Past CFO Commentary

Starting in early 2020, words like “unprecedented” and “historic” became fixtures in our descriptions of the environment, and the trend has persisted thus far in 2021. As we all continue to grapple with the effects of the COVID-19 pandemic, these first few months of the new year have seen additional political and social unrest, severe weather conditions across the country, and fresh evidence of the enormous strides that Schwab and others in our industry have made in making it easier, simpler, and less expensive for individuals to invest. While retail trading activity overall has been increasing since Schwab helped lead the industry to $0 commissions¹ in October 2019, the effects of work-from-home, technology-driven enhancements in access to information, and the increased convenience of stock-trading have further heightened investor engagement. Most recently, the added accelerant of social media-influenced trading has led to a massive surge in interactions for brokerage firms and helped push equity trading volumes to truly breathtaking heights – well beyond the pre-pandemic peak reached during the 2008 financial crisis.

Given our size and reach, it’s no surprise that Schwab – with the inclusion of TD Ameritrade – has seen engagement levels soar as clients utilize our broad array of products, solutions, and educational resources to meet their investing needs.
 

With the remarkable strength of client engagement continuing through month-end February, I thought it might be useful to spend some time “looking under the hood” – shedding light on some of the underlying dynamics that have given rise to our recent record-breaking client metrics.

As you can see in the charts below, this heightened trading activity is largely a retail-driven event; therefore, we will focus on trends within this segment.
 

Who's trading?

• While trading levels are up for all demographics, younger retail clients, with account balances below $100K, are driving a greater percentage of trading volume than in prior periods. While this percentage has doubled over the past two years, it’s clear that clients above the age of 40 still account for the substantial majority of trading activity. Additionally, since October 2019, we have observed a steady build in the contribution to overall DAT volume from accounts open less than a year – growing from ~15% to ~35% today.
   

What are they trading?

• While volumes for all trading products have been significantly elevated over the past 12 months, client interest in equities has noticeably outpaced derivatives and other products. And when looking at the most frequently traded stocks by principal value, that interest spans both large cap tech and some newer names that have been the subject of recent social media buzz.
   

How are they trading?

• Clients are actively increasing their usage of our digital platforms to place trades, with the usage of mobile increasing 15 percentage points over the past two years. At the same time, both the number of shares per NMS equity trade, as well as the number of contracts per option trade, have continued to decline over that same timeframe. We believe these trends are a combination of several factors: the removal of friction following the broad move to $0 commissions¹, an increase in fractional share utilization, and the growing influence of relatively new-to-category investors. 
   

What are the potential short- and longer-term implications for these trends?

As you heard throughout our recent Winter Business Update, there’s no question job number one is being there for our clients, regardless of the environment, by delivering a modern and reliable investing experience that meets their expectations. In the near-term, we are actively working to enhance our systems and service capacity in order to support current demand as well as position us to appropriately serve ongoing growth. We are also continuing to advance our powerful and intuitive trading capabilities for all skill-levels, which emphasize the importance of best-in-class investor education. From on-demand guided learning paths and expert commentary that covers beginner-to-advanced topics, to direct support from trading specialists, the goal is to provide investors with a broad range of tools to help them feel informed when choosing to interact with the market to help achieve their financial goals.

Looking further out, we expect our approach to capacity planning to evolve beyond historical “peak” reference points as we transition our trading functionality to better support the potential for significant and rapid swings in volume. We’ll look to leverage the cloud where it makes sense to build more flexibility into our capacity management, enabling us to ramp up or down in real-time.

Although we are not in a position to foretell either the sustainability or ultimate trajectory of the recent engagement trends, we do recognize that they will continue to play an integral role in shaping our business momentum as well as our financial results. As we navigate these uncharted waters, we remain guided by our “Through Clients’ Eyes” strategy, including listening to their needs and endeavoring to build trusted relationships with them. We believe such an approach will continue to position Schwab for sustained, long-term success.

Notes:
All data shown on a pro forma combined company basis.  EOP = End of period.  B = Billions.  M = Millions.   K = Thousands.  ASI = Advisor Services Institutional.  AUM = Assets under Management.  NMS = National Market System. 
1. Commissions for all U.S. and Canadian-listed stocks, ETFs, and options online and mobile trades reduced from $4.95 to $0.00 in October 2019; options trades are still subject to the standard $0.65 per-contract fee. 
2. Market Open data through March 8, 2021. 
3. Year-to-date daily logins to Schwab mobile app and TD Ameritrade mobile app through month-end February 2021.

Forward-looking statements

This commentary contains forward-looking statements relating to recent trends and implications; enhancements to systems and service capacity; ongoing growth; trading capabilities; capacity planning and management for trading functionality; business momentum; and financial results that reflect management’s expectations as of the date hereof. Achievement of these expectations is subject to risks and uncertainties that could cause actual results to differ materially from the expressed expectations.

Important factors that may cause such differences include, but are not limited to, the company’s ability to develop and launch new and enhanced products, services, and capabilities, as well as enhance its infrastructure and capacity, in a timely and successful manner; general market conditions, including equity valuations, trading activity, the level of interest rates and credit spreads;  the company’s ability to attract and retain clients and RIAs and grow those relationships and client assets; the company’s ability to monetize client assets; capital and liquidity needs and management; the company’s ability to manage expenses; the migration of BDA balances; the company’s ability to support client activity levels; daily average trades; margin balances; balance sheet cash; the risk that expected revenue and expense synergies and other benefits from the TD Ameritrade and other recent acquisition may not be fully realized or may take longer to realize than expected; the ability to successfully implement integration strategies and plans; market volatility; the scope and duration of the COVID-19 pandemic and actions taken by governmental authorities to contain the spread of the virus and the economic impact; and other factors set forth in the company’s filings with the Securities and Exchange Commission, including the company’s most recent report on Form 10-K.