Summer Business Update

Transcription

1 Summer Business Update July 25, 2014

2 Introduction Rich Fowler Senior Vice President Investor Relations

3 Agenda Walt Bettinger, President & Chief Executive Officer John Clendening, EVP, Investor Services Andy Gill, EVP, Investor Services Myhanh Hoskin, VP, Sr. Financial Consultant Antwone Harris, VP, Sr. Financial Consultant Break Bernie Clark, EVP, Advisor Services Nick Georgis, VP, Advisor Services Jonathan Craig, EVP & Chief Marketing Officer Break Joe Martinetto, EVP & Chief Financial Officer Close 3

4 Forward-Looking Statements This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of Forward-looking statements include statements that refer to expectations, projections or other characterizations of future events or circumstances and are identified by words such as believe, expect, will, may, should, could, continue, build, improve, growth, increase, deliver, drive, scenario, intend, lead, can, accelerate, momentum, stronger, expand, support, remain, on track, yield, consider, and other similar expressions. These forward-looking statements relate to the company s fullservice model and business momentum; growth in revenues, earnings and profits; client demand for the company s wealth management and other products, solutions and services; growth in client assets; expenses; benefit from normalization of interest rates; cash sweep optimization; capital flexibility; affluent client acquisition; branch expansion; financial consultant hiring; net interest margin and revenue; balance sheet growth; money fund revenues; 2014 revenue growth, revenue/expense growth differential and pre-tax profit margin; capital ratios; stockholder dividends; and return of capital to stockholders. These forward-looking statements, which reflect management s beliefs, objectives and expectations as of today, are necessarily estimates based on the best judgment of the company s senior management. Achievement of the expressed beliefs, expectations and objectives is subject to risks and uncertainties that could cause actual results to differ materially from those beliefs, expectations or objectives. Important factors that may cause such differences are discussed in the company s filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Other important factors include client use of the company s wealth management and other products, solutions and services; general market conditions, including the level of interest rates, equity valuations and trading activity; the company s ability to attract and retain clients and grow client assets/relationships; competitive pressures on rates and fees; the level of client assets, including cash balances; the company s ability to monetize client assets; capital needs and management; client enrollments in advisory services; the company s ability to develop and launch new products, services and capabilities in a timely and successful manner; the company s ability to manage expenses; capital ratios; the volume of prepayments in the company s mortgage-backed securities portfolio; the impact of changes in market conditions on money fund fee waivers, revenues, expenses and pre-tax margin; regulatory guidance; acquisition integration costs; net interest margin; trading activity; the effect of adverse developments in litigation or regulatory matters and the extent of any charges associated with legal matters; and any adverse impact of financial reform legislation and related regulations. The information in this presentation speaks only as of July 25, 2014 (or such earlier date as may be specified herein). The company makes no commitment to update any of this information. 4

5 Today s Dial-in Number (800) Conference ID:

6 Walt Bettinger President & Chief Executive Officer

7 Schwab s model of full-service investing is driving sustained momentum in our business and stronger financial performance. Our expanded capabilities, including wealth management, are resonating with clients. Revenue diversification and financial discipline support ongoing growth and provide a competitive advantage. We have multiple opportunities to accelerate already strong momentum as interest rates normalize. 7

8 Client confidence continues to improve... How confident are you in making investment decisions? 1 (% Extremely / Very) 43% Clients sense of financial well-being has reached a five-year high 1 58% say they are better off financially than a year ago 37% 38% and many are accumulating wealth. Q2 '10 Q2 '12 Q2 '14 Confidence highest amongst clients assigned to a financial consultant and active traders Avg. assets per household are approx. $500K 2 Accounts with >$250K comprise nearly 85% of retail assets 8 1) Source: Schwab s Q2 14 Investor Sentiment Survey. 2) Retail and Advisor Services combined.

9 as they work with Schwab to build their financial futures... Assets Under an Advisory Relationship Over 110,000 planning conversations over the past year 1 $983 B $138 $845 21% $1,190 B $175 $1,015 Q2 '13 Q2 '14 Retail & other advisory solutions Advisor Services 29,000 planning conversations in Q2, up 16% year-over-year 50% of all Schwab assets are now receiving some form of ongoing advisory service 9 1) Between July 1, 2013 and June 30, % of retail assets are enrolled in an advice solution

10 and we earn their trust. Our advisory solutions and high net worth client promoter scores are even higher than the 49 for retail overall (a quarterly record) Retail Client Promoter Scores (CPS) Q2 '14 Total Retail Fee-Based Advisory Solutions High Net Worth (>$1M assets) 10

11 We believe our full-service model is the right one for growing our client base Total Client Assets $ billions Schwab s total client assets have more than doubled since the start of the financial crisis $1,137 15% CAGR $2, Q2 '14 11

12 as well as diversifying our revenues towards more recurring sources Net Revenues FY 99 60% 19% 18% Asset management & admin fees Net interest revenue Trading revenue Other Net Revenues 1H 14 16% 38% 43% Trading revenue has declined in importance as we expand our relationships with clients. 12

13 which helps us achieve our financial priorities. $2.63 B Revenues $2.96 B $462 M Net Income $650 M 1H '13 1H '14 Revenue up 13% year-over-year 1H '13 1H '14 Net income up 41% - highest first half earnings in company history 13

14 Our expense discipline helps us to deliver both profitable growth and great value for clients. 26 Expenses as a Percentage of Average Client Assets (in basis points) H '14 A relentless focus on leveraging scale makes it challenging for competitors to match our value, innovation and financial performance. 14

15 As interest rates normalize, we see multiple opportunities to drive long-term growth. Cash sweep optimization pursue harmonization of cash sweep options across our client base as capital flexibility builds. Retail distribution help accelerate affluent client acquisition by expanding our branch footprint and hiring more financial consultants. Marketing ensure the brand reaches targeted investors in a higher rate, more competitive environment. Project investments - continue investing in the future client experience, including online advisory solutions. 15

16 Schwab s model of full-service investing is driving sustained momentum in our business and stronger financial performance. Our expanded capabilities, including wealth management, are resonating with clients. Revenue diversification and financial discipline support ongoing growth and provide a competitive advantage. We have multiple opportunities to accelerate already strong momentum as interest rates normalize. Today we ll share more insight into the firm we ve become 16

17 Q&A

18 John Clendening Executive Vice President Investor Services

19 The traditional wirehouse model is losing favor. Full Commission Brokers (FCBs) create complexity and dependency Opacity Can lack transparency into recommendations Controlled Choice Information and decision-making are "closed architecture" Dependency FCB advisors own the client relationship Poor Value High fees, commissions and mark-ups 19

20 The traditional wirehouse model is losing favor. Full Commission Brokers (FCBs) create complexity and dependency Significant opportunity for Schwab Opacity Controlled Choice Dependency Can lack transparency into recommendations Information and decision-making are "closed architecture" FCB advisors own the client relationship 63% $725B of wirehouse clients do not believe their firms look out for their best interests (1) of FCB assets are searching for a new partner each year Poor Value High fees, commissions and mark-ups 15% of wirehouse advisors predicted to abandon the model in the next 3 years (2) 20 Notes: 1) Based on Cerulli Associates Household Trust of Financial Firms. 2) Based on Cerulli estimates that the number of wirehouse advisers, now at about 48,000, is projected to shrink to 41,000 by Source: Cerulli; Schwab Competitive Intelligence estimates.

21 The traditional wirehouse model is losing favor. Full Commission Brokers (FCBs) create complexity and dependency Significant opportunity for Schwab Opacity Controlled Choice Dependency Can lack transparency into recommendations Information and decision-making are "closed architecture" FCB advisors own the client relationship 63% $725B of wirehouse clients do not believe their firms look out for their best interests (1) of FCB assets are searching for a new partner each year Poor Value High fees, commissions and mark-ups 15% The Schwab model provides sharp contrast. of wirehouse advisors predicted to abandon the model in the next 3 years (2) 21 Notes: 1) Based on Cerulli Associates Household Trust of Financial Firms. 2) Based on Cerulli estimates that the number of wirehouse advisers, now at about 48,000, is projected to shrink to 41,000 by Source: Cerulli; Schwab Competitive Intelligence estimates.

22 Wealth management at Schwab offers a modern approach that empowers clients. A personalized relationship defined by the client s needs: 22

23 Wealth management at Schwab offers a modern approach that empowers clients. A personalized relationship defined by the client s needs: Invites involvement: Questions are encouraged and the answers are straightforward Transparent: Upfront, open and honest about how much clients are being charged Clear: Clients understand where their money is invested and why, how those investments are performing, and the risks they are taking Accessible: Clients work with the firm through the professional, but also through the web, chat, tablets and smartphones 23

24 Wealth management at Schwab offers a modern approach that empowers clients. A personalized relationship defined by the client s needs: Invites involvement: Questions are encouraged and the answers are straightforward Transparent: Upfront, open and honest about how much clients are being charged Clear: Clients understand where their money is invested and why, how those investments are performing, and the risks they are taking Clients feel a greater sense of confidence and control Accessible: Clients work with the firm through the professional, but also through the web, chat, tablets and smartphones 24

25 The foundation is knowledgeable advice and a holistic plan. A dedicated Financial Consultant provides ongoing, holistic advice that starts with understanding the client s goals. Financial Planning Complimentary planning and guidance for their financial goals from their Financial Consultant, as well as comprehensive fee-based financial planning from a CFP professional. 25

26 The foundation is knowledgeable advice and a holistic plan. A dedicated Financial Consultant provides ongoing, holistic advice that starts with understanding the client s goals. Financial Planning Complimentary planning and guidance for their financial goals from their Financial Consultant, as well as comprehensive fee-based financial planning from a CFP professional. Portfolio Advice Assessment of their portfolio risk and asset allocation, recommended action plan, and a periodic review of portfolio performance to ensure that they are on track for their financial goals. 26

27 Real choice for clients means access to an open-architecture suite of products. Traditional products for direct investing Stocks Bonds Mutual Funds ETFs Margin Lending 27

28 Real choice for clients means access to an open-architecture suite of products. Traditional products for direct investing Account Solutions for specialized strategies Stocks Bonds Mutual Funds ETFs Margin Lending Schwab Managed Portfolios Windhaven Portfolios Thomas Partners Managed Account Select Global Trading 28

29 Real choice for clients means access to an open-architecture suite of products. Traditional products for direct investing Stocks Bonds Mutual Funds ETFs Margin Lending Account Solutions for specialized strategies Schwab Managed Portfolios Windhaven Portfolios Thomas Partners Managed Account Select Global Trading Portfolio Solutions for comprehensive guidance Schwab Private Client Schwab Advisor Network 29

30 Real choice for clients means access to an open-architecture suite of products. Traditional products for direct investing Account Solutions for specialized strategies Portfolio Solutions for comprehensive guidance Additional Services to help clients achieve their goals Stocks Bonds Mutual Funds ETFs Margin Lending Schwab Managed Portfolios Windhaven Portfolios Thomas Partners Managed Account Select Global Trading Schwab Private Client Schwab Advisor Network Banking Mortgage HELOC Pledged Asset Line Insurance Income Solutions Charitable Giving 30

31 Real choice for clients means access to an open-architecture suite of products. Traditional products for direct investing Account Solutions for specialized strategies Portfolio Solutions for comprehensive guidance Additional Services to help clients achieve their goals Stocks Bonds Mutual Funds ETFs Margin Lending Schwab Managed Portfolios Windhaven Portfolios Thomas Partners Managed Account Select Global Trading Schwab Private Client Schwab Advisor Network Banking Mortgage HELOC Pledged Asset Line Insurance Income Solutions Charitable Giving Products and services in blue added in the last 12 years 31

32 Finally, our wealth management offer is built on a foundation of terrific value. Schwab s business model drives structurally lower costs 2013 Expense / Avg. Client Assets 58 bps -33 bps 25 bps Merrill Lynch Global Wealth Mgmt (1) Schwab Investor Services 32 Notes: 1) Bank of America s Global Wealth and Investment Management 2) Based on published rates for $500K account: Schwab Private Client (85 bps) and Merrill Lynch Personal Advisor Program (270 bps), trade commission of $8.95 for Schwab client and $ for Merrill Lynch wealth management client, and a hypothetical cost of $103.63/bond for a wirehouse client versus $101.26/bond at Schwab based on Schwab s competitive bond pricing. Source: Company financials, company websites, Broker Monitor Commissions Review.

33 Finally, our wealth management offer is built on a foundation of terrific value. Schwab s business model drives structurally lower costs allowing Schwab to drive down costs for our clients 2013 Expense / Avg. Client Assets 58 bps -33 bps For example, a $1MM client that moves to Schwab from a wirehouse, could save (2) : $9, in management fees on her $500K for-fee advised account 25 bps $1,690 $ in trading commissions on her 10 equity trades... in costs on her purchase of 30 bonds Merrill Lynch Global Wealth Mgmt (1) Schwab Investor Services $11,651 Annual cost savings 33 Notes: 1) Bank of America s Global Wealth and Investment Management 2) Based on published rates for $500K account: Schwab Private Client (85 bps) and Merrill Lynch Personal Advisor Program (270 bps), trade commission of $8.95 for Schwab client and $ for Merrill Lynch wealth management client, and a hypothetical cost of $103.63/bond for a wirehouse client versus $101.26/bond at Schwab based on Schwab s competitive bond pricing. Source: Company financials, company websites, Broker Monitor Commissions Review.

34 Schwab is delivering on wealth management. 34

35 Schwab is delivering on wealth management. #10 We don t rely heavily on trading revenue. Trading revenue is a fraction of our total revenue, less than that of not only TD Ameritrade and E*Trade, but also UBS and Edward Jones. 35 Source: Company regulatory filings and earnings presentations for 2013.

36 Schwab is delivering on wealth management. #9 We are increasingly winning clients from the wirehouses. Over the past 6 years, assets moving into Schwab from the wirehouses have grown by 8% on average per year. 36 Note: Represents affluent and high net worth household assets moving into Schwab from wirehouses during

37 Schwab is delivering on wealth management. #8 Our clients are more satisfied. In a study from 2012, Schwab s Client Promoter Score (CPS) was 35; the nearest wirehouse was 17. Schwab s CPS for Q2 14 was Source: Schwab Insight & Loyalty competitive CPS benchmarking study, Note: UBS was not included in the study.

38 Schwab is delivering on wealth management. #7 Our affluent clients use our fee-based advisory solutions Assets in fee-based accounts represent 17% of Schwab retail assets, 23% of our assets in a dedicated relationship and 28% of our $1M+ investor client assets. 38 Note: $1M+ investor client assets excludes Active Trader households. Data as of 12/31/13.

39 Schwab is delivering on wealth management. #6 and the growth in those solutions is outpacing the industry. We have the 4th largest rep-as-advisor program in the country (Schwab Private Client). In 2013, the program grew 28%, more than every other top 10 rep-as-advisor program. 39 Source: The Cerulli Edge, Managed Accounts Edition, 1Q 2014, Issue #51.

40 Schwab is delivering on wealth management. #5 The vast majority of clients are seeking to work with a professional Over 70% of Schwab s affluent clients (>$250K) prefer to work with a financial professional. 40 Source: Schwab study of affluent clients, February 2014.

41 Schwab is delivering on wealth management. #4 and they have found that at Schwab. We have $500B in client assets in a dedicated relationship with a branch professional. 41 Note: Refers to assets in an active Financial Consultant practice.

42 Schwab is delivering on wealth management. #3 Our Financial Consultants work with clients on the basis of their financial goals. 110,000 clients have had a planning conversation with their Schwab financial consultant in the past 12 months, up 80+% year-over-year. 42

43 Schwab is delivering on wealth management. #2 Our relationship model is working for our clients Our relationship model works: attrition from clients in a dedicated relationship is very low (3.3%). 43

44 Schwab is delivering on wealth management. #1 who are more affluent than those of wirehouse competitors. Clients in a dedicated relationship with a Schwab FC have an average of $1.3M assets at Schwab, which we believe is significantly higher than the average wirehouse client. 44 Note: Schwab average refers to clients in an active Financial Consultant practice. Source: Wirehouse average based on Cerulli estimates.

45 Schwab is delivering on wealth management. 45

46 Andy Gill Executive Vice President Investor Services

47 The branch network is delivering wealth management to clients. ~700K 78% $1.3M Affluent clients at Schwab Affluent assets served by an in-branch relationship Average affluent household assets in an in-branch relationship The branch is critical to our growth in the affluent segment 47 Note: Affluent defined as households with $250K+ assets at Schwab. Source: Schwab Insight & Loyalty.

48 For clients that prefer the branch experience, we have the network to serve them. A robust branch network... a strong team of Financial Consultants ,100+ Local branches Financial Consultants (FCs) Our FC s: Are focused on planning: 100% have planning conversations with clients Enable clients to work with a broad range of specialists based on a client s needs Can provide the best advice thinking from all of Schwab (versus a wirehouse advisor where clients only get the thinking of that individual) 48 Note: In 2013, 99.8% of all FCs did at least one plan with a client.

49 Our FCs use planning conversations to work with clients based on their needs. For clients that want to do it themselves, our FCs connect them to the tools and resources that enable them to achieve their goals. want to work with Schwab, our FCs work collaboratively with them to create, track and execute their plans. want to delegate their investments to an expert, our FCs identify the right solutions that meet the needs of the client. 49

50 Based on goals from the plan, the FC connects the client with the right specialist at Schwab. Financial Consultant The Financial Consultant is just the start of holistic and sophisticated advice 50

51 Based on goals from the plan, the FC connects the client with the right specialist at Schwab. Financial Planning Financial Consultant 51

52 Based on goals from the plan, the FC connects the client with the right specialist at Schwab. Tax, Trust & Estate Financial Consultant 52

53 Based on goals from the plan, the FC connects the client with the right specialist at Schwab. Financial Consultant Options & Futures Trading 53

54 We stand behind our advisory services and hold ourselves accountable to the client. For clients that utilize our investment advisory services, we have the Schwab Accountability Guarantee 54 Note: The Schwab Accountability Guarantee only applies to certain participating investment advisory services.

55 Myhanh Hoskin, CFP, AAMS Vice President, Sr. Financial Consultant Seal Beach Branch Antwone Harris, MBA, CFP Vice President, Sr. Financial Consultant Washington, DC Branch 55

56 Q&A

57 Break

58 Bernie Clark Executive Vice President Advisor Services

59 RIA assets have experienced double-digit growth over the last decade. $4.0 10% CAGR RIA Industry Assets $ trillions S&P 500 Schwab ASI Assets $ billions $1.5 1,112 $287 $2.4 1,468 $583 $ $477 1,848 $ % CAGR 1 13% CAGR 59 1) Excludes dividend yield. Note: Schwab AS Assets excludes Retirement Business Services (RBS) assets. Excludes retail assets resulting from Schwab Advisor Network (SAN) and Advisor Source from September, 2010 forward. CAGR is the compound annual growth rate from Source: Charles Schwab; marketwatch.com.

60 AS continues to gather assets in $1+ Trillion in Assets 1,200 1, End-of-Period Assets $ billions % CAGR ,008 1, H 2014 $60B in annual NNA Net New Assets (NNA) $ billions H Note: Includes RBS assets; RBS assets include an adjustment to exclude RPS omnibus assets and CBRS NNA. Excludes retail assets resulting from Schwab Advisor Network (SAN) and Advisor Source from September, 2010 forward.

61 In order to continue to succeed in the market, our strategy focuses on three things Attract and Win Advisors in Transition (ATIs) Deliver the Leading Custody Platform and Client Experience Champion the Industry and Help Our Clients Grow Differentiating Advisor Services as the Leading RIA Custodian and Champion of Independence 61

62 AS continues to win new business from diversified ATI sources. Source of ATI Teams Percent Wirehouse 33% 46% 37% 47% IBD Other (Banks, Institutional BDs, Trust and Insurance) Regional BD 36% 34% 36% 23% 22% 10% 21% 23% 10% 8% 9% 7% H ) Numbers do not add up to 100% due to rounding.

63 Portfolios AS technology offerings bring innovation and efficiency to our clients. Advisor View Smith Family Household Portfolio Value Portfolio Allocation Change in Portfolio Top Holdings Project PM 2 Nearly 1,500 firms Morningstar Office SM Re-envisioning portfolio management Real-time data, multi-channel Advisor branded mobile app 63 iphone and ipad TM are trademarks of Apple Inc.

64 AS technology offerings bring innovation and efficiency to our clients. Web Trading Core channel for the majority of clients Integration into advisor workflows Reinventing Core Processes esignature eauthorization 64 iphone and ipad TM are trademarks of Apple Inc.

65 In order to continue to succeed in the market, our strategy focuses on three things Attract and Win Advisors in Transition (ATIs) Deliver the Leading Custody Platform and Client Experience Champion the Industry and Help Our Clients Grow Differentiating Advisor Services as the Leading RIA Custodian and Champion of Independence 65

66 Nick Georgis Vice President Advisor Services

67 Our practice management offers drive client loyalty and differentiate Schwab. RIA Benchmarking Study Education Consulting 67

68 Our annual RIA Benchmarking Study helps inform our priorities. RIA Benchmarking Study Schwab s study is the largest and most extensive of its kind and establishes key industry benchmarks 1,132 $750B firms participated in the 2014 study representing in assets under management Customized reports give each firm essential metrics to help guide their decision-making Key Performance Indicators Firm Growth Operating Margins Compensation and Staffing Results help Schwab focus our consulting resources on advisors most pressing challenges as they plan and prepare for growth 68

69 Our consulting offer deepens advisor relationships and drives asset growth. Consulting Management Consulting Technology Consulting Team of consultants with deep industry expertise partner with relationship managers across the country, all backed by a dedicated team of research analysts and program developers 69 Operations Consulting $136B total AUM 191 firms 277 advisors Focused on strategic topics that advisory firms confront in their lifecycle to promote growth and enhance business performance: Strategic planning Client segmentation Referral strategy Succession planning Technology optimization Year-to-date over 270 advisors representing our highest value clients with more than $136 billion in total AUM have taken advantage of our consulting expertise

70 Our education offer sources new RIA talent and trains successors to lead their firms. Education RIA Intern Program Cultivating a diverse, high-quality pipeline of advisor talent to help solve the sourcing and retention issues advisors frequently experience 8 weeks of rotational experiential training designed to prepare students for entry into RIA firms upon graduation Schwab Executive Leadership Program One-year program that prepares next-generation successors to manage and grow their RIA firms Combines premier academic curricula from top graduate schools with relationship building and realworld application in 5 key disciplines: Students from schools applied 100+ for the 2014 class $59B $1.9B interns were selected, majority on CFP track universities represented from Hawaii to New York total AUM represented by 2014 cohort average AUM of represented firms Positive Leadership Managing Innovation Talent Management Marketing Entrepreneurship 70

71 Our practice management offers drive client loyalty and differentiate Schwab. RIA Benchmarking Study Education Consulting 71

72 Q&A

73 Jonathan Craig Executive Vice President Chief Marketing Officer

74 Key Themes The pace of change in marketing is unprecedented. 1 2 We are committed to the science of marketing. 3 It is time to tell our retail wealth management story. 74

75 Key Themes 1 The pace of change in marketing is unprecedented. We are committed to the science of marketing. 2 It is time to tell our retail wealth management story. 3 75

76 1 In the past decade, what marketers do to engage customers has changed almost beyond recognition. With the possible exception of information technology, we can t think of another discipline that has evolved so quickly. new approaches are appearing every day. Harvard Business Review 76 Source: The Ultimate Marketing Machine, Marc de Swaan Arons, Frank van den Driest, and Keith Weed, Harvard Business Review, 2014.

77 The change in marketing is driven by rapidly evolving customer expectations. 1 A brand to anticipate what s relevant to them Expectations of Today s Consumer Useful content on demand Ability to discover and share content Invitation into a discussion 77 Source: The Engagement Project: Connecting with Your Consumer in the Participation Age, Tara Walpert Levy, 2013.

78 The changes are broad-based and significantly impact how we deploy resources in marketing. 1 A From Transactional product sale To Relationships on shared values B Interruptive advertising Value added content C Company as chief evangelist Clients as chief evangelists D National marketing National and local E Traditional marketing channels Digital and mobile 78

79 We are focused on earning trust by connecting with clients on a shared set of values. 1 A With the launch of the Own your tomorrow brand platform, we committed to winning on values with thoughtful, provocative, values-based communications and offerings. Celebrate taking care of the future with our Own your tomorrow platform Empower clients with Schwab Accountability Guarantee Share FC and RIA stories, which form an integral part of our message 79

80 We are committed to relevant and engaging content - the new currency of engagement. 1 B We are creating expert insights content that s useful yet emotionally engaging, and delivering it through paid, owned and earned media. And we are exploring ways to have conversations in social media with content that goes beyond the financial dimensions. 80

81 1 C Our strategy embraces what clients say about us more than what we say about ourselves. We are inviting our clients to engage with us and share their points of view. Encourage clients to rate and review our offerings Invite clients to ask questions Make it easy for clients to refer 81

82 We know connecting with customers requires authenticity, which is best delivered locally. 1 D We are increasing our local media spend and efforts considerably. Enhance our branch experience and our commitment to local events Build digital destination for clients to connect with FCs Spotlight FCs in local media, including print, digital and radio 82

83 What are the three questions you would encourage every investor to ask? 1 D 83

84 We are using digital and mobile in new and innovative ways to reach consumers. 1 E We are using digital media in new ways and at unprecedented levels. Launched Schwab Live, proprietary breakthrough format, enabling direct access to our experts Built an industry-leading application and mobile web experience for access to Schwab insights 84

85 Trading Specialists answering investors questions on a live online broadcast. 1 E 85

86 Key Themes 1 The pace of change in marketing is unprecedented. 2 We are committed to the science of marketing. It is time to tell our retail wealth management story. 3 86

87 We use a variety of analytical tools to make and measure marketing decisions. 2 Examples of Questions Solved for by Various Analytical Tools Econometric Models In-Market Tests Micro Analytics What is the return on overall marketing spend? Should we spend more or less? How should we allocate across channels? How effective and efficient is a particular strategy or campaign in driving desired outcomes such as New to Firm Households? Which clients are most responsive to a specific offer in a specific channel? What is effectiveness of one execution over another? Research Trackers What is awareness, consideration, and equity of the Schwab brand? Why do new clients choose Schwab? 87

88 Our sophisticated econometric models measure marketing s Return on Investment. 2 Key Components of Econometric Models Demand Generation Activities Media Promotions Direct Marketing Sponsorships Intermediate Outcomes Organic Search Website Traffic Branch Inbound Calls Branch Meetings Brand Health New Households (HH) Asset Inflows (New HH) Asset Inflows (Existing HH) Profit (Net Present Value) Control Factors Economic Factors (S&P Index, S&P Volume, Unemployment Rate), Competitive Media, Interest Rates, Seasonality, Call Center Volume 88

89 We use it to help optimize marketing spend to achieve the highest Return on Investment (ROI). 2 We see a positive return on marketing dollars spent and estimate ~25%+ of assets in to Schwab to be attributable to marketing. We estimate a payback on total marketing dollars spent of less than 4 years. Select Conclusions Promotions have strong impact in driving incremental asset flows from Affluent and Trading Services segments. TV is still a key medium for us to drive assets and households, but on relative basis we should continue to accelerate shift to digital and local marketing. 89

90 Key Themes 1 The pace of change in marketing is unprecedented. 2 We are committed to the science of marketing. It is time to tell our retail wealth management story. 3 90

91 3 Our story emphasizes our greatest asset, our people, combined with our modern approach. One where you can have a dedicated relationship with a Financial Consultant. Your questions will be encouraged. Our answers will be straightforward. One where you ll understand where your money is invested and why, how your investments are performing, and how much it s costing you. It s about transparency, accountability, and taking ownership of your financial life because the best outcomes in life come from being fully engaged. 91

92 3 Our marketing is meant to draw a clear line in the sand. In the wealth management world, we are the challenger. We need to make it clear that our accountable approach to investing is different from the rest of the category. We need to issue a challenge. Provoke. Disrupt the inertia of current relationships to spark re-evaluation and ultimately drive consideration and selection of Schwab. We are doing this by posing questions. 92

93 Are you asking enough questions about the way your wealth is managed? 3 93

94 The TV spot is supported by significant print using the same theme. 3 94

95 We have a comprehensive digital destination to bring to life our approach. 3 Prominently position wealth management on Schwab.com to encourage meetings with FCs Show, and not just tell, how our approach aligns with our clients values Our promise Our people Our people Our invitation to ask tough questions 95

96 We had our FCs answer in their voice some of the key Frequently Unanswered Questions. 3 Our FCs from across the country share their perspective on what Wealth Management at Schwab means to them 96

97 3 Would I have access to other professionals or am I limited to you? 97

98 Am I offered a wide range of products? 3 98

99 Key takeaways. The world of marketing is changing dramatically We are changing with it Marketing is also a science We measure for results and see strong ROI We have a modern approach to wealth management We are now telling our story 99

100 Q&A

101 Break

102 Joe Martinetto Executive Vice President & Chief Financial Officer

103 We intend to keep Schwab s financial story simple solid business growth, solid revenue growth through multiple sources, and continued expense discipline. Today we ll discuss: Q2 performance Drivers for remainder of 2014 Capital management 103

104 The second quarter environment included rising market valuations but slowing trading activity Q2 14 v. Q1 14: S&P 500 average increased 5% Daily average trades (DATs) declined 13% 104

105 while interest rates have mainly been in a holding pattern. 3.20% 10-Yr Treasury Long-term rates have been range-bound since a brief spike in early % 2.80% 2.60% 2.40% 2.20% 2.00% 2.53% YoY Δ +4 bps 0.25% Short-term rates remain challenging 0.20% 0.15% 0.10% 0.05% 0.00% 0.16% 0.14% 0.02% -3 bps +4 bps -1 bps 3-month T-Bill 1-month LIBOR 1-month Reverse Repo Treasury 105 Source: Bloomberg as of 6/30/14.

106 Our success with clients June 14 NNA of $11.5 billion was the highest June in our history Core Net New Assets $ billions Q2 14 Core NNA was the highest second quarter in 6 years Q2 '09 Q2 '10 Q2 '11 Q2 '12 Q2 '13 Q2 ' Note: Core net new assets is defined as net new assets before significant one-time flows, such as acquisitions/divestitures or extraordinary (greater than $10 billion) mutual fund clearing transfers.

107 helped power another quarter of strong financial performance in Q ($ in millions, except per share amounts) Net Revenues: Asset management & admin fees Q2 13 Q1 14 Q2 14 Q2 14 v. Q2 13 $572 $611 $632 10% Net interest revenue % Trading revenue (10%) Other % Provision for loan losses 1 (1) 7 N/M Net impairment losses on securities (3) - - (100%) Total net revenues $1,337 $1,478 $1,478 11% Expenses $925 $956 $957 3% Pre-tax Profit Margin $ $412 $522 $521 26% Pre-tax Profit Margin % 30.8% 35.3% 35.3% 4.5 pts Reported Net Income $256 $326 $324 27% Earnings per Common Share $0.18 $0.24 $ % Return on Common Equity (annualized) 10% 13% 12% Double digit revenue growth with record levels of asset mgmt. fees and net interest revenues Limited expense growth Pre-tax profit margin of 35% - best since 2008

108 Client cash has declined to 12% of assets thus far in 2014, limiting balance sheet growth. Client Cash as a % of Assets 25.0% 15.0% 5.0% Market turn Q1 09 = 24% YE % Q2 '04 Q2 '06 Q2 '08 Q2 '10 Q2 '12 Q2 '14 12% Total Balance Sheet Assets ($ in billions) $180 $140 $100 $60 $20 UST Divestiture Q2 '04 Q2 '06 Q2 '08 Q2 '10 Q2 '12 Q2 '14 $

109 Given current rates and slower interest-earning asset growth, we now expect net interest margin to remain near the Q2 level for the rest of % Net Interest Margin 1.60% 1.50% 1.40% Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Interest-earning assets declined in Q2 as clients put cash to work. Resulting asset mix shift, which included higher loan balances, helped support NIM in Q2. Slowdown in balance sheet growth plus some upside bias to NIM should equal continued net interest revenue growth in 2H 14. At current rates and balances, money fund revenues could continue to decrease by a few million dollars per quarter in

110 Our first half performance and the unfolding environment keep us on track to outperform our baseline scenario for the year. The S&P 500 is up 6% through mid-year, roughly 300 bps ahead of our baseline assumption. Interest rates remain range-bound/lower. Trading activity has slowed to a pace that would result in a small year-overyear decline versus a 5-6% baseline increase. Expenses remain on plan; expect a modest pickup in 2H Scenario Original Updated Revenue Growth Revenue/Expense Growth Differential Pre-Tax Profit Margin Mid-to-high single digits bps Around 34% High single digits 400+ bps At least 34% 110

111 We have a strong balance sheet capable of supporting our ongoing growth. ($ millions) Q2 13 Q3 13 Q4 13 Q1 14 Q2 14* Total Assets $135,907 $140,212 $143,642 $144,066 $143,400 Deposits from Banking Clients $84,345 $91,187 $92,972 $95,591 $95,688 Payables to Brokerage Clients $36,852 $34,533 $35,333 $32,308 $31,484 Long-term Debt $1,630 $1,904 $1,903 $1,902 $1,901 Stockholders Equity $9,720 $10,053 $10,381 $10,815 $11,170 Parent Cash & Cash Equivalents $1,131 $1,192 $1,330 $1,025 $957 CSC Capital Ratios Tier 1 Capital 17.0% 16.5% 16.7% 17.1% 17.2% Tier 1 Leverage 6.3% 6.3% 6.4% 6.6% 6.8% Tier 1 Common/Risk-weighted Assets 15.2% 14.8% 15.1% 15.5% 15.6% 111 * Preliminary.

112 Rising ratios yield growing capital flexibility. Record first half earnings plus the lull in balance sheet growth as clients put cash to work helped move us up to the edge of our desired capital range faster than expected. Preliminary consolidated Tier 1 Leverage Ratio of 6.8% is just inside our desired % range. 3 main areas to be considered: Increase stockholder payout based on our targeted dividend payout ratio of 20-30%. Adjust cash sweep criteria to optimize the monetization of client cash while providing an appropriate return to clients based on their relationship with us. Return capital through other options over time if we don t have additional opportunities to deploy capital at acceptable returns. 112

113 The financial model is working. Simple is good. Solid business growth. Solid revenue growth through diversified sources. Continued expense discipline. We believe we have built a fundamentally different, and better, financial services firm. Products and services driven by clients, not the company. Less reliant on trading; revenue sources more consistent. We manage our growth through execution; simply need a stable environment. 113

114 Q&A

115 Summer Business Update July 25, 2014