Charles Schwab reported record revenue and earnings for the quarter. The main driver was client engagement. Client trading activity grew 60% year over year, helped by younger investors getting more active and broad interest in certain parts of the stock market. Net new assets for the quarter hit $120 billion, an all-time record for a second quarter. That is normally a weak quarter for new money because people pay their tax bills.
Costs and productivity
Expenses rose 12% year over year while revenue grew over 20%. Core expense growth was much lower than the headline number. Most of the expense rise came from volume, since 60% more trading brings its own costs. AI is pushing productivity up, which let the company grow revenue 21 to 22% while expenses rose about 11%. That gap is operating leverage - earning more from each dollar of cost.
The company addressed AI disruption directly during the peak worry about software companies being replaced, and said it was spending heavily to serve clients better. One result was a new tool called portfolio insight. Those investments appear to be working.
Crypto
Crypto trading has fallen across the industry over the past quarter or two. Even so, the goal is to give active traders access to crypto because that is something they want. Interest will rise and fall over time, but the job is to keep it available. During the quarter crypto launched to employees first, then rolled out to a select group of clients. It will open to all clients through the rest of the year, then open to transfers, so clients holding crypto at Coinbase, Robinhood, or elsewhere can move it to Schwab.
Private markets
The Forge deal closed in the prior quarter and brings private market access to retail investors. The most recent quarter was a record quarter for Forge, now part of Schwab. The aim is to let clients build a more diversified portfolio and reach new sources of return. Just as public markets became more accessible, cheaper, and open to more Americans, the plan is to do the same for private markets. Private companies are staying private longer and creating far more wealth during that time. SpaceX is an example - it reached the market as a $1.7 to $1.8 trillion company, with huge wealth created before that point. Clients who want that access should be able to get it, with strong education and a solid platform behind it.
Teen accounts
Schwab launched teen investor accounts. These accounts will never drive the business, because teenagers are not working or building meaningful wealth. Their value is the message: get invested, learn about investing, and own your future. Young people are constantly marketed bets on the World Cup, the Super Bowl, and Taylor Swift's engagement. Putting out a message telling teens to come in, save, and invest is a powerful counter, and getting people to start investing earlier in life matters a lot.
Gambling versus investing
On gamified trading and prediction markets, there is a clear line between gambling and owning. Betting on the Super Bowl or the first song Bad Bunny plays at halftime is plainly betting. The trades clients make are thoughtful choices based on their research and their risk level. Schwab wants to stay on the side of the investor and trader, not the gambler. This is not an attack on gambling - people have plenty of places to gamble and can do so if they choose. The mission is to help people grow wealthier, not lose money betting.
Handling volatility
What to tell investors when volatility hits: time in the market matters most. The longer you stay invested, generally the more wealth you build. A sharp pullback looks dramatic on a short chart, but on a 10-year view you often cannot even spot it. A longer time horizon and sticking with being an investor or trader leads to better results.
Clients actually like volatility because they can trade around it and add to their wealth by taking on some of that movement. There has been heavy dip buying. Retail investor volume ran three times higher on down days than on up days, which shows they are ready to jump in on a down move because they believe in the market.
