BILTMORE AREA PARTNERSHIP LUNCHEON
Tuesday, February 22, 2011

SPEAKER: Bernie Clark, Executive Vice President with Charles Schwab
SUBJECT: Charles Schwab: Poised for Growth in Phoenix and Beyond.

We love this city and it is our largest including San Francisco. We have most of our people here. When we acquired the land next to our current office, somehow our anticipated hiring of 400 people went to 4000 because of the different ranks of the government, but it is 400. In addition to being at Lincoln and 24th St. we are at South Mountain which is our computer center. We came to this town after San Francisco had one of its worst earthquakes. We realized that this would be a great location.

As a firm, we have been trying to positioning ourselves as one of the most ethical places for you to do business. Our mantra has become "we want everybody to be financial fit" and we are trying to link that with movements that have been going on within our own lives. Positioning ourselves in this marketplace as this ethical firm and under the leadership of Chuck Schwab has been a real challenge through the 2000's. Everybody had originally thought that Y2K was going to be the big tragedy-probably the best day we had of the 2000's. Everything from then has been a challenge. The global markets, as we globalize further, we see the impacts as we see today with the situation in Libya impacting on the way the market are going and running off with the fear of oil. I think we are really learning what it is to be a global economy. We are way in the infancy of that. There is a long way for us to go before we truly understand what it is going to look like in the future. I was living in London when Europe went to the single currency and the UK didn't join at that point of time. We have seen even that being challenged in the difficult markets. The last two years have been challenging for sure. Probably the biggest recession I have ever seen in my lifetime and I have been in this industry for about 30 years. But it challenges us in many ways. It shook us to the confidence. At Schwab we were fortunately positioned with a very strong balance sheet. A position in a way that did not risk client capital at all. We don't have an arbitrage desk; we don't enter into the IPO market. What we are is a custodian for individual accounts and for the business you heard I am responsible for. -for advisors. Keeping those assets safe is our number one concern. As we went through the past years with the investment advisor business, which is really independent advisors in the market place-we have many throughout this town and 6000 across the country that use us as custodian. The idea there is that they can work with you on your relationship, on your planning on places you want to go with your financial security. Then we are the independent custodian of those assets. To that end, last year which was an extremely difficult year, we grew the assets with advisors at Charles Schwab by 48 million dollars. As the year came to a close we also saw the impact in the appreciation within the market growing those.

Really it is a cornerstone now of our business, probably equal share to what we consider the individual investment business or our pure retail business. Together they each make up about 700 billion dollars of assets for Charles Schwab. So that is a significant impact. Highlight that-it is an advertisement for Charles Schwab. The importance to our community in Phoenix, and I am a resident for 12 years, but I spend ½ my time in San Francisco, because that is where Chuck is and I am on the Executive Community. I need to be there a lot or I don't need to be there at all, and ½ my time here with the 3200 people that we have in this city, I am the City Official in addition to my regular day job. So the importance of Phoenix to us in the going forward basis about growth is about innovation, about innovation, about technology given what we are doing down at South Mountain. We will probably see about 400 new jobs in the Biltmore Area in the next two years. We have 75 request ions right now and we are anxious to continue to hire. We don't have an excessive amount of attrition; actually it is quite low for our industry. Just 5 or 6 percent of our people attrite each year and so that again is an opportunity to bring more employment as we grow ourselves out of this recession.

From a stock perspective, from a firm perspective it has actually been a proud couple of years for me. I have been running this business for the past two years, and before that I was the National Sales Manager.

Going around the country and talking about our balance sheet and the strength of our balance sheet, the lack of risk within our balance sheet, has been a proud thing for us to do. Creating some of that security and stabilizing the markets. We need to stabilize the financial services industry. It is about making the industry healthy again. 800 billion dollars a year travels around Wall Street from one firm to another. Our objective is that people have good choices from that. Our mantra has been about making sure our product selection is open architecture, choice is open architecture. As a client of Charles Schwab you can get access to whatever financial product, service you potentially need. We have gone more aggressively in to the advice business, as we saw a lot of assets leaving us for the promise of advice from other institutions. People needed more help. Ever since the beginning of the 2000, what we used to call "the do it yourselves" realized it is really very hard to do it yourself. , and you probably need some guidance and some help. The survey we put out showed that people were looking toward their friends, and colleagues for advice. So we thought it was wise for us to enter into the advice market to make sure that clients had more services they could work with to enhance the independent advisor model where that depth of need became even greater.

Are we positioned as a firm well-very well-probably unlike anyone else in our industry? I think our industry now has righted itself where financial services industry is well positioned to come out. There is a lot of cleaning up to be done. Regulations still loom very large. We certainly haven't heard the end of what the final rules and regulations are going to be-what the regulatory bodies are going to be-much of this sits well within Congress and it is still to be voted on. But it will be a more regulated environment. I think in all likely hood, banking and what we call ourselves, brokers'/dealers' regulations will get closer together. The wild card is, what will happen on the global front and how close will regulation overseas begin to mirror the regulations we see in this country?

Questions:

1) 400 jobs you are laying on, is that in this community or both of your facilities? It will be predominantly in this area. What is the profile of the person you are going to be hiring-professional, clerical? We sort of span the spectrum on that-we hire a lot of new individuals who want to train to be on the phones and talk with clients as they are calling in. A lot of people from the University can fill those positions as they are graduating. Since it is such a large organization here, we find ourselves in need of management ranks, training positions; we have retirement positions, institutional positions, and retail positions. At our South Mountain facility, it is all of our technology, our data center, we hire technologists there; hire a great deal of consultants as well. At the 24th St center, we have 75 positions open right now. We are almost always in an interviewing stage because of that attrition that we mentioned. Our benefits and compensation are all very competitive too within the markets. But the culture at Schwab is different-the caring about that the clients comes first. Chuck (he wants you to call him Chuck) values the opinions of the strategists of this company.

2) Regulations? I worry a lot that we had a lot of regulations and that we didn't have a good way of executing that regulation. Rules weren't being enforced. Looking at all the scandals that were happening, there are newer regulations that are coming in. It will lay a cost on organizations. An example of that is , more training activities, your cost base, your tax reporting for the trades you do is something that we now have to be the authoritive source in saying what the gain or loss is and that cost 15 million dollars this year. Next year we have to get Mutual Funds ready and the year after fixed income. So we are estimating that there could be upwards of a 50 million dollar spend just for our firm and multiply that over every other firm. I worry about small business and advisors and the amount of regulations that is going to put weight on those firm. Sometimes those or 5 or 6 percent businesses. It is hard to absorb that addition. I am not sure that the new regulations are going to create clarity that we would like to see so that people can really understand how they are dealing with a fiduciary and how are their funds being protected. That is the most important thing that regulation should bring to this industry-clarity. We have not seen it yet. We are trying to work with the regulators and tell them what represents risk and hopefully we will get some listening.

3) How do you suggest hotels do business with your company? It starts with the people who help us within the firm. Keeping them at the forefront. We tend to entertain less, have less client event employee events-those kinds of things because of the difficult market. As we are coming out of it, we want to go back to having these events with the restaurants and hotels. Keep working with these sources.

4) Self versus advisory? I don't believe everybody will be moving to advisory. There is a lot of self help that people will use as opposed to advisors and that type of models. We have put a lot of planning tools online as well. Sometimes you want validation, sometimes you just want to talk to someone to try and validate an idea. Those are part of being a client. We have seen a little bit of switching over the last 3 years. People who were self directed moved toward trying to get some help. People who were getting help said I paid for this and it didn't help. They are actually moving back to self direction model. We believe in both models. We also believe in validating-we push an awful lot out to clients. Being a discretionary or non discretionary client those are the things that should drive more business decisions.

5) Using Schwab as the model for people going to self help, you have gone to more of advisory type? It is a complexity as to where we are now - there are a lot of differences and one I would highlight is back in 1999 80% of all our revenue come from transactions. Now 80% of all our revenue comes from spread balances to product. We have a one source market place. Within Charles Schwab and when you begin to think of the independent advisory model, no one charges commission. It is fundamental difference is that it is advice from an employee or technology, without the conflict of someone getting paid directly for that advice. That is where we separate ourselves.