How We Compensate Our Investment Professionals

Transcription

1 How We Compensate Our Investment Professionals Since Charles Schwab & Co., Inc. ( Schwab ) was founded more than 40 years ago, we ve been committed to serving the needs of individual investors. One of our most important beliefs is that you should understand how the financial professionals assisting you are paid, so you can evaluate the recommendations you receive. In this brochure, we identify the different categories of investment professionals who may serve you at Schwab and describe how they are compensated. This includes both Schwab employees and independent branch franchisees (and their employees) operating Schwab Independent Branches. Some of these compensation plans are based on revenue Schwab earns from clients or from product sales, and Schwab may pay a Schwab representative more for selling products or services on which Schwab makes more money. In addition, from time to time, one or more categories of our representatives may participate in short-term, temporary incentive programs focusing on a particular class of products or services, including new accounts and new assets to Schwab. The goal of these programs is to raise awareness of these products and services and of how they may serve our clients needs, and thereby increase sales. Certain representatives who demonstrate exceptional performance during the year may also be eligible to earn an annual trip through Schwab s Chairman s Club, or other awards. Schwab may develop additional recognition events or programs from time to time. For more information, please visit our website at compensation_advice_disclosures/. Please note that the information below describes how Schwab pays employee professionals and shares

2 revenue with Independent Branch professionals, not how you pay Schwab for the services you receive. Information about what you pay Schwab for the services we provide can be found at Recent Changes plans and revenue-sharing arrangements for both employee and independent branch investment professionals change from time to time. You can access the most up-to-date version online by visiting the Investment Professionals page on Below is a summary of recent changes. Effective January 1, 2015: Section 1: U.S. Branch Representatives VP Financial Consultants: Added Schwab Intelligent Portfolios as a Service Pay Asset Category. VP Financial Consultants: Removed the provision that Service Pay for assets enrolled in Portfolio Management Services is subject to a floor. VP Financial Consultants: Added Schwab Intelligent Portfolios as a Solutions Pay Client Solution. Associate Financial Consultants and Financial Consultant Assistants: Removed Schwab s performance as the basis for funding the annual bonus program. Financial Consultant Assistants: Added as a new role. Section 4: Specialty Representatives (Phone-Based) International Financial Consultants (Client Development): Updated the monthly sales incentive and quarterly bonus eligibility criteria. Financial Consultants (Centralized Branch): Replaced the quarterly bonus with Solutions Pay. Prospect Development Specialists: Added outbound calling to the job description and updated the bonus eligibility criteria. 2

3 Investor Development Specialists: Updated the bonus eligibility criteria. VP Financial Consultants (Executive Services): Removed Schwab s performance as the basis for funding the annual bonus program. Trading Solutions Regional Managers: Updated the bonus eligibility criteria. Trading Solutions Consultants: Added a quarterly discretionary incentive component. Trading Solutions Education Specialists: Removed the provision that failure to meet threshold education enrollments could decrease compensation. Section 5: Schwab Independent Branch Service Representatives Independent Branch Leaders: Added Schwab Intelligent Portfolios to the list of advised assets. Associate Financial Consultant: Added as a new role. We invite you to read this information carefully and to contact us at if you have any questions. (For multilingual services, call For services outside the U.S., call U.K. residents should call ; Swiss residents should call ) Types of Investment Professionals There are several types of investment professionals you may work with at Schwab: 1. U.S. Branch Representatives VP Financial Consultants Associate Financial Consultants Client Service Specialists Financial Consultant Assistants VP Branch Managers 2. International Branch Representatives International VP Financial Consultants 3

4 3. Service Representatives Customer Service and Brokerage Service Representatives 4. Specialty Representatives (Phone-Based) International Financial Consultants (Client Development) Financial Consultants (Centralized Branch) Prospect Development Specialists Investor Development Specialists Financial Consultants (Participant Investor Concierge) VP Financial Consultants (Executive Services) Client Service Specialists Advice Consultants Trading Solutions Representatives Fixed Income Specialists Insurance Services Annuity Specialists Portfolio Solutions Group Investment Consultants 5. Schwab Independent Branch Services Representatives Independent Branch Leaders IB Financial Consultants We ve outlined how these professionals are paid below. We also provide information about other compensation or awards that any of these professionals may receive. 1. U.S. Branch Representatives VP Financial Consultants Financial Consultants work with clients both in person (through our U.S. branch office locations) and by phone. They develop new and existing client relationships, taking a planning-based approach to understand a client s needs and objectives. They provide guidance to help clients select the appropriate products including investments, banking, and insurance that meet their objectives. Each Financial Consultant supports a practice, which includes clients who are assigned to that Financial Consultant as a primary point of contact. 4

5 Financial Consultants may also assist clients who are not in their practice. Financial Consultants have two primary sources of compensation: Service Pay and Solutions Pay. Financial Consultants may also be eligible to participate in a Career Achievement Award Program, which rewards and retains our top talent for being dedicated to Schwab and our clients. Service Pay Service Pay compensates a Financial Consultant for building and maintaining relationships with clients in their practice. Each month, they are paid a percentage of the approximate annual revenue attributed to clients in their practice. In some cases, Schwab uses the average revenue of a category of assets or products. In other cases, we use the revenue generated by eligible transactions. Service Pay applies whether a Financial Consultant recommends or sells the offer or product to the client or the client makes the purchase or enrollment decision on his or her own. Average Revenue Rates The majority of a Financial Consultant s Service Pay is calculated using Average Revenue Rates. Average Revenue Rates are calculated by blending the revenue for all of the offers or products in each category into one rate. The primary function of an Average Revenue Rate is to pay Financial Consultants the same rate for similar offers or products. For example, a Financial Consultant s pay is calculated using the same rate for referring a client to most of our Portfolio Management Solutions, even though Schwab may make more money on one over another. Because Average Revenue Rates differ for each product category, a Financial Consultant can receive more compensation if clients are invested in one category versus another, as the tables below demonstrate. While most similar products are bundled together to determine Service Pay for Financial Consultants, mutual funds and exchange-traded funds (ETFs) are not. Financial Consultants receive more compensation if a client is invested in a Schwab-affiliated mutual fund or 5

6 one of the over 4,000 third-party no-load, notransaction-fee mutual funds available through Schwab s Mutual Fund OneSource service, compared to other third-party mutual funds for which Schwab charges a transaction fee. This is reflected in the table below based on Average Revenue Rates. Financial Consultants receive less compensation for ETFs than mutual funds. They earn more compensation if a client is invested in a Schwab-affiliated ETF or one of the over 100 third-party no-commission ETFs available through the Schwab ETF OneSource service (see table below) compared to all other third-party ETFs. Financial Consultants are eligible to receive 6%, 7%, 8%, or 9% of the firm s Average Revenue Rate for the asset categories listed in the table below, depending on the Financial Consultant s experience and past performance. Service Pay Based on Account Balances Asset Category Annual Service Pay per $100,000 of client balances (depending on whether the Financial Consultant s payout is 6%, 7%, 8%, or 9%) Portfolio Management $43 $64 Services: Schwab Private Client Schwab Managed Portfolios Schwab Managed Account Services (which includes ThomasPartners, Windhaven Portfolios, Charles Schwab Investment Management Separately Managed Accounts, Diversified Portfolios, and Third-Party Managers) Variable Annuities Schwab Advisor Network $20 $30 and Schwab Intelligent Portfolios 6

7 Service Pay Based on Account Balances (Continued) Asset Category Schwab and OneSource Mutual Funds Schwab and OneSource ETFs $5 $7 Cash and Money Market $33 $50 Funds Brokerage and Bank Cash Charles Schwab Bank Deposits High Yield Investor Checking High Yield Investor Savings Schwab Money Market Sweep Funds Schwab Purchased Money Market Funds Annual Service Pay per $100,000 of client balances (depending on whether the Financial Consultant s payout is 6%, 7%, 8%, or 9%) $21 $32 When a client in a Financial Consultant s practice is enrolled in a participating Portfolio Management Service and receives a refund of their program fee under the Schwab Accountability Guarantee, Schwab will debit the amount of Service Pay the Financial Consultant receives by a percentage of the amount of the fee refunded. Eligible Transactions In addition to payments based on Average Revenue Rates for certain account balances, Financial Consultants receive payments based on 3% of the revenue certain transactions generate for Schwab. 7

8 Service Pay Based on Transaction Revenue Transaction Revenue Service Pay Type Equities $8.95 commission + $25 for brokerassisted trades $0.27 per online trade $1.02 per broker-assisted trade Options ETFs not in the Schwab ETF OneSource service Transaction Fee Mutual Funds Fixed Income Schwab Bank Home Equity Line of Credit (HELOC) $ $0.75 per contract commission + $25 for brokerassisted trades $8.95 commission + $25 for brokerassisted trades $76 transaction fee for purchase transactions + $25 for broker-assisted purchase and sale transactions Since the revenue Schwab makes on a fixed income trade varies based on the type of security and whether the trade is executed as agent or out of inventory, a blended rate of $58 per trade is used to calculate Service Pay. Since the revenue earned on HELOCs varies, a blended rate of on the outstanding loan balance is used to calculate Service Pay. 8 $0.27 per online trade + $0.02 per contract $1.02 per broker-assisted trade + $0.02 per contract $0.27 per online trade $1.02 per broker-assisted trade $2.28 per online purchase $3.03 per broker-assisted purchase $0.75 per broker-assisted sale $1.74 per trade $55.20 annually per $100,000 loan balance

9 Service Pay Based on Transaction Revenue (Continued) Revenue Service Pay Transaction Type Margin Loans Schwab Bank Pledged Asset Line (PAL) Revenue earned differs from loan to loan based on a number of factors (e.g., loan size, rate, and duration). Example: A $100,000 loan produces $8,875 revenue x 3% = $ annually 529 Accounts Revenue differs based on size of portfolio and on asset allocation. $5 $11 (depending on asset allocation) annually per $100,000 account balance Solutions Pay Solutions Pay compensates a Financial Consultant for helping deepen relationships with our clients and for matching client needs with appropriate products. Financial Consultants receive a one-time payment each time clients with whom they work both in and outside of their practice bring Net New Assets to Schwab and enroll in certain products and services. Solutions Pay for in-practice clients applies whether a Financial Consultant recommends or sells the offer or product to the client or the client makes the purchase or enrollment decision on his or her own. The sole exception is for Schwab Intelligent Portfolios, which the Financial Consultant must successfully recommend in order to receive Solutions Pay. Financial Consultants only earn Solutions Pay on Net New Assets for practice and non-practice clients and for certain categories of products. For example, Solutions Pay applies to enrollment in one of Schwab s proprietary Portfolio Management Services, but does not apply to mutual fund purchases. Generally, if assets leave a Financial Consultant s practice, that loss is netted against asset gains to a Financial Consultant s practice for purposes of calculating Solutions Pay. Solutions Pay is paid to the Financial Consultant monthly. 9

10 Asset Consolidation Net Asset Flows (total inflow of client assets minus the total outflow of client assets) Financial Consultant s x Net Asset Flows One-Time Solutions Payment per $100,000 $80 Client Solutions Portfolio Management Services: Schwab Private Client Schwab Intelligent Portfolios Schwab Advisor Network Schwab Managed Portfolios Schwab Managed Account Services (which includes ThomasPartners, Windhaven Portfolios, Charles Schwab Investment Management Separately Managed Accounts, Diversified Portfolios, and Third- Party Managers) Introductions to Charles Schwab Bank for mortgages by Financial Consultants who are also employees of Charles Schwab Bank Fixed Annuities, Variable Annuities, and Single Premium Immediate Annuities by a Licensed Financial Consultant Financial Consultant s x amount enrolled x loan amount for new mortgages; x loan amount for refinanced loans x annuity amount One-Time Solutions Payment $200 per $100,000 $200 per $100,000 $110 per $100,000 $200 per $100,000 10

11 Client Solutions Referrals to Life Insurance Referrals to Long-Term Care Insurance by a Licensed Financial Consultant Referrals to Schwab Advisor Services Referrals to Schwab Corporate and Retirement Services Referral to Charles Schwab Bank s Administrative Trustee Services Financial Consultant s 1 $175 per converted referral $175 per converted referral $800 for referrals up to $30 million; $3,500 for referrals of more than $30 million x amount referred; $250,000 minimum to $10,000,000 maximum x amount referred One-Time Solutions Payment $175 $175 $800 or $3,500 $500 $20,000 $160 per $100,000 1 Schwab may cap the amount of incentive compensation that a Financial Consultant can earn from any one client from the Solutions Pay component. Bringing Together a Financial Consultant s Pay As an example, suppose an in-practice client of a Financial Consultant brings a portfolio of $500,000 to Schwab and invests it as follows: $200,000 into Schwab Private Client $100,000 into OneSource Mutual Funds $100,000 into Transaction Fee Mutual Funds $100,000 in Cash 11

12 The Financial Consultant would earn annual compensation as follows: Payment Type Description Amount Solutions Pay (one-time payments) Service Pay (annual payments) $500,000 transfer into Schwab $200,000 enrollment into Schwab Private Client $200,000 balance in Schwab Private Client $100,000 balance in OneSource Mutual Funds $100,000 balance in Cash $100,000 balance in Transaction Fee Mutual Funds $400 $400 $85 $128 $21 $32 $33 $50 $2.28 (earned on purchase) TOTAL $ $1, Associate Financial Consultants Associate Financial Consultants assist clients in our branch offices. They meet with clients who are not assigned to a Financial Consultant s practice as well as with potential new clients to identify and analyze their financial needs. In addition to a base salary, Associate Financial Consultants are eligible for a bonus based on three components: Manager Discretion An annual bonus program determined based on manager discretion, which may include consideration of service quality, client satisfaction, teamwork, and ability to provide help and guidance to our clients. Circle of Excellence A program through which Schwab awards additional compensation to all eligible Associate Financial Consultants based on how well they compare to their peers in bringing Net New Assets to Schwab, enrolling clients in and 12

13 ensuring satisfaction with Schwab s Portfolio Management Services (where appropriate), and assisting clients in using the products and services offered by Charles Schwab Bank (where appropriate). Client Promoter Score A program that awards additional compensation to Associate Financial Consultants based on manager discretion and client satisfaction in the branch. Client Service Specialists Client Service Specialists respond to the specific needs of clients and may direct clients to the appropriate Schwab representative. In addition to a base salary, Client Service Specialists are eligible to earn an annual bonus that is funded based on Schwab s performance and determined based on manager discretion, which may include consideration of service quality, client satisfaction, sales support, and teamwork. Financial Consultant Assistant Financial Consultant Assistants respond to the specific needs of clients and are assigned to specific Schwab representatives. In addition to a base salary, Financial Consultant Assistants are eligible to earn an annual bonus that is determined based on manager discretion, which may include consideration of service quality, client satisfaction, sales support, and teamwork. VP Branch Managers Branch Managers lead a local market team comprised of Financial Consultants, Associate Financial Consultants, Client Service Staff, and various internal and external partners. They provide local strategic direction and execution support, and they recruit and manage the local team. They are responsible for the performance of their branch. 13

14 In addition to a base salary, Branch Managers are eligible to earn an annual bonus that is funded based on Schwab s performance and determined based on manager discretion, which may include consideration of branch growth and productivity, client satisfaction, and development of staff. A Branch Manager s bonus can be a significant amount, up to (but not limited to) approximately 45% of their total compensation. 2. International Branch Representatives International VP Financial Consultants International Financial Consultants provide services primarily to our clients residing outside the United States. These Financial Consultants are paid according to the same incentive plan as U.S. Financial Consultants, except the pay rates and products offered may vary based on market locations. There is also a discretionary component determined based on manager discretion, which may include consideration of Net New Assets, client satisfaction, and teamwork. 3. Service Representatives Customer Service and Brokerage Service Representatives Customer Service and Brokerage Service Representatives provide service to clients via telephone, , and online chat; respond to telephone inquiries from clients about the products and services we offer; and may contact clients by phone or . In addition to a base salary, these representatives are eligible to earn an annual bonus that is funded based on Schwab s performance and determined based on manager discretion, which may include consideration of productivity, client satisfaction, quality assurance, referrals, teamwork, and client feedback. 14

15 These representatives are also eligible for additional compensation that is measured by client satisfaction at an organizational level. 4. Specialty Representatives (Phone-Based) International Financial Consultants (Client Development) International Financial Consultants (Client Development) provide advice and guidance services to our international clients. In addition to a base salary, these representatives are eligible for monthly sales incentives based on gross asset inflow, funded new accounts, and enrollments in Portfolio Management Services. They are also eligible to receive a quarterly bonus determined by manager discretion. Financial Consultants (Centralized Branch) Financial Consultants (Centralized Branch) work with clients who are generally more independent and prefer to work with someone by phone. They develop new and existing client relationships, taking a planning-based approach to understand a client s needs and objectives. They provide guidance and support to help clients select the appropriate products including investments, banking, and insurance that help meet their objectives. Each Financial Consultant supports a practice, which includes clients who are assigned to that Financial Consultant as a primary point of contact. Financial Consultants may also assist clients who are not in their practice. In addition to a base salary, these representatives are eligible for Solutions Pay. Solutions Pay Solutions Pay compensates a Financial Consultant for helping deepen relationships with our clients and for matching client needs with appropriate products. Financial Consultants receive a one-time payment 15

16 each time clients with whom they work both in and outside of their practice bring Net New Assets to Schwab and enroll in certain products and services. Solutions Pay for in-practice clients applies whether a Financial Consultant recommends or sells the offer or product to the client or the client makes the purchase or enrollment decision on his or her own. The sole exception is for Schwab Intelligent Portfolios, which the Financial Consultant must successfully recommend in order to receive Solutions Pay. Financial Consultants only earn Solutions Pay on Net New Assets for practice and non-practice clients and for certain categories of products. For example, Solutions Pay applies to enrollment in one of Schwab s proprietary Portfolio Management Services, but does not apply to mutual fund purchases. Generally, if assets leave a Financial Consultant s practice, that loss is netted against asset gains to a Financial Consultant s practice for purposes of calculating Solutions Pay. Solutions Pay is paid to the Financial Consultant monthly. Asset Consolidation Net Asset Flows (total inflow of client assets minus the total outflow of client assets) Financial Consultant s x Net Asset Flows One-Time Solutions Payment per $100,000 $80 16

17 Client Solutions Portfolio Management Services: Schwab Private Client Schwab Intelligent Portfolios Schwab Advisor Network Schwab Managed Portfolios Schwab Managed Account Services (which includes ThomasPartners, Windhaven Portfolios, Charles Schwab Investment Management, Inc. Separately Managed Accounts, Diversified Portfolios, and Third- Party Managers) Introductions to Charles Schwab Bank for mortgages by Financial Consultants who are also employees of Charles Schwab Bank Fixed Annuities, Variable Annuities, and Single Premium Immediate Annuities by a Licensed Financial Consultant Referrals to Life Insurance Financial Consultant s x amount enrolled x loan amount for new mortgages; x loan amount for refinanced loans x annuity amount $175 per converted referral One-Time Solutions Payment $200 per $100,000 $200 per $100,000 $110 per $100,000 $200 per $100,000 $175 Referrals to Long-Term Care Insurance by a Licensed Financial Consultant $175 per converted referral $175 17

18 Client Solutions Referrals to Schwab Advisor Services Referrals to Schwab Corporate and Retirement Services Referral to Charles Schwab Bank s Administrative Trustee Services Financial Consultant s 1 $800 for referrals up to $30 million; $3,500 for referrals of more than $30 million x amount referred; $250,000 minimum to $10,000,000 maximum x amount referred One-Time Solutions Payment $800 or $3,500 $500 $20,000 $160 per $100,000 1 Schwab may cap the amount of incentive compensation that a Financial Consultant can earn from any one client from the Solutions Pay component. Prospect Development Specialists Prospect Development Specialists interact with prospects and clients via telephone through inbound and outbound calls and make referrals to a local branch when appropriate. They work to understand client needs and provide appropriate solutions. In addition to a base salary, these specialists are eligible for a bonus based on two components: Sales Activities A measurement of Net Assets Flow and enrollments in Portfolio Management Services (such as Schwab Private Client, Schwab Managed Portfolios, Schwab Advisor Network, and Schwab Intelligent Portfolios ). Manager Discretion An annual bonus program that is funded based on Schwab s performance and determined based on manager discretion, which may include consideration of service quality, client 18

19 satisfaction, teamwork, and ability to provide help and guidance to our clients. Investor Development Specialists Investor Development Specialists interact with prospects and clients via telephone primarily through outbound calls and make referrals to a local branch when appropriate. They work to understand client needs and provide appropriate solutions. In addition to a base salary, these specialists are eligible for a bonus based on two components: Sales Activities A measurement of Net Assets Flow and enrollments in Portfolio Management Services (such as Schwab Private Client, Schwab Managed Portfolios, Schwab Advisor Network, and Schwab Intelligent Portfolios ). Manager Discretion An annual bonus program that is funded based on Schwab s performance and determined based on manager discretion, which may include consideration of service quality, client satisfaction, teamwork, and ability to provide help and guidance to our clients. Financial Consultants (Participant Investor Concierge) Financial Consultants (Participant Investor Concierge) provide help to participants in retirement plans serviced by Schwab Corporate Services ( SCS ). For example, if a participant is eligible for a distribution or a rollover, the Financial Consultant discusses the participant s options, which may include keeping the participant s assets in their retirement plan or rolling over to a Schwab IRA. If the participant decides to open a Schwab IRA, the Financial Consultant may recommend investments or other products and solutions once the account is opened. In addition to a base salary, these Financial Consultants have the potential to earn additional monthly incentive compensation based on the following criteria: 19

20 Service Quality A discretionary component that evaluates the Financial Consultant s performance in educating participants about their options, which may include taking a distribution, leaving their money in their plan, rolling over to a third-party plan, or opening and rolling over to a Schwab IRA. Sales Activities A measurement of Net New Assets brought to Schwab, referrals to a complimentary portfolio consultation, referrals to a branch Financial Consultant s practice, referrals to Schwab Trading Services or Charles Schwab Bank products that result in a conversion or sale, and enrollment in Portfolio Management Services (when appropriate). Sales compensation may be increased for client retention and Net New Assets resulting from outbound calling efforts. VP Financial Consultants (Executive Services) Financial Consultants (Executive Services) provide dedicated in-person relationships to executive participants of SCS plan sponsors. These representatives help service 401(k) and equity compensation plan needs, and they work with executives to identify other Schwab products and services. In addition to a base salary, Executive Services Financial Consultants are eligible to earn an annual bonus that is determined based on manager discretion, which may include consideration of client satisfaction, service quality, and Net New Assets to Schwab. Client Service Specialists Client Service Specialists respond to the specific needs of clients and may direct clients to the appropriate Schwab representative. In addition to a base salary, Client Service Specialists are eligible to earn an annual bonus that is funded based on Schwab s performance and 20

21 determined based on manager discretion, which may include consideration of service quality, client satisfaction, sales support, and teamwork. Advice Consultants Advice Consultants provide advice and education to participants of retirement plans serviced by SCS. Services may include personalized one-on-one consultations, evaluation of investments, portfolio and asset allocation, and discussion of financial goals (including retirement). These services relate to both investments in employer-sponsored retirement plans and other assets held outside of those plans. In addition to a base salary, Advice Consultants are eligible to earn an annual bonus that is funded based on Schwab s performance and determined based on manager discretion, which may include consideration of the quality of representatives interactions with clients, utilization of advice, and business development opportunities. Trading Solutions Representatives Trading Solutions team members identify clients whose trading needs are an appropriate match for Schwab Trading Services. They do not provide trading advice. The group consists of regionally based Trading Solutions Regional Managers who work with local branches, as well as phone-based Trading Solutions Consultants and Trading Solutions Education Specialists: Trading Solutions Regional Managers (TSRMs) These representatives support a designated region of clients assigned to local Financial Consultants practices. They work with Financial Consultants by serving as their primary point of contact for Schwab Trading Services. They also assist clients not assigned to a Financial Consultant s practice. In addition to a base salary, TSRMs are eligible to earn an annual bonus that is funded based on Schwab s performance and determined based on 21

22 manager discretion, which may include consideration of frequency of one-on-one client consultations, regional client growth and retention, local market seminars and events hosted, market area lead-flow generation, and quality of interactions with clients and branches. Trading Solutions Consultants These consultants interact with prospects and clients via telephone, through inbound and outbound calling. They work to understand client needs and make referrals to Schwab Trading Services, when appropriate. In addition to a base salary, these consultants have the potential to earn additional monthly and quarterly incentive compensation. The monthly incentive is based on the following criteria: Increased client trading activity at Schwab due to representatives promoting the use of Schwab Trading Services products and services. Bringing Net New Assets to Schwab. New-to-firm Schwab Trading Services client relationships. Transfers of existing margin balances to Schwab. Referring a client that attends a new client concierge meeting, a consultation with a Trading Solutions Regional Manager, an in-branch workshop, or a live online event. The quarterly discretionary incentive is determined based on manager discretion, which may include consideration of efficiency, productivity, client engagement, service quality, and accuracy. Trading Solutions Education Specialists These specialists partner with Trading Solutions Consultants to help onboard new clients. Education Specialists conduct phone-based, customized, one-on-one consultations with new clients to teach them how to leverage Schwab s trading platforms, tools, and research resources. 22

23 In addition to a base salary, Education Specialists are eligible to earn an annual bonus that is funded based on Schwab s performance and determined based on manager discretion, which may include consideration of quantity of one-on-one client consultations, quality of consultation interactions, client engagement, and whether clients leverage subsequent education. Fixed Income Specialists Fixed Income Specialists serve clients with fixed income investing needs. The group consists of Regional Bond Specialists and Bond Investment Specialists. Neither group earns commissions on transactions, and their compensation is not affected by whether an issue is underwritten by Schwab. Nor does it matter whether a transaction is executed as agent, as a riskless principal, or from Schwab s own inventory. Regional Bond Specialists These specialists provide advice and service to Schwab clients specific to their fixed income investing needs. In addition to a base salary, these specialists are eligible to earn quarterly bonuses that are funded and determined based on the sales of fixed income products. They are also eligible for an annual bonus that is funded based on Schwab s performance and determined based on manager discretion, which may include consideration of the sale of fixed income products, relationship management, business development, quality assurance, teamwork, client reviews, and field partnerships. Bond Investment Specialists These specialists advise and serve clients with fixed income investing needs by responding to inbound phone calls. 23

24 In addition to a base salary, these specialists are eligible to earn an annual bonus that is funded based on Schwab s performance and determined based on manager discretion, which may include consideration of the sale of fixed income products, quality assurance, the principal value of fixed income related transactions, teamwork, and initiative. Insurance Services Annuity Specialists Annuity Specialists provide Financial Consultants and clients with information and advice on annuities available through Schwab. They also provide existing annuity clients with ongoing service and support. In addition to a base salary, these specialists are eligible to earn an annual bonus that is funded based on Schwab s performance and determined based on manager discretion, which may include consideration of Net New Assets to Schwab, field and client feedback, and teamwork. Portfolio Solutions Group Investment Consultants Portfolio Solutions Group Investment Consultants provide clients who are not currently assigned to a Financial Consultant with a complimentary portfolio analysis or retirement assessment. They conduct a one-time, needs-based portfolio assessment and make recommendations from the full array of investment choices. They schedule appointments with clients who have expressed interest in a portfolio consultation and take referrals from other Schwab representatives. They also work with clients who are invested in Schwab Managed Portfolios, ThomasPartners, or Windhaven Portfolios and are not currently assigned to a Financial Consultant. They respond to telephone inquiries about these products and ensure ongoing suitability of investments. In addition to a base salary, these representatives are eligible to earn a bonus that is funded based on 24

25 Schwab s performance and determined based on manager discretion, which may include consideration of the quality of the representative s interactions with clients, client satisfaction, teamwork, training, professional development, and accuracy. 5. Schwab Independent Branch Services Representatives Schwab Independent Branch Leaders (IBLs) are franchisees who operate Schwab Independent Branches pursuant to a franchise agreement with Schwab. IBLs may employ Independent Branch Financial Consultants (IB FCs) who are registered representatives, and/or Independent Branch Client Service Specialists (IB CSSs) who may or may not be registered. IB registered personnel are not Schwab employees, but they are registered representatives of Schwab for purposes of securities regulations. IBLs receive a portion of the revenue generated by the activities and assets in accounts of Schwab clients assigned to their independent branches. IB employees also may share in the revenue earned by their IBL employer. Schwab notifies clients when they are assigned to an Independent Branch. Independent Branch Leaders IBLs are generally not paid on commissions for particular sales, nor does Schwab pay them a salary or the incentive compensation earned by representatives who are employed by Schwab. Instead, they earn revenue from their business based on the overall revenue Schwab earns from clients whose accounts are assigned to their independent branch. For purposes of revenue earned by the IBLs, the assets in accounts assigned to them are divided into two categories: Advised Assets Assets in accounts enrolled in Schwab Private Client, Windhaven Portfolios, ThomasPartners, Schwab Managed Portfolios, Schwab Managed Account Select, Schwab Managed Account Connection (discretionary wrap-fee programs), Schwab Intelligent Portfolios, or accounts managed by an independent third-party investment 25

26 advisor to whom the client was referred through the Schwab Advisor Network service; and Non-Advised Assets Assets not in the Advised Asset category, which include stocks, bonds, mutual funds, and ETFs, as well as payment for providing cash management services. Each month, Schwab calculates and applies an Advised Asset revenue rate and a Non-Advised Asset revenue rate to the assets in accounts assigned to all Schwab Independent Branches. The two revenue rates are calculated by looking at 12-month trailing assets and revenue from all Schwab Independent Branch accounts. This is done by dividing the adjusted revenue amount for each asset category by the associated assets. (Certain product-level expenses are subtracted, and certain revenues not earned at an individual account level are excluded.) Schwab then applies these revenue rates to the daily average assets in each category in accounts assigned to individual Schwab Independent Branches, yielding an adjusted revenue figure for each asset category. The revenue rates change monthly, but the Advised Asset revenue rate may be higher because Schwab generally generates more revenue on Advised Assets. This is due to the asset-based fees paid for advisory services and other revenue generated by the underlying assets in the enrolled accounts, such as shareholder servicing fees paid to Schwab by certain mutual funds. An IBL, therefore, may earn more money when recommending that a client enroll or open an account in one of the services in the Advised Asset category. Schwab also calculates the actual revenue earned by Schwab (often one-time but in some cases recurring) from sales of Immediate and Fixed Deferred Annuities, Long-Term Care Insurance, Permanent Life Insurance, Disability Insurance, and Term Life Insurance (collectively, Insurance Products ), and fee-based financial plans to clients assigned to an IBL s Independent Branch. After adding together the adjusted revenue figures for Advised Assets, Non-Advised Assets, and the actual revenues from Insurance Products and fee-based financial plans, Schwab then applies a multiplier based 26

27 on the tenure of the IBL. In years one through five, the IBL s revenue share is adjusted using a multiplier ranging from 200% to 55%, and then, in years six and beyond, the revenue is adjusted using a 50% multiplier. (Note: For assets of clients who transition to Schwab from an IBL s prior firm, the IBL may elect a constant multiplier of 50% in exchange for an increased ability to ask such clients to transition away from Schwab if the franchise agreement ends.) Finally, Schwab deducts certain monthly fees and expenses from the total adjusted revenue amount that the IBL owes to Schwab under the franchise agreement. This results in a net payout for the month. IB Financial Consultants and Associate Financial Consultants IB Financial Consultants and Associate Financial Consultants receive a salary paid by the IBL and, as determined by the IBL as their employer, may be eligible for a bonus. The criteria used to determine the amount of the bonus may include such factors as Net New Assets brought to Schwab, net new clients acquired through the efforts of an IB Financial Consultant or Associate Financial Consultant, or the portion of the net payout attributable to clients serviced by an IB Financial Consultant or Associate Financial Consultant. 27

28 If you have questions about information contained in this brochure, please call For media inquiries, please call the Schwab Corporate Public Relations hotline at Third-party trademarks appearing in this document are the property of their respective owners. Please note that the information in this brochure does not apply to Schwab accounts managed by an independent investment advisor. Independent investment advisors are not owned by, affiliated with, or supervised by Charles Schwab & Co., Inc. ( Schwab ) Charles Schwab & Co., Inc. All rights reserved. Member SIPC. CS ( ) REG (04/15)