Democratising Investing: Charles Schwab CEO Rick Wurster on the Future of Finance

0:00Rick Wurster:Our message to our clients is have a plan, stick to that plan, rebalance. It's about timing the market, not timing the market. And that's what makes, that's what drives long-term financial success. What's interesting actually is the average age of our clients has come down the last several years as more young investors engage in markets. The average age of our client is now in its 40s, where it used to be in the 50s. The average age of our new client is in the 30s, and about a sixth of our new clients is under the age of 24. So we really are seeing incredible engagement from young investors, which are driving down the overall age of our client base.

0:44Rick Wurster:The biggest concern I have related to markets really likely comes from inflation. I think in an inflationary world, you'd have to see bond yields rise and given the amount of indebtedness across the globe, I think that would be quite painful to compress valuations, make the federal, you know, the different central banks restrictive, which ultimately could then lead to the double whammy of some inflation and some weakness in the global economy. Welcome to the Master Investor Podcast with me, Wilfred Frost, where we celebrate and learn from the success of the greatest investors, business leaders and politicians in the world, giving you, our listeners, the edge.

1:26The Master Investor Podcast is sponsored by LSEG, Interactive Brokers, the World Gold Council and BNY Investments. Please do remember the views expressed in this podcast are for general information purposes only. Nothing in the podcast constitutes a financial promotion, investment advice or a personal recommendation. More on that in the show notes. My guest today leads one of the biggest investment firms in the world, perhaps the biggest for retail investors, Charles Schwab, which has over 38 million client accounts and over$12 trillion of client assets, roughly split between advisory and investor services.

2:10I'm of course talking about Rick Worcester, who became CEO of Charles Schwab at the start of 2025, having joined the firm in 2016, following stints at Wellington and McKinsey. Rick, welcome to the Master Investor podcast. It's a pleasure and an honor to be here. Thanks for having me. I wanted to start, if I may, just with the origin of the firm, of course, by its namesake, Charles Schwab, and when it was founded and what he set out to do.

2:41Rick Wurster:Sure. So our firm was started about 50 years ago with a very simple premise of trying to get more people invested in equities and in our country. If you go back to where we really got our start, it was May Day in the mid-70s, and commissions were being deregulated. And most firms took that as an opportunity to actually raise the price of commissions. And Chuck Schwab chose a different path that day. He brought down commissions, and that allowed investing to be a lot more accessible for the everyday American and began a period of 50 years where more and more people began to get invested. Back at that time period, If you were very wealthy, you could be an investor.

3:23Rick Wurster:But if you didn't have a lot of money, you really couldn't get invested. There was a lot of barriers to investing. And that is no longer the case. And we're proud to be a firm that is here for every type of investor, every wealth level, every time horizon. And the last 50 years has really proven a great time to help people get invested. Well, whenever there's a story about democratizing access to the market, I celebrate it. it's a big kind of reason behind launching the podcast in the first place. And clearly, today, you guys have grown enormously since then. A big advisory business, which is about$5 trillion or so of your assets, and that allows RIAs, Registered Investment Advisors, often known as IFAs in the UK, to manage their clients' assets on your platform.

4:16And then an investor business with about$7 trillion of assets for retail clients where obviously they manage things more directly. I read that assets rose 20 % last year, which is insane growth when you're talking about such big numbers as a starting point. What drove that? Which side of the business? Was it outright inflows or just the market rising? Break it down for me.

4:41Rick Wurster:It was a combination of things, but it really starts with the fact that we put the client at the center of everything we do. And we feel like if we put the client at the center of everything we do, we're going to be able to deliver for them. We're going to make them better off in their financial life. And if we have an important role in making clients better off in their financial life, they're going to do more business with us. And last year was a great example of that. We brought in about$519 billion of net new assets to the firm. So that's the flows into the firm. And then our clients grew their assets because of the strong bull market last year.

5:14Rick Wurster:So it was a combination of factors that drove our growth, but it all starts with delivering for the client. We really have three main businesses. You mentioned two of them. We have a large business dealing directly with retail clients, primarily in the United States, but we serve clients all over the world in more than a hundred different countries. We serve advisors and help them meet the needs of their clients. And then we serve employers, And we do that all over the world as well. In fact, some of our biggest stock plan clients, we have some in the UK, some all over the world. So that's our business.

5:51Rick Wurster:It has been growing well, I think in part because of how much interest there are in markets.

6:10global market access, low costs, and unmatched financial strength. That's why the best informed investors choose IBKR. Learn more at ibkr.com forward slash master investor. I wanted to dive in first, Rick, if I can, to the retail clients side of your business. And what's the range of client sizes that you serve and the sweet spot?

6:37Rick Wurster:You know, we serve retail clients of all sizes. of all types, of all different investment styles. We work with clients that are just getting invested. In fact, we recently opened up something called our teen accounts, which makes investing available to people all the way down to age 13. They can have their own account, which they can trade in, and all the way up to some of the wealthiest people in the world. And we are able to deliver for each of those what they want and need. And what's the average age and the kind of trend going on there? Yeah, what's interesting actually is the average age of our clients has come down the last several years as more young investors engage in markets.

7:22Rick Wurster:The average age of our client is now in its 40s, where it used to be in the 50s. The average age of our new client is in the 30s. And about a sixth of our new clients is under the age of 24. So we really are seeing incredible engagement from young investors, which are driving down the overall age of our client base. And I think that started back in COVID. You had a group of young investors that got engaged in markets for the first time. And now you look at the Gen Z generation, and they are 45 % more likely to be an investor by the age of 21 than millennials. So it's just wonderful to see that kind of engagement, that kind of interest in markets.

8:04Rick Wurster:Saving early and investing is a recipe for financial success. So we love to see it. And what do you think? COVID is obviously a trigger. I mean, it's lucky, I guess, markets have risen since then, or, you know, all else equal, and they've gotten the bug, as it were. What's kind of driven that moment, though? Why do you think they've stuck at it? I think a few things have taken place. One, I do think there's been an emphasis on financial literacy. And what that has done is raised the knowledge around the importance of saving and the power of investing and what it can do for your wealth over time.

8:45Rick Wurster:So I think that's number one. Number two, you then did have a period of COVID where people got more interested in investing and trading because there wasn't a lot else for them to do. And in America, they were being handed some checks. And so they were looking for how to put that to work and investing became the vehicle. The third thing that I think has happened is returns have been strong over that time period. And so you have a group that took some of the money they got, got interested in investing, and they've seen their wealth grow. And so by seeing that growth in the values of their portfolio, I think that increases their enthusiasm for being an investor and makes it more a part of their life.

9:26Rick Wurster:And then more recently, I think the high levels of engagement that we've seen in markets is in part driven by the age we're living in, where there's just a lot of news. And so if you go back two years ago, a typical amount of trades that we would see in a day was somewhere around five to six million a couple of years ago. And now we're more into the nine millions, sometimes 10 million trades a day on average. So we've just seen an incredible increase in investor engagement, which I think for the long run is terrific to see. That's really striking, the pickup in volume as well as a number of clients.

10:06I'm interested as well, if you were able, maybe you do have the data because you're Charles Schwab, but if you were to rewind to the prior generations, is this early level of opening an account much younger than my generation? I guess I'm sort of younger, but our parents' generation, do you think they're getting engaged much earlier?

10:29Rick Wurster:Without a doubt, investors are getting engaged at a much younger age, about four years earlier on average. And by the age of 21, this generation is 45 % more likely to be an investor than a millennial. So you are seeing a real difference in when people are getting invested. And I think that's very important for the future because we know the earlier that you start saving and make it a part of your life and become an investor, the more wealth you're going to grow. For us here in the United States, we're launching something called the teen account. We also are seeing in the United States something called the Trump accounts, which will give children at birth will be investors right at birth.

11:15Rick Wurster:And I think that is something powerful for our country because the importance of saving and investing in your life is paramount. And if you can learn to do that as a child, that's something that'll carry through and make people better off in their life. So we're thrilled to see that, thrilled to see the engagement generally, and think it's a wonderful thing that young people are so interested in investing. And it's not just that Schwab, you see it in social media, the interest in places like TikTok and Instagram, YouTube. This is what young people are increasingly focused on and we love it. Yeah.

11:46I mean, listen, Trump accounts, fantastic. And with Michael Dell's unbelievable gift on top, I wish we'd do something kind of similar over here. But I think that generational thing as well, it's my parents' generation, it's by property to start. And I think it's shifting, isn't it, towards something more accessible in equities and the like. My final kind of question in this area, Rick, is I don't know if you have this statistic, but your gut feel on it would be great either way, that what the AUM adjusted average age of your client base would be, I imagine a lot higher than the sort of 40s that you mentioned with the wealthiest clients being older.

12:30Because one of Tom Lee, who's a friend of the show's sort of big bull cases, is this huge amount of wealth that sits amongst the older generation. And that's going to be passed down at some point to younger generation where the asset allocation will suddenly shift to much more risky assets, to equities maybe rather than bonds. Is the AUM adjusted average age of your client base a lot higher?

12:56Rick Wurster:Without a doubt. You forget where the wealth sits with our clients. It's among our older clients that have had a long career and the chance to save, the chance to invest, the chance to sell businesses, grow businesses, have thriving careers. And so the wealth definitely sits with the older generation. And for sure, we will see a large wealth transfer in the coming decades. coming decades. And it's an interesting point about what that means. I do think that will mean that money transfers to individuals that are younger, have a longer time horizon, and therefore should be invested more aggressively.

13:33Rick Wurster:So I certainly see the case that Tom is making. And when I look at our client base, the wealth definitely sits with our older clients. This episode is brought to you by LSEG, the leading global financial markets, infrastructure, data, and analytics provider. To learn more about how LSEG connects businesses, investors, and markets worldwide, visit lseg.com. Are there any other kind of big observations you have in terms of positioning of young clients versus older clients, or even retail clients versus institutional clients, just the sort of big shifts that might have been taking place over the last five years or so?

14:16Rick Wurster:I think as I look at young clients, there's a few things that are similar and a few things that are different about young clients versus prior generations. One thing that's similar and I think is often overlooked is that this is a group of really thoughtful investors that is planning for their life and making saving and investing a part of it. One third of the financial plans that we did last year for clients were for young clients that wanted to know how to pay off their student debt, how to save to buy their first house. how to begin to think about their retirement, which is 30 or 40 years away.

14:51Rick Wurster:So young investors are thoughtful just like the prior generation. Some of the things that are different are, one, where they get their information is different. They're far more likely to go on to one of the large language models to do investment research. They're more likely to go on social media and listen to influencers about how they're approaching markets. And so we at Schwab have had to shift, And now we put a lot of our content out on YouTube and Instagram and other places so that we can reach the young investor as they're making investment decisions. In fact, we're the most followed financial services firm on YouTube.

15:27Rick Wurster:So we're trying to go to where the young investor is in the way they like to invest. Clearly, they're more digitally inclined. And so they're more likely to go onto a mobile app than to go to our website and take on activities. So it's raised the game for the mobile experience. And we are leaning into that and making it an outstanding experience for them. The final difference that I would observe for the young generation is they're more likely to be invested in digital assets. The young generation is certainly interested in Bitcoin and other digital assets and have made it a part of their asset allocation.

16:04Rick Wurster:So those are a few of the differences that we see. But the number one thing that I would point out, which I think surprises people, is that on average, the young generation is a very thoughtful set of investors, just like the prior generation. It's really striking, the statistic about proper financial plans as well. It suggests thoughtful investing, not gambling, which brings me to my next question. And I've heard you talk about this before. You know, I'm passionate about investing, not so much trading and certainly not gambling. And it's always kind of hard to where to where to draw the line in that.

16:44But I always sort of think the market is mathematically against you in gambling, whereas with research, it can be in your favor when it comes to investing. Where do you put prediction markets within that?

16:57Rick Wurster:You know, I want to highlight the point you just mentioned, which I think is so true. The longer you're in markets, the more likely you are to make money. Probabilities on your side, if you hold equities for 10 years, you're very likely to make money. If you hold them for 20 years, I don't think there's been a 20-year period where equities didn't go up. Bonds have done well over long periods of time. And so your probabilities actually go up the longer you stay with investing. The opposite is true of gambling. You're going to lose on average. And the more you stay with it, the more you're likely to lose.

17:32Rick Wurster:And so the payouts are very different. And so we are very much outspoken on this topic because we want individuals and in particularly young investors to know the difference between being invested in markets, which are over the long run going to grow your wealth and participating in gambling or prediction markets, which over time are going to lower your wealth. As it relates to prediction markets, I have a few views on prediction markets. Number one, I think prediction markets started out with the best of intentions to give people access to different financial events that you may want to take a position on.

18:08Rick Wurster:And I think there's a role for that. And it makes it real simple. You can understand the probabilities and the likelihood of something happening and take a position. And then I think the election, the presidential election in the United States came along and it drew tremendous interest and volume into prediction markets. And these prediction market firms thought to themselves, well, gosh, this is amazing. Look at the volume coming in. We're making tons of money. How do we replicate this on a more frequent basis other than every four years in a presidential election? And of course, they thought to themselves, well, every Sunday in America, there's football games that a lot of people care about.

18:45Rick Wurster:And they got into sports gambling. And that now is 90 to 95 % of all the volume in prediction markets is associated with sports gambling. And that's something that, as you said, and we strongly believe is very different than investing. And it doesn't mean people want to gamble a little bit of money and treat it as entertainment. That's certainly their personal choice. The big thing that we believe is that we don't want, in particular, young investors to confuse the power of buying stocks and bonds with going on and betting on sports. Yeah, I think there could be a problem to come. And The pace, I was still there when it was all being legalized in the US, the pace of legalization of sports betting without the same level of education certainly worried me at the time.

19:34And I fear it will create a problem down the line in the US, but I guess we shall see. I also wanted to touch on, you mentioned already the impact of tech broadly, but AI and tech on investing in general. Where do you stand on this? Is AI something that you think will significantly hurt a lot of smaller players, but it won't hurt you? Or are you a little bit threatened by it? Expand on that for us.

19:59Rick Wurster:I think AI will help accelerate our ability to fulfill our mission as a company. Go back to where we started about why we started as a company. It was to help people get invested, to help them be successful in their financial life, to reduce barriers to investing. And I think AI is going to allow us to do that for more and more clients. We use AI in a few different ways. We're using it to make us more efficient. We're using it to help serve clients today. Where I think it helps us fulfill our mission more in the future is that we'll be able to reach a new set of clients in ways that we couldn't before and provide personalized insights that help give them the confidence to be a saver, give them the confidence to be an investor and to grow their wealth.

20:46Rick Wurster:Certainly, AI will make us more productive. It already is. We're using it in lots of ways today that are helping our client interactions, that are bringing down expenses per account that we manage. And so I see AI having a long runway in our industry and shaping it in many ways.

21:06This episode is sponsored by BNY Investments. BNY Investments is part of BNY, a global financial services company supporting investors and institutions around the world. This sponsorship does not constitute investment advice. um let's touch on interest rates and uh your outlook there i mean my first question on this clearly you make a lot of revenue and uh earnings from from you know the money in your client accounts that's sitting in cash and you can uh earn a little bit of a premium on that does that mean actually when clients are bearish and cash balance is increased that that that boosts your earnings a little bit?

21:49Or is that too small of a marginal point?

21:52Rick Wurster:Well, no, that's true. If clients go to cash because they're concerned about equities, our cash levels rise. That tends to be what we would call transactional cash, meaning it's just sitting around for a short period of time. Therefore, it tends to sit in our bank and we do earn a spread on that and that grows our revenue. So actually, in a period like we're in today where rates have risen a bit and clients have on the margin increased their cash position. In general, if you think broadly, is a conducive environment for our business. Interesting. I guess that might then lead to markets falling, I guess, all else equal, which could then bring down AUM in turn.

22:35So we'll see what happens. In 2023, obviously, there was a bit of a scare before you were CEO in the rearview mirror now about interest rate exposure in your health to maturity portfolio. How are you positioned now on that? And we've just had this massive shock, potentially inflationary shock with the Iran war, and it's adjusted all sorts of rate expectation. What's your outlook for rates?

23:02Rick Wurster:Our balance sheet is in really strong position. The move in interest rates hasn't impacted that in any way. We've got lots of capital. importantly when you look at our investment portfolio it's we think it's matched to the to to liabilities and so as a result we feel great about where our balance sheet is and what we like about that is it allows us to focus on what what we focus on on a day-to-day basis which is trying to help our clients navigate these kinds of environments we're a company that was built to to weather all kinds of financial markets and to be there for clients during those and so So we took 30 million retail client calls last year and answered questions about, hey, how does this geopolitical issue affect my portfolio?