Charles Schwab 2006 Annual Report Download - page 19

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TO MY FELLOW STOCKHOLDERS,
LETT E R FRO M THE
CHIE F EXEC UTIVE OFFIC ER
In every way I look at it, 2006 was a spectacu-
lar year.
Our clients brought $87 billion in net new
assets to Schwab Investor Services and
Schwab Institutional® – an incredible 33 per-
cent increase over 2005. Total client assets
increased 18 percent and reached $1.24 trillion
by year-end.
We also accomplished what we set out to do
financially – and then some. First and foremost
for me, we’re back on a growth path, with
2006 net revenues growing 19 percent to $4.3
billion. We also continued to manage costs
carefully, enabling us to earn net income of
more than $1 billion, a first for our company.
These strong client and financial results confirm
our strategy is working extremely well.
Our success reflects a continuation of our 30-
year history of focusing on clients. We succeed
when we provide them with great value and
great service, and when we help them achieve
better financial outcomes. Last year proved the
wisdom of that strategy.
WE’RE A MORE FOCUSED BUSINESS.
This annual report highlights our underlying
sense of purpose, which we all share here at
Schwab: to help everyone be financially fit.
Today’s Schwab is better organized to help
individuals achieve the confidence and comfort
that come with financial fitness – whether they
are seasoned investors, just starting to invest
on their own, or turning to an independent
investment advisor for help.
Schwab Investor Services, for example, is
focused on the needs of the individual investor,
targeting people who have $50,000 to $2
million in investable assets. Investor Services
represents the largest segment of our company,
contributing $3.2 billion in revenue in 2006.
Schwab Investor Services also includes our
401(k) plan services division, a key area for
growth. With our planned acquisition of The
401(k) Company of Austin, Texas, we’re well-
positioned to improve our capabilities in this
vital area – particularly among America’s
larger companies. Retirement is the number
one reason why Americans invest, and the
workplace is the first place most people
experience investing, so expanding our capa-
bilities in the 401(k) arena is crucial to our
long-term growth.
Schwab Institutional is the industry leader in
supporting independent investment advisors.
These advisors serve individuals with larger
and more complicated portfolios, including
those who need custody, tax, and wealth
management advice. Schwab Institutional
saw strong growth in 2006 and is our highest-
margin business, with a pre-tax profit margin
over 40 percent in 2006. Independent invest-
ment advisors are the fastest-growing segment
within financial services, and we will continue
to serve their expanding needs.
Finally, Schwab Financial Products provides
products and ser vices these businesses
can use to meet the needs of our clients,
whether that is with mutual funds, money
market funds, fixed income securities, or bank-
ing products.
In keeping with our greater strategic focus,
late in 2006 we announced our decision to
sell U.S. Trust®, a fundamentally different
business that serves the narrower market of
ultra-wealthy Americans. As this report goes
to press, we are working to close the sale and
are considering how we will use the proceeds,
including possibilities for share repurchases,
dividends, additional acquisitions, and invest-
ments in our other businesses.
WE’RE BUILDING STRONGER RELATIONSHIPS.
We’ve organized our business around client
needs. But that’s just the beginning. We want
to do a better job of reaching out to our
existing clients to strengthen our relationships
and increase their satisfaction and loyalty.