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RIA

Schwab denies custody fees; analysts see fee route to $135

Compass Point says a subscription fee on AI cash sorting could replace lost sweep margins, even as the CEO rules out charging RIAs.

At a glance

25-second brief
  • Compass Point says a subscription fee on AI cash sorting could replace lost sweep margins, even as the CEO rules out charging RIAs.

  • Charles Schwab CEO Rick Wurster rejected the idea that the custodian will charge RIAs custody fees or roll out AI-powered cash optimization tools, according to RIABiz.

  • In a research note reported by RIABiz, Compass Point analysts Edward Engel and Michael Donovan set a $135 price target on Schwab, whose shares closed at $106.35.

Charles Schwab CEO Rick Wurster rejected the idea that the custodian will charge RIAs custody fees or roll out AI-powered cash optimization tools, according to RIABiz. Wurster called the prospect of a cash-sorting product "near nil."

In a research note reported by RIABiz, Compass Point analysts Edward Engel and Michael Donovan set a $135 price target on Schwab, whose shares closed at $106.35. They argue the firm could offer agentic cash-sorting to paid subscribers, replacing interest income with subscription fees. Engel said a fee as low as 6 basis points could offset projected cash-sorting revenue shrinkage.

Why it matters

Schwab Advisor Services holds $5.7 trillion across 15,000 RIA firms for free, according to RIABiz. That model depends on sweep cash interest, which generates up to 49% of Schwab's revenue. If agentic AI cash sorters become standard, those margins compress and the free custody model faces pressure.

The market is already nervous: Schwab trades at a P/E of about 13 times versus a typical 20 times per RIABiz, a discount tied to AI disruption fears. For RIAs, the unanswered question is whether Schwab's free custody platform survives a transition to subscription fees. Analysts see the fee as a possible backstop, but it would change who pays for custody.

Between the lines

The irony is that the AI threat may be pushing Schwab toward a fee model it has long avoided. CEO Wurster says the threat is remote, but the market is already pricing in the possibility. If Compass Point is right, Schwab's future revenue stream could look more like a software subscription than a bank spread.

For advisors, the key takeaway is not the $135 target. It's that the industry's largest custodian is being forced to publicly defend a business model that depends on suboptimal cash management. Any move to paid features — however optional at first — deserves close scrutiny, because RIAs' costs are ultimately determined by how Schwab replaces its spread income.

What's next

Watch Schwab's next earnings call for any shift in how management discusses sweep revenue and AI capabilities.

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