Charles Schwab 2015 Annual Report Download - page 7

5
LETTER FROM THE CHIEF EXECUTIVE OFFICER
Innovation isn’t just for Silicon Valley startups
One of the most over-hyped aspects of investing in the
past year is the concept of “robo-advice.” A “robo-advisor”
offers a user-friendly website and mobile experience where
an investor can answer a few questions, have a complete
investment portfolio built, and receive ongoing management
with rebalancing and, in some cases, tax-loss harvesting.
Now, I say over-hyped because the press has speculated
that growth in “robo-advice” could jeopardize the desire for
investors to want an in-person relationship–a suggestion
that we see as folly. That said, there are real benets to the
concept of automated investment advice if it is combined
with the availability of live professionals by phone, chat or in
person. In the rst quarter of 2015, we introduced Schwab
Intelligent Portfolios™ the rst digital advisory program
in the industry that charges ZERO advisory fees. Rather,
we generate sufcient revenue from underlying ETFs and
cash investments to offer the service without charging an
advisory fee. And, of course, Schwab professionals are
available by phone or chat 24/7, 365 days a year.3
The result is rather remarkable. At the end of 2015, only
nine months after its introduction, Schwab Intelligent
Portfolios had grown to over $5.3 billion in assets. This
total is about the same as the two largest early-to-market
“robo-advisors” combined–after years of efforts on their
part. Yes, innovation is alive and well at our company!
Serving as a duciary for advisory clients
Recently, the Department of Labor (DOL) proposed a
complex set of rules that would affect anyone offering
investment advice to investors’ individual retirement
or 401(k) accounts. Although we have asked the DOL
to make some changes to its proposal to protect the
investment choices of large and small investors, the DOL’s
core concept makes sense. If a client pays an advisor a fee
for investment advice, the client should be able to have
condence that the advice they receive is in their best
interest and not driven by the compensation potentially
paid to the advisor or rm. This idea of acting in clients’
best interests is the basis for being a duciary. And it isn’t
a foreign concept at Schwab. We serve 7,000 independent
investment advisors and custody over $1 trillion for these
professionals, whose business model typically revolves
around being a duciary.
And for any client who pays Schwab a fee for investment
advice, we already serve as a duciary. There is a reason
so much of the investment industry is up in arms about the
DOL proposal: in my opinion, too many business models
in our industry are fundamentally based on selling clients
expensive funds, annuities, hedge funds and private equity
portfolios under the guise of “advice.” Our approach is
unique and proven–putting the client at the forefront is
the winning strategy.
The result is that as of year-end 2015, we served
in an investment advisory role for almost $193
billion at Schwab directly–a long way from our
discount brokerage roots. And we are as large
as our next three competitors added together in
serving independent investment advisors.
Being a challenger isn’t easy. It means making tough
decisions. At times it means cannibalizing your own
revenue streams. And it almost always makes you
a target for competitors who prefer the status
quo. But we are a challenger at Schwab because
investors deserve it. They deserve a challenger
who sits on the same side of the table as they do.
And we see that as a winning long-term strategy
for stockholders. Clients win and stockholders win.
That is a virtuous cycle!
SCHWAB ADVISOR SERVICES VERSUS COMPETITORS
Based on company reports and Schwab estimates. Schwab Advisor Services
assets exclude Retirement Business Services assets and Corporate Brokerage
Retirement Services assets.
Schwab
Advisor Services
TD
Ameritrade
Fidelity
Pershing
2015
$1.1T
Competitors
,