Okay. All right. We're going to get started. Good morning everyone. Welcome. I'm Rich Fowler, Head of Investor Relations for Schwab and this is our 2020 Winter Business Update. We hope this will be an interesting day. Just one or two things happened since we were last together. So we'll try to keep everybody awake as we go through the day.

We do have a great agenda lined up as usual. So let's get me off stage as quickly as possible. First off, Walt will walk us through the strategic picture as he usually does.

Then Joe will join us yet again to walk us through both an update on the Ameritrade transaction and then also to talk about our further work in the digital arena and leveraging scale and efficiency for us. I think Joe is a living proof that much of life can actually be described through quotes from the godfather.

Joe is a living embodiment of the – just when I thought it was out, they pull me back in. So we can't let go of Professor Martinetto and we appreciate him spending this time with us. Then Jonathan followed by Bernie will talk about what's going on with the client facing businesses.

And then finally, Peter will bring us home with the financial picture as he usually does.

So the main reason I'm up here, again, as I always say, is because no one else wants to deal with the next thing, which is the wall of words, which basically is of course around our disclosures and encouraging everyone to keep up with those, we – this year, because of the pending transaction and have a second wall of words, which again relates to specifics around the pending transactions.

So again, the main message of all this is please keep in touch with our disclosures. Let's see. Let's talk about Q&A as usual in the room we'll have mic runners, so please raise your hands, wait for the mic, a question and a follow on, we'll work our way around the room.

For those of you on the webcast, we will as always take questions from the console. Speakers will look to Jeff Edwards on my team, who will wrangle the webcast questions. And I think that covers our basics here. So I thank you all very much for spending the time with us. We always strive to make these a worthwhile use of your time.

And we always, always, always, we made it sound like it, but we really do appreciate the dialogue that these generate with you as we go forward in the year. So with that, let me turn it over to Walt and we'll get started.

Sir?.

Thank you, Brittany. Is this a remote? Good morning everyone. Thank you for joining us, being here in San Francisco. For everyone on the webcast, thanks a lot for being with us this morning. I'm going to take a little bit of a different approach today in my segment than I have in the past. Let's see if I can work clicker.

I'm going to start with a little bit of a backward look as we try to evaluate the picture of where the company is today. So starting with a backward look and then looking realistically at the competitive environment, the intense competitive environment that we operate in today.

And then examining how we look to navigate that competitive environment, so that we're in a position to reward our clients as well as our stockholders. And then at the end, I'll go through some results of the way that we have navigated that environment.

So a little bit of a reverse approach than we've taken in prior years in evaluating and sharing with you about where Schwab stands today. So this first slide just shows a bit of history both growth in assets, I think. I think that chart on the far left would work out to somewhere around in 11% CAGR.

Clients over the course of the last decade are now paying us about 14% less per dollar of their assets overall than they did a decade ago. At the same time, our EPS has grown. And I think that that chart at the middle bottom would work out to about a 15% CAGR in terms of growth in earnings per share.

And at the same time, we strive to take bold actions that are consistent with our Through Clients’ Eyes strategies. A couple – last year, of course, the move to zero online trading commissions for equities and ETFs, the introduction of a subscription based pricing as well as our intelligent income and then two acquisitions.

I'm sure we'll spend a fair amount of time on today. At the same time, what we recognize is this is not the financial services environment of a decade ago. This is a hyper competitive strong organizations, no one is sort of on their heels. No one is trying to recover at this point in time from a particularly difficult tenure in their company's history.

We compete with a broad array of different organizations from large integrated banks, again who are very strong today and aggressively looking to push into our traditional space serving mass affluent, private companies that may operate at a different levels of profitability or scrutiny or even regulatory oversight than we may, firms that are backed by venture capital that that may not be operating with a profitability motive or a profit motive in mind at least in the near-term.

As well as some entities that we compete with, of course, who don't pay corporate income taxes, giving them a structural advantage. So it's a hyper competitive set of organizations that make up the world in which we operate. And of course, as a result, some of which has happened to us, some of which we have created.

Pricing dynamics in our industry continue to lean more and more to the consumer with aggressive movements down in a variety of different pricing, both explicit pricing like commissions as well as implicit pricing, for example, fees for underlying asset management.

And then lastly, we live in a unique world in which the willingness to write very, very large checks to clients in an effort to attract their assets is growing and I'll show a little bit more detail around that.

Just to take one look at this in sort of an unveil, we decided to look at digitally enabled platforms starting back in 2009 and you can see some of the organizations that were involved in introducing these types of digitally enabled platforms and then how it has grown to a point that many of you may recall when I first talked about these platforms a half dozen years or so ago from this stage.

I said that every financial services firm will eventually have some form of digitally enabled platform. And of course I think we can see that unfolding.

What's come in recent years though is that these large integrated banking organizations have become much more aggressive in the mass affluent space with organizations like Goldman Sachs and JPMorgan Chase and BofA Merrill getting into our space, offering competitive pricing and competitive array of services.

When you put that into the backdrop of what does it mean for the consumer, this is one of the most impactful slides that I've seen in a long, long time. And it begins looking back about 45 years ago at three different types of experiences that a typical consumer might have from a financial standpoint.

So it starts by showing at the top the cost of investing, the overall cost of a $250,000 portfolio. And we have all the details behind this in an appendix. Of course, you'll get all the slides available to, was around $8,000 in 1976.

Compare that to the annual cost of a four year private college education, which was just below $4,000 and the cost, the annual cost for healthcare for an individual about $700. It's occurred in the last 45 years.

Now, certainly Schwab has played a role in this, but I think the breadth of competitiveness in our industry has contributed to the outcome that you can see today with the education up at about $50,000 a year, healthcare over 11, and the cost on that $250,000 portfolio.

And that includes we baked in the subscription pricing costs for planning to be part of it. So it's not just asset management down to $660 for a $250,000 portfolio. An extraordinary illustration of just how our industry and the competitiveness of our industry has contributed to benefits to consumers.

What's interesting is that in the face of all of this decline in terms of what the consumer is paying, you have rapidly rising expectations. And of course that is consistent with why you see us constantly talk about a no trade-offs approach in our Through Clients’ Eyes strategies.

Both embedded costs such as underlying fees that may be embedded in an ETF or a mutual fund as well as explicit costs like equity commissions or advisory fees often in a wrap type program have all gone down while at the same time clients' expectations continue to rise appropriately so.

A fascinating area in our industry is the willingness of firms to write checks to provide cash to clients to move their dollars. I suppose it's the ultimate form of direct marketing.

But what's interesting is that although this has been a fairly widespread approach in recent years, the intensity of it in the last three or four quarters has been quite dramatic. And you can see that illustrated here in a couple of well known competitors that have increased the amount that they will pay.

I just recently saw an example of actually a local client here in San Francisco that was offered, I believe, $36,000 to move a very low revenue generating sitting on individual stocks account.

So I'm not sure whether this is a reflection of the thought that metrics generate an impact to a stock price, even if there aren't economics behind it, or whether it's just a thought, if I can win these assets, I can figure out some way to monetize them. Unfortunately, this approach works.

And so, therefore, organizations like ours, despite finding it a somewhat distasteful approach recognize that we have to be willing to match these types of things or there is a certain percentage of clients, who will move on.

It doesn't necessarily build a deep relationship with a client if you're buying the assets with a check, but again it is effective and the intensity of it is higher than ever before. So what do we try to do inside this overall environment? I think when you're in the environment that we operate today, you must be on offense.

And I don't know whether I'm drawing off from a football environment that we just went – just completed here two days ago, but definitely we believe the best defense is a good offense.

And so, we are on offense and we are focused on three primary areas that we think serve our clients well, operating Through Clients’ Eyes and at the same time put us in a position to reward our stockholders, scale and efficiency, monetization that is in the client's best interest in client segmentation.

So diving in a little bit deeper in each one of these three, we'll start a little bit with scale and efficiency. This is a slide that just illustrates some of the implications of work that we're doing in the scale area. Growth in our digital advisory program approaches $50 billion.

Investments in our mobile capabilities now at J.D Power and number one rated for US Wealth Management mobile app satisfaction, significant increase in mobile users now up to 1.2 million a month.

Joe will go into more detail, but a variety of early rewards and I would say very early rewards in terms of the impact of our digital transformation in driving down costs and at the same time enhancing the client experience. So again, no trade-off, better experience for the client, but also lower cost for us.

And then, of course, the two acquisitions can have a measurable impact in terms of scale and efficiency for us over time. From a monetization standpoint, we are looking aggressively at opportunities here, but again, aggressively while doing so recognizing our Through Clients’ Eyes strategy. So I've identified just four of them here.

The first one at the top left involves us looking at all of the revenue that is generated from the $4 trillion of client assets that we serve today and who captures that revenue and are we comfortable with who is capturing that revenue and is the client being best served or is the allocation of that revenue inconsistent with how we think it should be allocated, in other words, should our share be higher than it is today? So that is one opportunity.

We think direct indexing is a critical part of the long-term future of investing and you'll see us making strides in this area to better serve clients. I would argue at the biggest picture level that everywhere technology has gone, it has attacked the concept of bundling and a lack of transparency.

And so I questioned whether over time like direct indexing will have an impact on mutual funds and even potentially ETFs as technology and efficiency brings the opportunity to create better portfolios, more customized portfolios for individual investors as well as organizations.

Schwab intelligent income is designed as a very effective means by which principally investors who have their money in tax qualified accounts can convert that into a paycheck, which of course is the vast majority of individuals in our country who accumulate their liquid assets and say a 401k or an IRA or a combination of the two Schwab intelligent income offers them a high quality way to turn that into income.

At the same time, we also would expect that you will see us introduce versions of this that are even more tax efficient for people who have significant wealth outside of a tax qualified accounts.

And then of course, I guess the topic does your environmental, social governance type of investing is certainly something attracting more attention and we think an opportunity that melds perfectly with Schwab, our brand as well as our history and our reputation as an organization committed to inclusion.

So as you would expect we think that the revenue sources will continue to evolve over the coming years and that you will see a growth in the revenue that we generate from non-spread income while at the same time always doing so in a manner that is consistent with serving our clients well.

It is natural that immediately after we would have finished the majority of the large transfers of sweep money fund balances to the balance sheet that you would be at a high point of the percentage of your revenue generated from spread all other things in the environment being equal.

And then we would expect over time the growth that we'll experience in non-spread revenue to make up a higher percentage than it made today. From a segmentation standpoint, the opportunities are great. I would say we have simply scratched the surface of opportunities here to better serve clients, particularly at the higher end.

When you examine our client base, there is a lot of affluent clients in the retail world, in fact, by some measures, more affluent clients in our retail population than in our RIA population, but often with different behaviors, largely self directed investors and relatively price conscious.

At the same time, we have, as I mentioned, a lot of affluent investors in the RIA world. And so, there is a series of things that we're working on today to enhance the capabilities for both sets of clients, relationship broadening more opportunities in the lending space, planning opportunities on the retail side.

We know that the RIA is that we serve compete directly with advisors of many of these large integrated banks and many of them will lead with lending.

And therefore, it's essential that the RIAs have access to lending products through us that are on par with the lending capabilities that the firms – the organizations that are competing with might be able to offer these affluent investors.

So if you put it all together, it sort of brings us right back to the beginning often where I open the comments that I make in meetings like this, the virtuous cycle and how did the virtuous cycle work during 2019.

And you can see with the math here we – again, we're in excess of $200 billion in core net new assets leading to $4 trillion overall, revenue just shy of $11 billion, 6% growth. And of course, that includes the fourth quarter with the commission impact.

ROE approaching 20% with solid EPS growth and of course in sharing back with our clients the significant move we announced in October to eliminate the online and mobile equity and ETF commissions. Third consecutive year in which we were able to generate around 7% organic growth on our asset base.

Certainly, our assets continue to grow at $4 trillion now and could be larger pending the acquisitions that we have discussed. We continue to feel very confident in our ability to deliver in the range of net new assets that we've historically talked about as a percentage of our base.

We don't feel that at a certain size that we were not able to deliver that percentage of assets. I remember being asked that question back in say 2009 when we had reached $1.1 trillion in assets. Are you going to be able to continue to grow at this rate while at 6%, 7%. We felt confident, then we've done so and we feel confident going forward.

At the same time our client utilization remains relatively elevated. So the second year in a row of about 1.5 million new brokerage accounts and three quarters of a million new to firm and that was entirely new to firm households at Schwab and our clients continue to take advantage of capabilities that we offer across a variety of product solutions.

Putting it together into more of a financial picture, you see the revenue growth from 2015, the ROE progression, earnings per share and then the pre-tax profit margin expansion.

And I think as everyone knows, we had a couple of small items in a relatively small impact from an expense standpoint in 2019 that we're actually showing of course with those numbers included in the 2.67 and the 45.2.

So how do you succeed in a world of hyper competitiveness and an incredibly strong and diverse competitors? Again, I think it all comes back to the client with our strategy Through Clients’ Eyes, a focus on no trade-offs, delivering great value, service, transparency and trust. I suppose that a headline that's a way of saying no trade offs.

We think that's the key to competing in the environment that we're in, deliver for the clients without any tradeoffs. So let me go ahead and stop there. And I left about a half an hour ideally for Q&A that we have. I think we have mics correct. So we want to have folks stand and identify themselves, raise your hand.

When you get the mic stand, Identify yourself and go ahead with your question..

It’s Brian Bedell, Deutsche Bank. Well, can you just – talking about the as you alluded to on the deal call back in November, building in the modern wealth – new modern wealth manager.

Maybe if you can elaborate what your vision is for that with Ameritrade, say, five years out? And how you see that performer firm competing with the other large the wirehouses especially? And then you mentioned obviously lending is going to become a critical part of this as well.

So how you plan on competing with banks? And where you see that whole landscape maybe in five years?.

Sure. Well, thanks, Brian. A lot in that question. I think, I guess, I would start with a couple of points in competing with these large integrated banks. One is that we're going to have to leverage our uniqueness, our capabilities, our scale and our efficiency. So we operate the firm today at a total cost of about 16 basis points.

We think that some of the transactions that we've announced upon full integration will help lower that 16 basis points a bit, but we will continue to invest in digital capabilities that will further lower that.

And by keeping our costs low and sharing back with the client some part of that efficiency, we're going to keep price pressure on the industry to the benefit of the consumer. And that's going to continue to apply pressure to those who may operate at a higher cost. At the same time it's not just about costs.

There's also value and relationship involved in that.

So we'll continue to expand our capabilities with digital that will deliver great value for clients and a great experience, but for the clients where relationship is important as you saw in the segmentation slide, we are delivering today and we'll deliver an even broader array of relationship capabilities for select clients.

Put that all together again, I think you're looking at, as we often say, no trade offs type of environment, great value, great service and for those that it's important, a personal relationship that they can rely on, sometimes that'll be delivered in the retail world, sometimes it will be delivered in the RIA world..

Hey, Rich Repetto with Piper Sandler..

Yes..

That sounds unusual after many years. Well, the combination of Schwab and Ameritrade is getting a lot of attention. The competitor out there has been saying that, you know, looks at it as a big opportunity.

And I know you're limited at what you can say and what – and Joe will talk a lot more, but I guess this is your first chance since the announcement to really say more about how you're going to go about it, how are you going to handle competition, what you'll make, how you make investors feel comfortable that you can handle this big 5 trillion in assets overall merger..

Well, I think the announcements and the public statements that have been made by our competitors are logical on their part. And whenever you have a big combination, it is an opportunity for them to pursue the conversion or the winning over of clients who are in one of the two organizations today. It makes a lot of sense for them to do so.

And I think it is reflective, again, of the intense competitive world in which we operate. That’s simply the combination of Schwab and Ameritrade does not change the industry. The combined organizations would be somewhere around 11% of investable wealth in the United States.

So it's still fairly modest in terms of the overall size and therefore these competitors' comments and actions make a lot of sense for them to pursue. At the same time, we think that the combination of the two puts us in a better position than ever to offer this no trade-offs proposition.

So whether you are a trading oriented investor and benefiting from what we would consider in many cases best-in-class trading platforms from Ameritrade, whether you're more of a long-term investor benefiting from many of the capabilities that Schwab has you need banking capabilities.

Putting all this together, we believe offers the best complete total experience at Schwab as anyone in the marketplace can deliver in at a value that we think is the best for the consumer. But it's going to be a road to get there. We're working carefully with the Department of Justice today. We have great respect for them. They're thoughtful.

They're inquisitive.

We're working with them on the industry and how the industry functions and operates from an educational standpoint, but they're very bright, very thoughtful and careful in considering to ensure that they fulfill their duties from a consumer standpoint, but we feel very confident that the combination creates that true ideal model again with no tradeoffs..

Great, Thank you. Mike Cyprys from Morgan Stanley. So I guess just as you're thinking about growth, I am just curious how you're thinking about extending the brand to do more for existing clients and to access new clients perhaps that you have not historically addressed.

And maybe you could talk a little bit about particularly on the non-spread based income.

Just generally how you think about where you see the most revenue being captured by others on the platform? How you think about trying to get a larger piece of that? And what scenario could you go into active management or try and go more down the technology aspect there?.

Yes. So let me do the second part first. I think clearly the greatest opportunity today when we look at the revenue that our clients are generating for third parties is in the asset management space.

And so that is a focus of ours in evaluating whether the consumer is getting the absolute best service, best value, best outcomes for what they're paying or are there alternatives that might be better for them overall.

And at the same time potentially shift some of the revenue from third parties to us, but again, only in the context if it's in the best interest of the client.

But I think asset management is the one that immediately is at the top of the list in ensuring that the client is getting the best possible results there and at the lowest possible cost, leaving as much as we can in their pocket. In terms of brand extension, interesting, our brand is already viewed quite broadly.

And it's not just our brand; it's also the work that we do behind the scenes for the RIA. So, the RIAs are having a good success competing in the higher end of the market for people who are looking for the broad, robust capabilities that that many of affluent or high net worth investors are looking for.

And at the same time, our brand fares very well with affluent or high net worth investors who are more self-directed oriented and might be looking more for platform service and lower overall cost. So the brand extends quite well.

And down into the millennial, I think, Jonathan will share details on this, but over 50% of our new to firm households are under the age of 40. So, we're fairing very, very well in the millennial – the younger investor space with our initiative. So I think our brand has already extended quite well.

What's critical for us is to ensure that the experiences that these various client groups have when they come to Schwab are consistent with their expectations for a world-class experience..

Mike Carrier, BofA..

Hey, Mike..

Maybe just one on the competition. So you mentioned that incenting with the cash, the competition. So like – how do you like try to offset that? And then from a product standpoint, in order to differentiate, you mentioned asset management.

It seems like there's some regulatory change on annuities and insurance so just from a product standpoint, any other areas that you're interested in?.

Yes. So I think that when you have – there's a couple things you have to do with the cash. One is your field has to be aware of the fact that we're not going to lose clients to another organization because of a cash offer.

So you have to educate your field, make sure they're aware of that, and then you have to be willing to match what goes on out there even at times when arguably it is uneconomic in the short-run to do so.

But there are as we all know organizations over the years who will make uneconomic decisions or what appears to be uneconomic decisions in the short run for a variety of different reasons. And what we don't want to do is allow those organizations and those decisions to undermine our long-term trajectory. So we have to be willing to match.

At the same time, as I referenced earlier, Mike, we think it's a strategy that is incredibly shortsighted creates a level of expectations on the part of the consumer that probably are going to forever be difficult to match.

And you could definitely find yourself in a place where the consumer expectation is to get a check every time from someone when they're planning to make any type of investment. So it's not a strategy that that we consider an effective long-term one. You asked around….

[Question Inaudible].

Yes. So, the insurance business is a very difficult business with very challenging returns.

I think it is likely that you will see us leveraging a bit of our partnership that we have with USAA to deliver quality solutions in that space where they're in the best interest of the client, but I think it's very low probability that you'd see us actually designing or creating or starting an insurance company to offer those types of products.

But again, what we'll want to look for is only when it's in the best interest of the client. And if so, USAA has great solutions as do some of the other partners who worked with today..

Thank you..

Craig Siegenthaler, Credit Suisse..

Hi, Craig..

Craig Siegenthaler, Credit Suisse.

After the earlier slide on direct index investing, can you just walk us through what is the timeline when you think about when Schwab will be ready to launch these capabilities in the retail channel? And do you think Schwab will be one of the first firms to do this? Or do you think other firms out there will be to do it?.

Well, I don't really want to say a timeline for competitive reasons on it, but I think what's less who is first and whether we're first or others are first within the segment of organizations we compete with, but it's really going to be who has the economic incentive to drive this type of very consumer friendly solution into the market.

And generally, the organization that would be most apt to do that is someone who has very little to protect in terms of existing proprietary asset management.

Because ultimately the argument may well be that the winners and losers if direct indexing becomes a major way of functioning going forward, the winners will be those offering the direct indexing albeit probably at a much lower revenue per dollar of client assets than active asset management and the losers may be those who are doing asset management at a much higher cost.

The losers may also be those who are doing indexing just traditional beta oriented indexing that in a packaged format may not be as effective for the underlying consumer as the direct indexing. Time will tell on that.

But again, if you look at what we've had come together technology, the coming of fractional share trading which enables things like direct indexing down to the lower level in assets and the elimination of transaction pricing, all those things play together toward direct indexing, playing a meaningful role in the future for investors of all sizes as well as we all know the benefits of being able to customize and include certain areas, exclude certain areas.

That's a powerful model I think for the future. I think, Jeff, you have one from the....

Sure, I had a question from the web.

Can you elaborate a bit more on the incremental lending opportunities you may want to pursue out of the bank? And what is your comfort level on expanding the ratio of loans to securities?.

I think we have great comfort in expanding the ratio of loans to securities as long as our loans that get paid back.

And so I would categorize it that that is our strategy and willingness to lend more to our clients particularly tends to be more of our affluent and higher net worth clients, appropriately risk managed and at a reasonable and fair interest rate.

We intend to be quite competitive there in support of the RIAs that we work with as well as our principally self-directed high net worth retail investors. It's a critical area for us to compete and we intend to do so. And of course, it makes all the more important to have the banking capabilities that we have here at Schwab..

Dan Fannon, Jefferies. Just to follow up on asset management. If you look at Ameritrade's revenue mix today versus yours, asset management is even a smaller component.

So as part of what you're talking about in terms of incremental growth just normalizing their – kind of penetration of their customer base with what you’re already doing? Or is it – I assume there's a combination of both of that?.

Yes, I think I would say that it's probably more incremental, not so much relying on the client base of TD Ameritrade.

It’s, as you know, when we announced the acquisition we were communicated fairly modest revenue synergies inherent in that and we continued to believe that in many cases, and again, this is a broad brush paint, broad brush statement, so we have to view it through that lens.

The Ameritrade clientele is a different clientele than the Schwab clientele, lower account size is much more trading oriented. And so, the idea that there are a tremendous advisory or asset management opportunities in that client base, I think, would be – to make that assumption would be a mistake. Are there some? Yes, of course, there are some.

But it is a different client base. Relatively what similar number of accounts, but a little over a fourth of the assets overall, so that in and of itself speaks to the difference of the client base.

So what I'm referring to is more capabilities that will be appealing to existing Schwab clients, some percentage of Ameritrade clients and then what we anticipate are ongoing new clients in a manner consistent with what I shared previously about our ability to win new clients in the marketplace. Other questions? Yes.

Jeff with the console and then Rich had another question here..

We had one more from the web.

Following the commission actions in October, as you look ahead, where do you and the executive team see the most potential price risk in the business and across the broader industry?.

I think as we sit here now pricing, I don't know that I would identify an area is having pricing risk. As we sit here now, there are certainly areas that people could look at to consider for pricing moves. There's still some transaction pricing that sits out there.

Although arguably – arguably if there was someone in the industry today who felt like there was a significant market share opportunity and a pricing move or other competitive advantage or strategic advantage they could achieve, they would have likely done so as part of their response to our move in October.

That's not to say that someone couldn't surprise us, they certainly could. But sort of everyone had the chance to post our announcement in October to reset their pricing to an area where they felt that it optimize their competitive and strategic position.

And the fact that everyone has sort of done what they have done, I think would tell us that most feel that that there aren't big gains to be achieved by additional pricing moves today. Again, I could be totally wrong and there could be an announcement this afternoon from one of our competitors, but I think everyone had that opportunity.

And as we sit here today most are probably made their decisions..

Well, Rich again. So when you looked at the potential acquisition targets, you picked Ameritrade with a significant RIA network..

Yes..

So, I guess could you give us the thoughts on, was this a surprise? Like it has garnered reasonable amount of press and discussion, I see when you get your second requests, the other day stocks traded-up actually off of that that day. But what – just what are your thoughts on, this, the whole RIA issue and regulation..

Sure, sure. So Bernie I know is going to speak at length to this, so I don't want to jump in front of the things he has to share, but I'll just share some, maybe high-level perspectives on it. We are highly committed to the RIA space. And when I say that, when I say the RIA space, I mean all RIAs, of all sizes and shapes and forms.

We have historically been a leader in the sub-100 million AUM RIA space. And so we are excited about combining our RIA capabilities with TD Ameritrade’s RIA capabilities, and serving an even broader array of RIAs of all different sizes.

And I think our strategy is certainly to continue to be a premier location for RIAs of all sizes and serve them in a world-class manner.

So there's again, I don't want to jump in front of things Bernie is going to share, but the speculation that we in some way, shape or form have a little or no interest in serving RIAs who might not be billion dollar plus RIAs is inaccurate, naive and inconsistent with everything that we have done for the last 25 or 30 years in the RIA space..

And just the broader view about the antitrust sort of review in the advisory space. You can call it RIA..

Yes. So, as I mentioned earlier, the department of justice is thoughtful. They recognize the difference between facts and speculation.

These are highly professional individuals who are doing their appropriate job and in looking at any type of combination and ensuring that in the process the consumer wins in that combination and the consumer is not penalized. So, they're doing thoughtful work. We're co-operating fully.

We're excited and encouraged to provide them with anything they need to do their job. But again, I just, I want to emphasize our commitment to the RIA space includes all our RIAs of all sizes and we intend as we think we have historically been, being the leading provider for all types of RIAs..

Well Brennan Hawken from UBS..

Hi Brennan..

Just a couple questions on some of the things you mentioned. First on the competition in the cash offers, a lot of it made sense right up until I think the end and I might not have heard it correctly, cause you said the people they are being aggressive doing things that are uneconomic, it's confusing to you, that all made sense.

And then I thought you said you told the field we'll match it, but why?.

We have to..

Like if competitors are going to do something dumb, it's uneconomic and so you lose a customer, isn't that sort of c'est la vie and then you can just pick up customers elsewhere.

Wouldn't doing something that you know is uneconomic to support a net new money or whatever the print or the number is that, doesn't that – isn't that not – doesn't that make sense. I don't get it..

It is hard to disagree with what you said, but I think that the challenge for us when we look at it is that if we do not match, we simply encourage more and more of this behavior. And so when, as I referenced earlier, cash for assets works with a certain percentage of the population. It is effective. It didn't work, people wouldn't do it.

And so what we try to do by saying we will match it is we're discouraging that behavior as best as we think we can.

And so I – it's not a, there's not a perfect answer and I won't sit here and argue that our answer is the perfect one to do, but I think our view is that discouraging it by making it less effective is better than encouraging it by allowing clients to leave and capture that cash.

Now that's not to say in every situation, right? We're going to look at each client, we're going to look at the underlying economics of that client. We're going to evaluate whether this is a serial abuse –well abuser is the wrong word, let's say a serial user of these types of offers.

So we're going to apply rational thinking in behind it, but in general, we're not going to lose clients to someone pursuing this type of a strategy and therefore in our mind encourage it on an ongoing basis..

Okay. and then on the – growing the loan book, particularly in the retail side, I might not be remembering correctly, but I think you guys made an effort similar to this about a decade ago to try to grow a prime mortgage book a, which didn't translate into a ton of loan growth.

How are you approaching things differently than you've approached in the past on the retail side? What is it that you're going to do to compel some of those loan balances to come to you? And what is it going to end up costing you?.

Yes, so I think one of the things we have to be careful with when we evaluate our success in the lending side is we tend to only look at the loans that we keep on our books. And we actually retain a fairly modest percentage of loans overall on our books.

Generally, our ARMs and of course in the rate environment we've been in for most of the last decade, few people have been opting for ARMs, much of the lending has occurred in the fixed space. So we're not retaining that.

So when you look at loan balances you probably are seeing an under-representation of the success we've had in doing lending with clients. I think when it comes to lending for the most part relationship is key, but you have to have pricing that is competitive in what is to some extent a commodity oriented offering.

And when I look back at some of the things that we have done in the past, we probably weren't priced as sharply as we needed to be. For some of the commodity oriented product, particularly with affluent and high-net-worth investors where your risk of default is very, very low.

So, there's a bit more sharp pricing that is going on today than we may have in the past. To me, that's probably one of the biggest differences that you'll see that and an expansion of our capabilities and field representation to support our field professionals with lending talent that in the past we didn't have.

Today, we have a much more robust and professional team of individuals out there supporting our field..

Christian Bolu, Autonomous Research. Hi. Your market share in the RIA business post the Ameritrade deal will be between 40% and 50%.

Just maybe what's your argument as to why that is not anti-competitive?.

Yes, let me first say, I'm not sure that I believe that market share percentage.

I think it is basically your data that you guys used to present..

Well, when I look back, I think it's at the lower ends of the range that you talked about. I guess the first thing I would do is I would say, let's talk about the size of the funnel here. If you look at the RIA business, we're in the business of serving individuals who advise other people with respect to the investment of their money.

That means that the individuals who make a living advising other people on the investment of their money, they have a broad array of choices. It's not just purpose-built platforms. They have the choice to be with independent broker dealers. They have the choice to be with wirehouse brokerage firms. They have the choice to be with hybrids.

I think some of the hybrid organizations offer as many as a half dozen or so different models for RIAs. And along with all this other dozens of different custody and brokerage choices, there are also purpose-built platform choices. So if you simply narrow it down to purpose-built platforms, yes, we may be in the 40% range market share combined.

But that's after throwing away all of the other options that were available to someone who's in the business of managing money for other people. And let's also keep in mind that the underlying consumer, the underlying investor, nothing has happened to any of their choices.

They have all the choices that they had prior to this acquisition that they can go to. So the ultimate consumer in this situation has a complete broad array. And then lastly, as I referenced earlier and Bernie will talk about more, even for those RIAs so we start with this big population of people in the business of managing money for others.

And if we skinny it down just to the population who've decided to be on a purpose built platform, post combination, we will be offering them the level of service and value and pricing and capabilities comparable or better than what they have today.

So, I'm not sure when I sort of step back and try to look at it as objectively as possible, I'm not sure where I see any type of loss of capabilities, functions, value, price for either the underlying consumer or for the RIA who's chosen to go to a purpose built platform..

This is Brian Bedell from Deutsche Bank again. Just coming back to what you commented on before on the revenue synergy opportunity for the Ameritrade customer base.

Obviously more trading focus, but why wouldn't you be more optimistic about the wallet share penetration there? Presumably, they're doing banking somewhere else or wealth management somewhere else and now that you've got a – or you will have an enhanced range of services, should we be thinking or should we be thinking there's a better opportunity to penetrate that customer wallet share?.

Well, again, we don't have the details at this point in time to be able to know the size of that opportunity. That is why when we shared on the announcement, the revenue synergy opportunities, they were very, very modest. We don't have that information.

It may well be that there is opportunity and that many of the people who have more modest size, average account balances at TD Ameritrade have meaningful wealth outside or they may not. And I think we have to get the data and have that information to be able to express something with a higher degree of confidence.

In the meantime, I think consistent with the way that we have tried to always communicate with you, we would rather be a bit more conservative and not show large revenue synergy opportunities without more factual information to back that up..

Thanks, and then just a follow-up back on the – one of the first questions on the long-term competitive response.

You're positioning your firm more and more to compete with a broader range of financial service companies, Vanguard, Fidelity, potentially BlackRock with self indexing, if you're successful there of course the wirehouses, why don't you see those other firms trying to – obviously they'll have competitive responses, but why don't you – what barriers to entry or what barriers to them raising their ability to compete with you? Do you see going forward that you will be putting together with the combined firm?.

Yes, I think there are very limited barriers for them to enter. In fact, I would argue that it's not just simply us looking to broaden out our appeal. It's them per some of the charts I showed up there. Identifying the segments where we're successful in and striving very hard to come into our space.

So, I think the message that I was trying to deliver in part with the opening slides is that everyone, this industry is intensely competitive.

And we're broadening our capabilities and others are broadening their capabilities and I think the idea that you can neatly slot organizations into segments that they're trying to be successful in is a decade ago thinking.

And so we have to, in order to be successful, we have to be world-class and no trade-offs in all the different segments and all the different sizes, slices of clients based on asset size.

And I think they all recognize the same thing, that's why there is a You Invest, that's why there is a Merrill Edge, that's why there is a Marcus and that's just the world that we live in.

We feel confident in the combination of our brand, our efficiency, our history of innovation that when you put all those things together, we will be successful in serving clients in this hyper competitive world. But that is the world we live in. It is an intensely competitive world and all lines are sort of blurred as to who works in which space..

Will Nance, Goldman Sachs. I wanted to follow-up on the idea of you getting your fair share of the revenues currently going to other parties. There's always been this narrative around your retail business competing for the advisory business of the advisors on your RIA platform.

I guess you've always done a good job managing that conflict with the advisors on your own platform.

For some of the advisors on the Ameritrade platform who maybe are less familiar with how you go about that, what sorts of efforts for outreach are you guys contemplating to kind of manage that, that perception as you execute also on kind of getting your fair share of the revenues on your platform?.

Sure. Well, Bernie and his leadership team, certainly folks like Jon Beatty and Tom Bradley and others will work hard to communicate the approach that we've historically taken which is very, very rarely do we ever see a situation where there is actual competition.

And if we do see that where there is competition for the same client we will generally stand down in the retail space in favor of the RIA while understanding that ultimately the end client has to be the one making the decision. Right? But I think this notion of competition between retail and RIA.

Again, it's in many ways it's sort of news that – I wanted to use a phrase, but I'm not going to use that phrase. It's news that may not be totally accurate and it's just not been something that we've seen of consequence.

It's been more, and you used the word Will, it's been more of a narrative maybe promoted as a competitive tool than it has been a real thing. And in some ways it's hard for us to sort of prove the negative. We'll do the best that we can.

But people will have to experience the fact that the combined organizations are 11% of AUM and there's a lot of opportunity in the 89% much more than being overly concerned about the 11%. Here's a question here with Kyle..

Thanks Kyle Voigt with KBW. Just with respect to the DOJ, some prior deals where the DOJ issued that second request have resulted in a remedy being offered or agreed upon. Assuming the DOJ is focused on the RIA custody business.

Do you believe that operationally it's even feasible to offer a remedy for a fraction of the RIA custody business? And you previously mentioned the RIA business as part of the strategic rationale for the Ameritrade transaction.

Do you believe that rationale for the transaction would remain in place even excluding a custody business?.

So, I'm not really going to speculate on remedies. The second request is to be expected in a deal of this size. It just, there's not enough time without the second request for the Department Of Justice to do their appropriate and professional evaluation of all the implications.

So, so I don't think the second request is a signal of anything other than a transaction of this size warrants appropriate diligence and that warrants the second request. Beyond that, I just don't think it's appropriate for me to speculate on remedies.

We feel very confident that the transaction as announced is in the best interests of all consumers, both end investors as well as RIAs. And we feel continuing to demonstrate through facts that that's the case. Do you have a question now? I guess not. I guess one more quick one, Jeff..

Yes, one more quick one from the web. A number of firms are looking at some, maybe some newer acquisition channels such as a stock plan service businesses or other corporate relationships.

Can you talk a little bit about how Schwab is participating in those newer channels?.

Sure. So a core part of our corporate strategy for many years has been the capture of both clients for the retail channel as well as for RIAs via our bundled and unbundled 401(k) businesses, which combined have hundreds of billions of dollars.

Many times people only look at our bundled side and aren't cognizant of our unbundled, but our bundled and unbundled 401(k) businesses as well as our stock plan services business. And they make up a meaningful percent.

I don't remember the percent off of my head, Jonathan, what's the approximate percent of new to firm households, they'd come from the corporate channels? So it's, a meaningful percent. I don't remember the exact percent. But we can find out the exact percent and Jonathan can communicate it during his segment. Thank you all so much for your time.

Thanks for being here today. For those of you who traveled, I look forward at the breaks to have the opportunity to spend more time with you one-on-one or in groups. And I'm going to turn it over to my great colleague, Joe Martinetto to update you on the status of the integration as well, some of our digital initiatives. Thanks Joe..

Thanks Walt. So with the introduction I got, I feel like I should issue a disclaimer at the beginning. No one's going to make you an offer you can't refuse except for maybe superior wealth management services with great price points and value. So, all right that kind of fell on his face. I didn't know he was going to do that.

That was the best he could come up with in the moment. I better should move over to the business side and give you what you're looking for the update on the TD Ameritrade transaction as well as spend some time on digital.

I think there's some key integration points to steal a word here around what we've been doing with digital and how we plan to approach the integration efforts more broadly. So like to be able to bring that all together.

So, starting with the transaction these first couple of slides, it is not going to be a lot new, but this is a transaction that's predominantly driven by building scale. Scale can produce some relatively significant shareholder value, scale becomes a strategic valuation driver when you use it the way we have.

So when you drive scale and share some of the benefits of that scale back with your clients, either through product innovation or pricing to create new opportunities to drive growth for the firm for the long run.

So this more than just the unlock from reduction of expenses, this is about building a long-term scale model that allows us to continue to create and leverage that, that strategic advantage that comes with building scale. When I talk about scale, what are we talking about? Obviously the consolidated firm is going to be quite large.

So, you got some metrics on the side of the page here that will allow you to get a sense of what a post-integration company might look like. Clearly this gives us opportunities that are beyond the scale in terms of size of firm that we operate today. There's some other advantages that come through the transaction.

We've heard Walt talk a little bit about some of the capabilities that we would expect to be able to offer either to the Schwab client set from what comes from the TD Ameritrade capability set or to the TD Ameritrade clients from the capabilities that Schwab has that they don't currently offer.

And there is an opportunity for a pretty significant shareholder unlock here in value in terms of reducing some of the expenses of the consolidated entity. So, what are we talking about in terms of dollars? First I would say you don't have to scribble madly to write these numbers down.

They are the exact same numbers that we showed you back in November when we announced the transaction. So there is no new information at this point to update you on other than recommitting to, these are the synergy numbers that we expect to be able to drive out of the transaction.

We are starting to work to put plans together to be able to recognize these numbers and as those plans come together and we do have more updates, we'll share that information with you over time.

But for now, we're still talking about $1.8 billion to $2 billion of expenses on the consolidated firm, that’s 60% to 65% of the TD Ameritrade expense base or 18% to 20% of the consolidated firm. We do see opportunities on the revenue side.

So we've, I think walked through changes to the way the TD Ameritrade side handles some of the client cash managements and that IDA agreement that they've got.

We do see opportunities particularly in the trading space to offer some additional capabilities to the Schwab client set and particularly in wealth management to offer some new opportunities to the TD Ameritrade clients set.

And then obviously we've set aside some pretty significant dollars in terms of what we expect to spend to be able to get to that consolidated integrated company. This is a different kind of acquisition than what we did with the USAA transaction.

So just to make a couple of points here, that was an account transition where we are going to literally close and convert over a weekend. So it's, the kind of transaction where you can take a team, you can put them together, you can tell them your job is to go execute on this.

Obviously, they need help from a lot of the organizations, but with a much more focused and contained kind of effort, the TD Ameritrade transaction is going to be more of what firm does over the next two to three years to deliver this value.

So, rather than being able to pull a consolidated team together to try to manage the transition, this is going to be work that's going to be driven broadly by the leadership of the company on a consolidated basis to get to those synergies. So, a little bit different approach here in terms of how we're thinking about the integration can work.

So, what exactly do I mean by how we're thinking about the integration? So we developed a set of guiding principles to help everybody that's working on the integration team understand the priorities for how we intend to manage the transaction.

And some of these may seem fairly obvious but they are important and we wanted to share them with all of you as well to just give you a sense of where we are in terms of mindset about how we're approaching the transaction. So number one, minimize client disruption. I think we would have attempted to do that anyway. We are Schwab. We serve clients.

TD Ameritrade also affirmed that it is very focused on serving clients and does a great job at it. So, you've got two firms that are very focused on serving clients, serving them well. There's no reason to expect that we wouldn't anticipate continuing to do that through and past the integration. So, we have some pretty lofty retention targets.

We could not do that if we did things that were highly disruptive to the client base. So, clearly here making sure that we continue to give them the capabilities that they would expect to have so they can continue to do business with the consolidated company becomes a big part of the planning exercise that we're going to engage in here.

Capturing the synergies as soon as possible. So making sure that we are putting plans in place to actually recognize the kinds of numbers that we've been talking about and be able to go execute against those, make decisions quickly.

So this one is a little bit more focused on the Schwab internal component where we have a capacity to do a tremendous amount of analysis and tremendous amount of socialization.

We may not be able, in the timeframe we're talking about to get to the kinds of numbers that we need to hit, be quite as in depth that may mean that we have to make decisions a little faster and we may have some cleanup work that has to be done post-integration. We're going to be able to be okay with that.

On that front, one of the decisions that we are going in with, unless it's proven that we can't execute on it, is we expect the Schwab systems to be the platforms of choice.

So that sounds maybe a little bit narrowing when you think about the idea that there are definitely some capabilities on the TD Ameritrade platform that are superior and different than what we offer. So that's why we've got the caveat on this phrase here where except where there's a clear material advantage in what the TD Ameritrade approach brings.

So, to the extent that there are opportunities out there in that TD Ameritrade capability set, particularly around areas like retail client trading or in some of their open API approach that they've used to help their RIA has used some third party providers. Those are things we're going to have to take a hard look at.

Those are capabilities that we would expect that we're going to be able to largely bring across either directly or through build out in the Schwab platform.

But to be able to recognize the kinds of synergies that the pace we're talking about, this can't be a system by system, platform by platform, pick the best and drive to an optimized platform over the long run that will just take too long. So we have to pick one of the platforms to start from.

Our going in presumption is we're starting from the Schwab platform that, at the end of the day that is not meant to cast any aspersions on the TD Ameritrade platform. We've got two companies that have made great investments, have great platforms.

It really is just a matter of how do we get to a consolidated platform the most quickly and allows us to get to the synergies. Again, a little bit of inside baseball. We've got a lot of work that we're doing on digital platform evolution and transformation. And we may have to reprioritize some of that and take some of those resources.

Well we've got particular subject matter expertise and take things that are more important to the integration experience and maybe prioritize that over some of the new capabilities that we might have been thinking we'd be bringing to market.

And then finally even though the two firms approach the market largely consistently to the extent that there are places where there are differences, the resulting firm is going to be Schwab.

It's going to be our strategy, our vision, our values at the end of the day, our responsibility to make sure that the folks on the other side understand the importance of that and why it's critical to the ongoing success of everybody in the consolidated entity.

So where are we specifically in the integration? I got a lot of questions in the few minutes I was down here before. So let me try to address what I heard and I'm sure there will be more when we get to the Q&A. So, we have stood up an integration program that is being led by Jason Clague.

I don't know if most of you, I don't think he has ever presented, he is actually in the back of the room if you want to ask him questions at the break. Jason is the Executive Vice President that runs our Operations Group and we couldn't think of a better person to at that level really stand-up and run that integration management program.

We've created an integration management office. We're in the process of staffing that office. We are organizing the work at this point. We have identified 14 work tracks. We have leads identified for all of those main work tracks. In parallel, a parallel exercise has been going on the TD Ameritrade side.

They've got their head of integration, they've got their heads at the work tracks. We are all coming together later this week in Westlake, which is just outside of Dallas to have our first big integration planning kickoff meeting.

So there have been some conversations that have occurred particularly among the track leads to start to get some of the work organized, but the big launch meeting is going to be this Thursday and Friday.

So there are obviously a lot of concerns for a deal of this magnitude with this visibility where we are being appropriately cautious around sharing of information.

Some of the work that has gone on is establishing the right communication protocols, putting the right controls in place, making sure people understand the rules of the road, standing up to things like clean room processes so that we can share information appropriately while we're still in the DOJ review.

So, all of that work is in place now, so we can get together and have this meeting and be confident we're going to be able to do it in a way that still conforms with all of our obligations and all of their obligations to continue to operate as independent companies.

Beyond that from a timeline perspective, we don't know at this point how long the DOJ review is going to take.

As we get more information on that, we'll obviously be sharing it, but for now rest assured we are using every day as best as possible to start to plan for that integration so that we can hit the ground running on day one post-close when we know what that post-close date is.

So, switching to tax a little bit here, I'd like to move over now and spend a little time talking about some of the work we've been doing in digital transformation on the Schwab side.

And when we introduced the digital services organization not quite two years ago at this point, I think we spent some time talking to the investment community back then around what we were hoping to accomplish and so a lot of this should seem fairly similar to all of you – but – or familiar to all of you.

But what we're trying to accomplish with digital is around creating those seamless experiences for the clients that allow us to bring products to market that not only are easier for clients to interact with, but also drive some additional benefits to the company.

So, thinking about how those products are built and serviced in a way that's different than what we've done before. Looking, all the way front to back in those development chains and making sure that we are building the fulfillment capabilities that allow us to take advantage of the automation that the digital front end will create.

And then finally to the extent that that is all working and we're driving some additional synergies, creating the ability to reinvest that value back into the client set to continue to feed that innovation channel that lets us continue to build the growth of the firm.

That doesn't sound a whole lot different than what we've been talking about in how we're approaching integration. So, integration is about building scale across a platform, sharing and leveraging the resources more broadly across the two companies sets of clients looking for unlocks that come from the ability to drive synergies.

So, there's a lot of parallels. So there are reasons to expect that the work that we've been doing might actually help to drive some of the benefits we'd see in integration. One of the goals we set up when we establish a digital services organization was to try to bring more product to market more quickly.

So, in the old days we did what a lot of people did, we used what people generally referred to as waterfall development. So you spend a lot of time, you build a lot of specifications. You hand it over to the technology group, they go build something.

18 months later they give it back to the product management organization who evaluates it and maybe it hit the mark, maybe it didn't. If there's rework that takes time and then it gets launched and that's a long and cumbersome process. We've adopted like a lot of other folks, more agile processes. We're getting more product out to market more quickly.

We're iterating on that product more rapidly. We're seeing more launches into the market than we ever have before.

And the team has actually done such a great job that they've given me a large set of examples that we could talk about to effectively really talk about some of these things in a little bit of depth so you can get better sense of where we've gone with these. I'd like to focus my comments on three main areas.

So on digital workflow and status for the advisor community on the enhancements we made to the mobile platform and experience and then some client experience enhancements for clients that are – and are approaching retirement. So digging in on the advisor side with the digital workflows, we've got some examples of things we've been doing here.

Account opening.

So account opening workflow is very different than in the old days what we might have done was take the form that existed in paper, turn it into a PDF, make it writeable and put it out on the website and people could type it in and they could either submit it or print it out and mail it in and it would go through the same old process.

The digital process is dramatically different than that. So it's trying to figure out ways to allow the advisors to leverage information they already have in their system, whether it came from Schwab or came from a third party data source that they're using, helping them take that information and get it onto the form quickly and in the right way.

Putting some smart edits in there so that we're checking that the information that's going onto the form is actually what needs to be in the fields that they're filling in.

We at Schwab, our classic branding of everything have a phrase internally referred to as NIGO work that comes in not in good order and not in good order is a really bad condition for the advisor because that means that that work is going to have to go back to them. They're going to have to do rework. They're going to have to resubmit.

It's not good for us because it means that we're not going to be able to put that paperwork straight through in any kind of process that's efficient. We're going to have to pull it out of stream, we're going to have to rework it with them.

It's not a good experience for their client who's probably going to be asked to sign a form yet again, why do I have to do this? I thought we already filled this out. So NIGO is a bad condition for everybody and there's efficiencies to be gained all the way across the chain.

So the more we can do to drive NIGO out by design, the better off it is for everybody.

Moving into things like change address, which sounds really simple but – and it is, but if you don't realize that advisors tend to manage multiple accounts for their clients, you might set up an – or a change address form that only lets them change each account sequentially.

We put in a capability where they can make the change once they can link to all the accounts they are managing for that client and make that change on an automated basis for all those related accounts. Move money. It's again the same kind of process. Move money can be complicated.

There's lots of ways you can move money across the firm and journals and ACH and wire and making it a simple process for the advisor to be able to bring up a single screen, make that determination, kick off that process and get the right information in a form very quickly and then get it out to their incline in a way that's just as efficient.

So, let that client review that transaction and approve that transaction with a couple of either quick touches on a cell phone or with a couple of quick clicks of a mouse if they want to do it on a website.

So, better experience for the advisor, better experience for the client and again probably more efficient for us as well to the extent that the work comes in well structured.

So in the event where it doesn't come in quite right or where an advisor just wants to ask that question, did you get the form? Are you working on the form? Were there any challenges with the form? So building in an automated status reporting capability that lets the advisor go in and see without having to call in and ask and describe the problem, they can go right in.

They can track the work right out of the workflow process to the extent that there's something that needs to get addressed, making it clickable so they can go in right there in that system, address whatever needs to get corrected and send that rework back to get it processed.

So it's a significant enhancement again for the advisors to be able to more quickly get in, get the work done and get it processed. It's an enhancement for us to the extent that it takes pressure off of our service calls as well.

So, how do we know all of this is working? Over 50% of the advisors are using the status utility and we think we've driven down status related phone calls by about 15% as a result of the launch of that capability, so pretty significant reduction in capacity utilization is a result of that utility alone.

More than 20% of advisors are now using the automated account open, so good opportunity there to continue to move that number north. But we are seeing some pretty good adoption for the advisors for that early stages, NIGO so this is one of the key deliverables that we've been able to actually deliver on.

So it might be shocking to realize over 30% of the forms for new account open in the advisor space, they came into the firm in the old processes needed some form of rework, 30% over 30%. With the automated workflow, it's now down to about 3%, so 10 fold reduction in the amount of rework that has to happen.

On top of that, it now takes an advisor about 10 minutes to get an account open. It takes us about six minutes and that's down from 19. So again, about a two thirds reduction in the amount of processing time it takes us to get through the work when the work comes in a digital form and the work is structured in the right way when it hits the door.

So really good results driving some efficiency, creating some additional capacity, allowing us to continue to absorb growth without having to add head count. So what's next? We've done a good job on account open. But in a lot of cases the advisors open multiple accounts with various types of forms of accounts.

This was the next step here in the process for us is to add more of those form types so that they can get an entire household opened automatically. The goal here is to continue to drive toward paperless transactions entirely. So, there is some reluctance among the advisor community.

They are somewhat set in their ways and certainly some of them around the utilization of paper. But we're going to make this such a compelling way to do work that we think we're going to be able to break down even those, those naysayers who still like their paper and drive more and more paper paperless adoption here over time.

Moving onto the mobile platform. So this is another case where we launched a significant number of new features into the mobile application last year. We had more than a 100 launches. So that was, I think even internally, a bit of a surprising number when people realized how frequently the launches were starting to happen in the mobile platform now.

In the last year, we really prioritized a few key opportunities. So, ease of navigation, making it easier for clients to find those things that they're trying to do in the mobile application and get to it more quickly. Closing the gaps between what you can do in the website and what you can do in mobile.

So to the extent that more people are using mobile as a primary channel, the gaps that exist between, well I can do that on schwab.com, but I can't do it in your mobile app to create some annoyance with the client set that we've been looking to try to drive down and give them more ability to do both in both places.

We intentionally tried to focus on identifying the places where we were falling short on allowing clients to completely fulfill client service requests. So, there were a number of places where we had processes that clients were just falling out.

So whether we designed them to be too complex or they didn't understand the phrases we were using, trying to constructively work to make it possible for people to get all the way through those service, self service capabilities, which candidly they'd rather do themselves and call into us. They call in as sort of a last resort that kind of work now.

And again, I think we had pretty good results. It driving some, some enhanced capabilities there. And then finally client engagement, so we know that the clients that engage with us more frequently tend to be some of our best clients. They use more products and services.

They also tend to be some of our most profitable clients, so looking at ways to drive additional engagement with the mobile app. So again Walt referenced that we have over 1.2 million clients now using the mobile app 30% to 40% of those in any given month are mobile only. So they are not going to schwab.com to do anything.

They are using the mobile app on their phone as their primary channel of access to the firm at this point. Walt made reference too, we are getting some accolades. I hope this is early days, but we're getting recognized for the work that we've done to enhance the quality of the platform. And on the client's side, we've got 4.8 stars on the app store.

So we're pretty happy that people are recognizing the work we're doing is actually making an impact. So where do we go from here? We're looking at rolling out an intelligent assistant or a ChatBot that again allows clients to be able to interact in a more relational way inside of the application. So that should be rolling out this year.

We're also excited about bringing some more experiences into the pre-login space that there are things that sit in the app today that don't necessarily have to be behind a protected firewall that would give clients an ability to get to some of that information without having to go through the login process.

There is a lot of capabilities that we can offer to people that maybe aren't Schwab clients yet that maybe are thinking about opening a relationship and might want to evaluate an application. I know that's not the typical way people download them and try to log in if they can't log in they throw them away.

But if you think about what we do with the prospect homepage on the schwab.com site, there's a lot of information capability there, it lets people test and sample the firm before they ever become a client.

And we're hopeful that by engaging in a similar kind of way in the mobile space that we're going to be able to drive some additional growth out of the mobile channel. So moving on into retirement, again I think we've made some really great enhancements. The first one here, investment reporting is probably my favorite.

We have heard from clients for years that we were falling short in terms of their ability to understand what's the income I'm driving off of my portfolio? So the ability to see your dividends, your interest, see it broken down by month, be able to click through into the specific bar charts and look at the specific holdings that are driving those results.

It's a really robust reporting capability. It's available both in schwab.com and in the mobile site.

It gets a little small on mobile platform, but it's there and clients are using it and it really is a nice enhancement to the broad set of capabilities and for people that are in or near retirement and trying to make that transition to living off their assets it's important capability to an accurate assessment of how much income your pool is producing.

For the folks that are actually in the place where they now are taking withdrawals out of their retirement accounts. One of the most confusing thing for our clients is the required minimum distribution out of their IRA accounts. It's driven by tax rules.

It's complicated and trying to help our clients understand how do I do this in a way that allows me to be compliant with those tax racks and make sure that I'm taking out what I need to take and taking it out in the form I want to take it out. We have built some enhanced capabilities and workflows there for clients.

We've seen very good adoption and we have very good scores on the client easy measurements related to the changes that we've made to that retirement capability. And then finally, Schwab Intelligent Income Walt spent some time in his comments talking about Schwab Intelligent Income.

But what's really exciting about Schwab Intelligent Income is it's what I think of as another step into the solution based orientation. So as we start to move more and more away from specific products and more to solving the problems that the clients came here to ask us to solve.

So, when you think about what we did with Schwab Intelligent portfolios, we gave them a professionally managed portfolio of individual ETFs that is automatically rebalanced, automatically tax harvested.

And now we're overlaying a capability for folks that have those types of portfolios in a retirement account to automate the withdrawal process, to replicate that paycheck that they're no longer getting if they're in retirement, but do it in a way that is tax intelligent.

And also sensitive to the concerns they have around, I don't want to outlive my money. So how do I do this in a way that makes me smarter about utilizing that cash that I spent all those years building up now that I want to try to live-off of it.

How do I do it? So trying to bring technology to solve the problem of the clients that I think is going to more and more become the approach to trying to get deeper and stickier relationships with the client.

So we started a lot of this digital work trying to just manage the growth of the firm and trying to continue to allow us to bend that cost curve down over time, try to drive more automation in so that we weren't just adding people commensurate with the growth in the number of accounts or number of positions to continue to drive more efficiency into the processing environment as well as serve clients in a better way.

A lot of what we've been working on when you think about trying to bring it to bear, either directly in the integration process or post-integration into a larger set of clients, we'll deliver even higher value than we anticipated as we were starting to build some of these capabilities out.

We will look through the integration to take advantage of those scale opportunities to leverage the best of both platforms.

With that primary platform choice made at Schwab, we're looking to make sure that we're not doing anything that doesn't continue to serve clients really well and unlock those long-term shareholders synergies that we've committed to all of you in the investment community that we're going to hit.

So with that, I'd like to open it to questions and see which ones I left unanswered. So I think Brian got his hand up first..

Hey, Joe. Thanks Brian Bedell, Deutsche Bank. Maybe just on the integration, thinking about the integration track record, Ameritrade obviously this has been a core competency of their business model for a very long time. You guys have been much more organically focused over a very long period of time.

So what gives you the degree of confidence that – obviously a lot is moving over to the Schwab platform, confidence that that will work smoothly.

And then talk about maybe the integration teams that you're bringing on from Ameritrade, how you plan to leverage their skills in this and how long are those integration teams staying on throughout the integration?.

Yes, so again, I don't think any of us came into this anticipating a tripling of volume on our existing platforms neither us nor they, so there's work that's going to have to get done to stress test those platforms to assess their capacity limitations to build up in places where we may not today be able to immediately double the number of accounts and transactions and make sure that we've got appropriate head room for those days where our clients get really active or for those windows of time where we're successful in the market and bring on new accounts.

So there is work going on internally already to try to make sure that we've got a complete look through the technology stack to build the confidence that we can actually bring those accounts onto our platform and absorb that kind of growth with the appropriate degree of head room.

With respect to the team, for now I'd say that there's kind of parallel efforts going on. So everything that's happening in Schwab is largely happening in the TD Ameritrade side. They've got ahead of their integration management office, who is somebody who has been involved in their transactions in the past.

A lot of the team members that they're bringing in for the work streams are people that have been involved in those transactions in the past. So, for now I'd say they are leveraging their capabilities as best they can.

We would expect over time to be able to build bonds across those teams and try to leverage some of the best of their thinking as well as ours.

As we get through the DOJ review, it will be easier to share additional information and start to more closely work directly with them and clearly post-close those teams will continue on into the future and both be working for the success of the consolidated entity.

So we would very much look to take advantage of the knowledge base they have built up around how to manage these kinds of transactions.

Even developing a set of guiding principles I think is a best practice that we may have stolen from them that – what we're actively communicating and trying to make sure that we're getting the best of their knowledge as well as the best of ours as we work our way through this..

Hi. Mike Cyprys from Morgan Stanley. I just have two questions maybe just first on the deal. So it sounds like you've decided to go with the Schwab platform, but also it sounds like you're open to perhaps using some of Ameritrade's systems or platforms in some cases.

I was just hoping you could elaborate a little bit more on that in terms of how you think about it and what sort of approach would you take and how you'd go about doing that?.

Yes, so it's – I'd like to stay at the capability level and away from the specific platform level because it's way too early to make a commitment to say, we are going to port that platform over.

What I think we're focused on now is to the extent that there are specific capabilities that are really important to clients, we're going to try to identify those first and then make sure that we have integration plans in place that allow us to deliver those capabilities.

So if that means keeping a thinkorswim platform alive, because that's the most efficient way to deliver those capabilities, that's a choice we might make. If that means taking some of those capabilities that don't exist in a Schwab platform today and embedding them in a Schwab platform, that's a choice we may make.

And those are decisions that have to be made over time as we get deeper into understanding each other's capabilities. So it's too soon to comment on specific platforms, but clearly with the retention goals we have and our focus on client experience, there's no way we're going to abandon significant capabilities..

Great. Just the second question was just around kind of going back to your digital initiatives, I was just hoping you could talk a little bit about the technology and the product teams, how you have organized them, how you set that up and how that has evolved over time.

So for example, do you have specific teams and people focus on certain aspects of the workflows and client journeys for example, how you are sort of thinking about that and how that's evolving?.

Yes, so we stood up in enterprise internally called digital services and pulled all those client facing technology channels together into that organization, so schwab.com and sac.com, mobile, the ChatBot, all of that is now sitting inside of a single enterprise. We have organized that by client-facing segment, largely with some utility capabilities.

So a portion of the reason we're able to go faster is we're thinking in more of a utility or service oriented architecture where something like an account open capability is best built once and leveraged in multiple dimensions across multiple platforms as opposed to building a unique client or account open capability for every specific silo.

So we've largely organized that way on the digital services organization. We've enhanced their capabilities and skill sets either through recruiting or training around product management.

So in a more agile development world, having strong product managers who understand both the client needs as well as the technology platforms is critically important. So they are that bridging organization and product management. And then we've also built up a pretty significant team around user experience and client experience.

So a lot of that had been outsourced on a project by project basis in the past. And we found by bringing it in-house, it has allowed us to build some expertise that we're able to again, leverage more universally across the broader set of platforms.

In the technology world, then we have been a large scale adopter of agile, so we've got a very large footprint of teams that are structured in agile development capabilities.

We are still working on I'd say transforming our understanding and knowledge around making the transition from what was more of a classic product development shop into something that operates more like a platform management shop.

And so making sure that we've got clear lines of sight into exactly what each of those teams are doing and which platforms they are decked against. We're I think, still somewhat inflight, but that's the direction that we're going.

So it's a much more platform oriented approach to development and product management as opposed to, which was a much more sort of project oriented approach that we took in the past. But along with that comes some real advantages around being able to think longer term about how do you deploy some of these platforms.

In the past, I would say that we often built what got funded. So if an organization had money, they could get something built. Today there's a much stronger front door process to say, where does that capability sit on the roadmap? And we're going to build the things that are most strategically and competitively important first.

Just having money isn't enough to get you to the top of the list anymore..

Hey, Joe, Rich Repetto. So you started off Joe talking about the long-term scale, contributing to long-term strategic value, not just pure scale but into strategy. And I think it follows on to a lot of things that Walt was saying in return in sort of some of the benefits to clients.

So you've been very transparent in the past about messaging, pricing more aggressive pricing. And I guess could you give us examples of what you're talking about here? So we get that message clear and I got one quick follow-up..

Sure. So I'd say, I mean there are multiple examples over the years where I'd say that's exactly the strategy we've followed where we look to build additional scale benefits and we don't drop it all to the bottom line.

We are making that trade-off around what do we invest in, how do we invest it, whether it's in new technology platforms or movements in prices or new products and capabilities, but really trying to identify those things that are important that we think are going to drive long-term growth, freeing up enough capacity to make those investments to continue to keep that virtuous cycle moving as opposed to trying to cut ourselves to greatness by reducing expenses, dropping it all to the bottom-line, but under investing for the long-term benefit of our shareholders..

Okay.

And then my follow-up would be, you talked about the default platform being – and I respect and that certainly when we've watched Ameritrade integrate with Scottrade, that was one of the things that allowed them to, not that it didn't have a hiccups, but allowed them to move quickly, is that they didn't have this debate about which was the resulting….

Core platform..

Yes core platform, I guess my question is a little bit about what you asked before is like how much of that disintegration, even at this point when you're coming up with ideas like that, this is a guiding principle, that Schwab's platform is the survivor or in the general sense, like how much input are you getting even right now from general guidelines like that from the other side that's had a lot of experience at it..

So I'd say we've shared them with the other side. But that there are there some places and that one in particular where I'd say we probably took a heavier hand in saying this is the direction we want people to go.

Without getting too deep into this both firms have been making modernization efforts over the past several years and we find that there are parts of our stack where we're ahead and parts of their stack where they're ahead. So there's not a clear superior platform, but there are elements of both that are probably better or superior to the other.

The places that probably wouldn't be a surprise because of the focus of the Ameritrade firm. They are probably further along in some of the modernization work around a lot of the trading capabilities. We are further along in some of the wealth management capabilities and some of the relationship management capabilities.

So, how do you pull these pieces together, becomes, the question of the day beyond some of the client facing capabilities there are absolutely some components of what sits in their technologies today that we would want to evaluate very closely to make sure that there, if there are opportunities there for us to get significant advantage that we will look to deploy them.

So I'd say even though we have said core books and records, core processing platform is Schwab we are just starting conversations now around those, those deeper components. And if we can enhance the quality of the platform and still hit the timelines and the targets we are very open to picking the best of the stack on both sides.

But again, it's got to be, it's got to have enough advantage that it's worth any potential constraint on the timeline..

Mike Carrier, BofA. Just maybe on the, the digitization. So when I think about you, your business, a lot of financial companies, there's a lot of opportunity there.

So, maybe a few questions on that and you can give ballparks if you have them, but just trying to figure out like how many of the areas that you've targeted, you are already like live, you mean in terms of having those efficiency plans in place what's usually the path to get like kind of uptake once you do that, so you start seeing those benefits.

And then in terms of forward-looking any new opportunities, how does that get to you? I mean from like the force, in terms of new areas for potential efficiencies..

Sure. So yes, we have a very active client set and I think I would say that we’re even sometimes surprised that we will turn on a capability and find people who are using it before we've even made any kind of announcement. So status was one of those, we turned it on and we sort of soft launched it.

And the next thing we knew we had a lot of people in the status engine already starting to use it. So that gave us confidence that we should continue to develop it and continue to enhance it. And it's different with different capabilities. There are some things where it takes a bigger push in some kind of awareness raising.

There's other things, where the changes are more incremental and to the extent that you can sort of put them in the process that the clients are already using and in essence, maybe nudge them toward an answer that's easier.

We can find that we can drive adoption pretty quickly without having to do a lot to really sort of raise broader-based awareness.

So it really depends on the specific capability and where it sits in the transaction flow that the clients are using, how big of a push we'll make around awareness and whether we think they're going to find it on their own and start to deploy it.

And I think ideas come to us from a lot of sources, but the number one source of the things that we work on come to us from clients. So, we're in a constant feedback process where we're listening to what the clients are asking for and trying to find ways to prioritize those requests. Sometimes they may not even know they're asking for them.

So like some of the work we did on the mobile platform around trying to make it easier to fulfill your service experience completely in that channel. We noticed that there was a pretty high fallout rate that was driving call volume that clients didn't really want to have to make that call, but they did it because they couldn't do it in the channel.

So, some of it is identifying through their actions where there are things that we are maybe not doing as well as we could or hearing directly from them, Ji, we wish you had this capability. Those things will get a high priority in the prioritization process..

Will Nance, Goldman Sachs. Joe a year ago we heard you talk a lot about the data center initiatives that you guys have to move a lot of your applications to the data center. My impression from that discussion was you had your hands pretty full at the time and I think it's a fair statement that you have more on your plate today.

Could you just talk about the level of resources, staffing that you have in your team and how do you think about keeping some of those, I think you were talking in terms of two to three and five to six year timelines from some of your existing technology initiatives.

How do you make sure that we get to the end of the Ameritrade integration without in a more tech debt than we had at the start of the process..

Sure. So some of the things that are going to continue to move on regardless the data center is up. It has its core technology stack in it. We're starting application migration. So I mean some of these things, a year later or in some cases, two or three years later have moved pretty far beyond.

It would be naive to say that there will not be some interruptions in some of the modernization processes as we work our way through integration. But there may be things that we do in integration to prioritize some of the modernization work.

So to the extent we identify things that are capacity constraints that, we're going to want to enhance that work may come forward, other things may slip back.

I don't think we're going to be able to bring enough resources to do all of it, but how do you prioritize what needs to pull forward and how do you get maybe twice the benefit out of some of the work is part of what we're trying to identify now. Clearly we've set aside a fairly large bucket of money to work through integration.

So to the extent that resources are necessary, we're going to be able to secure those and pay for those inside of that number. The challenge really starts to become subject matter expertise.

So where do you start to hit limits around who knows how to address that specific problem and there may be some resourcing constraints that will get pulled into integration and then ultimately move back to some of modernization.

But I'd say that at this point, given what we know about how far along we are, we expect to continue to make progress, although it may be slightly diverted in places based on some of the pieces that need to get accelerated for the integration efforts..

Yes, Brennan Hawken, UBS. Two questions. Number one, the new account opening process, the electronic process, now elimination of paper, it looks like a nice step forward, really cool.

But when you guys talk about the fact that you're not going to need to repaper the RIA business, do you mean literal paper or do you mean that – that this process will be automated therefore the customer doesn't have to take action because I think...

Let me, let me step back and so if you are an advisor who is leaving a wirehouse and going independent, it is a very cumbersome process. Right? So any you talk to any advisor who has gone through that and Bernie, if I get ahead of myself, please whack me for what I'm saying.

But literally for those advisors, it's often a very paper based process where applications are printed. It can be pallets of applications that are mailed out, collected back, processed. It's a time intensive process for the advisor and for us. And I think a lot of them have that in their mindset as they're thinking about going through an integration.

The integration should not be anything like that process. So this is two broker dealers under the control of one company. We expect to be able to get approval to do this on a negative consent basis.

So, we should literally be able on the day we're ready to convert, move those accounts from one platform to another and they should be up and they should be working and it shouldn't require additional applications.

So it shouldn't, not only is it not paper-based, it should not have to go through an automated application process for the vast majority of accounts. I can't say that that it's 100%, but for the vast majority of counts, both on the retail side as well as on the advisor side, we expect to be able to bring the accounts over in an automated fashion..

Okay, great. Thank you. And then my second question was around the integration process.

There is a perception amongst investors and it's probably a fair one that Ameritrade's got a lot of experience in integrating deals that Schwab has less experience in some of the prior deals maybe haven't – the integration hasn't gone as well, which has led to some issues.

And so how can you assure that the adoption of the processes, the input of the ideas is as pure, right? Like based around just the purity idea versus sometimes people get parochial or territorial and they want their process to be what governs, they want their system being to be what governs.

How can you ensure that's as agnostic as it should be in order to get the best outcome?.

I don't know that I'm going to be able to give you an assurance that you're going to completely buy, but this is so far a pretty open process. So we're working closely with our peers at the TD Ameritrade organization. They're a great company with very proud organization.

They want to have this go smoothly for their clients just like we are a proud organization and we want to have this go smoothly. So everybody incentives are focused on making sure that this integration goes as smoothly as possible for the clients. So yes, hey, where there are people, there are always going to be politics.

I think, yes, part of the reason that I'm standing up here talking about integration, my job is to try to ensure that the process works as effectively as possible across all of those work tracks across both of the organizations to get us to a place where the integration is successful for the benefit of our clients, for the benefit of our shareholders.

And so we are putting a lot of time into making sure that we've got the right processes in place, we're using the right advisors, we're picking the right models, communication processes are getting built early. I think we're doing everything right at this phase to ensure success.

We'll continue to provide you with updates as we have meetings like this on, evolution on timelines and dollars and every anything else. It will be up to you to ultimately judge. But it's got our attention and when I say that it's everybody in the executive leadership team.

I mean, you look across the tracks and the track leads and our executives are actively involved in making sure this transaction is going to be successful. And maybe in a way that hasn't happened here before. You got on Jeff on the web or nothing. Okay.

Brian?.

Just maybe back to the attrition. It sounds like obviously with more of the migration over to the Schwab platform, the attrition risk is really higher. It seems it would be higher in the Ameritrade customer base. However and we could see in their metrics in December that the customer attrition has started.

Again, they're saying obviously that's normal for the course of their integration experience. But pre-close how are you thinking about managing that attrition if it's coming from the Ameritrade size and the client base is smaller when you actually close it.

And then philosophically for customer service, as you go through the integration process where, how are you thinking about enhancing or keeping the customer service levels very high so that you can manage that attrition at the combined firm. And then it's probably too early to talk about the, when you are actually converting these over.

But if there's any sense of a timeline on the actual conversions of the systems, if that's in year three or potentially earlier..

Yes, it's too soon. We're going to need a little time to build those plans.

So at this point we're still in the, we are active competitors in the marketplace, so there is not a lot of conversation going on around what they're doing to preserve their client base versus what we're doing in the market until we get approval from the DOJ, we are preserving competition in the marketplace.

So that's, it's a little too soon for us to say that we are working together to try to manage that risk. They're taking actions on their side as they see fit. We're taking actions on our side to manage our firm. And, that's probably about as much as I'm able to, as I'm looking at my lawyer. That's probably about all I can say on that topic.

So beyond that, things like service, they have a very strong culture of service just like we have a very strong culture of service. Ultimately, we're going to have to make decisions around how do those organizations come together to be able to support the consolidated client base. But again, this isn't really rocket science.

I mean there's, there are lot of models that you can deploy around what, how do you build staffing to be able to provide the appropriate degree of service? I think we're both pretty well developed at this and offer really high levels of client service.

There's no reason I could think of that, anything in the integration would degrade the service experience to the client set. I got time for one more. If not, I can say let's go to break and we'll see you back in what, 15 – 15 minutes. Thank you all. [Break].

Welcome back. Welcome back, everyone. Grab the last coffee. Really it's a great opportunity to talk to you about the retail business. I really do appreciate it. I've been at Schwab almost 20 years. In fact I think my 20 year anniversary is Friday. So Bernie, if you're working on a card for me, I will appreciate it.

But I've been in and around retail the entire time and I can't think of a more exciting time for the retail business as well as for Schwab in general. We made a series of moves in 2019 to position us for 2020 and beyond that were really truly remarkable.

You've heard a lot about USAA and TDA and I'll talk more about those and obviously answer questions as they come up. But I think it's also really important to talk about some of the bold marketplace moves that we took in 2019 to just strengthen the core retail franchise. I've spent a few seconds on those.

I'm just, these are just a few highlights, you know this well, but we became the first major firm to remove commissions across the board, really changing the industry forever. We also were the first major firm in 2019 to launch subscription based pricing, fundamentally changing how planning is both paid for and delivered.

And we've seen some really, really strong success in terms of flows into Schwab intelligent portfolios premium as a result of that move. We substantially enhanced our lending offering. Walt talked about this a little bit, but in the summer of 2019 in partnership with our folks at the bank, we did a couple things.

We significantly reduced our rack rate pricing for our clients, but we also significantly, and maybe more importantly enhanced our relationship pricing. So we used to have a relationship pricing model where if you had a quarter of a million at Schwab, you got a 25 basis point discount.

We added a $1 million plus tier and a $5 million tier where the discounts were 50 basis points and 75 basis points. So when you combine a lower overall interest rate market with Schwab's commitment to pricing very aggressively with these relationship pricing benefits on top of it, you can imagine a very, very strong lending offer for our clients.

And we did see good volume associated with that.

You've heard a little bit about this one already a couple of times, but in December we announced and in January we launched Schwab intelligent income, really a breakthrough way to generate a paycheck for our clients across taxable non-taxable and Roth accounts in a tax smart way without the high costs and handcuffs that are often associated with other solutions that are aimed at generating income for clients and are already seeing strong momentum there.

And of course we maintained our commitment to our live and local relationship model by adding more franchises across the network, by adding more financial consultants, certainly in a measured way and also enhancing other relationship models within retail.

So all of these efforts were really aimed at continuing to strengthen the core retail franchise to continue to drive the organic growth you've seen. And to do it in the face of pretty significant competition as Walt called out. And the actions appear to be working. The retail franchise is strong as evidence.

I'll start on the left with some of the client fundamentals, multi-year NNA growth, compounded annual NNA growth of 18%. I think that's a really strong metrics there, new-to-retail households up 18% as well so very strong metrics there and I'll talk more about those. The question came up earlier about what percent came from the B2B channels.

It is actually in the 20% range on average, I'll say it's a little bit lumpy month over month.

And also keep in mind when we say 20% comes from those channels, what that means is those are Stock Plan Services clients or Compliance Solutions clients who open a retail account day one or they are 401(k) participants who roll over to a retail account or establish a second account with us. It does not include our 401(k) participants.

If you added the 401(k) participants in there, that percentage goes up, up to almost a third. And of course, client promoter score is a really, really important metric for us. And our client promoter scores are at all time highs in retail up 15 percentage points over that same timeframe.

So I think every year I talk a little bit about the new to retail. I do a little bit of a deep dive on the new-to-retail because it's such an important part of our metrics. We talk about NNA, we talk about accounts that all matters, but we also need more and more clients experiencing the Schwab franchise. And that is what new-to-retail reflects.

Not only the numbers going up but the attractiveness of the people we are acquiring is going up, 55% are less than 40. So we're often asked, are we winning with the younger generation? I think this data certainly proves that out. They're increasingly affluent and maybe most important. They're also increasingly interested in our advisory offerings.

So they're interested in advice at 1.3 times the average Schwab client. So again, a overall, a very attractive profile of new to retail households. And then finally, I'll just say, it's 2020 I have kids. Everybody gets a trophy. I'm sure every competitor has a trophy shelf. We have ours, ours is cluttered.

But, in all seriousness, I think it's probably fair to say that JD Power is one of the premier raters in the marketplace. And they rate us number one in really the three core businesses we're in, brokerage, direct bank and large plan 401(k).

So I feel really good about the recognition that we've received in 2019 and certainly expect to continue receive in 2020 and beyond. I guess probably what's most exciting though is not just the progress we've made, but the opportunity that's in front of us.

If you look at the retail business and combined with Bernie's business, the investor services and advisor services business, we're at about $4 trillion in assets and we believe with that $4 trillion, we've just scratched the surface of the opportunity. You can see the graphic, it's pretty clear, but we are still a small player.

It's hard to say a small player with $4 trillion, but a small player in a very large pool of opportunity, maybe more, even more exciting than the opportunity in front of us. But we also believe that there are some secular trends that are very much in Schwab's favor, in the retail businesses favor in particular.

But when we look to the future, but certainly advisor services as well, when we look to the future, I see four things. Clients are going to continue to demand lower and lower cost. Clients are going to continue to demand transparent business models.

They're going to continue to demand omni-channel service, being able to be served in their channel of choice. And certainly scale is going to continue to matter probably more and more. These are all areas where I think Schwab not only has it is not only leading, but has the potential to continue to lead in very meaningful ways. Certainly on low costs.

We have a 50 year history of driving costs down for investors. That's a perpetual priority. That's not going to change. Obviously we've taken a lot of the costs out of the system for investors, but to the extent there are other opportunities that make sense for clients and make sense for us. We will pursue them.

We are committed to a transparent and accountable business model. Just one example being the only firm still with a satisfaction guarantee, which you hear us talking a lot about because frankly it works, but also because it's an indication of how we want to go to market. We want to be held accountable to our clients.

We want our clients to hold us accountable. Omni-channel Schwab has always believed in the best of people and technology. It's not one or the other and all the investments we are making are aimed at allowing the client to serve in their channel of choice, whether it's technology, whether it's people, and again, we get asked this a lot.

Rarely is it all one or all the other. It's often very, it's different by client based on what they're trying to do. And then of course scale. We talk a lot about scale.

We operate with a highly efficient cost structure with the addition of USAA and TDA as well as the other investments we're making in scale we obviously intend to add to that scale advantage. So overall, I would say the retail business is strong. We have some secular trends that are in our favor. Absolutely.

And at the same time, a significant opportunity in front of us to go after that opportunity we are going to pursue both inorganic and organic levers.

On the inorganic side, you know these numbers well, but starting with the USAA, really excited about bringing over a million brokerage accounts and over 90 billion in client assets, but, but maybe even more exciting.

And we talk about this a lot internally, is the potential and the power of being the exclusive wealth management referral partner for USAA. Now they have 13 million members. They had hundreds of thousands of members every year and they are looking for a partner to serve those wealth management needs.

So we call this a referral relationship, but I would say we need a better word because it feels much bigger than that. It's about an opportunity to work with a brand that shares our values to help members, people who have served this country get great financial outcomes. And we are going to go after that aggressively in partnership with USAA.

And of course TD Ameritrade, 12 million accounts in $1.3 trillion in client assets and as Joe mentioned, the potential to bring over some capabilities and some technologies that can make a real difference for our clients. So those are the organic, which I think, you know pretty well.

I'll touch on a few of – those are the inorganic, which I think, you know, I'll touch on a few of the organic levers that sort of rise to the top for me. And this list could be much longer. But before I want to touch on the first is client segmentation.

There's so much paradoxically one of the best ways to grow assets in this business is to keep your clients and to keep your most valuable clients.

And what I mean by that is with dividends and interest and a little bit of share of wallet consolidation, you can drive some meaningful growth by keeping your clients and keeping your most valuable clients happy. So you'll see us launching new products and service models aimed at keeping that affluent client satisfied and loyal to Schwab.

We talked already a little bit about the B2B, B2C relationships. Here I'm talking about the 401(k) business, the stock plan services business, the compliance solutions business. These have always been priorities, but we're putting a renewed emphasis on them by really doing two things.

Number one, we've rolled all these organizations under one EVP Catherine Golladay and putting that sort of the efficiencies and scale that you get with that. But we're also just putting a renewed emphasis on helping these participants beyond the 401(k) beyond the stock plan experience to their broader financial wellness needs.

And we see tremendous opportunity out there to do that. Another lever will always be, I think for Schwab leveraging our distribution prowess and the marketing machine. On the distribution side, we'll continue to add franchises in 2020 and beyond. The franchise model is working.

We will also, Walt discussed this, but we're going to stop these competitive cash offers as I think Walt answered it really well. We don't like matching every time. We don't match a 100% of the time.

We use our judgment, we rely on our FCs, we look at the client situation, but in general we are committed to not letting competitors go out there and buy away our client assets with cash. And then of course we'll continue to leverage the insight driven results oriented marketing.

The trial has been, I think, known for a long time that has been a key driver of this firm's growth over its 50 year history and certainly will continue to be. And then the last organic lever that is probably the most significant is that the way you grow organically, very simply in 2020, is you deliver great service every time, all the time.

If you do that, if you respect your client's time, if you deliver frictionless services where you can they will be loyal, they will stay, they will consolidate and they will refer their friends. If you don't, the alternative will happen. So delivering great service remains a key and critical priority for us.

A lot of what I've talked about around growth is around assets and accounts. Another area of growth that we’re focused very much on is revenue and margin growth. And we believe within retail we can deliver significant revenue and margin growth by building new products and solutions for our clients. And we have always believed the Schwab.

And we will always believe the clients deserve choice and they will always have choice. But we also have another equity at Charles Schwab that we need to leverage and that is that Schwab clients have shown a willingness to buy Schwab product in very meaningful ways.

Consider the fact that the left Schwab Intelligent Portfolios, all of our digital advisory in fact is now like $47 billion in AUM. We went from nothing to being the largest pure play robo within 10 months of launch and today we maintain that leadership position.

Our Schwab ETF’s now at $164 billion, 10 years after launch, we are now number three and flow is at number five in total assets in the ETF space. And just one more example, Thomas Partners, since the acquisition in 2013 are now up almost 11x in growth.

So I just highlight these three to say the message – I think the message is clear if we design product well, if we build it well and if we price it well, Schwab clients will adopt Schwab product in meaningful numbers. The core feel of the dream is if we build it and if we built it well, they will come.

And so we intend to leverage that equity, you’ve heard a little bit about that, but we’ll leverage it for building new proprietary product where we can deliver great value to clients and positive economics to Schwab.

The areas that are listed on this page that come to mind, lending, we’ve talked about that, more discretionary solutions for some of our affluent clients, as well as additional lending capabilities. Before I close and bring up Bernie I want to spend one more minute on what we’re calling enterprise service transformation.

I was up here last year, I think, talking about this at length. It’s a multiyear effort to really drive what I call my three favorite words, service, simplicity and scale through the franchise.

What I mean by that is how do we deliver great service to clients every time, all the time? You do that by being easy to do business with, respecting their time, drive using – being simple where you can and when you do that you drive scale.

So this is a meaningful, multi-decade – multi-year effort and we made meaningful progress in 2019 investing in a few areas, significant digital enhancements really designed to limit the number of times clients have to call us, not because we don’t want them to call, we love clients call us, but I shared a stat last year we get roughly 10 million calls a year, about 55% of the time when the client called us they tried to self-serve online and we weren’t able to do it.

We’re not doing clients any favors when that happens. So we’ve invested significantly in digital to lower that call volume and deliver better client experience. We made significant investments in our IVR, when they do call we launched virtual call back which is a great solution for clients.

We strengthened our client authentication procedures and we also launched a cloud-based service desktop that is a meaningful improvement for our reps, which will ultimately translate to a meaningful improvement for our client experience.

So these are just a few examples – just over on the right, I would say the headline stories they appear to be working.

It is a multiyear effort, but we’ve already seen some positive results with call volume down 8%, service levels up 15%, cost per household, critically important, down 6% and critically important from client standpoint we estimate we saved our clients well over 4,000 hours.

Again, that’s another example of respecting their time, doing what’s right for clients, that then coming back to us in consolidation and in referral. So I will just close with a couple of quick summary thoughts. I think the retail business is very, very well positioned.

At the same time we face very significant competitors as you would expect, but also have a huge opportunity in front of us. We are a small share with major opportunity in front of us. We’re going to go after that opportunity by leveraging both inorganic and organic growth levers.

And at the same time, probably the new areas of focus that you’ll hear are around things like segmentation, monetization, and a perpetual and sort of enduring commitment to delivering great service to our clients every time, all the time. So with that, I’m going to bring up Bernie..

Jonathan always does that he switches out my mic, so I can’t say as much as he says. And then we get started here. I really appreciate as always the opportunity to be in front of all of you and the thoughtful consideration you give to our different businesses, its fabulous conversations as well as talking to you from stage.

In fact, the questions today are awesome. And one of the things I want to highlight and Walt give me a great lead in for this, I think is the fact that we get to answer these questions here.

And too often what I do is I read things out in the marketplace and I read things that I don't necessarily think people have taken the time to ask the appropriate questions to really understand what's going on and what we're trying to do in this business.

And so I just wanted to start with a little definitional on some of the things I've been reading. And I don't think people have taken the careful attention to understanding who we are and what we stand for. To start with, we love small clients and I hesitate to even use the word small because these are clients that they're all in.

This is their business. This is what's so important to them. And the “under $100 million client is a sweet spot”. It's how we built our business in effect from the beginning.

And we'd like all sizes of clients and because it is such an important part to help someone run their business and the responsibility we feel for that, we have to have great service. There's just no question but having great service for that group of clients.

Often we talk about technologies and where we want to go with technologies, I will tell you that post-integration, we will be using the best technologies available for advisors, which will include extensive use of APIs. We have a lot of APIs, obviously the proposed merge with TD.

TD has a lot of APIs and bringing those to bear on behalf of the clients because they know that they’re most important to them. And lastly, just a point of clarity, we have no intention – we have no intention of raising fees and small advisors – and advisors at large in effect.

And more importantly, we don't want to change the economic relationship we have with them by instituting some other kind of different fee unless of course as always, for some reason their voice tells us, they'd like to do something differently.

So these are the kinds of questions that I think we have to be asking ourselves as we think about integrations. Lots of it is, Joe has done a great job at, was around the technicals. There's no question about how we're going to be able to do those things, but it's also about the intention, intention of what we want to be doing in all of this.

So I wanted to start there, just to create some clarity if I could in the marketplace around some of those things that I think require more attention. Today, in presentation, I'm going to spend a little more time on the space than I normally do.

I think it’s important because it's so evolving and so opportunistic, I think in how the growth is starting to happen. I of course have to tell you about the success we've had in 2019 and we have had success. I want to make sure that's well understood in what we're doing. And then a nice conversation I had during the break, the 2020 vision.

We have a lot to do on the offensive. I think the conversation will be somewhat dominated in the early days around integration. But there's a lot of good stuff going on and a lot of opportunity within the space and a lot of others wanting to come into this space. So let's look at what's happened over the last decade, we've seen a tripling of assets.

We've seen extensive growth within advisors. And I would highlight to all of you that one of the important things we have to get our head around is the fact that independent advisors simply provide wealth management in a slightly different way than what may be some of the other models are doing.

They're open architecture, they're fee-based, they're open architecture of technology and product and that's how they provide wealth management. And we've defined that in the purpose field sense is almost a $5 trillion space and we've talked about – a lot about that together as we've come together in these sessions.

The reality is they're looking out at a market that's almost $20 trillion big. In fact, it was a 2018 number, so I'd argue that $20 trillion is probably much, much higher after the success of 2018 and 2019 as we start to think about where the market has been going and that's the market really that advisors and models are trying to penetrate.

There's $7 trillion in the wirehouses still, there's $4 trillion – almost $4 trillion in the IBDs. These are opportunistic areas in growth and really what we want to look at is sort of this broader wide reaching market on going forward.

The opportunity in the market has been so pervasive that we're starting to see more and more venture capital come into the space. We've often talked about the different kinds of platforms we have.

If you think about the top one, which is really the floor rent, if you will, platform, this is a group of individual firms that like to try and bring advisors in. You can think about it as Raymond James either on their capital for their independent side. You can think about it as LPL.

You can think about it as almost any wirehouse or bank that is actually formed these, they're all custodians within this space and they tend to focus and trying to bring teams in and assets in and hold them captive within their own models.

The financial acquirers, these are groups that have been going out and systemically buying firms, looking for opportunities for all ups, I mean the names are quire clear as you stick to think about and I think you know most of these names.

But I think back of what’s happened and even as we think into the strategic acquirers, what’s happened over the past couple of years and seeing the opportunity in the space as private equity has come in, as other capital has come into the space, we've also seen some monetization activities. United Capital does the largest deal.

Goldman has done since the financial crisis at $750 million in acquiring United Capital, which had previously been a collection, if you will, of financial acquirers, a collection of firms that had been independent, now actually part of the Goldman Wealth Management System, kind of interesting how that goes.

We've seen Envestnet come in with a minority interest into Dynasty. We've seen Focus Financial, the largest in the class at $124 billion. We've seen Focus Financial go to the IPO market and create a public offering and there are more joining this group on a continuing basis because, again, they see it as opportunistic.

They also see that there is a crisis of succession. We've often talked about that aspect of it. Firms by and large want to continue well into the future. And in doing so, they need more capability, more services, and they need to have a future chain of individuals, who can run those firms, principals as well as quite honestly support systems.

More of these models are starting to form in a way that don't just allow the firm to be independent, but they actually bring them into a model that one could almost liken to a rent me model where they build all the back office capabilities into a single session.

That's helping this space grow again, in what really as a 20 trillion plus opportunity on a going forward basis. Some of the firms have elected to actually start to push more of their capital deeper into their acquisitions.

And this is an interesting place because it's really almost the sub-acquisition category where they're providing the capital so that teams that they've brought in can go out and acquire teams and fold them into their business models.

Because remember, the choice here isn't simply to put their name on the door, it could simply be to come out and provide a different type of service to a wealth management client and do it through a firm that exists already. Colony Group has done an unbelievable job with this working with Focus Financial.

Focus Financial has brought in 26 sub-deals that come into this. And what I hope to kind of impress upon you is not so much the magnitude of the deals themselves or the numbers that exist today, but the fact that we're in an evolving model, changing all the time, critically important to make sure that you're staying on the curve of what's evolving.

And while I talk about that – while I talk about that 7 trillion opportunity in the wirehouses, all of the existing models are evolving as well, most of which have already created RIA arms within their model or an E offering of some sort that that makes sense for them to continue to make sure that they're playing in the space.

And so, I think the evolution in this space has to begin to address it at that macro level, which is why I said I wanted to talk a little bit more about the industry here as opposed to simply the slice that we continue – consider to be the sort of the purpose built slice that.

I've talked so much to you about over the past several years, important to note and important to keep an eye on. Firms themselves, they have begun to add more and more services to their clients. And that has been a key to their success. They deepen the relationship. They accumulate more assets.

The model itself serves them well in doing so and in many cases because they are independent of sort, they're able to do those things under the umbrella of their firm's name. If not, they go out and they find third-party providers that can help them to do that.

But you can see that the penetration here of what they're doing and coupled with the fact that almost 86% of the time just follow along the chart, they're doing these things without adding to the expense space for the end client, lowering the cost for the end client. Insurance products may be being the exception and that's understandable.

But by and large, bringing those capabilities to the client and maintaining the same fee, which you can see here, they've not changed their fee structure.

And in an industry where most of the day we've talked about price compression, they've not seen price compression, but they have seen margin compression because they're doing more for the same amount of money.

And so scale and the kinds of conversations we've been having and the importance really of bringing together more scale capability for these firms and making their back offices easier to do business with is going to be incredibly important.

Serving more assets with the same amount of cost dollars is going to be part of their success component, which synergistically puts them right in line with us. I would argue synergistically it puts it right in line with the idea of having larger organizations serving these clients.

And of course safety and security remains an important aspect of that as well. I look about what we've done because I promised I would talk about the success of this year once again in excess of $100 billion in assets. That's significant. We saw this climb over the past several years in what we've been doing. It certainly is fueled by organic growth.

And also if you look on the right hand side, you can see the consistency of teams coming out into that very difficult process of transitioning from a wirehouse. Thank you, Joe. We actually have built quite a model, a nice model to transition them, but it is a paper model.

It is and will become an electronic – more of a digital model, it's harder to come from a wirehouse than what we were describing as sort of a broker dealer to broker dealer type transition that we would be going through obviously in an acquisition with TD.

Their success of firms coming out though they have come out and they are actually growing their businesses organically faster, faster than firms that have been out and in an independent space. And part of that is because they're actually bringing team members out with them as well. And so, you can see the spread here.

It is predominantly those who are coming from independent broker dealers and wirehouses and they're making a decision that they want to do something different. They want to serve their client in a different way. They might be chasing open architecture of product when they're doing that or open architecture of technologies and capabilities.

They might be chasing that chart a little bit on the other side where they want to bring more services to their clients that may not exist at the firms that they're with, whether that's on an IBD platform or perhaps even in a wirehouse.

Going into 2020, I promise you that we are very focused on making sure we're creating and driving excitement into the marketplace as I had talked about an impact this year, there's a lot more we can do in the space. I'm not going to dive into digitization because Joe has already done a fabulous job with that.

But we have to keep helping our clients scale. We have to keep scaling.

We have to simplify their integrations with us and we will do that I believe through making sure that they can contact us in the ways that they want to, little as Jonathan has talked about omni-channel, but more importantly, making sure we lead with people and support with technologies, which is a position that we will always want to be in.

Specialization is something we've become extremely focused on over the past several years. Really what that's talking to is clients that look like each other, like to be with each other. They like to integrate.

They like to in effect network with each other because they learn from each other and we get a lot of value out of those things, so specializing the services for the needs of the client.

We too often, I think, talk about big and small when in reality what we should be talking about is complexities and needs and capabilities that we want to be bringing in and that’s what specialization has taught us in trying to bring those together and then of course the service evolution.

There could be nothing more important in an advisor's life than helping them through the services, the people, the technologies that we can bring to bear. So they can in effect be in business.

And so, we have an integration of plan, which we've been working through for again probably a year and a half now well before conversations about what we might be doing in the marketplace and it focuses on all sizes of clients, which we believe is critically important to the success of our organization in serving everybody.

An example of that I would go into quickly is just looking at this and we've kind of looked at it in two different ways here. We've already begun a core model as we would call it the under 100 million space.

Interestingly enough, you can see that we have 4,500 clients with under a hundred million in assets with us and making sure that the capabilities that they need are brought to them. And I just highlight on a very high level, these are smaller firms. These are firms that don't have as many people quite honestly.

These are firms that sometimes require more help on things like safety, security, compliance than they do on maybe the sophistication side of products and technologies. And so not to put them in sort of a broad brush, but we want to make sure we provide those kinds of things to them.

And one of the things I'm super excited about and I think opportunistically we'll be able to do and you talked about integration and we don't know when accounts will integrate, but I'm super excited about all the intellectual capital that we've created within Schwab that's available something like a benchmarking study available with a trillion dollar, trillion dollars in assets of information included in it, making that available to two small clients that that may be joining us, should we have again approval on the deal that we're going through and that can happen virtually on day one.

It's an area that we've specialized in. We think it's additive to the relationship in addition to all the other things we're talking about. We hired Tom Bradley, many of you know him from the past an expert in this space.

We think it's incredibly important to have somebody like that who fully understands and bring some knowledge quite honestly of TD in the industry to the table as well. So excited to have Tom here, who has been here about a month fitting in great and he and I are working very, very closely together.

On the right hand side of the chart, I just chose another, if you will specialization and service cut on it and its family office. We've long had family office services. I've talked to you about those kinds of things.

And in reality what we've done is we've begun to brand it and it's made a big difference and we hired an expert in that space too, Eddie Brown. You'll get to know him a little bit more, not as maybe as well known a name in the industry, fabulous, fabulous individual.

He's worked around family office wealth for quite some time and he's making a real difference in that space. And we're going to continue to fill out the specializations that fit within every size of client because that's how we grow.

We know clients want to have a continuum of being able to start with us at the smallest levels that they could possibly be in business and grow all the way up perhaps into the family office space, we're premier wealth if that's – if what they so choose.

So with that, I think I'll bring it to close and invite my colleague Jonathan Craig up because the questions are proving to be the best part of the morning..

I think I got the mic here. Craig Siegenthaler, Credit Suisse. Question for Jonathan. I want to see if you could provide an update on the Fintech landscape, post the commission cuts in October.

I want to see if you've seen any kind of delta in flows activity between your business, the industry and some of these tech startups with sort of growing assets?.

Yes, I mean, we haven't seen anything material since the commission of material change. But I would say they're worthy competitors and they're out there gathering assets where both couple of ways.

One is originally through low price and they're continuing to bring low prices now on the lending side or cash management side, certainly in the case of – one of them, Robinhood. And so – there's also – there's a brand value that they bring to the table that – for some clients that they're attracted to.

But overall, I would say, first from a broad competitive standpoint.

I don't spend a lot of time thinking about any one competitor because we operate in such a fragmented market that I'm looking at wirehouses, I'm looking at fintechs, I'm looking at fidelity, TD, E-Trade, Vanguard, banks and who am I missing? And it puts me in a pretty lucky position because rather than having to focus on one individual competitor and how we are going to win against them, it's much simpler to focus on what the client's looking for and what the client need is and serve that.

So, I would say, we watched the fintechs, how their growth has been, some of them had a lot of accounts, question a little bit how value of those – how valuable those accounts are, but they've certainly publicly announced some account growth. And we've watched it, but nothing material changed since the commission move..

Hi, there..

Hi, Rich..

So the question – thank you for breaking out the under a hundred million advisor segments, so 153 billion in assets, still small, but when you compare Ameritrade as I – overall I think somewhere around 650 advisor assets.

So I guess the question here is Bernie is how we – this is still small to you, but you’re taking on a big, might double the size of whatever and how you – and you said you want to grow services or at least keep the same amount of – or grow the services.

So what can you do? You've done a great job already I guess sort of putting this sort of the news flow about the small advisors segment to rest, but a little bit more how are you going to service this segment when there will be a big increase for you?.

Yes, I think it's a great question, but when you look at the segment itself, we have already begun to do so many things for that group of client that as you bring them together and we add digitalization and more scale to that, I think the opportunity there is, is helping them to grow, which is what advisors always ask us to do in reality is to help them grow.

And there'll be a lot of competition within that space because what you're seeing really is, is that the space is getting a little more crowded by that those other rent me platforms, so I hate to call it that kind of thing, but the LPLs and the Raymond James wanting to have custodial platforms that can retain those assets quite honestly that had been being a one into the independent space.

So we will have fierce competition there. And so, our service level will have to remain extremely high, safety and security of course will be of paramount importance to that group of clients.

But one of the things that I touched on, which I think is really, really important to consider, we've spent a lot of time on intellectual capital over the past years. And when I talk about that I can talk about competitive things and growth things like benchmarking, but we have a consultative program for cybersecurity awareness.

And I think those are going to be the things that I get excited about bringing to that group of clients and then allowing for the digitization really to take care of the scale of executions and those kinds of things. We've got a lot more smart technology coming quite honestly and we think about digital assistants and chatbots.

And these are not things that necessarily people look at and understand upfront what that benefit will be or that scale will be. But I will tell you, I sit with a lot of these small clients and if they've got to call you, they're really kind of unhappy because there's only two or three people in the office.

What they really want to be able to do is go out and check digitally their status and just understand what's happening with it and save the questions and the interactions for different times, so they could stay focused on their clients. I think we're going to net a lot from that as well..

And just one follow-up for Jonathan on the retail side. So now with the zero commissions, we've seen a big uptick in activity, I guess strongly what you'd expect in December and then big upticks in January.

So I guess the question is can you give us more color and insight on what's dry? Or these just – it appears that trades aren't just being broken up, there's more order flow behind it as well. So what does it do? Can you give us more insight into who is trading? And then how's it impacted other Schwab products that these people may….

Sure. Let me just answer – Craig, I was thinking about your question. I thought you were asking me what are they doing different as a result of the zero commission? I think you might have been also asking what are seeing differently. And I just want to close that. We certainly saw some wins from the folks who are out there offering zero commissions.

Right after we went to zero, we saw significant numbers of clients coming to Schwab from those firms. It just doesn't add up because they're still small firms. They're still small accounts and we operate in a very complex, fragmented, competitive environment.

So I want to be clear, when we went to zero, we definitely took away an advantage of some of those fintechs and started to see some volume coming our way. In terms of, the activity that we've seen post zero commissions, it's hard – the analyst and me, it's hard to analyze this early.

There's lots of factors at play, investor sentiment, some of the market movements that we've seen. There's lots of factors at play beyond just the zero commissions that drive client fundamentals, but we did see really strong client fundamentals in a fourth quarter, continue to see strong numbers in January.

In our case, it's not huge amounts of incremental trading. That's not our client base, but it's significant new engagement. What we've learned over and over, I think, at Schwab is when we do something disruptive in the industry, clients and prospects tend to lean forward.

They tend to engage, they want to ask what's going on, they engage with their portfolio and that causes us to have meaningful conversations, that causes them to do something different. We've seen significant upticks in advise flows. We've seen good flows into our automated solutions.

So I would say, the zero commission move was a significant move that created news in the marketplace place position Schwab as a leader that caused people to lean forward and engage at the right time when the markets were moving positively. And some total of that created some strong numbers..

And I don't think the advisors change trading patterns, but they thanked this for removing an obstacle that had existed and they’re trying to win individual relationships from models that didn't necessarily follow..

A question for Bernie. On the RIA, it's Brian Bedell from Deutsche Bank by the way. On the RIA, the concern from some RIA is that they prefer to use two separate platforms, just from a risk control perspective from two different owners, let's say.

So what do you – how are you assessing that that concern right now? And what other major concerns are you hearing from the RIAs about the combination? And how are you addressing those concerns?.

I think the key thing is there was a point in my history many years back where we're having multiple custodians felt like it was – it insured something, created some – perhaps a relative – a surety that that perhaps they had a backup plan, if you will.

It's just – I hate to say it, but it's just – it didn't make sense then it really doesn't make sense now.

Having a single provider and having the scale and efficiency that comes along with a single provider coupled with the fact that having someone who's so serious about safety and security and what they're doing is – I think it's going to be a huge benefit for clients to do that.

Advisors, if I'm hearing things, we're actually hearing a lot of positivity from our clients. We're not obviously talking to all of the TD clients, but we are talking to some of the dual clients, is they want to know that the technologies will be there to bear.

And we're committed to making sure that that heavily used APIs that exist within the models or use that we're incorporating them in. It go as far as saying things like RIA bell, which we think is an incredibly good product in making sure that that comes across.

These are the kinds of specifics that we will get into and they would really like us to get into. And the message we want to be out there is we're not going to take away anything that would limit small advisor from continuing to do business. It would make no sense for us to do that. It has to be as good or better or exacting to what they're doing now..

And then on the cash offer side, that was obviously a topic in Walt's presentation. Are you seeing any type of that activity on the RIA side from other competitor – competitive RIA firms? Or is it a different sort of angle from the other firms in terms of trying to attract the Schwab and Ameritrade customers….

I think we're well documented on our cash strategy and making sure that there's a great cash options available to advisors that can extend the yield on the products that they're dealing with and purchase funds are one way to get there. Obviously, we have a bank sweep product. And so, I have actually heard less and less from advisors on that front..

I think Brian the question is around cash offers….

Yes, cash….

Like in retail, we have competitors buying our business with cash.

Are you seeing the same?.

I went down the cash path..

It's so interesting..

We see a little bit of that competition typically on a transition on someone who is coming out from a captive model and there's a little bit of deal time, but we compete well within that space.

And in the same way, I think you've heard explained by Walt and Jonathan, we try and make sure that it makes sense to do the business with the – in the way that it's being represented. We're not – and we won't see, I think you know this, but we won't see advisors being bought away with their moving assets.

It just – it doesn't happen because, let's remember, this is a third party payer model, right? And so in effect, the clients of advisors are paying us and there's no way that they're going to want to transition those.

So it's really all in that space of what we call going independent where you would see some competition on really deal sourcing and perhaps a monetization of the transfer, which is a competitive market that we've been in and we win a significant share in..

Thank you..

Mike Cyprys from Morgan Stanley. I just have a question for each of you, so maybe just starting off with Bernie.

When you think about the Ameritrade transaction, I guess, how does it allow you, in your view to better serve the smaller end of the RIA marketplace in a way that perhaps you couldn't in the past?.

Well, I think we have a huge opportunity to scale in this space and I think that's part of the opportunity, but I also mentioned some of the services that we've been building. I always refer to them as intellectual capital.

It really has to do a lot with consulting and virtual consulting and making sure that we're educating the marketplace and making sure we're building strength. I talked about succession planning.

I think it's incredibly important on the smaller end of the space that we're building good succession models that exist for these firms and making sure that we're scaling into the regulatory and compliance space as well. And I think all of those things we can help at the collection of our clients.

One of the things that we've learned with advisors is they grow faster when they network with each other. They grow faster when they get to know each other. We do things and this is just one example of things, but we have many advisory boards and groups that we bring together, communities that we bring together.

We so often find that those communities end up coming together and after some period of time we find that they're doing deals with each other or they're joining each other and they’re creating stronger organizations. So really, I think one of the opportunities here is, is strengthening sort of the independent space..

Great. And just a quick question for Jonathan. You mentioned around the organic growth opportunity. You mentioned financial wellness. I was hoping you could talk a little bit about more about that new initiative there.

How you're thinking about that? And then just on the stock plan and 401k if you could maybe help to flush out kind of how large that business is today? How that perhaps has grown? And how you're thinking about increasing the size of that funnel?.

Yes. So around financial wellness, it's we're in a great position where employers are increasingly asking for us to help their end participants beyond the 401k or beyond the stock plan. And I think those are sort of the ideal relationships to have. And so, we're doing a couple of things. There's certainly – there's product development.

There's digital development. There's people. Those are sort of three things you'd expect. We also built an organization around it.

So I mentioned all those teams were putting up to Catherine Golladay, EVP in charge of all three, but also within my – within my world I established a team that is focused entirely on that retail prospect conversion, of which the B2B channel, the B2B channels are a significant part of it. So, we're putting resources against it.

We're building digital capability against it. In some cases, we're putting people on site and some of the locations where particularly in the stock plan services businesses where the corporate parent is willing wants us on site. And then we're bringing everything that Schwab has to bear to those conversations.

I mean, financial wellness is an overused word. It's what Schwab does every day for our clients is financial wellness. And we have an incredible set of capabilities to bring to bear to those participants to help them beyond the plan. I'll narrow in on a couple, but we're much bigger than that.

But just Schwab Intelligent Portfolios and Schwab Intelligent Portfolios premium, what an incredible way to help somebody getting started in their career. If they have a stock plan account with us, they invest restricted shares, don't know what to do with that money, we're there. We can put it in an automated portfolio with no advisory fee.

We can give them a comprehensive financial plan with a simple small setup fee and $30 a month thereafter. That's a pretty compelling solution for clients. And so we're putting a full court press on bringing that to the participant – for the corporate plans who want it and increasingly they more and more do..

Thanks. Brennan Hawken, UBS. Bernie, a couple questions for you and also maybe a request. When you were talking about the multi-custodian use, you expressed your view about how it's simpler and what have you.

What I think might be really interesting to see eventually or if you have some statistics around it, like how much of your customer base actually does use multiple custodians? Is there a size threshold or above a certain size? That would be really helpful.

I appreciate that it's operationally more simplistic and maybe the risk of a counterparty is lower than it used to be or what have you. Thanks to the resiliency of the financial system. But it would be helpful to see some of those stats I think..

Yes. And we certainly can get more public with those, but a high number of small clients tend to use a single custodian. But the thing you can never forget, and it's been said many times here is the end client, the client of the advisor really chooses the custodian and they always give them the option of who they'd like to choose.

And so sometimes you find advisors, who have a very small position with several custodians because their clients have come from there and they'd rather stay with them. But I would say that in the under a hundred space, which we really have there is probably 80% to 90% of those clients are single custodial.

And then as you grow up into the higher end space, people tend to think of this as a one, two, three kind of thing. We have large relationships that have upwards of 40 or 50 custodial relationships simply because they've begun to advise on the wealth management and yet the assets may never move.

We have – if you look at our clients, you will see LPL looking like one of our largest clients because they have bifurcated relationships, the hybrid relationships. So it's an area where clearly it becomes a bit more complicated than just thinking about it as one of these – this small space of purpose-built..

Okay, that's fair. There was some reference before from Walt and we heard about some chatter on lending and that opportunity in your business. Love to hear some more about that directly from you.

What kind of demand are we talking about? What sort of loans do you imagine this is going to – what sort of loan growth are we going to end up seeing? What kind of loans do you expect will drive a lot of the growth? And when we're thinking about this opportunity over the next few years, could you help us size it?.

Yeah, no, it's, advisors have long talked to us about the fact that they would like to have more banking capability and mostly because they either are using smaller regional banks.

And that may or may not satisfy their needs, but they certainly don't want their clients going out to larger banks and alternative as we've seen more enter into the space alternative platforms for their wealth management services. So, we're working closely with them. We're going to our advisory board soon.

One of the biggest – bigger challenges I would throw out there for you is the fact that they have a high net worth group of clients by and large that don't necessarily have income. And so, nontraditional or adjustable or mortgages that in effect can handle that type of client. We've had tremendous success with our pledged asset lines.

We think going into the space of making sure that there are credit lines available to clients from a bank perspective on a high net worth side is incredibly important. They all can have margin now, but some prefer to go down the banking path. We think that's opportunistic as well. And this is all on the client side.

One day, we also want to sort of broach another side of the relationship in how we potentially lend into advisors and what we might do there. We do a very, very small bit of lending on the crossover on the on the transition side for advisors that are turning independent startup costs kind of thing.

In fact, we do that through the broker dealer, but they clearly have an interest adjustables of varying rates. We talk a lot about. They are extremely interested to drift a little off the lending side in our trust offerings and trying to make sure that they can work with us through those.

Many of them have businesses that could be supported by trust offers.

We actually see it as an additional asset opportunity, so that they can consolidate more again with us and, of course, administrative trustee where we in fact connect as the administrator on their behalf and they know that we are a friendly influence in that relationship and that we're not going to come trying to take the assets away from the advisor themselves.

So there's a lot of banking opportunity built into all of that. Opportunistically, you have to build these things and understand what market you can make from them.

And that will take some time, but Paul Woolway and Steve Anderson, myself, Jonathan, we're working hard and we're working again – almost as we talked about digitization, we're working hard cross organizationally to make sure we're building single solutions that make sense for a wealth management client of retail, wealth management client of an advisor that they have to be different..

I was going to say a lot of the stuff you referenced is the same product that a very affluent sort of likely self-directed type client in our retail business that's interested in. So having taken a one Schwab view is critical.

I mean, I would just say on the retail side, we've seen – I said we've seen our client's willingness to do more than core investing with us or do more investing with us and even do lending with us. We just need – we need the product to serve the need.

And we've also seen on the flip side of that competitors go after our assets with very aggressive lending offers and we need to have it both to serve the client need, but also to protect that – protect us from that strong competitive force that we feel..

I don't think we can yet sort of put a number around it..

Mike Carrier from BofA. Jonathan, maybe just on the competitive side you have some of the bigger banks, they've been gaining some, I would say, wallet share from clients, not necessarily from the wealth side, but just from the banking industry. Some of that has been driven by the reward programs.

I just wanted to get your take on when you think about that type of a competitive environment, is it something that like Schwab can go after or can institute?.

The wirehouse competition – the wirehouse bank, I mean the major banks?.

Yes, the bigger banks, yes..

Yes. I mean they – they have made significant investments over the last several years in digital and bringing pricing down and leveraging their distribution networks and leveraging their rewards programs. And they clearly are going after – among other things that affluent, mass affluent target with that.

And we see that competition every day, definitely. Yes, I would say that we continue to win. And when we win, I think we're winning largely because a couple of reasons.

One is I think the sum total of the value proposition that we bring to the table with no trade offs is still a very strong relative to what they're putting in front of their – in front of clients. I think our singular focus resonates quite a bit.

I mean, we go to market with one goal, 20,000 employees come to work every day to help individual investors achieve great outcomes either directly or through an intermediary. That singular focus I think is powerful and I think our clients see it. They hear us say it, but more importantly, they see it and experience it.

And I think that's been helpful, but there's no doubt the major banks have, over the last several years, made significant investments to bring some of their pricing down, to invest in digital, to leverage their distribution and to go after our clients.

And I think that's why a lot of the messaging that certainly I meant to communicate and I know Walt and all of us is despite the very competitive environment we were staying on offense.

So the moves we made from zero commissions to subscription based pricing to intelligent income to fractional shares, to more franchisees, I mean these are all examples of staying on offense in the face of strong competitors..

Thanks. Firstly, Bernie, thank for that presentation. It was a pretty insightful going through the industry value chain.

My question is how do you think about competition see from the likes of LPL who are trying to do more for smaller advisors? They're trying to take away a lot of the operational complexities that they have by offering the virtual services. I think of it as more of almost like a dynasty financial type service for smaller advisors.

Is that something that's used as a risk to some of the flows you're getting from the IBD channel? Or do you see yourself as doing more for advisors than pure custody over time?.

They are very, very motivated and the price of entry into the custodial space has never been cheaper and easier. The ecosystem has grown up aggressively in the marketplace and we will see a continuation of those firms getting better at what they're doing.

And we will see a continuation of new names trying to come into this space and new combinations of names as you're highlighting, when you start to think about bringing in what we consider to be in the industry, a turnkey asset manager coming in and joining perhaps with an independent broker dealer model.

We know that the wires, I mean, I'll go back to the Goldman example I've used. Clearly, they want to be in this space at a different level. Obviously, they're a little focused at a higher entry point for their clients, but they will be in the space. Raymond James continues to evolve and look for what they're doing.

We know that they're out there in some cases and to get back to the cash question again. We know that some of those firms are out there buying teams and buying cash flow of teams in order to be competitive in the space and trying to prove that they're not just transferring assets, which has been the LPL challenge, right.

LPL has been transferring assets from their captive over to their independent. They need to show growth that's outside growth coming in. So I think that that will continue.

I think about the Commonwealth's, the Wells Fargo's all of these firms are going to need to look for solutions or they are going to continue to attrit assets, which again is why I did – a little bit more I think on the landscape of the industry and how it will continue to evolve in technology capital and more providers are going to keep pushing in that direction.

And to kind of answer the last part of your question is, and our intent is to be on the offensive and staying ahead of all of that and trying to make sure that we're driving the best possible experience that we can creating – I will go back to the word scale, but our size is going to help us. I know that.

And being known for being in all sizes of the marketplace, I mean, one thing somebody does want to do is necessarily find themselves in the under a hundred million dollar space at an LPL and realize that they can't grow up there, a couple of firms have done that. And then when they can't grow up there, they have to change platforms.

They have to move clients. They have to do something completely different. And so, that's – our objective is to make sure that we're attractive from day one all the way through the life cycle of the firm..

I think Jeff has really hard one for you..

A couple of web based questions for – one for each. Let's start with Jonathan actually.

Can you elaborate on the segmentation initiative? Perhaps talking about what will be different than what Schwab is doing today and perhaps any insight on ultimate goals or targets?.

Yes, I would keep it pretty general at this point. I just would say, we have a history at Schwab of delivering every single client a great experience. And I think that's core to what we do. Our service levels in the call centers are how we treat clients and branches.

How we've priced historically, even before we eliminated the commissions, everyone paid 4.95. So the most important message I would say is we have a sort of enduring commitment to delivering to all of our clients a great experience. And we do that because we think it's right and it's the right thing to do.

We also do it because our clients and many of our affluent clients really respect that that approach to the market. So I think that that is still – that’s sort of – that's a permanent commitment. But that doesn't mean that we can't do a little bit more segmentation and we've started a little bit.

We have a Chairman Circle program that we don't wildly publicize, but we – in New York and California and in some across the country where some of our very high net worth clients are in what we call Chairman Circle. And with that are some added benefits and some events and things like that.

So we're looking to sort of go from that that step to a little bit more segmentation of service models, potentially access to certain products to some of our high net worth clients. And the goal there being again to make it clear to them how much we value that business, to protect that business from a non-slotted competitors, who certainly want it.

But we won't go so far as to sacrifice the core experience. Many of our clients, many of our affluent clients at Schwab started as small business owners or started as small clients and a lot of the reasons why they're still here. One of the reasons is, is they saw us as there for them when they were just getting started.

So segmentation doesn't mean walking away from that commitment. It means adding some service models and product that maybe from a scale standpoint only makes sense at certain asset tiers and you'll hear more about that as we unfolded..

Thank you. And then one more question here from the web. And perhaps Bernie, you can start and Jonathan you might want to weigh in as well.

Can you speak a little bit about the current referral program as well as and how Schwab manages any perceived conflicts of interest with its proprietary retail offerings?.

Well, I think, we've had a tremendous amount of success in the marketplace and referring assets to advisors that were individuals, who needed something more customized and perhaps more sophisticated. We've probably the highest flow in the industry going into that model and we've done it for 20 years, quite honestly.

And some of our competitors have built programs like that, but not a ton of them.

And it's a highly thought of program, but more importantly, I think it speaks to the point I had just made that you can come to Schwab as Jonathan was just saying as well as a client, maybe at the beginning of your investing career and make your way all the way through and ultimately end up with an advisor and still be part of slot of your same Schwab account number in effect.

I think that's pretty cool to be able to go through that process..

Yes, I mean I think the [indiscernible] advisor program has been working really well. Flows continue, so advisers who are in it are very happy with it and we continue to make enhancements. So the program is working well. And the question of conflict, Bernie and I have – we talk to each other every day.

If anything ever comes up, we're on the phone and we resolve it, but it rarely to things come up. And I think it's partly because we have – we do have a different approach, RIAs have a different approach to who they're serving and how they're serving clients than retail.

And also just honestly, it's go back to the chart about the massive market opportunity that's out there. We're not the RIA space and the retail space is not – it only adds up to less than 10% market. So, we do hear that much less and less..

Thanks. Brian Bedell [Deutsche Bank] again.

Just go back to the USAA referral agreement, 13 million members, can you just talk about maybe some expectations about the potential when after that closes to convert some of those users that are not currently on the Schwab platform over to Schwab?.

Yes, I don't know that we've shared or have specific numbers, but I can tell you is we are the exclusive referral partner for USAA.

And what I can tell you is with that we have a common interest financially and just in terms of serving their members to get their members to Charles Schwab if they're looking for wealth management or brokerage/investing services. The values that’s – working with USAA has just been a fantastic experience. We've had a lot of work with them.

And I've complete confidence. They said to us early in the relationship that in their words didn't really want to exit the business. They wanted to find a partner who could support them in their business. And that that's a pretty compelling statement, many times of someone wants to exit, they just want to sell it, that was not the case with USAA.

They were truly looking for a partner who shared their values, who had great products and services that they would be feel proud about putting in front of their members. So, we'll have to deliver.

I don't have numbers that I can share with you today, but I think it's teed up for us to be a pretty significant opportunity just based on the size of the membership, the number of new members add every year and the strength of, I think, the Schwab offer for those members..

I think is the staffing going to be increased, I guess, for the opportunity right after the deal close or is that….

Yes, so I mentioned – so from a deal standpoint, we're bringing over some of their staffing, some of their relationship managers who manage their important relationships. So, certainly, they will come over and we're managing, we'll bring over some service folks to maintain the service levels.

But also on our side, I mentioned we're building in retail – a retail prospect conversion team that is solely focused on driving new to retail accounts from the B2B businesses, but also the referral relationships with folks like USAA. So a vertically integrated structure around, our goal everyday is to optimize that that opportunity.

So I think, we'll – I think the traction will be significant, I don't have numbers to share, but it will be significant..

Thank you..

I could tell by the brown bags in the back that we're getting the hook. So, thank you..

Thank you. [Break].

Welcome back everyone from lunch. Hopefully, you're enjoying your San Francisco – fine San Francisco cuisine here. I am sitting in the audience as my colleagues have been sharing the story and I guess, I really enjoyed it.

Although, every time they’ve mentioned the word going on offense or offensive or something like that as a lifelong San Francisco 49ers fan, a little part of me, I felt little pain in my back every time that was mentioned, making it back to the – our Super Bowl on our come from a head loss on the Super Bowl two days ago.

So but you heard it, certainly a number of themes through the course of the day to day. You heard about the strong momentum we have in the marketplace. You heard about some of the challenges that we’re facing across our different businesses and how we’re working hard to overcome those challenges.

And you also heard about the opportunities we have, opportunities to add to our scale and add to our efficiency across our businesses. Opportunities to better monetize the assets that we oversee, as well as, opportunities to create a more of a differentiated experience for key segments of our clients’ base.

So my time today, I’m going to talk about how that strong business moment and help us navigate through relatively mixed macro environment in 2019, helping us to produce strong financial performance. Also share our views on 2020.

And I think, it’s safe to say that our story, our financial story this year is going to be a little bit more complicated than usual given the integration expenses related to USAA and TD Ameritrade, the partial year impact of USAA and TD Ameritrade later in the year.

The lingering impacts of the three fed cuts in 2019, as well as our decision to cut online equity, commissioned equity and ETF commissions in the fourth quarter of last year. But hopefully, if you – as you cut through the quote noise, I think what you’ll see as a company entering little bit of a transition year.

A year in which we’re poised to produce positive revenue growth year-over-year and managing our rate of expense growth to be below the level of our organic asset and accounts growth, in other words, strong financial performance under the circumstances.

I think we also see as a story of a company that is facing the future with a lot of confidence and making the investments, laying the foundation for even stronger revenue growth, greater efficiency and really robust earnings growth in the years ahead.

Also talk about capital management and capital return, which I think, as you saw in the last 18 months is really resumed its role as a key pillar of our financial formula and something that we think is going to be very, very important part of our story going forward.

So let’s talk about why we’re, certainly, very pleased and proud of our 2019 financial performance. So a year ago at this meeting, we – I outlined a scenario, actually it was a range of possibilities, a range of outcomes based on the market expectations at the time and what a way that the year could unfold.

And that range of possible outcomes assumed a few basic assumptions around the market. One, the equity markets would have average appreciation from their strong start at the beginning of the year. Second, it reflected expectations at the time that the fed would continue to hike rates and we assumed a single fed increase in the middle of the year.

And it also assumed that long-term rates would stay relatively stable and the client trading activity would increase a little bit.

And that range of outcomes really dependent on the range of balance sheet growth and that range of balance sheet growth from minus 9% on one hand to a plus 4% on the other hand was really a function of the degree to which and the pace of which our clients would continue sorting between their transaction and investment cash.

And depending on how that happened, we could see that the balance sheet evolve accordingly. Now, I think it’s safe to say that the year as a whole unfolded in a way that was somewhat more challenging for our business model. Though, the equity markets increased almost 30% over the course of the year.

The fed after several years of hiking rates dramatically and pretty quickly reverse course and cut rates three times over the course of the year. And the yield curve inverted for part of the year and ultimately ended up being the right direction, but long-term rates certainly ended the year a lot lower than where they started.

And a little bit paradoxically, despite the strong equity markets, client or I would say, investor sentiment turned decidedly apprehensive and skittish. And so we saw key measures of client engagement a little bit softer year-over-year, including trading activity a little bit softer over year – year-over-year.

Now the balance sheet growth ended up, right – actually, right in the middle of that range, actually a little bit on the upper end of that the range that we had talked about. So those interest rate driven headwinds if you will, certainly impacted our top line revenue growth.

But by focusing on the things that we can control, we were able to deliver bottom line financial performance that was generally consistent with the expectations that we had communicated at this meeting. So our revenue grew by 6% year-over-year, a little bit below the range of outcomes that we had talked about.

A function again of the three fed cuts as well as our decision to cut on the equity commissions in the fourth quarter last year.

We took steps in the middle of the year to trim our spending and limited our spending growth below the range that we had forecast coming into the year and kept it at 5% and that included about a third of that was actually related to one-time items, severance expenses from some of the restructuring we did as well as the integration expenses and transaction related expenses related to the both USAA and the TD Ameritrade acquisitions.

And so by limiting expense growth to 5%, we’re able to deliver a pretax margin about 45%. Again, consistent with the scenario we laid out and $2.67 of earnings per share up 9% year-over-year. So that was the income statement. Let’s talk about the balance sheet. So our balance sheet shrank by 1%, point to point over the course of the year.

Now we completed the last of the $130 billion of transfers from sweep money funds over to the balance sheet. We completed those in the first half of the year. And then the second, third and fourth quarters, our clients became net sellers of equities.

And so those both contributed, brought cash onto the balance sheet and that basically offset the continued client cash story that we saw over the course of the year and enabled our balance sheet to end the year just down 1%. And we bought back $2.2 billion of stock over the course of the year about average purchase price, about roughly $40 a share.

But even so, our Tier 1 leverage ratio finished the year at 7.3%, so a bit above our operating objective of 6.75% to 7%. I’ll talk more about that in a moment as I talk about some of the future considerations. So clearly the key driver of our balance sheet evolution if you will is our client’s behavior with regard to their cash.

And in our continuing mission to help you all understand what’s happening underneath the hood, what’s happening with our clients and their cash. We wanted to offer an additional perspective, a new perspective for you. So there’s really – if you think about it, there’s really three factors that influence net balance sheet cash flows.

First, we bring a certain amount of net new assets into the firm every year and some portion of those net new assets come in the form of cash. Second, clients make a decision around how to allocate that cash.

Keeping some on the balance sheet in the form of bank sweep at transactional cash and then moving some of off balance sheet into higher yielding alternatives like purchase money funds, CDs and so forth. Some of these – that’s what we call the investment cash.

And the net result of those two dynamics is what you can see in the gray column here, negative in the first part of the year, becoming less of a negative in the third quarter and then actually turning positive in the fourth quarter.

And it’s that interplay between those two dynamics that we expect will turn positive overtime and will allow our bank sweep to grow consistent with the growth in total client assets and the growth in total accounts.

As the net new assets continue to come in, the sorting process slows, net new assets over – more than offsets any sorting that we may see. But there’s an important dynamic. There’s a third dynamic at play as well, which is the extent to which our clients are net buyers or sellers of equity.

So what’s their view on the equity markets and how are they voting with their feet on the equity markets. And you can see in the first quarter of last year, our clients were actually net buyers of equities and they became net sellers of equities in the second, third and fourth quarter. Now the oval box of a top here is, that’s what you see.

That’s the combination of those two things. And you can see in the fourth quarter, these are the numbers that you see on our disclosures had a positive $13 billion in client cash flows in the fourth quarter. I’ll say, $9 billion of that alone came in the month of December. And we have seen some of that year-to-date.

We have seen some of that reverse as we saw in 2019, but at a much lower level, only about a quarter of that money is actually gotten redeployed off the balance sheet thus far year-to-date. It was a much, much higher number in 2019. So again, an indication that sorting is likely slowing. Again, I’ve said this before, I won’t ring the bell.

That sorting is done until it’s probably well in our rear view mirror, but there’s certainly – it seems a little doubt that it is slowing and that ultimately our cash balances will grow with a growth in total client assets and the growth in total accounts. So our success in 2019 puts us in a great position as we head into 2020.

And there’s always a number of moving pieces, a number of variables that we need to take into consideration. Of course the market, the interest rate outlook, our client’s trading activity, this dynamic between the client cash sorting as well as their views on the equity markets and the net flows into equities.

And so all that – we have to think about all that as we think about our scenario and the range of possible outcomes we have here. This box on the bottom is a really important one. Rich had this year two pages of walls – a wall of words.

This is kind of my box of words, I guess, which is to say that all the numbers that I’m going to be sharing are go forward numbers. Looking at 2020, exclude any numbers related to TD Ameritrade, exclude any integration spending, and of course, exclude any impact of ongoing the consolidated entity that we might have.

We thought it was really important just to give you a perspective on the core Schwab business and how that's – how we see that unfolding over the course of 2020. All right. So let's start on the revenue. I’ll start with the net interest revenue, of course, net interest margin.

So our expectation in an environment, where interest rates are relatively flat through the course of the year and the Fed is on hold through all of 2020, that our full year average net interest margin would average somewhere in the mid to upper 2.20%s, so mid to upper 2.20%s. So now there's lot of inputs into that.

And so at the risk of getting into the wheel just a little bit here, I want to unpack that just a little bit. So our investment portfolio, historically we've talked about our investment portfolio has been roughly 60, 40, fixed and floating.

We've actually taken steps over the last six months or so to shift that allocation from 60, 40 fixed floating to more like 80, 20. And the reason we've done that is because as interest rates have come down, the duration of the fixed rate investments that we hold has come down as well.

And so to keep our target overall duration in that 2.50% to 2.75% range that we've been targeting, we need to increase our allocation to fixed rate assets. Second piece going forward, we actually see an opportunity and we'll be looking to increase that duration from that 2.75% range to somewhere in the mid-3%s gradually over the next 12 months.

Let me talk about why, why that is? So one of the outcomes of this client cash sorting process that I've talked about – we've talked about it a number of times, is that it's a process by which the most yield sensitive cash moves off the balance sheet into these higher yielding alternatives.

So by definition, what's left on the balance sheet is less rate sensitive, think of it as sticker cash. Sticker cash is longer duration and bank sweep is by far our largest liability.

So the overall duration of our liabilities has increased and so from an asset and liability management standpoint, it's appropriate given that to increase the duration of our assets as well. And so that's what we're looking to do gradually over the next 12 months.

The third point I would make is, those of you looking closely at this dash line here and trying to getting out of protractor and trying to read into what the numbers might be for the next couple of quarters, you'll notice of course that the numbers goes down and then it takes backup and you might say, well, why is that assuming a stable interest rate environment? The reason for that is because we know there is probably $10 billion to $12 billion of client cash balances coming over to our balance sheet at the time of the USAA conversion at that migration.

And what we're looking to do is get a head start on that investing activity, so actually pre-investing ahead of that migration. This is for those of you who have followed the company for awhile. You'll be familiar with this when we do this.

I've done this traditionally when we've done things like sweep transfers that we knew about, it allows us to spread out the pace of investing over a longer period of time. It'd be more opportunistic, if we – it allows us to deploy the capital. And right now, as I mentioned earlier, we have some excess capital above our operating objective.

So it allows us to better utilize that capital. So we utilize FHLB advances to get a head start on that. And then we replaced those FHLB advances with the bank sweep balances that are coming over from USAA. And those FHLB advances is a higher cost funding source than of course than bank sweep, so it does bring NIM down, our net interest margin down.

But it's certainly very positive from a revenue standpoint, from an earning standpoint. We think a very appropriate thing to be doing. Fourth point on deposit rates, no change in our thinking on deposit rates.

We have traditionally moved our deposit rates, generally speaking with Fed activity, some as to a lesser extent with what's happening in the broader interest rate environment. So in a scenario, where interest rates are staying relatively stable, I think it's reasonable to expect that our deposit rates would stay relatively stable as well.

And this last point is an important point, although I'll say – it doesn't impact the NIM at all, which is, we, as of January 1, transferred 100% of our held to maturity securities over to the available for sale category.

You may say, why would you do that, if it doesn't do anything on net interest margin? And the reason is because with the new – with the Fed's new tailoring rule, we made the election to opt-out of including Accumulated Other Comprehensive Income AOCI in our regulatory capital ratios.

And AOCI is what is derived from the mark-to-market gains and losses and available for sale securities. So now there's really no downside to having those securities be marked as available for sale. And there's actually it brings us benefits in terms of giving us more flexibility to reposition the portfolio as the market warrants it.

But again, I want to emphasize that is purely an accounting change has nothing to do with what we’re buying, has nothing to do with the overall aggregated yield of the portfolio, the overall aggregate duration of the portfolio, but it is a benefit of the feds do and we think one of several benefits of the new of the feds at tailoring rule. All right.

So, we cannot say control the interest rate environment, but we can’t control our approach to spending. And so right now, we’re planning for expense growth over – year-over-year of roughly 6% to 7% on a GAAP basis. I want to emphasize the on a GAAP basis, because there’s a number of components that build into that.

So, let me walk you through the waterfall here a little bit. On the left, you see the – if we exclude the one-time items in 2019, it was about $87 million of severance and integration expenses, pull those out, that subtracts about a point and a half from our 2019 expenses.

This blue, this, I guess the dull blue, but the lightish blue, that it has the highlight around it. That’s the key number. That’s our operating expense growth of 4% to 5%.

So, very consistent with the expectations that we have communicated in the last several years about what we think of as sort of the long-term trend around expense growth in that kind of mid to – potentially lower-mid single-digit level. So, 4% to 5% expense growth.

And then you add onto that the integration spending related to USAA, but not TD Ameritrade. Let me just remind – emphasize that again, integration spending related to USAA that has a 1.7% or so. and then the ongoing expenses associated with servicing the accounts once they come over to Schwab.

The employees that we’re bringing over in the servicing costs and so forth. And that’s how you get to 6% to 7% expense growth on a GAAP basis. All right. So now, the page you’ve all been waiting for. Our scenario for the year. I’m going to keep it in suspense just a little bit longer.

Thank you for hanging in there for four hours or so now, and build this up piece-by-piece. Because I know once I show the outcomes, everything else I say, you’ll go in at one year and out the other. So, let me talk about the assumptions. I’m going to talk about the assumptions first.

So, we developed a scenario, I will say, pre-coronavirus, but we’ll give you the sensitivities in a moment, so you can adjust it based on your view of how the markets might unfold. So, the base set of assumptions in this scenario, our market again, appreciates a 6.5% from the mid-January levels. The fed stays on hold through the course of the year.

Long-term rates returned to where they were at the start of the year. In client trading activity, you’ll notice this as daily average trades, not daily average revenue trades, I was one of the – we’d drop the R when we cut the equity commissions in – eliminate the equity commissions in the fourth quarter.

Daily average trades increases a little bit a year-over-year, in part because of the accounts we’re bringing over from USAA. Now, of course, with the decision we made in the fourth quarter, that fourth assumption really isn’t a big driver of our scenario any longer. It’s really those top three that are the key ones to focus on.

And as with last year, I want to share with you a range of potential balance sheet growth estimates, I guess, or not estimates, but outcomes – potential outcomes over the course of the year.

And in this case, it really depends on the extent to which these two dynamics I talked about earlier, which is the duration, the length of time that our clients continue to be sellers of equities as well as the client cash sorting and you can think of those two forces as kind of in a little bit of a tug of war if you will.

In other words, if clients continue to be sellers of equities, but sorting stops, we’d likely end up more in the upper end of that range. If the reverse happens, sorting continues and clients move from being sellers of equities to net buyers or neutral, we’d be more likely ended up in the lower end of that range or that balance sheet range.

So, kind of a flat in one scenario, went up 12% in that other – in that other outcome. And depending on what happens with the balance sheet, we’d anticipate full-year revenue growth in the 0% to 4% range. Thinking we’d manage that expense growth within that range of possibilities at that 6% to 7%, again, on a GAAP basis.

And that would lead to a pretax margin of 41% or so. So, a few points less than, where we were last year. Now, we have been really – we have studiously avoided sharing any kind of quarterly guides in the past. And let me be clear, this is not guidance. You would know it’s not a guidance, because there is no scale, on the left side here.

But it’s important, we want to make sure we emphasize, it’s really important that our expectation is that when you look at some of these numbers on a year-over-year basis in the first three quarters of the year, we’ll be showing most likely some degree of negative operating leverage, but we would expect that it would turn positive in the fourth quarter of 2020.

The fourth quarter is the year – is the quarter in which all the – virtually, all of the integration spending related to USAA is behind us. The prior period will – the fourth quarter of 2019 we’ll include, of course, 90% of the impact of the equity commission, elimination will impact a – will include a big chunk of the impact of the three fed cuts.

And so that’s the quarter, in which we’d expect positive operating leverage and then having that continue into 2021 as well. And we expect that overtime, we’re going to continue to demonstrate positive operating leverage and we have certainly plenty of opportunity to continue expanding margins as you saw us do over the last several years.

So, I mentioned about sensitivities, again, I know that the year is going to – it’s already been kind of a full year in the last month, I guess with a lot of twists and turns along the way. The markets will evolve over the course of the year, in ways that none of us can anticipate today, or very – certainly, very few of us can anticipate today.

And so we always want to make sure we share with you, it’s a sensitivity so you can adjust your assumptions as the year unfolds or as you have your own views on what may happen.

The Q1 continues to be that, that one in the upper left, which is the target fed funds rate and a $75 million to $175 million impact for every 25 basis point increase or decrease in the fed funds rate and the difference between those two numbers is whether that’s in the first full year.

The difference in those two numbers is if the yield curve shows in parallel when the fed moves or if it’s just on the front end of the curve. The second one, I bring to your attention is that the upper middle one, which is the $40 million impact for every 10 basis point change in 10-year treasury.

Those of you, who remember our previous business updates, that’s a little bit higher on what we’ve shared previously. That’s a function of again, shifting more of the investment portfolio into the fixed rate investments and you can see some of those other sensitivities as well.

for those of you, who may be taking pictures of this or writing this down, all these slides, I should’ve said this, all these slides are available now on aboutschwab.com, so you’ll have access to the numbers. So, last year was a big year for the – for our real estate team as we basically completed the first phase of our new Westlake campus.

We built and completed construction as Joe mentioned on a data center just near that campus. We added really, the last building in our Austin campus and a new parking garage, and for our employees in Denver. So, our CapEx last year was above our long-term average of roughly 3% to 5% of revenue. Basically, nearly, all those projects are done now.

The only big project, major construction project we have going on now is phase 2 of our Westlake campus, which we expect we’ll finish in 2021. And so our expectation in 2020 is that CapEx comes down a lot closer to that long-term average and likely, into 2021 comes down even further.

So, we’ve shown over the last – I think last 18 months or so, the ability to be a company that can deliver both strong top-line revenue growth as well as robust capital return. I talked about that $2.2 billion of capital return via the buybacks utilizing just over half of the authorization we have from the board.

We increased our dividend by $0.04 last year and by $0.01 last week.

I think going forward, it’s reasonable to expect that our dividend will increase consistent with our target of dividending out roughly 20% to 30% of our earnings per share and the buybacks will be – continue to be a very, very important part of our financial formula, that’s long-term.

in the near term, there are going to be some dynamics that will impact the pace of buybacks we’re able to execute and our ability to manage our tier 1 leverage ratio to keep it pegged at that 6.75% to 7% range.

Now first, is we need to build up some capital to support the USAA acquisition, both the $1.8 billion purchase price as well as capital support, the balances that we expect to migrate over at the time of conversion.

But second, there are some transaction-related dynamics r6elated to TD Ameritrade acquisition that at various points in time may make it hard, if not impossible for us to be in the market buying back stock.

So for example, ahead of the stockholder meeting is one example, if the window closes, because of some development from a regulatory standpoint and so forth. So, in the near-term, you may not see as much buybacks as you might be expecting, but longer-term, I want to emphasize longer-term, it is a very, very important part of our financial formula.

And I see no reason why our capital return approach should be any different post-acquisition as it is – as it has been up until this point. So those of you who follow the company for awhile, I think, know that we are strong adherence of a focus on GAAP.

We are seeing some of gains I guess if you will but other companies play with non-GAAP measures and we really just don't want any part of that.

At the same time as I mentioned, the next few years are likely to be a little bit noisy if you will, from some of the top line financial measures, with integration spending and with some of the amortization and so forth.

So we think it's going to be appropriate to introduce some non-GAAP measures to shed more light on what is happening with the core business.

And one of those non-GAAP measures I think you'll hear us talk about in the future is return on tangible common equity, which I think most of you know, it takes our standard ROE, measure and strips out goodwill and intangibles. And we think that's going to be up. If you look at ROE and ROTCE today, they're tracking pretty close.

Going forward, post the USAA acquisition, they'll diverge a little bit and post the TD Ameritrade acquisition, they would diverge further. We think it's an important measure of our ability to reward our stockholders and predictably use the capital that has been interest on us.

But as we do these and introduce non-GAAP measures, just know that we're going to be very, very discerning around what we might be excluding for non-GAAP purposes. Of course we'll be sharing the GAAP measures as well to give you a sense of the both of them. We think this is going to be a helpful way to look at the company.

So, let me close with, I guess a couple of thoughts before I go to Q&A here.

So I think we've talked, Walt started his comments, talking about some of the challenges Bernie, Jonathan, Joe talked about some of the challenges we faced, I talked about some of the environmental challenges I think one of the things that's made this company successful for 40 plus years is as we see those challenges and we tackle them head-on.

I think that's what we're trying to share with all of you today as we see these challenges and we're tackling them, we're going right after them.

I talked about how 2020 has the opportunity, I think will be a bit of a transitional year, but I'll say it has potential to be a transformational year for us, a year that really sets us up very, very well for the future for the next years, even decade or more of success.

But some of the things that aren't going to change during that transformation are some of these qualities, these attributes on the right here. Now, first and foremost, is our Through Clients’ Eyes’ strategy, that won't change as we become a bigger company.

The way that we operate the company, our focus on growth, our focus not just on metrics growth, but on revenue, growth, on monetization, the discipline with which we manage expenses, the discipline with which we manage capital, those things won't change as we go through this transformational year.

And finally, I think the candor and the transparency that we endeavor to communicate with all of you and the investment community, that won't change at all either. So with that happy entertain questions. Thank you. Alright, some over up here, I couldn’t tell, who is first..

Thanks Peter. You may have covered this and I missed it. But on the NIM, the NIM guidance, if we are ending the year in the low 230s, flat rates in the assumptions, extending duration to fix there, trying to see where the pressure is in the year on the NIM getting it into high, the mid-to-high 220’s, I guess..

The exciting thing, there is something happening gradually over the time, so I wouldn’t expect that to have a big impact in the NIM in the near-term, couple of dynamics, that impact NIM in the first quarter, I’d say couple of things.

So, one is we are entering Q1 with lower rates, really across the curve that we entered Q4, so both on the floating rate side and the fixed rate side. Second, is with the year-end build-up in cash that we saw, we built up more liquidity in the investment portfolio.

Just to make sure, we are ready for potential seasonal related outflows that we see in April, typically we see outflows in the month of April, so down a little bit of actual liquidity as well for that.

And then reinvestment rates on some of the securities buyer, like 20 basis points lower than where they are average over the portfolio that’s we have to look..

Craig Siegenthaler with Credit Suisse. So, Peter as you look at the 2020 projections for negative operating leverage, I just want to hear, how you think about, because it is transformational year, how do you think about operating leverage on much longer-term basis, as you bounce investing or sort of revenue growth..

Yes, thank you, Craig. So when I think about operating leverage on an ongoing basis, I go back to our financial formula that we’ve shared previously. And for those of you who are maybe newer to the name, let me recap.

If we can continue to grow organically our assets at 5% to 7% a year as Walt demonstrated, we’ve been able to do that consistently and even as we become larger, we’ve continued to be able to do that and have in fact three of the best years we’ve ever had.

So you take that 5% to 7% organic asset growth, layer on top of that, some degree of market appreciation that gets you to probably high-single digit growth in total client assets. I feel very confident about our ability to convert that high-single digit asset growth to a high-single digit revenue growth as well.

Particularly given the fact that we’ve now eliminated the single, biggest ROCA impediment that we’ve had for the last 45 years, which is equity commissions. So our ability to convert, to translate that asset growth into revenue growth, I think, there’s a lot more straight forward now.

And yes, there are some revenue pressures in some parts of our business, but there’s also a lot of monetization opportunities as Walt talked about and Jonathan talked about as well in other parts of our business. So that gets you the high-single digit revenue growth.

I think we can feel very good about our ability to maintain expense growth in that mid-single digit level, especially with all the opportunities that we’ve been talking about around efficiency, and leveraging scale, and the application monetization work, and so forth.

And that when you do the math on that that creates a several 100 basis points of operating leverage on an ongoing basis and allows us to expand margins over time.

And by the way, at the same time, allows us to return a few points to stockholders via opportunities to buybacks and convert even that level of earnings growth and even a higher level of EPS growth. So I think the financial formula I feel really, really good about.

I think again with the elimination of equity commission, we’re feeling better about that now than I did. We shared that just a year ago. Go ahead..

Very gentlemanly display here. So two quick ones, Peter. Expense growth, you’ve spoken in the past about getting to an eventual low-to-mid single digit growth rate.

When we look at your core expense growth outlook in 2020, which is a noisy year, but the core is like 4% to 5%, is that how we should think about the translation of that low-to-mid single digit is that roughly in line with where you’d expect you’d land in the long run?.

I mean, I think 4% to 5% is pretty close to low-to-mid single digit. That’s also an environment where the equity markets are appreciated. So third-party expenses related to assets – our total client assets were up 20 something percent year-over-year. So that drives some expense growth in third-party expenses.

So, I think, I feel pretty good about that level. Where can it end up? I can’t say, I can’t be possibly be that precise, whether it’s 3%, 4% or 5%, but I think sort of it’s in the zone of somewhere around there. And again, I think next year we’re showing our ability to do that..

Great. And then my second one, can you remind us, did you embed, when you talked about USAA, a lot of that revenue is cash and the yields and the deposit.

What were the assumptions around cash sorting on those USAA balances that came in? And now that we’re not far from that actually probably happening, is it still midyear and how should we think about that?.

Yes, so we’re still – so to answer your second question first, we’re still targeting midyear, doing everything more precise to say on that. The team is working very, very hard to make that happen as soon as possible while ensuring a great experience for the USAA members as they come over.

In terms of the assumptions around the cash balance, yes, we did assume that some of those balances do end up going through a sorting process when they come over here. Some of them are in money funds today. Some of them are on the balance sheet.

Actually, most of them are on the – I’m trying to run with mixes, I think, it’s probably a two thirds, one third, but we did some degree of sorting as the balance has come over..

Hi, Peter. Brian Bedell of Deutsche Bank. On the expense growth forecast for this year is there any assumption of paying to compete on those cash offers that everyone else is talking about? And if not how much of a delta could that be and would that come through the advertising line – advertising marketing line maybe start with that..

So yes and yes is the answer to your question. So, yes, that does contemplate what we have to do from a cash standpoint to be competitive. And those do show up in the – you see those show up in the marketing line..

Okay. So I guess you can't say what assumption of cash offers are baked in there..

I mean, it's – we talk about the cash offers. And I mean, it's certainly a really important dynamic and it's a very competitive business, but in aggregate, in the context of spending $5-ish billion, I mean, it's not a ton of money necessarily, right? So it's definitely meaningful. It's something that's important.

It's something we are definitely committed to doing and we want to make sure the field is equipped to combat that competition. But if it's – if we're off by 10% on that, it's not a huge difference necessarily..

And then just, are you seeing any attrition yet so far? I know the December NNA metrics are really strong. Maybe carrying into January.

Are you seeing any evidence of attrition that you're having to compete with at this stage?.

Yes, I don't want to – if I tell you the next – month January NNA, you won't read our SMART report when we release it next week. So I will have to leave you in suspense for another few days until we release the SMART on that one. But I would say in general, we have always faced a lot of competition from a lot of different sources.

Ever since this company has started and at different points in time there has been different competitors that have been more or less aggressive. And so we're constantly fighting this battle on multiple fronts. And I think we feel pretty good about our ability to do that.

And at various points in time, some people try to leverage some advantage or another and where we work really hard and have to work really hard and stay really focused on clients to make sure we don't let that show up in the metrics..

Fair enough. Thank you..

William Nance of Goldman. Maybe one on the net interest margin. So I heard the – thanks for the color on just the change in reinvestment rates versus the fourth quarter.

I guess one of the questions we get, longer term given where the long end of the curve is like now when you did your planning, however you want to kind of frame the answer, could you give us a sense for, with 80% of the reinvestments going into fixed rate securities, just roughly where is the reinvestment rate relative to the kind of 250 blended yield that we're at today and that might help kind of frame where the margin would settle out longer term?.

Yes. I mean, I think I mentioned, I mean, I’d say the reinvestment rates on the whole are probably about 20-ish basis points lower than the overall portfolio. You'll really see that on the floating and the fixed and we're not frankly putting a lot of new investments into floating right now as we shift that mixed towards a heavier allocation to fixed..

Got it. Thanks. And then on the cash balance side, I guess, the expectations have been moving around quite a bit as we got through the year. I guess one takeaway from today is that, there's still some sorting underlying the net selling that we saw in the back half of last year.

I guess, are you surprised that we're still talking about sorting a year later? And I guess, what are you seeing when you look at the data that gives you – that at least makes you want us to consider the possibility that sorting continues for another year given the Feds kind of been on hold now for a while?.

Well, I think I mean – I think it just – I’d say it depends. I think if interest rates continue to be lower, we expect that sorting process to end sooner than that. Otherwise, if interest rates go back up, you might see that pick up a little bit.

We just don't want to – we don't want to – we certainly are seeing it slow and I think the numbers I shared demonstrate that. Remember, we are just doing – it was second quarter of last year that we executed last of the sweep transfers.

I mentioned the USA cash balances that we're migrating over, those will go through a little bit of a sorting process as well. So again, you may see a little bit of that about that this year. But it could be that it stops and it's over.

I just don't want to – I don't want to predict that it's going to be over in January 12 or something like that because I think that would be presumptuous. But we do think that it will reach it's – it will reach its equilibrium point. And then again, I would emphasize that our cash balances will grow again and that could very well happen in 2020..

Thanks. Mike Cyprys from Morgan Stanley. Just wanted to come back on the Ameritrade deal. If we look out over the next couple of years, it sounds like the expectation is that you would look to, I guess, draw down on the $10 billion of year of deposits bringing them over.

I guess, just how are you thinking about the potential of retaining some flexibility there that maybe not just bringing cash over, but maybe actually sending cash over to TD Bank and having some sort of off ramp when you think about balance sheet optimization and differences in the yield curve potentially over time? What scenario could you see yourself looking for that sort of flexibility and arrangement?.

Yes. So I would say, the nice thing about the agreement that we have with the – as part of the transaction that we struck with TD Bank is it does give us the option, but not the obligation to reduce those balances over time.

I would say in the current interest of rate environment, it's definitely accretive from a capital standpoint, from EPS standpoint, we're bringing those balances over to our balance sheet and be investing in them as we see fit. I'm trying to think about hypothetical.

I'm not sure I want to go to a hypothetical around where we might not do that, but certainly if we see an environment with whatever reason that doesn't make sense, then we have the flexibility not to do that and to not to take those balances on.

But it's nice to be at least have that as an option and then we can think about from managing the investment portfolio.

It's awfully nice for our treasury team to know that, that as they're thinking about managing investment portfolio, you've got this potential $10 billion a year, every year that can come over and you think about that from as you're managing liquidity for example, I talked about building up liquidity in the fourth quarter of this year.

Oh gosh, if we know that we're going to have a certain amount of money coming over from through the IDA onto our balance sheet, that gives us more flexibility to invest in that portfolio. So it's nice having that that option, but again, it's an option, not an obligation.

Other questions? Jeff, anything from the web?.

Not yet..

Not yet. Okay, well....

How are you doing? Chris Allen, Compass Point. You talked about 41% margins for 2020.

Maybe you could just give us some color like what do you think longer term margin are achievable post the America and USA deals?.

All right. So we share some numbers in the announcement deck around the margins. If you sort of just assume a simple merging of the two businesses and where those margins cadet up, I think the important point is that we see the opportunity to continue to grow those margins over time. We see the opportunity for continued operating leverage.

We have no plans to artificially cap the margin somewhere. And we think that those opportunities can continue to trend North, North here.

And that's why we're really focused on doing everything we can to bend that cost curve to drive down the expense on client assets, but do so in a way that doesn't come at the expense of our clients or an investment in the longer term.

And if we do that and we continue to focus on the other things and growing organically and monetizing assets, we bring on, those margins will expand over time.

So I think I can't put a number out there because I think there's no – there's no upper necessarily no upper limit that I can, I can necessarily place on it, at least certainly not in the near term that I would, makes sense..

Okay. Well I think maybe that is after 4.5 hours or so for almost five hours or so. So first I want to thank you all. Thank you. I think Barry said it really well in his opening around we really appreciate hearing your questions and we’re having a chance to interact with you directly and tell our story through our own words. I think he's exactly right.

And that's certainly what we try to do here in a, in a way that is very transparent and very candid. I'd also say that I think we're going to look back, I've said this to folks on my team, I've said that to employees that shot, I think we're going to look back on 2019 is a truly historic year.

We've clearly with the actions that we've taken, we've created a lot of opportunities for ourselves, but we know we need to work hard to, to capitalize on those opportunities. The opportunity is created by our decision to eliminate equity commissions, the opportunity created by the USA acquisition, by the TD Ameritrade acquisition.

And we're certainly very, very focused on making sure that we capitalize on those. We feel like we've got the right strategy, the right position in the market, and the right team to do just that. We'll look forward to having a chance to give you an update in a few months at our, because that would be spring business update.

Thank you all and have a safe, safe travels back. Cheers..