Schwab lets RIAs pledge alternatives for client loans

Charles Schwab announced at its institutional investor day in Westlake, Texas, that it will allow registered investment advisors to use certain alternative assets as collateral for pledged-asset loans. The change affects lending tied to Schwab’s Pledged Asset Line and will be rolled out from a limited group of advisors to the full adviser base over time.

The expansion covers assets held in separately managed accounts and selected alternative investments, in addition to traditional securities such as stocks, bonds, mutual funds and cash. Schwab first launched an online Pledged Asset Line in 2023 to speed the process of arranging loans backed by client securities.

Schwab works with roughly 16,000 RIAs. Only 23% of those firms have arranged a Pledged Asset Line loan for clients, according to Neesha Hathi, head of Wealth Advisory, Banking and Trust Services, leaving room for further adoption as the firm broadens acceptable collateral.

Executives framed the lending expansion as a way for advisors to retain client relationships when outside firms offer financing incentives. Jonathan Beatty, head of Schwab Advisory Services, said expanded lending lets advisors match competitors that court clients with low-rate loans and that Schwab’s internal bank is a differentiator for some advisors.

Schwab reported that its bank held just over $253 billion in deposits at the end of the first quarter. The firm disclosed $140 billion in net new assets in Q1, bringing total client assets to $12.6 trillion. Executives also cited more than $450 billion in uninvested client cash and $3.17 billion in net interest revenue for the fourth quarter while explaining how lending and deposit services fit into the business.

At the investor event, CEO Rick Wurster said RIAs frequently request more lending capabilities so they do not need to refer clients to outside banks. He also addressed automated cash-management tools known as cash optimizers, saying Schwab does not plan to build its own optimizer and pointing to existing options-money market funds, individual bonds and a competitive certificates-of-deposit marketplace-that clients can access through the platform. “We couldn’t make it easier. We couldn’t promote cash options more,” he said.

Schwab maintains both custodial services for independent advisors and an in-house retail wealth business. Executives said the expanded collateral rules are intended to give advisors additional tools for client lending while the firm continues to offer proprietary wealth-management options to its retail clients.

Background: Schwab has long permitted loans backed by client securities. The 2023 Pledged Asset Line digitized that process; the latest changes broaden eligible collateral to include separately managed accounts and selected alternatives to encourage wider use among Schwab’s advisor clients.