Charles Schwab Corp (SCHW) Q4 2025 Earnings Call Transcript

Charles Schwab Corp (NYSE: SCHW) Q4 2025 Earnings Call dated Jan. 21, 2026

Corporate Participants:

Jeff Edwards — Managing Director/Head Investor Relations

Rick Wurster — President and Chief Executive Officer

Mike Verdeschi — Chief Financial Officer

Analysts:

Devin Ryan — Analyst

Ken Worthington — Analyst

Brennan Hawken — Analyst

Dan Fannon — Analyst

Alex Blostein — Analyst

Stephen Turek — Analyst

Brian Bedell — Analyst

Bill Katz — Analyst

Benjamin Budish — Analyst

Mike Brown — Analyst

Presentation:

Jeff Edwards — Managing Director/Head Investor Relations

Good morning, everyone, and welcome to Schwab’s 2026 Winter Business Update. This is Jeff Edwards, Head of Investor Relations, and I’m joined in Westlake today by our President and CEO, Rick Wurster, as well as our CFO, Mike Verdeschi. During our time together this morning, the team will review 2025, a year where the business delivered growth across all fronts and discuss the growing set of opportunities we see to help clients even more in 2026 and beyond. A quick rundown on the housekeeping front: the slides for today’s business update will be posted to their usual spot on the IR website at the end of the prepared remarks. Q&A remains one question, no follow-ups, and please try to limit the nested babushka doll questions. If you have multiple questions, we encourage you to simply hop back into the queue and ask another one if time allows. And as always, the IR team is here to assist with any questions following today’s update. And last but not least, the ever-present forward-looking statements page, or the artist formerly known as the wall of words, which reminds us that outcomes may differ from expectations. So please keep in touch with our disclosures.

And with that out of the way, I’ll turn it over to Rick.

Rick Wurster — President and Chief Executive Officer

Thank you, Jeff, and good morning, everyone. Thanks for joining our Winter Business Update. 2025 was a record year for Schwab. Guided by our through-client-side strategy and with a supportive market, engaged clients, and strong execution, we delivered growth on all fronts with clients across our solutions and in our financial results. We attracted $519 billion in core net new assets, or NNA, a 42% increase over last year. In 2025, clients opened 4.7 million new brokerage accounts, a 13% increase over 2024. Solutions growth, one measure of deepening relationships with clients by helping them conduct more of their financial lives at Schwab, reached new records. Managed investing net flows grew 36% over 2024, achieving a new record. Bank lending balances reached an all-time high of $58 billion. This diversified combination of client and solutions growth, supported by our disciplined financial management approach, resulted in record financial growth.

Total net revenues reached a new record high of $23.9 billion, and we delivered record-adjusted earnings of $4.87, up 50% over last year. With strong execution across our strategic focus areas, growth, scale and efficiency, brilliant basics, and our people, we continue to innovate to help our clients grow, manage, enjoy, protect, and pass on their wealth. This is how we’ve always approached innovation at Schwab, with a focus on helping our clients achieve better financial outcomes. I’ll share just a few examples from 2025. We opened 10 new branches and hired hundreds of financial consultants and wealth advisors. Clients with an FC bring in more than two times the NNA, are more engaged with our wealth solutions, and have higher client promoter scores. We strengthened our lending, wealth, and trading offers. We leveraged artificial intelligence to serve clients more efficiently.

In our advisor services business, we launched Advisor ProDirect, a subscription service supporting RIAs wherever they are in their journey to separately managed accounts program and nearly doubled the size of our institutional no-transaction fee mutual fund platform. We entered a definitive agreement to acquire Forge, which will help us provide clients with multiple ways to access alternatives while democratizing private investing. We also made a strategic investment in Carta, a complete equity management solution designed to support private companies in the late stages prior to IPO. With Forge and Carta, we are creating an ecosystem where we can administer private stock plans while providing access to liquidity for private company employees and investors, all while creating a pre-IPO pipeline of future stock plan services clients for Schwab.

We took an ownership stake in Wealth.com and began rolling out their estate analysis capability to our specialists, giving us more tools to help clients integrate their estate planning into their investment life. We delivered all of this in a year where our clients achieved record levels of wealth through market ups and downs. As the year came to a close and from where we stand today, market valuations are high, but the economy remains strong. All of this fueled record levels of client engagement. We supported 1.9 billion trades, more than 30 million calls to our service centers, and about 2.2 billion digital logins, up approximately 18% from 2024.

Clients reaching out to our service centers had their calls answered in less than 30 seconds on average, as our professionals fielded client questions ranging from whether stocks were overvalued to how to navigate market volatility, to inquiries about cryptocurrencies, to how to protect their wealth. Millions of investors consumed our educational content. While clients embraced our easy and intuitive digital experiences, they showed us they want more than an app when what’s at stake is their financial future. In short, we were there for our clients when, where, and how they needed us. You can see this in our third-party recognition and, more importantly, in strong and improving Client Promoter Scores across retail, advisor services, and our workplace business.

We ended the year with more than 46 million client accounts and nearly $12 trillion in total client assets, reinforcing our position as an industry leader and ranking number one among peers by total client assets, RIA custodial assets, and daily average trades, which reached a record 7.7 million a day for the year. We are entering 2026 in a leading competitive position, and our momentum is strong. I want to spend a few minutes laying out what collectively positions us to continue delivering earnings growth through the cycle. Most importantly, we are taking a holistic view of growth. We have two important levers: serving more clients and deepening relationships by serving more of their financial needs.

Attracting more clients will always be important, but with nearly $12 trillion in assets and more than 46 million client accounts, doing more for our clients is as important a source of growth as acquiring new clients. We are equally focused on growing NNA and growing our wealth, lending, and product areas. This growth is key to our revenue growth and our revenue diversification. There are two more critical pieces to the puzzle. First, our sheer scale, combined with efficiency efforts that make it easier for clients to do business with us, keeps our cost-to-serve clients low. This also allows us to invest in client capabilities that will fuel our growth and fuel experiences that drive more efficiencies. Second, our disciplined financial management approach and capital return underpins it all. Taken together, when we deliver on each of these effectively, we’re cycle.

I’ll spend the next few minutes unpacking growth and scale and efficiency, and Mike will dive into our financials. Serving a growing number of clients and attracting net new assets is our first growth lever. And in 2025, the organic growth rate of core NNA reached 5.1%. In advisor services, we are attracting net new assets from new and existing advisors of all sizes as we help them serve their clients, grow their businesses, and succeed in an increasingly competitive industry. No matter an RIA size, we serve them all in a way no competitor can. 1.9 million new retail households turn to Schwab in 2025. These new households represent a broad and diverse client base. Our average retail client is now in their 40s, and our average new-to-firm retail client is in their 30s.

Gen Z investors comprise nearly a third of new retail client accounts opened in 2025, and nearly 60% are under the age of 40. About one-third of new clients are affluent, and the volume of new trader clients continues to increase. To sum it up, we are winning with investors of all ages, wealth tiers, and time horizons. Clients expect all aspects of their lives to be more convenient, and they want to conduct more of their financial lives in one place. At our scale, we have an incredible opportunity to do more for existing clients at a magnitude that can’t be easily replicated. When existing clients entrust more of their assets to Schwab, it is a win for clients because it makes their financial lives easier, and we’re delivering the value they want. It is a win for the firm because it helps us diversify our revenue streams.

Guided by our through-client-side strategy, we have a diverse set of monetization opportunities that are providing value to clients across both advisor services and retail. I want to specifically call out we see in advisor services. First is wealth. We’re expanding our wealth services offer, which is designed to simplify processes and help advisors compete and serve their clients’ comprehensive needs. This includes our growing Model Market Center platform and alternative investments. Second, we’re focused on expanding our lending and trust services to our advisors through Charles Schwab Bank. Finally, we’re delivering industry-leading trading capabilities. At a later date, I’ll share more on the high-touch trading service for block trades we’re launching in Q1. I’ll share more detail on the opportunities we have across wealth, banking, trading, and alternative investments.

We have made significant investments in our wealth offer over the last several years, including rounding out our product offer with solutions like Wasmer Schroeder Fixed Income Strategies and Schwab Personalized Indexing. Within our flagship offer, Schwab Wealth Advisory, we’ve reduced the practice size of our wealth advisors and hired to serve more clients. We’ve created a business development officer role focused solely on growing the business so wealth advisors can focus on their clients. We’ve improved our tax, trust, and estate capabilities, and we’ve built out specialty teams catering to the unique needs of our higher net worth clients. These investments are paying off. Managed investing net flows have nearly quadrupled since 2022, and we still have a meaningful opportunity ahead of us. Approximately 5% of retail households at Schwab engaged with our managed investing solutions, yet about 31% say they are willing to pay for advice.

The reason we have confidence we’ll continue to close this gap is Client Promoter Scores for our managed investing solutions are among the highest at the firm. At the same time, return on client assets, or ROCA, for managed investing solutions is two times that of retail, which diversifies our revenue streams as we delight clients. We expect wealth to be a critical future driver of AMAF growth. We’ve also made significant investments in our banking offer. Just a few years ago, it took about a month for a client to access. Investments we’ve made are Pledged Asset Line client experience is best in class, with average digital cycle times of about a day and nearly three-quarters of originations completed in less than a day. With these investments in client experience, PAL balances have nearly doubled since 2023.

Given the opportunity we have ahead of us, we are not taking our foot off the gas. Client penetration of PAL remains relatively low. Within retail, only 9% of ultra-high net worth clients have originated a PAL. In AS, 23% have a PAL. We are continuing to invest in the experience with expanded PAL collateral capabilities, including borrowing against Schwab managed investing solutions and more enhancements to follow in the year ahead. With an average spread to securities north of 100 basis points, this is a win for clients and for our economics. Schwab is the place for traders of all experience levels. We’re the number one firm by daily average trades, with no close second, handling about 10% of the total U.S. notional trading volume in 2025.

Traders come to Schwab because we provide the platforms, capabilities, education, coaching, and service they need to grow their wealth, engage in markets, take advantage of opportunities, and hedge their portfolios. In 2025, about half of new-to-firm retail clients initiated access to our industry-leading Thinkorswim platform. Schwab clients hold about a 20% share of spot crypto exchange-traded products, and we remain on track to launch spot trading on Bitcoin and Ethereum in the first half of this year. Traders are highly engaged, bringing in nine times more NNA than retail clients and two times the ROCA. We’ll continue to enhance our offer to meet their unique needs. We’re also deepening relationships with our higher net worth clients by continuing to strengthen our alternatives offer.

With our acquisition of Forge, which we expect will close in the coming months, we’ll be able to provide retail and RIA clients with alternatives from leading managers, passive exposure to alternatives via funds, and direct investing in private companies. The opportunity is meaningful. In a recent survey of clients with $1 million or more in assets, retail clients said they expect to allocate approximately 5% of their portfolios to alternatives. And today, less than 40% of our RIA clients have an allocation to alts. Building out our alternatives offer and helping more people participate directly in the growth of private companies provides opportunities for wealth creation and diversification that we believe will be attractive to qualified individual investors and the advisors who serve them. I’ve spent quite a bit of time talking about our two growth levers.

Our scale and efficiency initiatives make it easier for clients to do business with us while keeping our cost-to-serve low and enabling us to reinvest in capabilities for clients. With more than 220 use cases, we are leveraging artificial intelligence to help our professionals serve clients more efficiently. We also continue to automate high-volume client requests, improving accuracy, speed, and our client experience. We progressed efforts to improve status notifications to clients and remove more paper from our system, reducing not-in-good-order errors and saving time for our clients and professionals. Our scale, combined with our expense discipline, has allowed us to decrease our cost per account 20% over the last five years while driving our ability to remain the industry leader as measured by expense on client assets, or EOCA, which you can see is a clear competitive differentiator for us. On an adjusted basis, EOCA has decreased from about 15 basis points in 2020 to about 11 basis points today. The fourth lever that positions us for earnings growth through the cycle is our disciplined financial management and capital return.

I’ll turn it to Mike now to speak more in detail on our approach.

Mike Verdeschi — Chief Financial Officer

Thank you, Rick, and good morning, everyone. During today’s call, I’ll discuss how we converted our strong business momentum into record financial results for 2025. I’ll highlight some of the steps we took to further enhance our capabilities to meet our clients’ evolving needs through a range of environments, and finally, outline our financial scenario for 2026. Starting with the fourth-quarter results, total revenue was up 19% year over year to a record $6.3 billion. Net interest revenue increased 25% versus the prior year.

As we further reduced wholesale funding at the bank to the lower end of our BAU range, clients increased their utilization of our margin and bank loan offerings. Robust equity markets plus client demand for our wealth and asset management solutions helped asset management and administration fees grow by 15% versus 4Q24. Daily average trades of 8.3 million, the second highest quarter on record, drove a 22% year-over-year increase in trading revenue. Now, looking at expenses, adjusted expenses for the fourth quarter were up 6% versus 4Q24, bringing full-year adjusted expense growth to 6% as we supported record levels of investor engagement across our suite of trading, wealth, banking, and asset management solutions. While we had anticipated some moderation in client trading activity towards the back end of the year, we instead saw an acceleration in activity, which contributed to higher volume-related costs, inclusive of performance-based compensation.

This incremental expense was more than offset by the significant pickup in revenues and therefore supported stronger earnings. Putting everything together, we recorded an adjusted pre-tax profit margin of just over 52% in the fourth quarter and grew adjusted earnings per share by 38% year-over-year to a record $1.39. This strong finish to the year helped us print record financial results for 2025, including total revenue of $23.9 billion, up 22% versus 2024, adjusted pre-tax profit margin expansion of nearly 800 basis points to 50%, and adjusted earnings per share reaching a record $4.87, representing year-over-year earnings growth of 50%, and putting earnings above the upper end of the updated scenario range we shared during the fall business update in October. Moving on to our balance sheet, we continue to support our clients as their needs evolved. Demand for our lending solutions increased during the quarter.

Led by PAL, total bank loan balances grew to $58 billion, representing a year-over-year increase of 28%. Client margin loan balances exceeded $112 billion at quarter end, up 34% versus year-end 2024, reflecting equity market strength and investor engagement. On the cash front, we observed typical fourth-quarter seasonality, including over $26 billion of cash inflows in December to bring the quarter-end balance to $453.7 billion, which represents a sequential quarter increase of $28.1 billion, or approximately 7%. This building cash, along with the use of investment portfolio proceeds and balances transferred from the BDA, allowed us to further reduce high-cost funding at the bank to $5 billion, the lower end of our $5-$15 billion business-as-usual range.

We’d expect normal cash behavior to continue in 2026, with cash levels generally growing in proportion with the franchise, with history suggesting we could pick up some modest amounts of incremental cash if interest rates move lower from current levels. We also expect typical intra-year cash seasonality trends to persist in 2026, including clients redeploying the fourth-quarter cash build early in the first quarter, as well as seasonal tax payments during Q2. Capital levels remain strong with our Adjusted Tier-One Leverage Ratio, finishing the year just above the upper bound of our 6.75%-7% objective. At 7.1%, our adjusted ratio also reflects the repurchase of common shares for $2.7 billion during the fourth quarter, bringing year-to-date total capital return across all forms to $11.8 billion. As we move into the new year, our capital management framework remains unchanged.

We will continue to prioritize capital levels that support long-term business growth and the evolving needs of our clients across a range of environments. Beyond that, we would seek to opportunistically return excess capital to stockholders in multiple forms. While the absolute level of capital return may vary over time, we believe capital return will continue to be a meaningful part of our through-the-cycle financial growth story. Transitioning to the setup for 2026, as is the case in any year, our financial outcomes will be influenced by a range of factors. Beginning with select macroeconomic factors, our 2026 financial scenario assumes interest rates follow the current forward curve expectations, which call for 225 basis point cuts to the Fed’s target rate, bringing the funds rate down to 3.25% by the end of 2026, and 6.5% equity market returns, which is consistent with the long-term average.

On the business side, we expect to sustain our momentum from 2025 into the new year, with strong new account formation and full-year organic asset growth of around 5%. At the same time, we will continue to deepen relationships with the 46 million total accounts and nearly $12 trillion of client assets already on Schwab’s platform today. Increased investor utilization of our expanding set of solutions across trading, wealth, banking, and more helps to further diversify our revenue, as well as support franchise growth over time as clients with deeper relationships tend to consolidate more of their assets at Schwab. Specifically on trading activity, given the record volumes we supported last year, our 2026 scenario does allow for a slight pullback in volumes to roughly 7.4 million daily average trades for the full year. This level aligns more closely with volumes observed in early 2025.

Under this scenario, we would expect total revenue growth of 9.5%-10.5% in 2026. Full-year net interest margin expands to a range of 2.85%-2.95%, with average 4Q2026 NIM expected to finish above 2.9%, despite assuming the Fed funds rate comes down by another 50 basis points. Full-year 2026 interest-earning assets are expected to expand modestly year-over-year following the paydown of supplemental borrowings at the bank. From an expense planning perspective, we initially anchor to mid-single-digit year-over-year growth, and adjust for a range of factors, including the macroeconomic backdrop, client engagement levels, our strategic initiatives, and of course, the revenue outlook. Therefore, within this financial scenario for 2026, we anticipate annual expense growth to range from 5.5%-6.5%.

Our spending plan aligns to our key strategic initiatives and aims to help us continue delivering financial growth through the cycle by driving new client growth and deepening relationships with individual investors and RIAs by further expanding our leading suite of offerings to serve their evolving needs, bolstering our best-in-class service experience while also harnessing incremental scale and efficiency. Select examples for 2026 include investing in branches, adding more financial consultants and wealth advisors, advertising and marketing, expanding our digital asset offering to include spot crypto trading, and incorporating more AI across the firm, particularly within our service and technology organizations. So putting all the pieces together, the combination of strong top-line growth and balanced expense management implies meaningful operating leverage within this scenario, with further pre-tax margin expansion into the low 50s.

If you follow the math down to the bottom line, this full-year scenario implies potential adjusted earnings of around the $5.70-$5.80 range, which would represent year-over-year earnings growth in the upper teens. As always, while rates, client activity, and other variables may differ from what we have outlined within today’s scenario, we are confident in our ability to drive strong financial outcomes across a range of environments. Similar to last year, we have provided a set of static revenue sensitivities based on year-end 2025 levels. These high-level sensitivities are intended to serve as a complement to the scenario we just walked through, helping you adjust estimates and shape your own perspective around 2026. While most of you are quite familiar with this page, given the focus on the potential path of interest rates, it may be worth spending a moment on the net interest revenue sensitivity.

Throughout 2025, we took a number of steps to further enhance our flexibility and financial management capabilities, including standing up a hedge program that helped reduce our interest rate sensitivity by about one-third. We have continued to build out these capabilities in the early days of 2026 by putting in place a modest amount of income hedges against our margin loan book. Therefore, if you were to assume the Fed funds rate moves much lower than the current market expectations, perhaps approaching the 2% level, we would still anticipate delivering year-over-year earnings growth of at least 10%, probably a bit better, holding all else equal. Of course, there would be other moving pieces to consider in that environment.

And although interest rates are an important macro factor, the combination of our enhanced balance sheet management and inherent offsets within our model keeps us well-positioned for financial growth across a range of environments. So in closing, we are entering 2026 with strong momentum, following a record 2025 where we delivered growth on all fronts. Yet, as Rick outlined earlier on the call, we have tremendous opportunities still in front of us across nearly all areas of our business. Schwab’s combination of an increasingly diverse revenue mix, industry-leading scale, enhanced financial capabilities to manage across a range of environments, as well as capital return, positions us to deliver meaningful earnings growth through the cycle.

And with that, Jeff, let’s turn to Q&A.

Jeff Edwards — Managing Director/Head Investor Relations

Operator, can you please remind everyone how they can ask a question today?

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question will come from Devin Ryan with Citizens Bank. Your line is open.

Devin Ryan

Great. Good morning, everyone. Thanks for taking the question. Question just on the balance sheet. Obviously, great work on the supplemental funding normalization there. With that largely complete and where capital ratios are right now, how should we think about the next phase of asset remixing? And as we look maybe even beyond kind of the pledge asset growth and margin lending, what should we be thinking about for the securities portfolio potentially growing again? How do we think about the timing size, maybe duration of that as well? Thank you.

Mike Verdeschi

Hey, good morning. Thank you for the question. So yes, 2025, we certainly saw the aggressive paydown of supplemental borrowings. And from here, I think about the story more on the asset side, meaning we saw a terrific lending momentum in 2025. We’re looking for strong lending opportunities in 2026 as well. And that would be with our bank product as well as in margin lending. So I think the growth of lending will continue. In terms of securities, now that we’ve paid down those supplemental borrowings, as those proceeds become available, yes, we do have the opportunity not just to, again, support the loan growth, but also reinvest in the securities portfolio. A couple of thoughts on that. As I’ve talked about the securities portfolio before, it serves two purposes. One is the store of liquidity. So with that in mind, we’re going to maintain highly liquid product.

The majority of that allocation would go to U.S. Treasuries. I would say short-dated, and then perhaps some allocation to high-quality asset-backed securities. But the main driver would be investing in U.S. Treasuries. And we talked about that duration range being the overall portfolio in that two- to four-year range. So the expectation would be that those Treasury investments would be on the shorter end of the curve. So we feel good about how the balance sheet has evolved. We’re in very good position to continue to support our client needs. And certainly, that activity will help us support strong earnings growth going forward.

Operator

Thank you. Our next question comes from Ken Worthington with J.P. Morgan. Your line is open.

Ken Worthington

Hi, good morning. Thanks for taking the question. I’d love an update on the alternatives platform. How is engagement in the new platform? And if possible, I’d love to get a sense of assets. And the initiative is very young, but have there been any indications, or do you anticipate that the Alt program pricing is disruptive enough to attract either new customers or assets to Schwab?

Rick Wurster

Again, thanks for the question. We are seeing the Alt program grow and succeed, and most importantly, delight our clients, and in particular, our higher net worth clients, and our goal has been to be the premier destination for all clients, including those higher net worth clients, and over the past few years, we’ve rolled out new product capabilities for them, including alternatives. We rolled out tax loss harvesting capabilities for them to manage their capital gains. We’ve rolled out concentrated position management for them. We’ve done more to help them integrate their financial life. We’ve gone out and hired a bunch of wealth consultants who are experienced in helping the higher net worth clients navigate their financial life. All of those things are leading to a more robust ultra-high net worth offer than we’ve ever had, and alternatives has proven to be an important part of that.

We see a real backlog for wanting to speak with our alternative investment consultants, meaning there’s been more interest than we would have expected. We’re dealing with that, but that’s a good situation to be in. There’s a lot of interest, and we are seeing clients engage in it. We’re not putting out any asset numbers yet. I think it’s so early in the process of rolling all this out. But I think ultimately, this will be the place for the ultra-high net worth investor and the place for them to get alternatives because we will have a great platform of leading alternatives managers. We will supplement that with a fund-based structure to access alternatives in a passive way or privates in a passive way.

And then for those clients who want to buy an individual private company through our Forge acquisition, we’ll be able to allow them to do that. And we want to be the industry, the place in the industry where the private companies come because they know they can get liquidity, and we want to be the place where clients come. And I do think over time, that will help our net new asset growth because I do think we’ll attract clients to Schwab, and we’ll get more of them to bring all of their assets to us. Whereas in the past, some of our higher net worth clients might go elsewhere for their alternatives. Now they’re finding it at Schwab. So I think it will help our net new asset formation. So thanks for the question, Ken.

Operator

Thank you. Our next question comes from Brennan Hawken with BMO Capital Markets. Your line is open.

Brennan Hawken

Hi, good morning. Thanks for taking my question. I’d like to maybe hear a little bit of color and context around the growth recently. And could you maybe speak to the differences that you’ve seen in trends between advisor services and investor services in recent quarters and your expectation? And then maybe how these recent investments in the high net worth offering might have an impact on the investor services side. Thanks.

Rick Wurster

Thanks for the question. We’ve seen our growth accelerate across the board. Our net new assets of $519 billion last year was a 42% increase year over year. So we were pleased with that rate of growth. If you break it down, we grew about 33-ish% in retail and a little more than the 42% in our advisor business. So both are growing really strongly. What’s so exciting to me about our retail growth is that we are winning with every demographic and every type of investor. We’re winning the young investor. Our average age of our client has fallen by about 10 years in the last decade and is now in the 40s. A third of our new-to-firm clients last year were Gen Z’s investors, and we’re going and attracting them in the places they are.

We’re all over TikTok and Instagram, and we’re the most followed financial services company on YouTube, so we’re going to where they are, and we’re sending a message about the power of compounding, the power of saving and investing, and how we can help be a part of enriching their financial life, and that’s winning. We’re winning with active traders. We’re winning with buy-and-hold investors, and we’re winning with the high net worth in retail, and as I look forward, I think in the coming years, there’s a number of things that will power an acceleration of our investor services, and number one, I think when we fully launch crypto and have the ability for clients to transfer assets, I do expect us to see our long-standing clients that have held crypto at other places bring that back. That’ll be a source of growth.

I think that we’ve got to get bigger in the workplace, and that will be a source of growth, and then the reason we continue to add branches and FCs is that we see N&A really accelerate when there’s a dedicated relationship, when there’s a financial quarterback in the client’s life that can help steer them to help them achieve their financial dreams, and so we’re investing in those relationships. We did say last year we’ll continue to in the coming years, and I think that will really accelerate our retail growth, so in the coming years, I do expect to see retail and our investor services N&A accelerate.

On the advisor services side, we’re winning across every dimension, and I think it’s hard for other firms to compete with our size, scale, and the breadth and strength of our capabilities, whether it’s the custody offering, which we continue to make better, easier, and more straightforward for advisors, whether it’s the consulting and advice and expertise that we bring, the support we bring to help them in their drive to independence. I think the product capabilities and platform, when you add it all up, it’s really hard for anyone to match what we can do in that custody space, which is why we continue to see such strong organic growth levels. I think we grew that business at 6.5% organically last year or roughly around that level. So we’re winning on all fronts in advisor services.

I couldn’t be more pleased about the NNA growth in 2025, and yet, at the same time, as I take a three or five-year look, I think there’s a lot of things to be excited about in terms of accelerants to our growth over the longer term.

Operator

Thank you. Our next question comes from Dan Fannon with Jefferies. Your line is open.

Dan Fannon

Thanks. Good morning. I just wanted to ask about your lending offerings, clearly a focus in an area of growth. What do you see as a reasonable level of penetration of your existing clients in the next couple of years for these offerings?

Rick Wurster

I think there’s still tremendous upside on our lending business, both with existing products and one we may consider in the future. As I shared earlier, our higher net worth clients, there’s only nine% penetration of our pledged asset line capability, and I think that number could be far higher as it’s such a convenient, easy way to borrow, and if clients have assets at Schwab, the rates they can access are, I think, best or among the best in the industry, and yet, for us, are still an attractive spread to security, so it’s a win on all fronts. I think on the advisor front, when I go around and speak, and I speak to hundreds of advisors every single year to hear, what are we doing well? What can we improve? The number one thing I often hear about is doing more for them in banking and lending.

And I think the pledged asset line has been a wonderful start. And you see the penetration rate up to 23%. I think that number will go higher. And at the same time, I think in the years to come, we will find other ways to bank and lend to the clients of our RIAs. If you put yourself in a position of an RIA, they’re a fiduciary. They’re bringing that independence to the client relationship, and clients love that aspect of it. They do, from time to time, compete against the wealth divisions of wire houses. And that independence means a lot to clients, and it’s why they have grown their share. At the same time, I think the wire houses are doing a better job of leveraging their banking capabilities. And the RIAs want to be able to match that, and we’re the natural provider of that. So, while I think we are doing extremely well growing our lending today, and you see it with the 85% growth in originations in the last year of a Pledged Asset Line, I think we’re just getting started with our banking journey, and I couldn’t be more excited about it.

Operator

Thank you. Our next question comes from Alex Blostein with Goldman Sachs. Your line is open.

Alex Blostein

Hi, good morning. Thank you for the question. I was hoping we could touch on your capital return assumptions into 2026, but also beyond. When you’re thinking about sort of the 570-580 earnings that you suggested in your scenarios of 2026, maybe just level set us what you assume for 5X then and, again, how you’re thinking about longer-term trajectory. Thanks.

Mike Verdeschi

Hey, good morning. Thank you for the question. So what we provided in that scenario and the implied math does not include buybacks. But in terms of our thoughts on capital, the framework remains unchanged, where capital is going to be there to support the growth of the franchise, the needs of the clients. And beyond that, the capital framework that we have in place and will continue as we think across the capital forms and in the way in which we can return it for dividends. We still think in terms of a 20%-30% payout of GAAP earnings. We’ll look at our preferred securities, and over the course of this year, we’ll look at a couple of securities in terms of perhaps might we wish to redeem those or leave those outstanding or perhaps replace.

And so that will be a function of how we want the capital stack to look and the inclusion of those preferred securities. And then lastly, with buybacks, again, we’ll talk about things like where we are in the ratio and, of course, the growth of the overall franchise and making sure capital will be there to support the growth of the franchise. But again, with the strong earnings momentum that we’ve seen, we feel good about returning capital in multiple forms over the course of 2026.

Operator

Thank you. Our next question comes from Stephen Turek with Wolfe Research. Your line is open.

Stephen Turek

Hi, good morning, and thanks for taking my questions. So I wanted to ask on some of the tax-advantaged long-short strategies. It’s an area where you’ve seen tremendous growth. The balances, their NII are accretive, but they do come in at lower spreads. And just wanted to better understand how much further you can deepen penetration rates across the RIA channel given such strong demand and the types of returns you’re generating on the balances relative to PAL and other potential balance sheet growth opportunities.

Mike Verdeschi

Stephen, thank you for the question. Yes, this is a product that our advisors are using this strategy with high net worth clients as a way to drive enhanced returns through leverage. And so it’s a pairing of a long with some shorts. It’s been a good tactical solution for those clients. And you’re right. This is something that there’s a net balance sheet treatment from it. So from our perspective, we’re providing a service. It doesn’t gross up that balance sheet, if you will. And so there’s a fee associated with that. So I think of it as a win-win. We’re supporting clients and their need to manage their portfolio positions. There’s some tax optimization that they can utilize with this portfolio. It helps them with concentration as well. But this is something that we still see is likely to grow in 2026. It is fee-based. Again, it’s one of those revenue diversification opportunities that we have. And so, again, it’s a win-win from our perspective.

Rick Wurster

I might just add a couple of things. Mike, that was really well said. A couple of things. As we broaden this out to the retail side as well, we’ll see a couple of things. Number one, we will have the ability to offer this on a proprietary basis. And our Schwab Personalized Indexing capability has been something that our clients have absolutely loved and that has added tremendous client value. As we go to a long-short, again, I think there’s a win-win opportunity here related to that. We’re also seeing the opportunity to have broader discussions with our clients and to have fuller wealth relationships when we see clients with large concentrated positions, when we see them with big tax gains that they want to manage over time. And those conversations and those situations are part of what is powering our record growth in our wealth business.

We had nearly $70 billion of flows into our managed investing solutions last year. That was up 36% or so over the prior year. So all of these capabilities need to be viewed within the lens of a much broader relationship that is a huge win for a client because our highest Client Promoter Scores at the firm are those ones where we have a broader relationship, and the economics for us are compelling because we’re growing our fee-based revenue in our wealth business, so we love these conversations because they help clients, and they’re part of our strategy of continuing to grow and diversify how we generate our economics.

Operator

Thank you. Our next question comes from Brian Bedell with Deutsche Bank. Your line is open.

Brian Bedell

Great. Thanks. Good morning. Thanks for taking my question. Hey, Rick, can you just comment on your views on prediction markets? I know you’ve talked about this in the press and in interviews. Clearly, sports betting and prediction markets on elections and culture is clearly something you’re not interested in. But if the contracts were to develop more broadly in fundamental investing and other economic types of contracts, is that something you would be interested in launching on the platform? And how would you evaluate that, and what are you hearing from trading clients on that?

Rick Wurster

Thanks for the question, Brian. I’d love to expand on this one. A couple of principles that will drive my response. Number one is we always see through client size, and we want to deliver what’s of importance to them and what they want and need to be successful. Number two, our mission is to champion our clients’ financial goals with passion and integrity and help them live their best financial life. And those two things guide the way we’re thinking about prediction markets. So first, as we think about prediction markets, the ones that are related to financial aspects like what’s going to happen to employment, what’s going to happen to inflation, or whether at some point it develops a market where you can take a position on a stock going up or down, all those kinds of things, those are related to building an investment portfolio.

Certainly, if there is client demand, we are going to make them available. As we work with particularly our active traders to identify the things that are of most importance to them, it’s not high on the list today. We’re just not seeing a lot of client interest from our clients for those kinds of prediction markets. And I think that’s true more broadly in the industry where 95% of the volume that we observe is all sports gambling and has nothing to do with these so-called prediction markets. So as the things that we’re hearing from our active traders is, “Keep pushing on the mobile app. Keep giving us more research. Keep giving us different futures and options capabilities.” But we’re not hearing a lot about prediction markets. That said, we’re looking at this, and if it becomes of client interest, we will have prediction markets.

We’re not burying our nose in the sand on this. We don’t have a strong stance against prediction markets. I have nothing against prediction markets that are related to a client’s portfolio. And as there’s client interest or industry interest, we will absolutely be there should there be interest. Expanding into the sports gambling aspects of things, the second principle I mentioned of our focus being on doing everything we can to help our clients grow, protect, manage their wealth, sports gambling is contradictory to that. And so our view has been, “Let the sports betting houses like DraftKings and Robinhood and FanDuel, let them take that.” And we know there’s a lot of data on this. And less than 5% of clients that put money into these gambling houses or these gambling apps leave with more money than they put in.

I contrast that to the all-time record high wealth that our clients hold. It’s just a fundamentally different mission. That’s our thoughts. We’re open to prediction markets should there be client and industry interest. We’re not interested in the sports gambling. We’ll leave that to the FanDuals and Robinhoods, and we’ll stay away from that.

Operator

Thank you. Our next question comes from Bill Katz with TD Cowen. Your line is open.

Bill Katz

Okay. Thank you very much for taking the question this morning. I just want to unpack two of your guides. Number one, you mentioned that you’d be right around 5% organic growth for 2026. That would be a bit of a deceleration just factually from the 5.1 you put up to 2025. And this was supposed to be a transition year. So you beat your goal for this year. It’s probably a bigger transition year. So maybe you can unpack why only 5%. Are you still thinking 5%-7% is the right long-term goal? And then separately, just coming back to your commentary on the buyback, how should we be thinking about your Adjusted Tier-One Leverage Ratio? Is 6.75%-7% still the right way to think about that? Otherwise, if you don’t buy back a ton of stock, that ratio is going to ramp pretty dramatically given your guidance. Thank you.

Rick Wurster

I’ll start with the N&A numbers that Mike highlighted. Then, Mike, you can take the second part of that question. On N&A, I still believe 5% or higher is the right long-term expectation. In the near term, we’re focused on 5%. I think that’s a realistic target. It’s important to keep in mind that our total client assets grew by 18% year over year. The target, despite being similar to what we delivered last year, keeps going up. In the longer term, as I mentioned earlier, as we invest in our workplace business, we fully launch crypto, we add more retail relationships. I believe in the right market environment, that above 5% still remains very much possible. In the near term, that 5% with the asset growth we’ve seen from clients, that’s the number we’re shooting for.

Mike Verdeschi

In terms of that second part, 6.75%-7% for the adjusted T1 ratio, that is still our objective. And keep in mind, obviously, as we see the growth of the franchise, there is a component of that ratio. As interest rates move around, it will change the value of the securities portfolio. That change in value impacts the adjusted T1 ratio. So you could find us operating above that from time to time. But there’s no change in that operating objective. That is still very much where we intend to be.

Operator

Thank you. Our next question comes from Benjamin Budish with Barclays. Your line is open.

Benjamin Budish

Hi, good morning, and thanks for taking my question. Maybe just a follow-up on Bill’s first question there, just on the 5% expectation for the year. Could you give an update on the legacy Ameritrade customer base? I know in the past you’ve indicated that that cohort has been quite a bit more inflowing slower than the legacy Schwab base. So what are you seeing lately there? And maybe unpack that 5% a little bit in terms of investor services versus advisory services. Are you expecting any kind of shift, any acceleration, or does that still remain sort of the longer-term expectation? Thank you.

Rick Wurster

Yep. Thanks for the question. We’re seeing Ameritrade behave in the right way we’d want to see it, which is it has accelerated meaningfully in terms of net new assets, in terms of engagement with the platform, and engagement with our other solutions. They’ve been between a third and 40% of the flows that are going into our wealth solutions, into our lending solutions. So it’s great to see the transformation of where we’ve gone with Ameritrade clients. And it’s as expected. We expected during the transition that it would be a challenging time period, and it was. We saw Ameritrade clients with net new assets that were slightly negative as a group. And now they have moved meaningfully positive and are very much in line with both what we expect and what we see from Schwab clients. And so we’re right where we want to be. It’s very encouraging.

And again, the outlook on N&A, we’re very bullish about our growth. And I think you saw that this year. We continue to be particularly as I think longer term, there’s a number of areas that we can invest in that are going to be accelerants to our N&A, whether it’s our workplace business, our crypto business, our retail relationships, our wealth business. And equally, it is important to that growth. We’re just as focused on spending just as much time on doing more for our clients because with $12 trillion in assets, 46 million client accounts, a huge source of our growth can be doing more for clients. They want that from us. They’re happier when we do that. And it diversifies our growth. It creates stickier, longer-lasting relationships that ultimately build more wealth for our clients. And that’s what we’re in the business to do.

Jeff Edwards

Okay. After you’re looking at the clock, I think we might have time for one final question.

Operator

Thank you. Our final question comes from Mike Brown with UBS. Your line is open.

Mike Brown

Great. Good morning. Thanks for squeezing me in here. So I just wanted to ask about the margin here. So guidance with low 50s for 2026, great to see that the margin continues to march higher here. How should we think about that longer-term potential? What’s the ceiling there? And then specifically on the AI opportunity, can you maybe talk about some of the measurable revenue lifts that we could see in terms of conversions, retention, advisor productivity, service triage? What are kind of the key KPIs we should track here to know how well it’s working and then how your key proprietary data gives you an advantage over some of the new entrants in the fintech space?

Mike Verdeschi

Good morning, Mike. Hey, thanks for the question, so first on the margin lending growth, margin growth, sorry. The way we think about that is we’ve seen good margin expansion. Again, that is the result of a well-balanced approach to how we’re managing our financials. As you’ve heard Rick and I talk about today, we’re doing more for clients. We’re seeing good take-up of our broader suite of products, and with that comes good revenue diversification, and that supports the durability of those revenues. I’ll put that alongside a balanced approach to our expense management. We’re investing in our strategic priorities, but at the same time, we’re investing in efficiency, and that’s ensuring that we can maintain a low cost to serve, that also helps to grow strong financials and see that margin expand. From here, we could see greater margin expansion.

But again, there’s no arbitrary target on that or ceiling on that per se. It is a result of that approach that we take to managing the financials. In AI, we’re already seeing efficiencies. Where we’ve invested in having our client-facing reps use AI, we’ve grown client accounts, we’ve grown assets, and we’ve been able to moderate the amount of client-facing reps that we’ve grown. So we are already seeing efficiency. We want to continue to roll out AI, especially in our technology organization, continue in our service areas. I think the key metrics that we’ll continue to focus on is that EOCA, is that cost per account. I think you’ll see that come through and continue to be relevant. We plan to continue to maintain that low cost to serve and continue to drive those costs lower. Thank you for the question.

Rick Wurster

Thank you for your questions and engagement. We have an incredible opportunity ahead of us to deliver for clients and stockholders alike as we look to 2026 and beyond. We have two equally powerful levers for growth, attracting more clients and doing more for the 46 million client accounts that we have. Our scale and efficiency initiatives will continue to fuel our ability to invest in our clients while keeping our cost to serve them low. Taken together with this disciplined approach to financial management and capital return that Mike just described, we are confident that we’ll continue to deliver earnings growth through the cycle. Thank you.