The Strength of our Custodians

April 14, 2023

Our clients custody their investment assets through either Charles Schwab & Co., Inc (“Schwab”) or LPL Financial Holdings Inc. (“LPL”). Considering recent events, we thought that we should highlight the custodial relationship, as well as the strengths of our firm’s two custodial partners.

Custodial Relationship

All client investment assets are held in advisory accounts at either Charles Schwab or LPL. These investments are in segregated accounts, meaning that there is no co-mingling with other clients’ assets. In addition, these assets are not available to be used as collateral for loans, either by the custodial firm or by creditors. Both Charles Schwab and LPL do not participate in any securities underwriting, nor do they have proprietary trading desks (often called “prop desks”), underscoring their conservative financial management.

Charles Schwab

Schwab is a subsidiary of a larger holding company, The Charles Schwab Corporation, which generated $20.7 Billion in revenue and $7.1 Billion in net income during 2022. Its two underlying divisions are Charles Schwab & Co., Inc. (“the broker-dealer”) and Charles Schwab Bank, SSB (“the bank”). The broker-dealer had 11.5 million active brokerage accounts, whereas the bank had 1.3 million banking accounts. The broker-dealer generated $15.9 Billion in revenue (77% of the total), whereas the bank generated $4.8 Billion in revenue (23% of total). The broker-dealer generated $4.0 Billion of net income (57% of total), whereas the bank generated $3.1 Billion (43% of total). Schwab Bank states 80% of their clients have cash balances below FDIC-insured limits; this is in stark contrast to recently failed SVB, which had less than 10% of its clients’ deposits below the insured limits.

LPL Financial

LPL is the largest independent broker-dealer and the third-largest RIA custodian in the U.S. In 2022, LPL generated $8.6 billion in revenue and $846 million in net income. LPL had

$1.1 Trillion in client assets at the end of 2022, with roughly half (52%) in advisory accounts and the other half (48%) in brokerage accounts. LPL does not have any bank affiliates.