Charles Schwab 2009 Annual Report Download - page 10

Financial Results
In 2009, clients continued to entrust their hard-earned
money to Schwab, bringing in net new assets of $87.3
billion, far ahead of the pace reported by any competitor.
Total client assets reached $1.42 trillion at year-end,
compared to $1.14 trillion at year-end 2008.
Our asset-gathering strength led to a solid nancial
performance for the 12 months ending December
31, 2009.
• Net revenues of $4.2 billion
• Net income of $787 million
• Diluted earnings per share of $0.68, compared
to $1.05 the prior year, and pre-tax prot margin
of 30.4 percent, down from a record 39.4 percent
a year ago. Both reected the impact of the same
low interest rate environment that affected our
nation’s savers.
To generate these results in such a challenging
environment, we knew we had to be a very disciplined
company. Overall, we reduced expenses by 7 percent
by focusing on things we could control when so many
factors — such as market valuations and interest rates —
were clearly not in our control. (See Letter from the CFO,
page 20.)
Pursuing Our Purpose
One of the most important things we could control was
to stay the course with our purpose and our client-
focused strategy. When so much was changing all
around us, what is unchanging about Schwab kept us
strong — and moving forward.
It all starts with our purpose: to help everyone be
nancially t. That is the lens through which we view our
business decisions and our actions.
To fulll our purpose, we pursue a clear and transparent
strategy. Each quarter, when I report about the state
of our business, I talk about our progress against four
strategic pillars: client loyalty; innovation; operating
discipline; and One Schwab. These four pillars not only
stake out what we intend to do, but they also signal the
very specic behaviors that tell how we will carry out
each pillar of our strategy:
1. Building client loyalty by being service oriented,
2. Innovating in ways that benet consumers,
3. Operating our company in a disciplined
manner, and
4. Leveraging capabilities across our company.
Helping everyone be nancially t compels us to think
and act in different ways, and it’s that alignment of our
purpose with our day-to-day behavior that is central
to our rm’s success. In looking back on the major
accomplishments of 2009, it’s clear that our actions
delivered very specic benets for our clients and for
our business.
1. Building Client Loyalty by Being Service Oriented
In 2009, Schwab helped more people than ever, serving
nearly 10 million accounts across Institutional Services
and Investor Services, our two operating segments.
On the institutional, or business-to-business side, we
served thousands of employers and third-party 401(k)
recordkeepers, representing 1.5 million retirement
plan participants. We also helped more than 6,000
independent investment advisors take care of their
clients’ needs. These independent professionals, located
around the country, typically serve as a duciary to
their clients — a role that requires their clients’ needs to
come rst. This “client-rst” philosophy aligns perfectly
with Schwab’s commitment to the individual investor,
and we are proud of the leading role we play in that
growing part of the industry.
Last year, as more commissioned brokers decided to
leave their brokerage rm and join the growing number
of independent investment advisors, Schwab helped a
record 172 new advisory teams as they either started
or joined an independent rm. We also introduced
an initiative to help independent advisors grow their
business. Our “Make the Move” program saved clients
of independent advisors millions of dollars in fees and,
in the process, reduced the operating expenses of
advisors we serve.
Among individual investors, we served 7.7 million client
brokerage accounts and 722,000 banking accounts,
which rose 62 percent with the success of our Schwab
Bank High Yield Investor Checking® and the introduction
of Schwab Bank High Yield Investor Savings®.
At our local Schwab branches, we conducted more than
a half-million client meetings. In our automated channels,
we recorded more than 250 million client log-ons to
schwab.com and routed 15.4 million calls through our
automated systems. In addition, Schwab employees also
answered 13.7 million phone calls with an average
speed-to-answer of 22 seconds.
During the most challenging days of early 2009 — when
people needed someone to talk to — we didn’t wait
for clients to call us. We introduced an outbound calling
program and proactively contacted clients to offer
our best suggestions, shaped by our clients’ interests.
We also increased the number of branch workshops,
online webinars, and other forms of client outreach.
In many branches, we assigned a dedicated professional
to work with people who drop in without an appointment,
making sure both clients and prospects get the help
they need.
As a result of our efforts, we continued to post
extraordinary client loyalty results. As proled in a
number of publications, the Schwab story of client loyalty
is a true business success story. In 2009, more retail
clients said they would recommend Schwab than ever
before as our internal Client Promoter Score for individual
investors reached record levels. Schwab also ranked
“Highest in Investor Satisfaction with Self-Directed
Services” by J.D. Power and Associates, and remarkably,
given our history as a discount brokerage rm, we ranked
third in the U.S. Full-Service Investor Satisfaction Study
for traditional brokerage rms.
2. Innovating in Ways That Benefit Consumers
From day one, Schwab has been an advocate for the
individual investor — from pioneering discount brokerage,
to launching no-load, no-transaction-fee Mutual Fund
OneSource®, to leading the way in Web-based investment
and banking services.
Throughout 2009, we took a series of bold, innovative
steps to help investors and savers make the most of
their money.
In the spring, we introduced a high yield savings
account that, in the Schwab tradition, offered a great
rate on every client’s rst dollar — no catches or ne-
print “gotchas.”
Also in early 2009, we waived advisory fees for new
client enrollments in managed portfolio programs,
thereby giving clients the help they needed with
investment advisory services even at the depth of the
stock market decline. We also introduced new versions
of our Web sites for individual investors, independent
investment advisors, and retirement plan participants —
all to very positive reviews.
Last November, we broke new ground in the fast-growing
world of exchange-traded funds (ETFs). Eight new Schwab
ETFs have some of the lowest operating expense ratios
on the market and can be bought and sold without
commissions in Schwab accounts if purchased online,
regardless of the number of shares traded. These
ETFs can be purchased in blocks as small as one
share per trade.
When we innovate at Schwab, our focus is on delivering
client benets. And in 2010, we will continue our legacy
of innovating on behalf of consumers while challenging
traditional approaches to nancial services where we
believe that clients’ interests are not optimally served.
In fact, we began this year by cutting our online equity
commission to $8.95 for all clients, regardless of the
size of their trade — or the size of their portfolio. We
also added to our suite of Schwab Managed Portfolios
with new portfolios of ETFs, making it easier and more
affordable for individual investors to obtain broad
diversication in a single, professionally managed
account with the low costs of ETFs.
3. Operating Our Company in a Disciplined Manner
In order to deliver effective products and services at
a great value for all clients — especially when
the environment put such tremendous pressure on
revenues — we had to be disciplined and efcient in
our internal operations.
Early last year, we faced very difcult choices as we
worked to address this challenge. We made the painful
decision to cut some jobs, but we made those decisions
carefully and thoughtfully — and we simply refused to
make cuts that would negatively impact client service. As
a result of our operating discipline, we were in a position
to deliver even greater value to clients while generating
healthy nancial performance for our stockholders.
In March, we lowered the expense ratio of the Schwab
Hedged Equity FundTM. A month later, we enhanced our
Schwab Target Funds by reducing expenses charged to
investors, adjusting the asset allocation “glide path” to
be more conservative as investors near retirement, and
expanding the underlying funds that we invest in. Only
two weeks passed before we cut fund fees again — this
time for all Schwab equity index funds — to some of
LETTER FROM THE CHIEF EXECUTIVE OFFICER
16
Client Promoter Score
Net percentage of clients (promoters
minus detractors) who say they will
recommend Schwab.
59%
33%
’04 ’05 ’06 ’07 ’08 ’09
50%
–28% Advisor Services
Investor Services