Past CFO Commentary

The S&P 500 Index bottomed at 676.53 on March 9, 2009, so we are now a full five years into the market recovery.  As the recovery has strengthened in recent months, we have been asked more often about individual investor engagement, with the questioner usually equating engagement with trading activity.  Trading certainly has picked up—thus far in 2014 we've had the strongest start of any year in our history, handling an average of more than 550,000 trades a day in both January and February; we also executed an average of over 500,000 trades a day last December. One might assume that trading paints a picture of renewed engagement, yet our raw trading statistics tell only a fraction of the engagement story at Schwab and miss what we consider to be the bigger picture.  For example, clients increasingly look to Schwab for help in aligning their investments with their financial goals—assets enrolled in one of our retail advisory solutions have grown from $68 billion in March 2009 to nearly $160 billion at month-end February, rising at a 19% compound annual growth rate versus 16% for client assets overall.  We had over 100,000 financial planning conversations with clients last year, an increase of more than 80% over 2012 and a volume beyond our reach in 2009.  In addition, last month the non-commissionable proportion of our daily average client trades was almost 40% - 215,000 out of 556,000.  These are trades executed through our OneSource platforms or as part of relationships where trading is included and our revenue is based on balances or other measures.  Back in March 2009, these trades made up just over 30% of our volume.  Client utilization of fee-based relationships is clearly growing, which enables us to supplant potentially volatile transaction revenue with relatively stable recurring revenue as we meet investor needs.
 

I'm not telling you anything new—all of the data discussed above can be gleaned from our regular reporting.  But many in the investment community tend to focus on trading, specifically the ups and downs of revenue trades, as a main measure of engagement.  So there's an insight here that may elude outsiders yet is central to our future: clients at Schwab have been steadily increasing their level of engagement—with us and with investing, during the financial crisis and since—but in ways that highlight a desire for a deeper level of relationship and a greater interest in portfolio management and investment advice.  Trading will remain an important part of the services we provide, but its usefulness as a measure of engagement is likely to be increasingly limited as clients utilize our broader range of capabilities to help build their financial futures.
 

I plan to follow-up by the end of the month with a few more thoughts on the evolution of client behavior during the market recovery.

Forward-looking statements

This commentary contains forward-looking statements relating to increasing client demand for retail advisory solutions, investments through the One Source platforms, and advisory services; client utilization of fee-based relationships; supplanting transaction revenue with recurring revenue; and increasing client engagement.  Achievement of these expectations and objectives is subject to risks and uncertainties that could cause actual results to differ materially from the expressed expectations.
 

Important factors that may cause such differences include, but are not limited to, general market conditions, including the level of interest rates, equity valuations and trading activities; the company's ability to attract and retain clients and grow client assets/relationships; competitive pressures on rates and fees; client enrollments in advisory solutions; and demand for fee-based products and services.