Schwab blocks unauthorized AI agents, points clients to 'Charley'

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• Key insight: Firms like Schwab and JPMorgan are blocking third-party AI agents from accessing client accounts out of security concerns.
• What's at stake: Some say the real fear is third-party AI agents could automatically sweep uninvested cash out of low-yield brokerage accounts into higher-yielding investments, threatening billions in net interest revenue.
• Expert quote: "An outside agent works for the client. Charley works for Schwab." — Tim Welsh, Nexus Strategies

A little over a month after Meta released its Muse AI assistant capable of performing financial and other tasks, Charles Schwab says it's blocking outside agents from accessing its clients' accounts.

Instead, Schwab is directing clients to its own fledgling AI assistant, Charley, while also allowing them to use ChatGPT and other large language models for stock trades and other transactions. In an earnings call Thursday, Schwab CEO Rick Wurster portrayed the decision to block outside AI agents as necessary for protecting client data.

Schwab is specifically preventing AI agents from using clients' login credentials or browser automation to access its systems.

"In terms of (large language models), we want to deliver AI to clients in a safe and secure way," Wurster said. "And there's one way we think is not safe, and that's just an agent coming to our site and trying to log in on behalf of a client. We are not going to allow that." 

Rise of the AI agents

Wurster wasn't the only CEO to discuss in an earnings call this week possible security threats posed by autonomous AI agents. On Tuesday, JPMorgan CEO Jamie Dimon told analysts that he and his fellow executive aren't going to allow just any "outside agent to come in inside the company, because that's just too risky for clients and for JPMorgan."  

Wurster and Dimon's comments come a little over a month after Facebook parent Meta released its Muse agent. Muse and other AI assistants stand out from ChatGPT and other LLMs in their ability not just to answer questions but to perform complex tasks on their own. Muse, for instance, can be directed to make online purchases autonomously and draw up financial reports and budgets.

One step it's not allowed to take, though, is to move money in or out of banks or brokerages without getting the account owner's permission. But even without that authority, security experts worry that autonomous agents with access to a large variety of online accounts can put client data at risk.

Wurster said Thursday that he receives notice every time Schwab has to block an agent driven by AI. The reports are few and far between because most clients "aren't using it in that way in their financial life."

Schwab counters with 'Charley' AI assistant

Rather than outside agents, Schwab is directing investors to its Charley AI assistant. Wurster said Charley will initially be able to take only a few actions on clients' behalf, "like changing an address or naming a trusted contact."  

Charley, which will be introduced in coming months, is built atop various outside LLMs and Schwab's own data. Now its main use is for "information and synthesis," Wurster said.

He said Schwab meanwhile also allows traders to use certain LLMs to connect to Schwab and complete transactions. More clients and LLMs will eventually be given the ability to trade but not to "move money, because we think there's too much risk there to the client and to the firm," Wurster said.

"So we have two opportunities, whether it's coming in through … your own LLM or coming in through Charley," Wurster said.

Over time, Wurster predicted, Charley will become an "important front door to Schwab."

The AI assistant will "give you the full range of things you can do on schwab.com and be able to do anything through a conversation via either text or voice," Wurster said. "And I expect, over time, it will be the primary way to connect to AI at Schwab."

How AI could threaten Schwab's cash-sweeps revenue

Tim Welsh, the founder of the consulting firm Nexus Strategies, said the concerns about protecting clients' data are no doubt real. But Schwab, he said, clearly has an incentive to prevent AI agents from infringing on business it wants to keep for itself.

"An outside agent works for the client," Welsh said. "Charley works for Schwab."

Industry analysts in recent months have noted the threat Muse and other AI agents could pose to Schwab and other brokerages' lucrative business handling clients' cash. Through a process known as cash sweeps, many firms move uninvested cash sitting in brokerage accounts over to banks and then keep a large percentage of the interest generated from lending it out.

AI agents put all that at risk because of their potential to ensure cash is automatically being moved into higher-yielding investments. The hit to brokerages' bottom lines could be sizable.

Schwab, for instance, reported on Thursday that it made nearly $3.48 billion in net interest revenue in the third quarter, much of it on nearly $493 billion held in cash-sweeps accounts.

"Ultimately, this is about cash," Welsh said. "Schwab earns a lot on client cash sitting in low-yield sweeps. An independent AI agent's first job would be to find that cash and move it somewhere that pays more." 

Like many brokerage executives, Wurster has been quick to downplay the supposed threats from AI. On Thursday, he said he and his colleagues are finding clients who use AI to help them make trades are entrusting more cash to Schwab.

"I know one of the fears in the market about us is that as AI takes off it will impact cash levels," he said. "We're actually seeing the opposite impact, that the more people use AI, the more cash they hold because they're more active in buying stocks."

Schwab uses AI to haul in net new assets

Schwab is one of many firms looking for novel uses of AI. Last month, Schwab announced that the tech giant Anthropic's Claude for Advisors AI assistant is being made available to the more than 16,000 independent RIAs that receive support through its Schwab Advisor Services division.

Wurster said Thursday that AI is also helping Schwab with goals like bringing in assets from new and existing clients. Schwab's haul for net new assets — excluding market gains and assets from one-off events like acquisitions — was $190.4 billion in the third quarter.

That was up 38% year over year and marked a record high for the firm in the July-to-September period. Wurster said Schwab's financial consultants and other client-facing professionals have various AI systems at their disposal.

"I think that is also part of what's driving our [net new assets], part of what's allowing us to have richer conversations about their wealth and driving some of the growth in our wealth and lending capabilities," he said.

He said most of the fastest growing source of new assets was in-house advisors that Schwab refers to as financial consultants, "which is why we continue to invest in new branches and adding client-facing professionals." Schwab recently took out an advertisement in the Wall Street Journal saying it was planning to add thousands of financial consultants to its current stable of roughly 3,000. 

Schwab's asset inflows were just one aspect of a generally strong quarter for the firm. Its net revenue was up by 17% to nearly $7.2 billion and its net income by 23% to $2.9 billion. Its pre-tax profit margin — revenue left over minus expenses other than taxes — was 3.5 percentage points year over year to 52.7%.

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