom, and
Speaker 3: I was advised on the way back from the bathroom.
Speaker 7: And what were you told?
Speaker 3: Oh, you know they have solutions for where you to
Speaker 3: put your money.
Speaker 2: Well, listen, we have a great guest with us right now,
Speaker 2: Jelina Kursh, she's managing director, head of Client Experience for
Speaker 2: Schwab Advisor Services here with us on site at the
Speaker 2: Schwab Impact Conference. You know, for those folks, first of all, welcome, welcome,
Speaker 2: thank you, and thank you because, as we said earlier,
Speaker 2: thank you for having us. You know, people might not
Speaker 2: be familiar with this side of the business. Just for
Speaker 2: those who are listening and watching right now, what this
Speaker 2: is all about.
Speaker 10: Yeah, this premiere event for us is just it's like
Speaker 10: a homecoming because we have fifteen thousand independent advisors who
Speaker 10: are all about being fiduciaries to their clients. So they've
Speaker 10: got the best interests of their clients in heart. It's
Speaker 10: not about conflict with product and placement and how much
Speaker 10: they can make. It's really about how they can support
Speaker 10: their clients and their goals. And it's really well aligned
Speaker 10: with us as a company and our corporate values.
Speaker 3: But I think what might be challenging for somebody who
Speaker 3: doesn't follow the industry or follow Schwab closely, as they
Speaker 3: say to themselves, wait a second, I can go into
Speaker 3: a Charles Schwab anywhere in the US, or I can
Speaker 3: call Charles Schwab and I can have an advisor available
Speaker 3: to me. Yet you also support advisors who ostensibly look
Speaker 3: like competitors to your own advisors.
Speaker 9: You're nodding, Yeah, it's definitely true.
Speaker 10: There is a wide spectrum of needs from across the
Speaker 10: entire client base. So for a lot of clients, they
Speaker 10: want to be able to go into a local branch
Speaker 10: as you cite, but sometimes they also want to have
Speaker 10: a deep relationship with somebody that's local in their community
Speaker 10: that is also independent business owner.
Speaker 3: So how does that person who's an independent business owner
Speaker 3: who is local in someone's community use Charles Schwab services
Speaker 3: so we act.
Speaker 10: As their custodian, so they place their assets with us
Speaker 10: to create a safe, secure haven for their business to transact.
Speaker 10: So any kind of operational needs that they have, product
Speaker 10: needs that they might have, we can support those seamlessly
Speaker 10: for them, which allows them to run a much more
Speaker 10: scalable practice.
Speaker 2: So tap into what they are wanting more and more
Speaker 2: in terms of being able to do their business maybe
Speaker 2: more efficiently, more productively. A number one and best in
Speaker 2: terms of for their clients.
Speaker 10: Yeah, absolutely, so the number one thing we hear each
Speaker 10: year we do a benchmarking study. Perhaps you heard about
Speaker 10: it or read about it, but we have thousands of
Speaker 10: advisors who participate. The number one thing that they told
Speaker 10: us that they want this year was help creating a
Speaker 10: more streamlined digital process flow in their back office because again,
Speaker 10: scale is king for them and as they're growing this
Speaker 10: part of the industry that's just growing part of financial services,
Speaker 10: so they really need help and support creating process automation
Speaker 10: so they can spend time serving their clients. Right, nobody
Speaker 10: wants to be spending time on paperwork when you could
Speaker 10: be talking in relationship with a client.
Speaker 2: Back office not super sexy, but it's got to get done. No,
Speaker 2: I know, I think about it like all the times,
Speaker 2: but it's got to get done. And if you can
Speaker 2: spend so much money, so much time on it, and
Speaker 2: then you're kind of distracted, if you will, from really
Speaker 2: the core of the business is what you're supposed to
Speaker 2: be doing.
Speaker 9: It's got to get done accurately.
Speaker 10: And really, I think the safety and security of our
Speaker 10: brand is a halo for advisors. They trust the brand
Speaker 10: and so therefore their clients feel good about placing their
Speaker 10: assets and custody. They know we're going to look out
Speaker 10: for both the advisor and their clients.
Speaker 3: How sticky is the custodial business.
Speaker 9: It's very sticky.
Speaker 3: I would imagine big piles of money do not like
Speaker 3: to be moved from place to place well and.
Speaker 9: Back to the back office stuff, which isn't sexy. It's hard.
Speaker 10: It's hard to lift an entire piece of your business
Speaker 10: and shift to a different custodian our business model. We're
Speaker 10: working though, really try to make that more seamless in
Speaker 10: terms of digital onboarding, digital account all of those things
Speaker 10: so that it's easy.
Speaker 3: But it is a double edged sword for you, because
Speaker 3: you know you want people to choose you as a custodian,
Speaker 3: but you want the people who have you to stick
Speaker 3: with you as a custodian. So how do you make
Speaker 3: it easy to have somebody who might use a different
Speaker 3: custodian right now come over and say, okay, we want
Speaker 3: to use Schwab.
Speaker 10: Yeah, so we have an entire onboarding department, if you will,
Speaker 10: that will actually be hands on feeds on the ground,
Speaker 10: like lifting out the business for you.
Speaker 9: So that it's a lot more easy. It still is
Speaker 9: a lot of work.
Speaker 10: I mean, certainly we're hearing from a lot of advisors
Speaker 10: who were part of the integration, the TDA integration.
Speaker 9: That's a move right and it represents some.
Speaker 10: Additional work for them, But I think the resources we
Speaker 10: can bring to bear actually help make that smoother when
Speaker 10: you're trying to lift out more well.
Speaker 2: Speaking of that of that integration with td Marriagtreate late
Speaker 2: the back office, like, is all of that done? Yeah,
Speaker 2: and you guys are.
Speaker 10: Like one hundred percent on good accuracy all the assets
Speaker 10: case they were supposed to do.
Speaker 9: So that's a win for us.
Speaker 3: What about on the on the consumer facing side, is
Speaker 3: that transition totally done?
Speaker 10: Not one hundred percent of the way they are probably
Speaker 10: about seventy five eighty percent. There are some of their
Speaker 10: active trader population who are big users of Think or
Speaker 10: Swim that'll be migrating in the first quarter of next year.
Speaker 2: What was the trickiest part from your perspective of that integration.
Speaker 10: I think the trickiest part for us was just making
Speaker 10: sure that all of these things were going to flow over.
Speaker 10: There's a lot of technical data that you have to
Speaker 10: think about implementation lights, and when you think about the advisors,
Speaker 10: they're using third parts. They have a data ecosystem that
Speaker 10: has to be maintained. So it wasn't just about books
Speaker 10: and records and asset transfer. It's about ensuring that the
Speaker 10: data that they're used to getting every single day comes
Speaker 10: to them when they expect it, so that they can
Speaker 10: run their businesses, rebalance portfolios, and do all of the things.
Speaker 9: That advisors are doing.
Speaker 2: A few hiccups, sure, a few hiccups.
Speaker 10: Definitely a few hiccups. And I think a lot of
Speaker 10: it is experience. People get used to using a certain platform,
Speaker 10: and when you move that and shift that, it's changed management.
Speaker 2: I wonder too, And I was thinking about our earlier
Speaker 2: conversation when we took with Rick Rick Wurster, and we
Speaker 2: brought it up with a couple of our different guests
Speaker 2: about AI. How does that help with the back office?
Speaker 9: Does it?
Speaker 7: It? Does? It does.
Speaker 9: Although I would say it's early days for us. I
Speaker 9: think it.
Speaker 10: We're being very careful just because there's a lot of
Speaker 10: regulatory scrutiny on how we as a broker dealer are
Speaker 10: implementing that, and we have to be careful and walk before.
Speaker 2: We run there.
Speaker 3: What are some I mean, we have thirty seconds left,
Speaker 3: but give us some ideas of give me an idea though,
Speaker 3: how you can implementn AI.
Speaker 10: Yeah, so we're actually going to start internally knowledge management,
Speaker 10: really putting knowledge in the hands of our service professionals
Speaker 10: who have to know a lot about a lot.
Speaker 2: I was just curious about, you know, our audience. It's
Speaker 2: a smarting audience, an investor audience. What do you think
Speaker 2: in twenty five seconds what they should know about what
Speaker 2: you're doing.
Speaker 10: I think they should know that we're here to support
Speaker 10: the way that they want to personalize for their clients.
Speaker 10: At scale, it's the balance between digital and people one
Speaker 10: or the other alone.
Speaker 9: It's not going to get it done.
Speaker 10: You've got to harness it and you've got to deliver
Speaker 10: on that and still make it feel personal.
Speaker 2: All right. We've always talked about like individualized service, right
Speaker 2: and understanding them. Juliana, thank you so much, Really appreciate it.
Speaker 2: Juliana Kuerr. She's managing director, head of Client Experience. I
Speaker 2: bet that keeps her pretty busy at Schwab Advisor Services.
Speaker 2: Right on site with us at Schwab Impact twenty twenty three.
Speaker 2: This is Blueberg Radio. I'm brother Mark, a.
Speaker 7: Journal radio. How about you let me drive?
Speaker 11: Oh no, no, no, no, please, Dug, honey please, I'll
Speaker 11: do the riding gravel.
Speaker 6: Let's mate, I want to try it.
Speaker 7: It's a good question.
Speaker 4: This is the drive to the Globe dot com for me.
Speaker 4: I think we'll buy around yell it.
Speaker 1: On on Bloomberg Radio.
Speaker 2: All right, everybody, we've got just under a teen minutes
Speaker 2: left in today's trading session, and we've got a day
Speaker 2: another day where we've got stocks down, yields up, and
Speaker 2: with us here on site at Schwab Impact twenty twenty
Speaker 2: three is Ben Kirby in the Flesh, co head of
Speaker 2: investments and portfolio manager at Thornberg Investment Management. They've got
Speaker 2: some forty one billion in assets under management. And as
Speaker 2: we said here, how are you welcome?
Speaker 11: Welcome great. It's a great event, meeting lots of clients,
Speaker 11: lots of great presentations.
Speaker 2: What do you get when you come to an event
Speaker 2: like this, You know, mostly it's.
Speaker 11: A chance to talk to our clients to sort of
Speaker 11: hear what they're thinking. It's interesting. A lot of people
Speaker 11: are pretty bearish, pretty cautious we see in the market today.
Speaker 11: But you know, cash is yielding five and so people
Speaker 11: are pretty interested in putting money in cash.
Speaker 2: Pretty bariss to the point where you say, oh, maybe
Speaker 2: it's a contrarian call, or is it pretty barss that
Speaker 2: maybe things are turning for the worst.
Speaker 11: I just think, yeah, I think I think we see
Speaker 11: we see the economy slowing. A lot of people see
Speaker 11: the economy slowing. But also just cash at five percent
Speaker 11: is attractive to people, you know, maybe more than being bearish.
Speaker 11: It's it's hey, if I can if I can clip
Speaker 11: five percent for a medium term, Uh, you know, maybe
Speaker 11: that's the thing to do.
Speaker 3: What is the term that people are are bearish on?
Speaker 3: Is it the near term?
Speaker 4: So recession risk?
Speaker 11: I think I mean increasingly people are thinking, you know,
Speaker 11: odds of recession are are are falling, so you know,
Speaker 11: soft landing is still is still sort of something that
Speaker 11: people are hopeful for. However, when you look at economists
Speaker 11: and and sort of when you look at many of
Speaker 11: the leading indicators, whether it's the leading indicator index, global
Speaker 11: short rates, you know, Senior Loan Officer survey, all these
Speaker 11: indicators that historically drive recessions and predict recessions, this will
Speaker 11: be the first time ever that, like all of these
Speaker 11: things are predicted predicting a recession, we don't get one. So,
Speaker 11: you know, I still think the odds, you know, we
Speaker 11: think in probabilities, not sort of. Yes, No, odds are
Speaker 11: probably still higher over the next twelve months than over
Speaker 11: a typical twelve months, right, So I think that people
Speaker 11: are looking at that and looking at market. It's pretty expensive,
Speaker 11: and they're saying, you know what, geopolitical risks, all these things,
Speaker 11: maybe it's best to just kind of sit on the sidelines.
Speaker 2: Ben Kirby, when you're back home in Santa Fe, what
Speaker 2: do people most often talk about and do you see
Speaker 2: signs of recession around you?
Speaker 3: Probably Hatch Chilis's people.
Speaker 2: I always ask him about Julia Roberts. But we're not
Speaker 2: going to go there.
Speaker 4: Yeah, one percent.
Speaker 11: So look, uh, Santa Fe is a bit of an
Speaker 11: unusual microcosm. This is you know, it is not a
Speaker 11: financial hub. The restaurants are still busy.
Speaker 3: People are still you know, buying art. People are buying art.
Speaker 2: People are buying art like crazy, right, so, you know
Speaker 2: we is it tourism or regular.
Speaker 11: It is it is mostly tourism. So you know, Santa
Speaker 11: Fe is seventy five thousand people, but we get a
Speaker 11: million tourists a year, so that's an interesting microcosm.
Speaker 4: People are still traveling, right, So I.
Speaker 11: Think we've seen that people spent on goods in COVID,
Speaker 11: and they're spending on experiences after COVID. Santa Fe is
Speaker 11: a beneficiary of people traveling to a unique city, spending
Speaker 11: some money, eating some great food, and then flying back home.
Speaker 3: Do you see that? Does it? Anecdotally and based on
Speaker 3: the people you speak to, the people who you live with,
Speaker 3: I mean, are is this happening to the same extent
Speaker 3: that it happened a year ago? Are people still spending
Speaker 3: money like they were?
Speaker 11: I think the high end consumer is still doing great.
Speaker 3: I hear that a lot, Yeah, we do hear that
Speaker 3: a lot. Yeah.
Speaker 2: No, no, right, it's not everybody's enjoying.
Speaker 3: And but you know, all one million people who visit
Speaker 3: Santa Fe are not high end consumers.
Speaker 11: I think the ones who are spending the most are
Speaker 11: pretty high in consumers. I mean, if you've ever gone
Speaker 11: our shopping in Santa Fe, it's it's pretty significantly price.
Speaker 3: You don't have to buy something if you go our
Speaker 3: toppy you can just look as well, which is what
Speaker 3: I've done in Santa Fe.
Speaker 11: But you know, on the other side, what we're seeing
Speaker 11: is delinquencies or increasing among you know, lower income cohorts,
Speaker 11: those that excess savings that we got from the from
Speaker 11: the fiscal stimulus in COVID, there's still excess savings at
Speaker 11: the high end. At the low end, it's pretty much
Speaker 11: been spent and now people are trying to rack up
Speaker 11: more depth.
Speaker 2: You know, looking at some of your funds that you
Speaker 2: are involved in managing, Thornberg Investment Income Builder Fund consistently
Speaker 2: one of the top performing funds in its category. You've
Speaker 2: got Thornberg Summit Fund also a now performer. I am
Speaker 2: curious in terms of strategy, what's working. So I know,
Speaker 2: different funds different I got it, but give us some
Speaker 2: ideas of some of the strategies that are working.
Speaker 11: So overall Thornberg we have we have eighty percent of
Speaker 11: our assets through in four and five star funds, which
Speaker 11: is really phenomenal. Sort of overall, you know, contribution front
Speaker 11: from those portfolios. What's working this year? Income Builder is
Speaker 11: working really well because even though we've we've talked about
Speaker 11: the Magnificent seven and you know, those seven stocks driving
Speaker 11: the entire market, actually our portfolio is up for the year.
Speaker 11: You know, many DIFFERENTI paying stocks are down. Our portfolio
Speaker 11: is still performed very strongly. And you know, I think
Speaker 11: the fixed income is getting the most flows within our business.
Speaker 11: Right So we have a Thornberg Strategic Income portfolio, which
Speaker 11: is a multisector Bond yield to is about seven and
Speaker 11: a half percent on that portfolio. So the argument is,
Speaker 11: you get cash a five percent and that's great, but
Speaker 11: duration is zero, it's gonna it's you know, it's it's
Speaker 11: gonna have that aspect to it. Or you get seven
Speaker 11: and a half percent in our strategic income portfolio with
Speaker 11: duration of about three and a half four years. So
Speaker 11: if we do go into recession or slow down, that
Speaker 11: duration will be helpful. So I think that we're seeing
Speaker 11: a lot of in uh interest in that portfolio, a
Speaker 11: lot of flows, and it really makes a lot of sense.
Speaker 2: For the market right now.
Speaker 3: Were you not seeing flows.
Speaker 11: We're not seeing nearly as many flows in active US equities.
Speaker 11: I think that's true for the industry. You know that's
Speaker 11: turned significantly passive.
Speaker 2: Is that a mistake though, because we I'm trying to
Speaker 2: think who was on, whether it was one of our
Speaker 2: in house analysts or somebody who just again the focus
Speaker 2: is so much on the outperformers, but so much whether
Speaker 2: it's of the S and P five hundred or below
Speaker 2: one hundred day two hundred day moving averages that haven't
Speaker 2: really performed. And is that a mistake that if you
Speaker 2: are actively managing you could really find some great opportunities.
Speaker 11: I think it's a great opportunity.
Speaker 2: So that was an assist, say thank you, that was
Speaker 2: a setup.
Speaker 7: It wasn't.
Speaker 3: It wasn't.
Speaker 11: So Look, the equal weight SMP is much more reasonably
Speaker 11: value than the market CAPU weighted SMP. And also, if
Speaker 11: you want to look at the evaluation of growth versus value,
Speaker 11: that's at kind of all time historically interesting levels today.
Speaker 11: So you know, if you do have an active portfolio.
Speaker 11: You can pick individual securities. You don't have to be
Speaker 11: crowding into the same seven to ten or twenty names.
Speaker 11: There are a lot of a lot of stones turnover.
Speaker 2: Where would you crowd into within that name sector spaces
Speaker 2: that you think are interesting?
Speaker 11: So I would, I would expand outside the US. Honestly,
Speaker 11: I think I think the US market is expensive, even
Speaker 11: on an equal weighted basis versus Europe, for example, where
Speaker 11: you can buy a lot of really great companies at
Speaker 11: seven times earnings, eight times earnings, you know, to ten
Speaker 11: times joinings, and in the US it's twenty. So Europe
Speaker 11: it's been a discount for a long time, it's a
Speaker 11: bigger discount today. We think it's a really attractive opportunity.
Speaker 11: And then dividend paying stocks more broadly, at a time
Speaker 11: when we're in an interest rate normalization and the cost
Speaker 11: of capital is going to be higher, we think that
Speaker 11: will favor those big dominant companies that generate cash flow
Speaker 11: as opposed to those earlier stage companies that need to
Speaker 11: issue debt in equity to fund their business.
Speaker 2: Sorry, I cut you.
Speaker 3: That's okay, that's okay, Ben Kirby, great to catch up
Speaker 3: with you. Co head of Investments in portfolio manager at
Speaker 3: Thurnburg Investment Management. You're listening to Bloomberg Business Week. This
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