Co-Chairman & CEO Letter
50 Years of Consistency, Continuity, and Performance
50 Years of Consistency, Continuity, and Performance
Fifty years ago, our founder, Chuck Schwab, had a vision.
He understood the investing world. What worked, and what didn't. It would take a couple more years before equity commission levels were deregulated, but Chuck had a plan. He wanted to change the world of investing. He wanted to open investing to Main Street. He wanted to break down the barriers of high fees and commissions that kept many middle-income investors from participating in the stock market. And he succeeded.
Throughout his life, Chuck's been a passionate advocate for the power of investing to transform lives. He's communicated a consistent message on how to be a successful investor. Keep investing fees and costs low. Stay diversified among equities, bonds, and cash. Steer clear of the latest tip or media article extolling the virtues of some hot company or hot product.
Part of what made Chuck's vision successful was the creation of a firm that serves the needs of average investors; a firm he would want to do business with as a client. He led your company as Chief Executive Officer for nearly 35 years with the same consistent philosophy: Do right by clients, continue to lower the cost of investing, make better services available to even more investors, and always act with humility and integrity.
Since I became the CEO of your company almost 15 years ago, I have consistently strived to follow that same philosophy. And in each of those 15 years, I have had the privilege to sit down and write a letter to you—our valued long-term stockholders, clients, and employees—as part of our Annual Report. Fifteen times I have wrestled with the right words and the right thoughts to convey my sentiments.
In some years, I wrote about major accomplishments; in other years, about the challenges of external environments. In 2021, I had to balance extolling our record performance with humility, since decades of experience warned me that difficult days surely lay ahead.
Each year I've tried to ensure that my letter was clear and straightforward- written with minimal jargon, corporate speak, or trendy buzzwords. The litmus test I have asked you to use was whether my letter reads as if I were corresponding with a business partner who's been out of touch for the past year. Each year I have asked for your feedback—letting me know if I've achieved this goal or if I have fallen short.
As I write this, it is the end of a bruising year for investors. A year in which both equity and bond markets suffered. A year in which many of our valued clients saw losses in their accounts. A year in which our stock performed significantly better than the broad equity market but still delivered flattish returns—despite your company once again achieving all-time record revenues and profits.
And yet I sit here today brimming with optimism because your company, The Charles Schwab Corporation, is built for times just like this. We've been through difficult times before, and we again expect to come out the other side in a strong position and with even more loyal clients.
We strive to be a safe port in the storm. A disciplined company. A company built on timeless principles like the Golden Rule. A company that takes its regulatory duties with the utmost seriousness. A company that carefully manages its balance sheet and risks because we know we are holding OPM—Other People’s Money. And a company built in the image of our founder: consistent, client focused, and highly disciplined.
In my opening, I referenced Chuck’s vision for Schwab. He wanted to ensure that your company operated in a manner that focused on serving clients the way he would want to be served—following the Golden Rule. For most of the last two decades, we have executed on this philosophy with our “Through Clients’ Eyes” strategy.
Our belief is that the only long-term winning business strategy is one rooted in doing right by our clients. There are many ways to design strategies for short-term success or to maximize short-term profits. But those things aren’t what your company is about. We’re focused on—and built for—the long run.
When Chuck first spoke with me, almost 20 years ago, about the possibility of one day becoming Schwab’s CEO, I asked him this question. “If I were to become CEO, what would you like me to focus on during my tenure?” I assumed he would respond with the typical answers of maximizing revenue, expanding profits, building client assets, or even growing the stock price.
1Amounts are presented on a continuing operations basis to exclude the impact of the sale of U.S. Trust Corporation, which was completed on July 1, 2007. Financial results include TD Ameritrade from October 6, 2020, forward.
CAGR = compound annual growth rate
Schwab’s Virtuous Cycle
The Virtuous Cycle recognizes and rewards our clients, employees, stockholders, and communities in a way that reinforces the benefits of continuing to work with Schwab over time. This type of long-term thinking defines the way we operate at Schwab. We strive to make decisions that will benefit all our constituencies for years to come.
Note: All growth metrics are 2022 vs. 2017. Financial results include TD Ameritrade from October 6, 2020, forward.
2ROCA for 2022 was 28.5 basis points, and ROCA for 2017 was 28.2 basis points.
Instead, his response spoke volumes about what matters at Schwab. Chuck replied, “Do your part to ensure there can be a strong and independent Schwab 50 years from now, because investors need it.”
Chuck’s answer sums up our founder in a single sentence. A long-term view. A focus on the client. An intuitive understanding that traditional expectations about growing revenues, profits, assets, and stock price can all be attained with consistent, long-term thinking focused on client needs. And every day since then, that one powerful sentence has been my guide.
This is a simple yet successful strategy. A long-term perspective and an approach that doesn’t change with the gyrations of the markets, interest rates, politics, or external pressures.
A company with a commitment to doing what is right. Every day. Consistently.
When you choose to invest in Schwab as a stockholder, invest with Schwab as a client, custody your clients’ assets with Schwab as an independent investment advisor, retain Schwab to serve your employees in a benefit plan, join Schwab as an employee, or welcome Schwab into your community, you know what you are getting.
A company with a clear strategy. A company with a long-term perspective. A company with a commitment to doing what is right. Every day. Consistently.
Last July, Chuck and our Board of Directors asked me to serve as Co-Chairman of the Board alongside Chuck. Some might see this as a natural step in a long-term succession plan. And of course, in many ways, that’s exactly what it was. But I see it as more than that.
I see it as an enormous honor and responsibility. It’s humbling that Chuck and our Board consider me worthy of sitting beside Chuck in a position only he has occupied for the past five decades. Not to mention entrusting me with the responsibility of ensuring that the success of the past 50 years continues for the next 50 years—one day, one week, one month, and one year at a time.
I also see it as the natural extension of the answer Chuck gave me almost 20 years ago about doing my part to ensure there can be a strong and independent Schwab for decades to come.
In the fall of 2021, Chuck and the Board supported my suggestion to name a president to assume some of the duties I had been shouldering since 2007. This change has been beneficial, allowing me to maintain focus on the long term while our new president, Rick Wurster, tackles some of the day-to-day responsibilities of operating your company.
Not surprisingly, Rick has excelled in his role as president, as he is a strong leader with deep-rooted professional and personal values that align with Schwab’s approach.
Values continue to be at the core of your company’s success. And in 2022, we stood fast in our philosophy of staying neutral on the complex political and social issues of the day that do not directly impact investors. This approach is increasingly unique in business and not always easy to maintain. But we continue to believe it is the right approach for us.
Our Purpose at Schwab is “to champion every client’s goals with passion and integrity.” Our Purpose is quite clear in stating that we aim to serve “every client.” Of course, the clients who hold nearly 34 million accounts with us have incredibly varied, and passionate, perspectives on political and social issues. In promising to serve “every client,” we are committing ourselves to respecting the differing views that exist across our great country and not permitting the personal political views of any executives or employees to cloud our ability to see “Through Clients’ Eyes”—every client’s eyes—or serve their investing needs. Very simply, we’re committed to helping investors, traders, advisors, and employers achieve their goals while giving them greater confidence in their future. Doing so delivers immeasurable benefits to clients, employees, and society more broadly. That has been, and will remain, our focus.
Despite the challenges in the equity and bond markets in 2022, your company achieved all-time record financial performance. Similarly, client metrics remained very strong in 2022—not at the all-time record levels of 2021 as investors were understandably more cautious, but strong, nevertheless.
- Full-year revenue: $20.8 billion
- Full-year earnings: $7.2 billion
- New brokerage accounts: 4 million
- Total brokerage accounts: nearly 34 million
- Core net new client assets: $428 billion
- Total year-end client assets: $7.05 trillion
- Stock price on December 31: $83.26
- Year-end market capitalization: greater than $150 billion
Normally, I would spend more time extolling the power of our financial model and describing the drivers of this model, which once again created strong revenue growth and record earnings, even as many other firms in the financial world experienced headwinds. But frankly, after the difficulty investors experienced in 2022—with the S&P 500® down nearly 20%, the NASDAQ down 33%, and the S&P U.S. Aggregate Bond Index off 14%—it just doesn’t feel right to bask in your company’s financial success. Rather, I prefer to mark our success against a more important long-term performance metric: the relationship we have with our clients and other stakeholders, even in difficult times.
Despite the challenging investing environment, our clients brought us $428 billion in core net new money during 2022, demonstrating their belief in our commitment to doing right by them. We are extraordinarily grateful for the trust our clients place in us.
For all charts here, financial results include TD Ameritrade from October 6, 2020, forward.
CAGR = compound annual growth rate
1Amounts are presented on a continuing operations basis to exclude the impact of the sale of U.S. Trust Corporation, which was completed on July 1, 2007.
We also recognize that performance is not simply the financial numbers we post or the client metrics we achieve. With that in mind, we also strive to set an example as an ethically operated company that respects others and serves the communities where we are located and where our employees and clients live.
In the changing world of workplace flexibility, we strengthened our efforts to maintain the welcoming culture that we have always been known for. Honoring our employees and clients, treating them with respect, and valuing and promoting the power of a diverse and inclusive environment all contribute to a culture that attracts employees who have a passion for, and commitment to, serving others.
In February 2023, Fortune magazine named us one of the 50 most admired companies in the world for the sixth consecutive year. And we received a variety of other honors and recognition from third parties—often citing the virtues of our client service.
I opened this letter—my 15th opportunity to share thoughts about your company—by describing the vision our founder, Chuck Schwab, had 50 years ago. And in the “Consistency” section, I described the charge he gave me to do my part to ensure there can be a strong and independent Schwab 50 years from now—a charge that guides me day to day.
But the reality is that no matter the clarity of the vision, the strength of the strategy, or the power of the financial model, our success, or lack of it, is a direct reflection of the trust our clients place in us.
We don’t manufacture products in a factory or mill. We don’t sell an item essential for daily living. Instead, we provide a service intended to make it possible for our clients to create a brighter future for themselves and their loved ones. And their belief that we can help them reach that brighter future is all based on trust.
And so I’d like to again express to every client, every long-term stockholder, every employee, and every community where we live and work my deep gratitude for the trust you place in us.
As I closed last year’s letter, I offered a reminder that not every year will yield record performance. No one could reasonably commit to that. But I did offer a commitment I would like to reinforce—a commitment that your company will consistently strive to:
- Operate in a manner consistent with the Golden Rule;
- See the world “Through Clients’ Eyes”;
- Operate with integrity and transparency;
- Share the benefits of success from our Virtuous Cycle with clients, employees, long-term stockholders, and the communities where we work and live; and
- Maintain a culture that gives every employee an opportunity to excel and treats everyone with respect and honor.
As always, we will continue to aim to be a firm you are proud to be associated with.
Thank you for your trust and confidence.
March 7, 2023
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