Charles Schwab Corporation (The)

Good morning, everyone, and welcome to the Schwab 2024 Spring Business Update. This is Jeff Edwards, Head of Investor Relations, and I'm joined today by our co-chairman and CEO, Walt Bettinger, President Rick Worcester, and CFO Peter Crawford. As you saw in earnings today, we had a nice, strong start to the year, so there's plenty to cover today. But before jumping in, let's quickly cover off a few of the typical housekeeping items. The slides for today's business update will be posted to the IR website at the start of Peter's remarks, Q&A is still one question, no follow up. And let's try to limit the six and seven part questions, if possible. Of course, we always encourage you to jump back in the queue if additional questions come to mind. And as always, please don't hesitate to contact us, Rob, by our team regarding any clarifying or some of the more tactical questions. And finally, the ever present wall of words that showcases our forward looking statements and remind us that the future is indeed uncertain. So please stay up to date with our disclosures. And with that, I'll turn it over to Walt.

Thank you, Jeff. And good morning, everyone. Thanks for joining us for our April business update. So we began welcoming the majority of our employees back to the office last October 1st. And as a result, I began traveling the country, hosting town halls and roundtables to meet many of the employees who had joined us both before or during the pandemic and hear from them. In addition, I shared some of my perspectives on the economic environment, the strength of the Schwab franchise, and my confidence for the future. After having lived and worked through many economic cycles, I shared with our people that right when things often seem the darkest, they tend to turn around and begin to appear brighter. Of course, I didn't know last fall just how accurate that would turn out to be. It's a wonderful lesson in not overreacting to things that are outside our control. As I sit here today and, of course, recognizing that there are certain environmental and geopolitical risks that remain, the green shoots of a turnaround in the environment are appearing, and we're seeing it positively impacting virtually every area at Schwab, from investor engagement to net new assets to client cash realigning to capital building and, of course, to revenue and earnings. Combined with the timelessness of our through client size strategy, and the hard work of our incredible team of Schwab employees, my optimism for the future is strong. Of course, we didn't simply wait around and wait for a better environment. Our teams have been hard at work on key areas like the Ameritrade integration, enhancing our digital capabilities and platforms, and delivering the world-class level of service our clients have grown to trust and expect from us. So let's go ahead and dig into the first quarter of the year. Inflation remained at relatively moderate levels during the quarter, down substantially from just over a year or two ago. And even as the market reduced expectations for the pace and extent of Fed easing due to the stubborn inflation readings, the equity markets continued to move higher during the quarter. Investor sentiment continued its recovery, with the bull bear spread maintaining its recent strong position. And not surprisingly, traders also began to become more active for our Schwab Trading Index, or STAX, looking for opportunities to benefit from the improving overall sentiment. Encouraged by the improving environment, our clients became even more engaged in the markets, with daily average trades up 15% over the prior quarter, client borrowing or margin balances up 9% in one quarter alone, Total client interactions with Schwab were up 17%, and as they engaged more, they also took the opportunity to seek our help more often, with net flows into our investment advisory solutions up almost 70% quarter over quarter. All these metrics reinforce the confidence our clients have in us, and each of them provides support for our optimistic view of the future. As we progressed through the quarter, we were gratified to see a resumption in the strong organic growth we've been able to produce for many decades. Highlighted by core net new assets for the quarter, just shy of $100 billion, and with the month of March particularly encouraging, with about $45 billion of core NNA, and that's a 6% annualized growth rate. New brokerage accounts also grew to over 1 million in the quarter. That's the first time that we've exceeded 1 million since the initial quarter of last year. Our progress in net new assets during the quarter was due, at least in part, to a slowing of the level of expected asset attrition from the Ameritrade integration. Although we continue to expect to see some degree of attrition throughout the balance of this year, overall attrition from former Ameritrade clients continues to moderate and remains below the levels that we anticipated when we announced the acquisition in late 2019. A major factor in the falling attrition is, of course, that clients become accustomed to the Schwab platform, as well as they recognize that many of the prior Ameritrade platform features we have built into the Schwab platforms. I'll go ahead and share a little bit more around the details of how former Ameritrade retail clients are responding post-conversion in terms of their promoter scores when I move to the next slide. So speaking of retail client promoter scores, we achieved record levels as measured in the first quarter. Our overall score was 69. And interestingly, with our premier fee-based advisory solution, Schwab Wealth Advisory, which some of you may know by its former name of Schwab Private Client, it reached a promoter score of 80. I think what's particularly interesting here is that we achieved this lofty score in a solution where clients are paying fees for our advice and guidance. It's clearly a reflection of just how far we have come at Schwab from our roots as purely a discount broker and the appreciation our clients have for the investments we've made in building our modern wealth management capabilities. Of course, we still offer world-class service for self-directed investors and a an incredible value for fee-conscious investors, but the diversification of our model is building. Now, as I mentioned earlier, we're also tracking our promoter scores for former Ameritrade retail clients who converted over to the Schwab platform. And what we see there is an initial dip in those scores, probably to be expected given the changes that they face. They have to learn a new mobile app, a new website, and the like. But over a fairly short period of time, their scores begin trending toward our historic scores for Schwab clients. Ninety days post-conversion, their scores increase on average about 25 points. And after nine months, their scores have improved about 45 points. I think these results are another testament to the quality of integration and conversion work that's been done by our dedicated people who have been working on the Ameritrade conversion. And while mentioning the strength of our offerings for retail investors, we continue to be recognized by independent third parties for the quality of our platform and service. I do want to call out a special mention of the success we're achieving in our 401 and defined contribution business that operates under our workplace financial services arm. The premier evaluation of service providers in that industry is done by plan sponsor magazine. And they again recognize Schwab with the highest number of best in class awards for the seventh consecutive year. And that's more than two times the number of best in class awards compared to the second place finisher, a relatively remarkable run of recognition and a challenging business line where bigger is often mistaken as better. And then lastly, from a third party recognition standpoint, we were honored when J.D. Power named Ameritrade and Schwab as number one and number two in their satisfaction survey for self-directed investors. Ameritrade's number one ranking reflects the highest they have ever scored, and it was clearly aided by the multiple Schwab enhancements that we've made to the client experience for Ameritrade users, a couple of those being the addition of our Schwab security guarantee and a substantial reduction in the speed to answer client phone calls. I think this recognition illustrates the power of the combined platforms, and our decision as part of the integration to go with the best of both in design. I understand that this approach added some time to our integration efforts, but I'm confident it will pay dividends for years to come. Before I turn it over to Rick, I'd like to spend just a moment commenting on the final client transition group that is planned to convert over to Schwab next month, as well as maybe summarize the overall Ameritrade integration. Next month, we'll convert the last 10% of Ameritrade client accounts and assets. But this group is incredibly important, and it's also unique. It's made up of our most active traders, and many are power users of the Think or Swim platform. For these clients, the conversion experience should go relatively smoothly. because unlike the prior four transition groups, for this group the client experience is essentially unchanged. They'll continue to have access to the trading platform, TOS, that they have historically utilized while also adding all of the features and benefits of Schwab. In terms of the clients of the overall integration effort, As largely expected after initial settling in period, clients in our transition groups are engaging with Schwab and the expanded array of capabilities we offer. These clients are now beginning to bring new assets to us and their trading volumes now exceed the levels of trading they were doing pre-conversion when they were exclusively at Ameritrade. And we're not saying that all integration related asset attrition is over just yet. But as we've shared previously, when all is said and done, we expect to have performed in line or even better than the levels of client asset and revenue attrition that we projected when we announced the acquisition in late 2019. In my opinion, the combination of the best of Ameritrade with the best of Schwab sets the bar for anyone serving retail investors and independent investment advisors alike. Our combination of platform, service, dedicated relationships, investment advisory for retail clients, and expertise serving independent investment advisors is a powerful combination for driving future growth. So, Rick, let me turn it over to you for some more discussion on our efforts and results during the first quarter.

Thanks, Walt, and hello, everyone. We're coming out of the first quarter with strong momentum in our four strategic priority areas as we continue to focus on driving scale and efficiency, win-win monetization, meeting the personalized needs of our client segments, and delivering brilliantly on the basics that our clients expect. Let me start with scale and efficiency. Scale and efficiency has been a key enabler of our success and our ability to disrupt the industry. Looking back to 2013, expense per account has come down 23%. In inflation adjusted terms, we've cut the expense to serve an account roughly in half. At the same time, as you can see on the right-hand side of the page, we have an expense advantage against our competitors. This means more of our clients' wealth is working towards meeting their goals. This is a hallmark of our business model and a driver of the virtuous cycle because it means we can reinvest back in our clients over time. With our consistent focus on expense discipline and scale, combined with the synergies from the Ameritrade conversion and continuously improving our operations, we are able to drive down costs. As we look forward, we'll fully realize our planned synergies from the Ameritrade integration, and we'll invest in AI, we'll invest in end-to-end process transformation, and we'll invest in technology enhancements to add to our expense advantage while making sure we continue to deliver a no-trade-offs experience to clients. Enhancing our wealth and lending offerings remains an important win-win monetization opportunity. We are making progress on both fronts. Our clients continue to seek out our advisory solutions in record numbers, and we have made a number of important advancements in our lending capabilities, which clients have really appreciated. In the first quarter, we saw a record $14 billion in net flows into our advisory solutions, a 60% increase over last year. we have seen continued interest in our flagship wealth offering Schwab Wealth Advisory, along with increased interest in Wasmer and Schwab Personalized Indexing. Schwab Wealth Advisory attracted a record $4.4 billion in net flows for the first quarter, with approximately 30% of those enrollments coming from legacy Ameritrade households, which to us demonstrates the power of the opportunity ahead of us as we introduce more Ameritrade clients to the breadth of all we have to offer. Demand for our Wasmer Schroeder fixed income strategies continues to be strong with $2.3 billion of net flows, which is up 55% over last year. And as Walt highlighted earlier, the clients in these wealth offers are our happiest clients at Schwab. These solutions consistently achieve our highest client promoter scores. As we look forward, we are investing to add capabilities to our wealth and advice platform to support our accelerated growth. Turning now to client segmentation, while we will always meet the needs of the full spectrum of investors, we continue to provide tailored offers for specific client segments. The specialized experiences we recently launched for retail high net worth clients, which we call Schwab Private Client Services and Schwab Private Wealth Services are just two examples. Our high net worth and ultra high net worth client segments are among the fastest growing at Schwab, and they represent approximately three quarters of our total retail client assets today. And the specialized service models that we launched last year are serving these clients well. In the first quarter, the teams serving these clients answered calls on average in less than 10 seconds. And 80% of the calls were resolved by the rep who first answered the phone without needing to transfer the client to another rep or group. We are adding to our product and advice capabilities for these clients with the anticipated rollout this year of an alternatives platform for retail investors. We've also launched our investor advantage pricing for clients and are working on additional lending capabilities to meet this client segment's needs. We're also continuing to invest to provide a trader-client experience that is unparalleled in our industry with our Schwab trading powered by Ameritrade offer. The first quarter, we saw robust trading activity across the board, including strong continued engagement from our Ameritrade clients. Traders at Schwab have access to the thinkorswim trading platforms as well as specialized service teams and tailored education for traders of all levels of expertise and sophistication. And this is an area that we continue to invest in to maintain and expand our advantage. We doubled the number of Schwab households this quarter that use thinkorswim. We believe that our trading offer has never been stronger in terms of our execution, our platform, our service, and the combined research that we offer to our clients through the research and educational capabilities of both Schwab and Ameritrade. Turning now to Brilliant Basics, we want to delight our clients with exceptional experiences in every interaction they have with us at Schwab. And we want to be the easiest place in the industry for our clients to do business. This means that we're continuing to make investments to enhance the investor experience for all of our clients. This includes digital interactions like our streamlined digital onboarding for RIAs, where they can now open and fund multiple accounts in just minutes, or in our enhanced pledged asset line process, where we can now process a pledged asset line in just minutes for most loans. For the pledged asset line, the client experience is usually a conversation with their FC or their RIA to discuss the product, to discuss the rate and what assets they'd like to pledge. Clients then get a DocuSign email asking them to sign to apply for the loan. The time from that email to the email that says the line opened and is ready to draw is just about three to five minutes. The feedback from our clients on this process has been off the charts. We've also worked hard in our digital experiences to be as welcoming as possible to Ameritrade clients by incorporating the features and functionality that's of greatest importance to them. We've also enhanced our move money and self-service capabilities and incorporated DocuSign into our commonly used forms. And it also means we're providing access and intuitive experiences when and where our clients want to engage with us, whether that's in one of our 380 branches, whether it's on the phone where clients can expect their calls to be answered in less than a minute, or whether it's online through our Schwab Intelligent Assistant. With Through Client's Eyes as our foundation, investors continue to turn to us to serve their wealth management and investing needs through all market cycles. We are both ready for the final Ameritrade conversion group and ready to push forward on our four strategic focus areas to serve our clients. We believe we are well positioned to meet the evolving needs of clients and deliver organic growth in line with our historical levels. And with that, I'll turn it over to Peter.