Schwab Sees Cash-Management Benefit, Annuities Boost, in USAA Deal
Charles Schwab Corp. hopes to not only convince many of USAA’s 13 million customers to open brokerage and advisory accounts after it buys the insurer’s wealth management assets next year, but will book almost-instant profits by moving $7 billion they currently hold in money-market funds into its bank, executives said on Friday.
“We will move it over to the bank balance sheet,” Schwab Chief Financial Officer Peter Crawford said in a conference call on Friday.
Only about 10% of USAA’s “members” use wealth services, and Schwab expects to hire about 400 mostly client-facing employees of the Texas-based company to sign up more of them and to sell its broader array of products to current USAA Investment Management customers, he said.
Schwab will pay referral fees as part of its exclusive arrangement to market its services to USAA members, who are current and former members of the military and their families.
“We have broader capabilities and generally lower costs,” he said, noting that the referral fee will be tied to the level of assets moved. “It is in our mutual interest (to make referrals) happen.”
USAA’s wealth customers trade less than Schwab and generally pay higher commissions, he said, and only about 25% of them use the fee-based advisory accounts that Schwab and other large brokerage firms are promoting over traditional commission accounts. The USAA advisory accounts are primarily basic mutual fund and ETF wrap accounts, according to Schwab CEO Walt Bettinger.
As part of the arrangement, Schwab will add USAA annuity products to its platform and will hire a “handful” of USAA employees to market them. “We have been offering annuities for years,” Crawford said, “but the opportunity to bring on USAA annuities, which are very competitive…should be better than what we have been offering before.”
USAA’s brokerage account customers trade less than the average self-directed customer at Schwab, but the return on the 25% of USAA customers with advisory accounts is more profitable than at Schwab, he said.
Half of USAA’s wealth clients have less than $100,000 in their accounts, making the opportunity decidedly mass market.
Once they move, however, USAA customers will have access to a much “broader set of capabilities” that should attract more of their assets, said Jonathan Craig, Schwab’s marketing, investors services and retirement plan head.
Schwab also expects to eliminate $100 million of costs as it eliminates the correspondent clearing and custody relationships USAA uses and gets scale benefits from absorbing the new assets.
USAA earlier this month closed the sale of its asset management company to Victory Capital Holdings, noting that it will take 12 to 18 months to transfer customers’ mutual fund, ETF and 529 college savings plan accounts to the new owner.
Crawford shrugged off an analyst’s question as to whether USAA customers will be confused by the competing pitches they will be getting from Victory and Schwab.“That’s for them to answer,” the executive said. “We are the exclusive provider for wealth management. We’re aware of what they’ve done with Victory.”