Kunal Kapoor: Good morning everybody. Or good afternoon if you’re watching from elsewhere. It’s great to have you here. Hope everyone’s having a terrific summer. I’m excited to welcome you to the latest in our Investors First series here on LinkedIn. And joining me today is Neesha Hathi, who runs wealth and advice solutions at Schwab. So Neesha’s got a big job, been at Schwab 21 years. Neesha, welcome. It’s great to have you. Thanks for being here.
Neesha Hathi: Thanks for having me.
Kapoor: Yeah. And I thought we’d just start, Neesha, by maybe taking two minutes just for you to share your journey at Schwab and some of the things that are on your mind today as we kick off this webinar here.
Hathi: Yeah, I’m happy to. Yeah, 21 years. How does that happen? I can’t believe it at Schwab, but I’m actually from where you are based in Chicago. That’s my hometown, and I started out always in financial services. Actually, I’m going to date myself but some of us remember there were trading floors, and I worked as a clerk on the trading floors during college. So I started in Chicago and then ended up always interested in financial services. So I joined another investment bank, tried that, decided that wasn’t for me either. Moved to California and went to graduate school and did spend some time in technology startups and then found my way to Schwab.
So it took me few hops before I got there. But I’ve been here for 21 years and it’s been quite a great ride. I actually started working with our RIA clients on what used to be called Schwab Institutional, now called Advisor Services business, and did that for over a decade and then spent a couple years leading parts of our retail business. After that, I was our chief digital officer, was just before and during the pandemic. So that was a really interesting time to lead a digital transformation for a company like Schwab.
And then for the last three years I’ve been in this role leading an enterprise we call wealth and advice solutions. And essentially there’s kind of—wealth management means a lot of different things to different people. So there’s essentially two different parts to this business. One is all of our direct to consumer advice. So whenever Schwab is providing advice directly to a retail investor, that is done through our business and that includes offers like Schwab Wealth Advisory and our Schwab Advisor network where we refer to the RIAs who participate in that program. Our robo-advice business. So things like that.
And then the other side of our business actually curates and what I call stocks the shelves, essentially, with investment products and solutions from across the industry for all of the clients that work with Schwab, whether they work with us through advice or they’re an RIA on our advisor services platform or a sponsor on our retirement platform.
And in that business, you can imagine the themes have been around alternative investments and the growth of ETF and things like that. So it’s definitely an evolving space. And a lot of what we spend time on right now is just tracking this trend around the way the individual investor is changing, the needs of the investor is changing, and how do we make sure we have the right product, services, and advice to make sure that they …
Kapoor: That’s a perfect segue into what is changing when you look at your individual investor clients, when you look at your RIA clients? What are they asking for differently? What are you trying to do differently? What’s on your mind in that context?
Hathi: Yeah, a lot is changing. And I mean, we all live in this very dynamic world right now. What I think is: We kind of think about it as the individual investor is at the crux of everything, because even the way the advisors evolve, it’s based on what their clients need, right? So we think about the individual investor in this very dynamic environment.
One of the things we see a lot of is this growth around this demand for advice that’s really growing and demand for advice, and the way we look at that is we look at a measure called “willingness to pay,” which is not only have you said you want advice, but are you willing to pay for advice as a higher threshold?
And we see that that’s almost doubled in the last decade. So we continue to see more and more investors perhaps overloaded by all the information out there, saying, “Hey, Schwab, can you help me get to my goals?” And by the way, that advice these days—the subtrend under this is not just give me advice about my portfolio, it’s about give me advice around all of what goes around my portfolio. So my tax situation or my healthcare or how I’m going to pass money to my children or whatever. So it’s this broad theme around needing more help and guidance in order for investors to meet their financial goals or life goals, really.
I think another big trend we’re seeing is, I mentioned alternatives, is just this interest in alternative ways to invest. And we see that across the spectrum of demographics, we know the young people are much more likely to have digital assets and be interested in alternatives. But we see that across the spectrum. And that can mean things like crypto. It can also mean things like just access to private markets in different ways and different instruments. So that’s a big trend.
And then of course, this wealth transfer that we’re in the middle of is really kind of changing the types of investors that are coming to our door. So I remember, over 21 years ago—I struggle still getting that out of my mouth actually—so I think Schwab had less than a trillion dollars in assets at that time. And we’re closing in right now on 11 trillion. And the types of investors that we are serving now run the gamut. And so as a firm trying to make sure that we’re continuing to meet the needs of all these unique clients because we do have this influx of younger investors these days that are looking to invest quite differently than the older investors from years ago.
Kapoor: How do you think of that in the context, obviously, a lot has been written about the fact that some younger investors just want to have fun and they’re coming at it partly from the angle that they haven’t seen a down market, and so how do you kind of think about that and conflate it with your earlier comment about the fact that maybe more people want advice than ever before?
Hathi: It’s an and, which is, I think, really interesting. So yes, we see younger investors more interested in alternative ways to invest. We see them much more engaged in the markets. They start younger. Typically we’re seeing a higher percentage starting younger. Actually, when we look at our new-to-firm households every year, right now about 1 in 6 new-to-firm households is under the age of 24, which is pretty good. So we see a lot of influx of newer investors. I think that they are interested in participating in the markets in a more active and dynamic way, which is why our trader business tends to attract a lot of that, a lot of those clients, too. But at the same time, if you ask them about willingness to pay for advice, they tend to index quite high.
Now the question is, what does that advice look like? Because a lot of times that advice doesn’t look like a traditional holistic wealth management experience where you walk into an office and you get a written financial plan. And what they’re often looking for is something different and something that’s very relevant and specific to what their needs are at the moment, which are sometimes very pointed.
Kapoor: So you’re starting to touch on the fact that there’s investors of all kinds and life stages that advisors could be serving today. Right. And so, how do you think, if you’re an advisor today, you should be talking to those cohorts or do you think advisors should be focusing on certain cohorts based on what they’re comfortable doing?
Hathi: Yeah, you know, the advisor space is changing so much, too. I mean, we talked about the investor trends, but the advisor trends around the consolidation that they’re seeing, right, and the kind of competitiveness in the advisor space has changed quite a bit. And we do see both what you’re talking about. So we see the larger firms as they’re consolidating, becoming bigger, trying to serve cohorts across and there a lot of the interest is in how do I scale and how do I continue to expand and be able to reach all of these different cohorts of clients.
I think those that are a little bit more focused on organic growth, we see a lot of specialization happening there. And I think that’s where it’s really interesting to see what technology can do with regards to how do you create specialized segment-specific experiences for younger investors or certain cohorts, special needs families or professionals or corporate executives or whatever it is. I think if you think back in our industry, I feel like it was really the wirehouse firms that had the scale to allow that type of specialization, and now we see RIAs who are really getting very good at specializing with those particular cohorts.
Kapoor: And of course, no conversation these days can be complete without some reference to AI because it is so important and critical in how things are changing. And you use the terminology that you want to supercharge the advisor through automation and by driving personalization. So, how do you see AI having a really meaningful role, and how quickly do you think it’s going to get there in terms of how advisors and investors are able to use it?
Hathi: Yeah, it’s definitely impacting all of our advisors already. And I think part of it, it’s such an interesting technology trend if you think about, because everyone’s using it outside of their workplaces already. Right. So it’s kind of taking an outside-in approach versus a lot of technology in the past that’s taken an inside-out approach. And so what I think that means is that advisors are coming into their workplaces saying, “Oh, well, I did this on my mobile device, I should be able to do this with my client data.” Right? And what about “let me look at that client, let me see what’s going on with their portfolio as I prepare for this meeting, and maybe AI can help me prepare more quickly.”
So I think that there’s certainly this category of benefits that are productivity-related. And that’s where, when I talk about supercharging the advisor, I’m a firm believer that the human aspect of advice is still going to be important for many, many investors. And so if you believe that, then you think about, well, and how do you wrap technology and AI around that human advisor so you can scale the advisor? We often talk about advice traditionally as not something you can scale. I think you can scale the advisor by giving them the opportunity to leverage AI. And some of that has to do with the automation, but some of it with AI is really around things like productivity tasks. If you think about the correspondence they have with clients, you think about research, portfolio analytics, meeting prep, note taking, proposal creation. There’s just a long list of things that we think of, advisors do in order to serve a client. And a lot of that can leverage AI to actually increase productivity.
But I also think that, I hope that advisors are thinking about the growth and differentiation opportunity, too, because it’s not just about productivity. There’s a lot of interesting things that they can do with regards to financial planning, estate planning, that are more about differentiation than just about productivity.
Kapoor: This is a question that I see that came in that I want to kind of use as a hook to follow up, which is, do you think AI then becomes a tool to engage younger investors, potentially for advisors?
Hathi: I think it will allow advisors to be able to extend their reach to younger investors. If you think about, many of us lived through the robo-advice, you know, when robo-advice going to take over and become a new thing. Right? And at that time it was, “Oh well, it’s automated, it’s very efficient, of course younger investors will use that.” Well, if you look at our robo-advice business, I would tell you that the investors that use that are across the spectrum of demographics; it’s not a younger advice, right? And so I think the same thing will likely happen with AI. It’s not just a tool to attract younger investors, but if it gives you scale and reach, because now you can bring down the cost of serving those younger investors and those smaller investors, that can be really powerful.
Kapoor: Can I ask you more of a personal question? How do you use AI and try to stay up to date? Like, what’s your advice to folks who are trying to figure out how to incorporate it into their daily workflows.
Hathi: This sounds very simple, but I don’t know about you, but—use it. I mean, I try to use it all the time, and if it’s not in your normal daily workflow, at least for me, it’s hard to kind of remember, “Oh wait, I should use AI for this.” But I think the more you use it, the more perspective you build about how you could apply it to different business problems. And I do think like when I, for example, I have a leadership team here at Schwab and we get together in person every six weeks to try to really focus on our strategy, where we’re going.
Well, one of our homework assignments that I’ve asked everyone to do is spend a couple hours developing a financial plan using one of the AI apps they like. Think about how you do portfolio analytics on a fixed-income portfolio. See what AI comes up with, like trying to like very specifically find the applications that are going to be most impacted. And that I think creates a lot of insights.
And one of the things we talk about a lot as a leadership team here is how do we empower our 35,000 employees to get some more exposure to it. And I just say, I mean, to me it’s using it and then trying to read a lot about it. And I don’t know if how you do this, but the newest models, it’s just amazing how much better they get. So how do you kind of continue to stay with the latest?
Kapoor: Yeah, I think we like to say, and we’ve observed here internally, too, that you almost have to unlearn some behaviors to adapt some of the new technologies that are coming along because otherwise you tend to want to do things in a certain way. There’s another good question here, actually, which is: What’s the next major inflection point that you see with AI evolution as it relates to investors and how they might prep for it?
Hathi: I think the area that I am really excited about is how gen AI is allowing some of these really labor-intensive areas to become much more efficient. So I think about, in our wealth business, we do a lot of, we support clients on tax and estate planning, for example. And that’s a very labor-intensive—we have many tax attorneys and estate attorneys that are on staff and they help clients look at these documents and understand them. That’s a very labor-intensive business. And because of that, it’s hard to scale it, it’s hard to democratize it.
And if you think about what AI can do with regards to uploading a document, instantly having insights to that document, being able to then deliver those insights in a very efficient way, with an expert who can actually make sure that the insights are accurate at the helm, but really being able to dramatically reduce the time that it takes to review a document like that, I think that’s really powerful. And you think about these areas like, again, estate tax, insurance, risk management, healthcare, these are really complex areas that I think our industry is serving, but serving most likely for the more wealthy. And I think that is one of the areas that AI can really take on, really empower the industry to be able to do more, which is beyond the productivity benefits that I think all of us are focused on right now because they’re so front and center.
Kapoor: Yeah, I think that makes a lot of sense. It’s a really, I think, important insight because everyone goes straight to talking about productivity first. But I think it needs something more to really turbocharge adoption. I think you’re right about that. There’s some more questions here about AI, but I’m going to pass on those for now, just because I want to take a few minutes to talk about some of the other things that I think are pertinent here.
And at the start, you started to talk about the fact that some investors are also looking to access areas like alternative investments. And obviously last week the president signed an executive order that would even allow private investments and potentially crypto investments to be commonplace in 401(k)s. How are you thinking about that, both in terms of how you serve RIAs and then just more broadly across the business at Schwab? Because it does change the nature of doing things and how you think about things as basic as pricing all the way to liquidity.
Hathi: We believe that alternatives and access to private markets is here to stay, and we believe that that trend is just going to grow. And so if you think about how do you provide the products and services to all of these client bases that we serve in a way that is as efficient as possible, that helps protect investors, and then make sure that we can educate as we do it.
So when we think about that, we recently, this year, rolled out an alternative investments offer for our retail clients, and it’s actually available both routes for self-directed and advisory. So it’s kind of a unique thing in the industry that we did. But we started with a $5 million minimum, which is pretty high if you think about, you know, they have to have $5 million at Schwab in order to participate in this offer. And the reason we set such a high bar is because we wanted to make sure that the investor understood the dynamics of what they were getting into when they were thinking about this alternative. So we have a specialist team that they work with, who educates them about things like liquidity, about the reporting requirements, how even tax reporting works. Right? Things like that that are really unique for this asset class. And so it’s that education and wrapping that education around the product is really important.
I think on the RIA side, I would also say that we serve over 15,000 RIAs at Schwab. A third of them don’t use alts. And so there’s a huge community out there of RIAs who are also interested in education and more support. And many times, by the way, the reason they’re not using it is because it’s inefficient. It’s kind of adds to their workflow. It doesn’t really fit. Like the research and due diligence is difficult, like all of the things. So I think the fact that now we are getting more regulatory clarity and maybe kind of flexibility around offering more alternatives, I think is going to be helpful in that now more clients will get access to it.
I mean, we all know the stats about public market companies and how private markets are growing. But I do think that for us, we still believe very strongly in having a pretty high bar with regards to how do we educate the consumer because it is different. And I think, sometimes I worry about if you can go online and buy an ETF and if you could buy an alternative and not know that, by the way, when you want to sell and you need liquidity, you’re not going to be able to get it in the same way, we worry about that. And so we try to create these safeguards to make sure that investors are educated. But we truly believe in making sure they have the access.
Kapoor: And it’s interesting because one of the questions here is also I think rightly asking, do you see the industry and I think the products set evolving to make it easier for investors to access these markets? You talked about the 5 million and I think that’s partly because it’s hard to access these markets for most people. And so you need a higher minimum to make sure you’re somewhat putting some guardrails on there. What do you think the industry does to lower those guardrails?
Hathi: Well, it’s already happening. I mean, while the minimum to invest, from a client household assets perspective, is 5 million, the products that we have on the shelf have minimums as low as 100k, 50k, even, right? So it’s already happening, and then you see a lot of these public/private partnerships happening, interval funds, and the growth of all that. So I think that that innovation will be definitely helpful because it will, on the RIA side, it’ll just make it more efficient, easier in the workflow. And for retail investors, it will allow them to participate in more. Even if they don’t have a lot of assets, they can find some space in their asset allocation where this makes sense.
I think on the 401(k) side it will be really interesting because there, with the dynamics of just kind of how the funds are selected and kind of the responsibilities of the employer and the consultant, I do think that there it’s a little bit more complicated, but I do think the innovation is bringing down the threshold and the minimums so that they can be more pervasive across all of these different channels.
Kapoor: It’s interesting because I think whenever this topic comes up, it’s somewhat polarizing. People are either very bullish on it, or they’re very negative and think it’s going to really hurt investors. I’m curious, personally, where do you fall on that spectrum?
Hathi: You know, Kunal, if you had asked me that question 10 years ago, I think I would have been on the side of I don’t think individual investors need this. I was not a believer necessarily, but I think if you step back, and you look at this trend of what’s going on with the public markets, all this wealth creation happening in the private markets, we want individual investors to get access to that wealth of creation. And so we have to find a way, a model that’s going to work. And so I’m much more of a believer now. But as we said, we are trying to make sure we create these safeguards and the education that will make sure that investors know what they’re doing as they’re investing.
And that specialist team I referenced is part of my team that, you know, they are really good at what they do. And I’m shadowed on some of their calls just to listen in on how are they talking to an investor who maybe just doesn’t have that level of sophistication. And it’s always helpful. I guarantee that it will, it’s a great experience for those investors, even if they’re sophisticated, because we always learn something. There’s so much changing in this space that we always learn something from those specialists. So I think it’s a real opportunity to continue to educate. But I’m a believer.
Kapoor: I think, too, from the viewpoint of our analysts, more transparency will be great. But also, ultimately, expenses have to come down for adoption to be much higher than it is today. So I want to wrap up here with just a couple of questions we’re getting on the markets, and I want to focus on one, which is: What are you hearing from advisors, and what are you saying to folks who are nervous about the fact that the markets have had such a good run? There’s so much noise about the macro environment. Obviously, Schwab always talks about staying the course, as we do, but generally speaking, what would you say to individual investors today when they look at the state of the markets and think about the future?
Hathi: Yeah, well, it is interesting, as I mentioned, we have an active trader base, and we have the long and hold investors. Right? And we have the RIA clients, and they all tend to operate a little bit differently. But what’s interesting is that there still is a lot of optimism across the client base. More broadly, I do think we see in that more active trader base, we do see a little bit of that more cautiousness. There’s still optimism, but a little bit more cautiousness.
I think given the regulatory and the political environment, that also you see them trading based on that a little bit, that volatility in the trader business. So it is something that is a dynamic environment. And I think generally that results in our traders being a little bit more enthusiastic because they like that volatility. Typically where our buy and hold investors are, as you said, stay the course. And that is typically our mantra. Right. We talk about that quite a bit, like make sure, diversify, make sure you have low cost, make sure you stay the course, start early, all of those things. I don’t think those go away. And I do think we see that resilience in the retail investor.
I think the other thing that, in the past, I think there’s been this belief that the retail investor is not as sophisticated or not as educated. And I do think that has evolved quite a bit. And you know, these days we believe that the retail investor is a pretty smart, educated investor. And I think, and we’d like to believe we’ve helped with that, but we think that part of that is this information that these retail investors now have access to, and they’re pretty sophisticated with the way they engage.
Kapoor: I like to say that what used to be institutional is now retail, and what used to be retail is institutional. Yeah, there’s sort of been a blending of those things, but Neesha, this has been awesome. Thanks for taking the time out of your busy schedule to join, and look forward to speaking with you soon again.
Hathi: Yeah, my pleasure. Nice to be here. Thanks for having me.
Kapoor: Thanks again.
