Charles Schwab 2015 Annual Report Download - page 22

THE CHARLES SCHWAB CORPORATION
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low and ensure that client solutions are both affordable and responsive to needs. Finally, the Company works to be a good
steward of stockholder capital and aims to maximize the Company’s value and returns over time.
The Company’s competition in serving individual investors includes a wide range of brokerage, wealth management, and
asset management firms, as well as banks and trust companies. In serving investors and competing for a growing percentage
of the investable wealth in the United States (U.S.), the Company offers a multi-channel service delivery model, which
includes online, mobile, telephone, and branch capabilities. Under this model, the Company can offer personalized service at
competitive prices while giving clients the choice of where, when, and how they do business with the Company. Schwab’s
branches and regional telephone service centers are staffed with trained and experienced financial consultants (FCs) focused
on building and sustaining client relationships. The Company offers the ability to meet client investing needs through a single
ongoing point of contact, even as those needs change over time. Management believes that the Company’s ability to provide
those clients seeking help, guidance, or advice with an individually tailored solution – ranging from occasional consultations
to an ongoing relationship with a Schwab FC or an independent investment advisor (IA) – is a competitive strength compared
to the more fragmented or limited offerings of other firms.
The Company’s online, mobile, telephone and branch channels provide quick and efficient access to an extensive array of
information, research, tools, trade execution, and administrative services, which clients can access according to their needs.
For example, clients that trade more actively can use these channels to access highly competitive pricing, expert tools, and
extensive service capabilities – including experienced, knowledgeable teams of trading specialists and integrated product
offerings. Individuals investing for retirement through 401(k) plans can take advantage of the Company’s bundled offering of
multiple investment choices, education, and third-party advice. Management also believes the Company is able to compete
with the wide variety of financial services firms striving to attract individual client relationships by complementing these
capabilities with the extensive array of investment, banking, and lending products and services described in the section
below.
In the IA arena, the Company competes with institutional custodians, traditional and discount brokers, banks, investment
advisory firms, and trust companies. Management believes that its Advisor Services segment can maintain its market
leadership position primarily through the efforts of its sales and support teams, which are dedicated to helping IAs grow,
compete, and succeed in serving their clients. In addition to focusing on superior service, Advisor Services competes by
utilizing technology to provide IAs with a highly-developed, scalable platform for administering their clients’ assets easily
and efficiently. Advisor Services sponsors a variety of national, regional, and local events designed to help IAs identify and
implement better ways to grow and manage their practices efficiently.
An important aspect of the Company’s ability to compete is its ongoing focus on efficiency and productivity, as lower costs
give the Company greater flexibility in its approach to pricing and investing for growth. Management believes that this
flexibility remains important in light of the competitive environment, in which a number of competitors offer reduced online
trading commission rates and low expense ratios on certain classes of mutual funds and exchange-traded funds. Additionally,
the Company’s nationwide marketing effort is an important competitive tool because it reinforces the attributes of the
Schwab® brand.
The Company’s earnings growth strategy is based upon the belief that developing trusted relationships with clients will lead
to strong business performance. The Company has been and continues to be committed to offering its clients more value and
a better investing experience which the Company believes will translate into more assets from both new and existing clients
which ultimately drive revenue in terms of asset management and administration fees, net interest revenue and trading
revenue.
Sources of Net Revenues
The Company’s major sources of net revenues are asset management and administration fees, net interest revenue, and
trading revenue. The Company generates the majority of asset management and administration fees through its proprietary
and third-party mutual fund and ETF offerings, as well as fee-based advisory solutions. A portion of asset management and
administration fees comes from client cash balances placed in the Company’s money market mutual funds. Net interest
revenue is the difference between interest generated on interest-earning assets and interest paid on funding sources, the
majority of which is derived from client cash balances in deposit and brokerage accounts. The Company generates trading
revenue through commissions earned for executing trades for clients and principal transaction revenue earned primarily from
trading activity in client fixed income securities.