Charles Schwab expects to offer long/short SMA, CEO says

Charles Schwab expects to sell its own long/short separately managed account strategy, CEO Rick Wurster said on the firm's Oct. 15 earnings call, after analysts pressed him on the topic three times. "I do expect us to have an offering," Wurster said, according to RIABiz. He gave no launch date.

Wurster described the plan as a retrofit rather than a build. Schwab can repurpose an existing direct-indexing SMA with a track record of producing "alpha," he said, and run it "in a very efficient way from a balance sheet and operational standpoint" to sustain long/short delivery to clients.

Of the $188 billion in client margin loans on Schwab's balance sheet, about $61 billion trace to long/short SMA strategies, Wurster said on the call. Long/short strategies require margin trading, so they are a claim on the custodian's lending capacity rather than a product Schwab can simply warehouse and resell.

Schwab has been tightening that capacity all year. Since April it has added account minimums for standard and portfolio margin and capped gross leverage on portfolio margin strategies at 300%, down from 667%, per RIABiz. In September it eliminated portfolio margin and set a $10 million minimum account value.

Amish Sharma, chief investment officer of DGS Capital Management, a $1.5 billion long/short SMA manager serving multiple Schwab RIAs, told RIABiz the Schwab offering will most likely launch in the second quarter of 2027 and reads to him as a wallet-share grab that widens Schwab's margins. Sharma also said the supply shortage is acute enough that RIAs are moving assets to other custodians to access DGS strategies whose trades are funded elsewhere. RIABiz reported last week that a breakaway RIA moved its assets to Altruist after learning Schwab couldn't promise long/short supply.

Wurster conceded to analysts that long/short capacity helps attract assets to Schwab Advisor Services, while contending the franchise can win without the inventory.