RIA custody biz the bright spot in Schwab’s 2Q performance

Amid some rather lackluster financial results announced today by the Charles Schwab Corp., the company’s RIA custody business continues to shine.

Total net income for the discount broker in the second quarter was $205 million, or 17 cents a share, compared with $205 million, or 18 cents, a year earlier, the San Francisco-based company said in a statement today. And net new assets coming into Schwab’s discount business fell to an anemic $1.3 billion in the second quarter, down 65% from the prior year.

But Schwab’s Advisor Services custodial unit continued attracting new flows, bringing in $10.2 billion in net new assets.

In fact, Schwab’s Advisor Services business is now larger — as measured by client assets — than its discount business.

At the end of the second quarter, assets custodied by independent advisers reached $596.7 billion, 5% higher than the $568.7 billion held by discount customers.

The discount business, which Schwab calls its Investor Services division, has historically held more assets. But that changed at the end of last year when Advisor Services edged ahead.

The strength in the custody business is “a testament to that model,” said Greg Gable, a Schwab spokesman. “Here we are, going through a difficult period in the market [and RIAs] have clearly been able to keep their [clients] invested and keep them engaged,” he said.

Bernie Clark, senior vice president and head of Schwab Advisor Services, noted that, of the $25 billion in net new RIA assets in the first half, $6.5 billion came from new recruits. “Having existing firms grow [assets] is [the] core” reason for the asset flows.

The overall picture for Schwab was slightly less upbeat, however.

Saled from trading dropped 14% drop in sales from trading, while net new customer assets declined $37.5 billion. For the quarter, revenue for Schwab slipped 0.5 percent to $1.08 billion.

The brokerage has been weathering a near-zero interest rate environment since December 2008. About one third of last year’s revenue came from interest earned on cash in its bank and money market funds, while almost half was from fees for managing and administering assets.

Still, Schwab’s Q2 income of 17 cents per-share topped consensus analyst estimates of 15 cents. That was enough to boost the company’s stock price, which was up by more than 6% (as of 2:00 EST) while shares of other financial services companies slid.

Moreover, some analysts saw positive signs in Schwabs’ latest results. Alex Kramm, a New York-based analyst at UBS AG, wrote in a note that “results reiterate that Schwab has turned the corner after a challenging 2009.”

It remains to be seen if there are more detours ahead, however.

[Bloomberg News contributed reporting to this story]

Related Topics: Charles Schwab & Co.