All right. Let's get things underway here. So for folks on the webcast, that means you have about 4 minutes before you have to start paying attention. For you guys in the room, I'm sorry. You're stuck with me. So good morning. Welcome. I'm Rich Fowler, Head of Investor Relations for Schwab, and this is the Summer 2013 Business Update for the company. We've been looking forward to sharing this session with you for a while. We've been working on some fun stuff here, we're going to show you. We really appreciate you making the time to be here with us today. I know this might be getting a little old. But I got to say, it is a top-down day today. It's just a classic San Francisco version. So the city is covered in a gray soup. But the outlying areas, like where I live, in marvelous Marin, the only county in California allowed to have an adjective in its name, it's perfectly clear. But don't worry, because by the time we reopen the curtains and send you forth at the end of this session to go have oysters at the Ferry Building or watch America's Cup or check out a Giants game later on or headed up to the Wine Country, the sun will be beaming on us here as well. So let's get a few things out of the way. Let's set the stage for the day. Do some administrative stuff and get me off. So you can see by this agenda that we're doing things a little differently today. And here's the context. We're in the middle of the year where, I think it's safe to say, things are generally better than worse. And also I think it's safe to say that the wall of worries,…

Great. Thank you, Rich. I'll add my thanks to everybody who is either here in the room or tuning in online. We do realize we're probably a little earlier in the process than we've been in the past, and we're conflicting with a lot of people's earnings announcements. This is a major commitment of time. We put a lot of effort into it, but we do appreciate you taking your time to pay attention to what we have to say. As we jump in, it's not inappropriate at this point in the cycle where we're looking at a market that's up almost 20%, and we've seen the long rates move up 80 to 100 basis points to be talking a little bit about the easing of the headwinds. But in that context, I also want to make sure that you understand the various trade-offs of the reality of how all of this is going to fit together within our financial picture. I'm hoping this doesn't become my Larry David moment why I'm a little too enthusiastic in curbing your enthusiasm, but I want to make sure that we put it in the context of the economic realities that we're facing. So things have definitely improved, but I want to make sure that we're giving you the appropriate trade-offs, and you get the chance to see how it all fits together. So with that as background, I'll talk about 3 things primarily today. So one is, a quick run through on how did we do in Q2; two is, our expectations for the remainder of the year; and then third, we'll do a bit of a deep dive into the interest rate story and how we might expect to see all of that unwind as we come off of this period…

There's got to be a brave soul or somebody on the web. Mike had his hand up.

Maybe 2 questions, just on some of the points that you just covered. So first, just on the transfers that you mentioned, the $3 billion to $4 billion. Because when we start thinking longer term because it just seems like maybe every 6 months, 12 months a few these pop up. So when you look at the plans, what should we be expecting over time, some transfers onto the bank? And then just on the regulatory side, is there any conversations with regulators where, like firms wouldn't be able to have that opt-out plan or that opt-out provision?

I'll cover that one first. So there seems to be a little bit of confusion around how all of that's going to work. But it doesn't look like there's any limitation for standardized approach banks to be precluded from being able to make that election. So at this point, we're not aware of anything that would impact our ability to make that choice. On the bulk transfers, so I would say where we are at this point is we are pretty fully implemented against our strategies. So the various enrollment rules have been in place for a while. I think we've gone through pretty much every bucket of cash and tried to get people where we would expect them to be. These are really a couple of cleanup tranches, the $1 billion coming out of the money funds is -- it's a relatively small number. And quite frankly, if we didn't have the money coming out of the brokerage, we might not have been talking about it at all. So I think you might see something in that order as we look to people that no longer qualifies for a sweep and roll them on the balance sheet as a kind of regular course of business. The movement from the broker to the bank was a largely similar activity. I think we had a few additional registrations that we were able to identify that would qualified for the bank. But to be honest, versus today's existing criteria, we're pretty fully implemented. So I would think that you're going to see things that look more like the smaller numbers moving forward. That said, there's always an opportunity as we have some fairly large amounts of cash that sit across the balance sheet and off the balance sheet. And if we got into a window where we had a substantial level of capital generation, we might look at it and revise those criteria. And so you might see bigger chunks of money moving around. But I'd say today, we don't have any plans to make those changes in the near term. Got one from the web.

A couple on the parallel shift scenario in the NIM slide. Why would NIM come down slightly after the initial big increase? And then also, it looks like from the chart that the parallel shift gets us about 50 basis points improvement in NIM. Does that differ from past estimates of rate sensitivity?

Yes. So a couple of things. One is, when you get the immediate left, but then over time, you're still getting some cash flows coming in off the portfolio from bonds that have coupons that are higher than where you're investing a 100 basis points from here. So there is a little bit of continue downward pressure if all you get is 100 basis points. So we showed that on the chart. I don't think there's anything inconsistent in what we've shown in terms of the net interest margin lift versus the prior guidance from around the 60 basis points. One, I think there's a little bit of imprecision with the construction of charts and how they get viewed. Beyond that, I think that there's a lot of assumptions that roll in, and that 60 basis points has incorporated some of our expectations for growth and some additional movements and flexibility around how do we get cash reinvested. So I'd remind you that this is a static point of view, and we've never really talked about just a plain static point of view before.

I have a pile. What minimum revenue growth is required in 2014 to achieve that 300 to 500 basis points of operating leverage?

Yes, so we haven't committed to the levels of revenue growth, but I think we have talked about it in a scenario where we get relative stability in interest rates and a fairly modest level of market appreciation. So we're not getting a lot of lift out of the overall market and basically just a roll forward of our existing products and strategies. So not looking to enhance any of the revenue delivery dynamics. We might be able to do a little bit better than that on the revenue side. But if you just do the math on that, it leaves you kind of in high single digits and that's, I think, consistent with that kind of expense guidance.

And that does that operating leverage hold true for all of the interest rate scenarios highlighted?

No, it does not. We've said multiple times to the extent that we start to pick up incremental revenue from higher interest rates, we would expect to drop a vast majority of that to the bottom line. We would look at the incremental margin to be at least 75%. So the leverage would definitely be growing in periods where we were getting the lift in revenues driven by interest rates because higher interest rates really drives very little in the way of expenses. Anyone else in the room? You can probably go all day.

What's your latest view on what happens to the size of the balance sheet as rates rise in an improving economic environment?

So there are some trade-offs that end up happening in our projections. I will net it out at first and then talk about the detail a little bit. We would expect the balance sheet to probably remain relatively stable, but that's going to be the net of money going into the market and new clients bringing cash into the firm. All of our modeling would say, basically because we have predominantly isolated the cash on the balance sheet to the retail client base, that we wouldn't expect to see really large outsized outflows in a short period of time. So the better environment might push people to be more aggressive on investing. It is also likely to start to ramp up our retail acquisition and cash flow related to new clients coming in. And those 2 factors tend to offset. So we don't think we will see a dramatic reduction in our balance sheet if that scenario occurs, but you might get a protracted period of basically kind of sideways levels of the balance sheet.

Sort of related, given still a fairly limited wiggle room in the leverage ratio to our own internal targets, what do you see as the normal growth rate in average earning assets?

I'm going to sound like a broken record on this. We would expect the overall balance sheet to be growing in line with our pace of client acquisition. So to the extent that we are pretty much fully implemented on our strategies, you shouldn't see big movements of money onto the balance sheet from off balance sheet. And so to the extent that the client cash is a relatively consistent percentage of their total client assets with us, as we drive additional acquisition, a percentage of that acquisition will come in, in the form of cash. And that cash should be growing at a pace that's relatively consistent with our overall acquisition rates. We're going around, just to make sure. I think you and I are having a dialogue here for a while.

Back to the parallel shift scenario, how does the second 100 basis points in the shift impact NIM relative to the first 100 basis point move up?

Yes, so we didn't actually run the static balance sheet through that model. But there is nothing embedded in those assumptions that would lead me to believe that we don't get a fairly similar NIM expansion from that second 100 basis points. We won't get the benefit on money fund because the first 100 will cover all the fees to the waivers. But the second 100 basis points should give us a relatively similar level of net interest margin expansion just based on how we would expect the assets to reprice and what we would expect to be doing with deposit rates for clients. Another good one there?

Just on that last question that you answered, just on the transfers. You mentioned capital generation is much stronger. There is the option, meaning to use some of that to bring more cash on to the balance sheet. So just did that concept -- I just want to understand the strategy behind that, your other options once the capital generation is much higher. And then does it have anything to do because it doesn't seem like on the money fund regulation, meaning it's not final but it also seems like it was very favorable. I just want to get your thoughts on that.

Yes. So I think our take is very favorable on what finally came out in money fund reform. We were quite pleased to see some of our ideas incorporated into the proposal. I think our belief is we're heading toward a set of products, which will allow us to continue to meet client demand for products like money funds while continuing to basically preserve the economics of the product set. So I think that was all pretty much good news as we saw it evolve. I think any subsequent changes, it's fairly complicated and so we can probably do a deep dive session on cash balances at some point. We are really aware of the need to be able to earn an adequate incremental spread on any money that comes on to the balance sheet to make it worth putting the capital up to do that. And so the first constraint is we have to believe that the money is rate-insensitive sensitive enough and sticky enough to allow us to get an incremental spread either via pricing or the return dynamics of what we're investing in. And pricing impacts the sensitivity and the rate dynamic is impacted by the stickiness. So all of that has to come together because we do have to be able to earn returns consistent with our expectations and your expectations. So to the extent that we could identify those types of money, either money that we believe already looks like that or via some modest changes in eligibility requirements, we might be able to segment off some additional cash. But it's just way too soon to start talking about relative magnitudes of how that might work. You got one more?

Do you feel like that you're currently under investing in any aspect of the business, so are you holding back any discretionary spend for a higher rate environment?

I'll probably answer the question a little bit differently than it would ask -- that it was asked. I think we are investing at a very fulsome level in covering off all of the major strategic initiatives and making sure that we have money available to meet regulatory investment and preserving the availability and security of our infrastructure. So we've continued to invest in infrastructure, we've continued to invest in client-facing systems, we're building out some pretty major initiatives. So I'd say we're at a pretty healthy level of investment. That said, as the economics of the business change, there are some things that may look relatively more attractive than they look today. So given where interest rates are today, we may not want to dramatically expand the retail field force. But a couple of 100 basis points from here and a higher ROCA and continued progress around advisory sales, we may look up and say, that's something that makes sense to do. So I don't think, given where we are in the cycle and the relative profitability dynamics, that we're really under investing in anything important. But I think you may see those priorities could evolve as the economics change with the higher rate environment. You have a follow-up to that?

Just one. Well, if there's not one more in the room, we have a few more here. I could give one more. Will you be able to hold pricing integrity or keep prices up on your Schwab money market funds when rates rise? And if so, why are you confident that you can do that?

I don't think anything has changed in the competitive environment that would lead us to believe that we will not be able to achieve the same kind of product dynamics in the future that we have in the past. That said, I don't think we are completely done with our analysis of the changes in the rules and what impacts that might have. It is likely that we will see some resulting pressure from that, although we think it's going to be pretty small. But it's -- again, we're still working through it. It was a pretty big pronouncement. We're trying to figure out exactly how all the pieces fit together. But I think -- it's our belief at this point that we would expect to recover the bulk of the economics consistent with what we've seen in the past. Okay. So that, I will be around so I can -- if you have additional questions, I can catch you at the break or around lunch or even afterwards. But at this point, I am going to turn it over to my esteemed colleague, Nigel Murtagh, to talk about all things risk.

Great. Thank you, Joe, for that introduction. Good morning to everybody here in the room. If you're like me, Friday morning, get an opportunity that someone come up and maybe talk about complex calculations and algorithms and [indiscernible] and how we stress test portfolios. Get you pretty excited. If you're not like me, there is fully caffeinated coffee in the back of the room. You may need it through the presentation. If you do, I won't be insulted. I want to take some time today, I appreciate the opportunity to talk to you to cover a few topics around the risk management at Schwab. Our risk management culture, where that emanates from, our governance structure, some of the more current initiatives that we're working on to continually enhance risk management at Schwab. Then I'll touch at a high level on our loan and investment portfolios, the quality there. And end up with a little bit on the interest rate risk management, given the discussion that Joe just had. Schwab's risk management culture is driven by the firm's vision and strategy. That is the key thing to understanding how management approaches risk at Schwab. We're not exotic about the way we approach risk management overall. We focus on the vision, the idea of having our clients' trust and we focus on the strategy of looking at things through their eyes. That -- working through that lens is one of the things I and my team are passionate about in our jobs. I get an opportunity at client events to talk to individual investors, to talk a advisers. And one of the things they tell me is that nervousness, the unsafety that they felt in 2008, issues like Lehman Brothers, Bear Stearns, wondering what was going to happen to their accounts; and…

Could you talk about the size of the team that's working on the stress tests? And when did you start or when do you start formally participating in the stress tests?

So I have to count up the numbers, I don't know if Joe knows, because the stress testing team is really spread across 3 areas. So our financial reporting group that does standard income forecasting has a component of it. My team have about 100 people in total. Not all of them work on stress testing, but some of them work on the credit stress testing, some the market risk, some the operational risk. And then the treasury team participates a lot in the liquidity stress testing and what the ultimate capital measures would mean. So I can't give you a number in terms of the people that do it. We started -- we've always done different versions of stress testing. We really started formally 2 years ago, even though we've not been subject to the regulatory guidelines, running the types of macroeconomic scenarios that the Fed has published and presenting that to the Board of Directors. So 2 years ago, last year; we'll do it again this year. As best as we can tell, it would be next year, 2014, with disclosures potentially in 2015 when we'd actually become subject to the regulation and have to do the disclosures.

So you spoke a lot to how the high-quality assets you have and how conservative you are in your balance sheet. I guess at what point do you feel more comfortable moving out a little bit more on the risk spectrum? Or how could we see that reflected in some of the assets you hold going forward?

Yes, it really depends on the assets, themselves, and that transparency that they provide us. So we don't limit ourselves in any particular asset class. We don't say we're not going to invest in this type of thing. It depends on the information we can get from the issuers of those securities and the level of transparency that they're going to give us so that we can do that assessment of what can occur on the downside. What we don't want to do is invest in products where we don't feel like we get the -- we have the ability to do that downside assessment, so that when a financial crisis comes, like 2008, it's a surprise to us. I think, through 2008, that proved to be a good method for us. We stick to it. It can be difficult low-rate environments. There's no doubt there can be some pressure to look at things that generate additional yields. But sticking to those basic tenets has served us well. Chelsea?

What are your 2 to 3 greatest concerns on the landscape today and then also specific to Schwab?

That's the classic risk management question that keeps you up at night kind of question. Two to 3, well, let me sort of work through some things that we can control and then things that we don't always control. And so things you can't always control or can't control as well that probably concern me the most. So when we're making these investments, we have more control over what we want to invest in and we can manage what the downside exposure will be. The same with interest rate risk management. Joe talked about it. We can do assessment of what would occur at Schwab. So those are easier to control. And as a result, they don't concern me quite as much. That things that concern you are things that you have less control over. So certainly, regulatory risk is one of them. We maintain this relatively conservative stance, keeping capital levels for us where they are is important to that. If you have regulatory mandates to raise your capital levels, then you may have to raise your risk profile to generate an adequate return. You can't control that from the outside so that concerns you. Operational risk that you can't control quite as well whether they're natural disasters, Superstorm Sandy that closes down the markets, cyber attacks. Those things are little harder to control because they're external to the firm and so they tend to worry me more whether or not we've done everything we can do that's reasonable in terms of managing those risks.

Another one, regarding rates rising, Walt and Joe have framed the upside for shareholders. What do you see is the greatest risk from your point of view?

Well, the greatest risk is clearly further downside in terms of the rates. We're coiled for the upside so we're in relatively good shape. As Joe said, we're very conscious of managing the duration and convexity of our portfolio. So even sharp rises in rates, while they will have an impact on the duration of the portfolio, as Joe mentioned, the maturity level of our portfolios is such that it doesn't expand that far before it gets back into track. So upside, we intend to be in pretty good shape. Downside, I guess, the worry is that you become like Japan some day, right? You have 80 basis points on the JGB. If you have treasuries do that at a 10-year, that's a risk. And there's only so much risk mitigation you want to put in place to protect yourself against that, right? One of the ways you will protect yourself against that downside risk is to extend that duration. It's a whole long to longer term assets. And the way we view it is that taking that risk and giving up that upside that will occur to protect ourselves against downside is not the right place to be right now. So that's the greatest risk to us really is further downside. So is there anywhere in the room here? Chelsea?

Can you talk about risk management in the context of reducing Schwab's Tier 1 leverage ratio from 7.5% that it used to be at the back to the 6.25%? How do you think about the cushion now relative to regulatory minimums?

Yes, so the way we do we look at the capital levels and what's required is through the stress testing that I talked about. So our goal is to have sufficient capital that in an extreme downturn, we are still going to have a cushion to the regulatory minimums. And so when we look at 7.5% and we did those stress tests, it still left a huge cushion. Certainly, we could get down to 6.25%, 6%. And given the quality of the way we manage our balance sheet, we're able to absorb those significant downturns and still have a cushion to the regulatory minimums. That's the process that we go through on a regular basis. To assess it, we set scenarios in the first quarter. In the mid-year, we run mid-year stress tests, report those to the Board of Directors. Third quarter, we come back, additional scenarios that we'll talk about with the board. And then the fourth quarter and then January, bring those stress tests back. So it's a constant process of looping through and understanding whether you have adequate capital to mitigate those downside risks.

Related to that, how do you think about recalibrating the leverage ratio target from here?

So I'm not sure exactly what you mean by the question. I guess, if I think about recalibrating, we continue to do this process, right, that this is sort of that sometimes perverse logic about raising capital levels. If you raise capital levels on a firm like ours and you end up driving the firm, have to take on more risks to generate a return on that capital, that generates greater exposure to downsize during economic downturns that can cost you that more capital. It's sort of a negative virtuous cycle. So we do this evaluation on a regular basis and that's the way we would set that. I don't know if that answers the question of the person's who's asking you. Question here in the room?

I think on the 1 slide you show just the securities portfolio like the mix. And the 1 area that increased year-over-year was in ABS portfolio, which makes sense for a variety of reasons. But when you think about your safer securities versus, say, that portfolio, what's your kind of max limits on, say, something like an agency versus ABS. I'm just trying to think how you do that or where would that get to?

Yes, so with regard to the agencies, we don't have a max limit with perspective of credit, but the limits there are going to be more driven by the market risk. Certainly, agency mortgage-backed securities have optionality in them and so we're going to want to maintain a certain level of market risk, interest rate risk. With regard to ABS, we do have limits that we have established at the instrument-type level across sectors, across geographic regions. The growth that you've seen in the ABS portfolio in the last year has been primarily in Department of Education-backed student loan product. So student loan asset-backed securities slabs as they call them. Those products come with a 97% government guarantee on the underlying loans. And then they're structured as such that there's additional collateral in the pool to make up more than the additional 3% that's left over. So we have more than 100% credit enhancement in that pool before we purchase it. That's where we've seen on a risk-return basis, the best opportunities and that's where you're seeing the growth in that portfolio. Chelsea?

Can you talk about the risk management process when evaluating potential acquisitions?

So the corporate development team, which is under Joe, leads the acquisition assessment process. And what they do is bring in subject matter experts from, certainly, from the business lines, from risk management, from legal, corporate oversight. And we have a playlist, if you will, to evaluate and do the due diligence of the firms that we assess. Certainly, risk management always has a seat at the table there and an opportunity to have input or object if something comes up. Chelsea, if you have -- no more?

Okay. If there's not anymore, then I stand between you and a break. I appreciate the time to speak with you today. And I think we're going to take about 10 minutes. All right. Thank you. [Break]

Well, good morning, everyone. Good afternoon. Those on the web, thank you for joining us today. I'm Walt Bettinger and I'm going to spend the next 30 to 40 minutes, talking a little bit at a higher level when I was reviewing the agenda for today and I realized that Joe is going to lead off with interest-rate scenarios, followed by Nigel, who by the way, is my favorite Monday morning one-on-one, as you can probably imagine. But Joe would be followed by Nigel, talking about risk management. I said, I think, I'll take a little bit different direction. So what I'm going to cover during my time is I'm actually going to invite you into what is a discussion with the board, around what the board looks for from me, within my role as CEO, the topics that we discussed, the big picture goals that they have in mind for me within my position. And they revolve around 3 primary long-term objectives for our company. The first 1 is to win in the marketplace. And by win in the marketplace, what I refer to -- what I'm referring to here is gaining share, building a relative position within the market, building our asset base within the market so that we're in a position to continue to drive growth in the future. The second goal is to execute on a long-term revenue transformation. We're actually the middle of, I would, say a multi-decade transformation of Schwab from, of course, a transaction driven company to a company that generates the vast majority of its revenue based on assets, whether that be asset management or net interest income. And then third, continuing to build the long-term earnings power for the future. We spent a lot of time talking about our current earnings,…

But let me stop there and open up to questions from the audience. I already see Chelsea as -- probably has a collection of them. But any here for folks live in the room? Question here?

I want to focus on the RIA secular growth. One of your competitors last quarter said that they saw a slowdown in the advisor growth due to the rising markets. Can you talk a little bit more about that how are you guys doing in the RIA growth segment in 2013? And do you refute or do you agree with this comment?

I think they're talking -- Bernie will be in a position to talk in a lot more depth about this, but I'll share my perspective on it. I think they're talking about the small segment of individuals who might be breaking away from maybe full-service or regional firms or maybe even independent firms. But the overall trend rates in the advisory business continue very strong, our net new assets are very strong, our net TOAs are very strong. Bear in mind that for a franchise our size and the advisor business almost $1 trillion in assets that the amount of NNA that comes from a break -- from the breakaway brokers or advisors turning independent, I don't know what terminology you want to use, is actually very small. And as we have indicated over the last handful of years, this notion that everyone was going to leave the wirehouses or leave the regionals and become an RIA was a nonstarter concept. I mean, that was simply not going to occur. It's a long-term trend, it will have ups, it will have downs. But we don't see anything meaningful from the improving equity markets to change that long term trend or to have any impact in terms of the growth rates that we're seeing in that business. Did I leave anything for you in that Bernie?

Yes, I was just thinking that's where [indiscernible] is.

Just on the advisory side, so you pointed to the growth over the past 10 years going from 7 to 17. And when you think about -- you had taken that from 17 to, say, 35. Is it the current client base that as the sales force, the advisors, are talking to and bringing more cash into the doors into new clients, I think in the last investor update, you guys kind of targeted at I think it was maybe 2 million and below, but it was kind of a new opportunities. So any update on that?

I think to drive that number from 17 up to potentially double it, it's a combination of both. I believe the majority of that will come from existing clients. But we do think that there is an opportunity to contribute to that growth rate from the acquisition of clients who might be today at one of the wirehouse firms. Again, I think John and Andy will probably talk about a little bit more in depth. But it's I'd say a combination of both, but principally from existing clients. Again, you think about our model, we're better known today for delivering advisory services than we were a handful of years ago, but still, the vast majority of people think of Schwab today if you just go out in the street, on the retail side more as a self-directed firm. So often, they come to Schwab and then become exposed and aware of the broad range of capabilities that we have, which is why the existing client part will often drive it. Now sometimes the window is very short. So by that, I mean, they'll come to Schwab, say, from a wirehouse thinking that they're going to do more self-directed investing, not really aware of our capabilities, but within the first couple of months, they'll become exposed to those through their financial consultant. And then fairly quickly enroll into an advisory solution. So the line is a little bit blurred, but I think the majority comes from existing clients.

So you talked about winning the market share battle over time and adding to the client assets. So kind of as a company, where do you think about over the longer term, where your investments are going to be tailored, such that you continue to win that battle and continue to grow assets, not only just growing them, but being able to monetize them very well like you're doing now?

I'm going to get the name wrong, I'm sure, was it Willie Sutton or something who talked about why'd he rob banks, because that's where the money was -- no, is that who it was? For our growth, it's going to need to occur from where the money is today, which means a lot of acquisition from the wirehouse firms that have a significant amount of the assets today. And we see that in our net TOA results in both our advisor business and our retail business. So I think that's really where the assets are and where we're targeting for much of our growth in both those major segments. Chelsea, I see your hand waving.

We have several. There's a couple related to the 2018 estimates that we showed on the revenue mix.

That's a shock to me.

What level of interest rates does that assume? It looks pretty conservative. And I can help answer that, if you'd like.

That would be great.

It assumes just a very conservative 200 basis point increase in Fed funds.

Yes. In other words, the real question is are you somehow moving off projections that you had previously anticipated based on higher rates by 2018, right? That's really the question. We're not moving off anything. It's just the assumptions used in that.

To what extent versus the past, do you view the bank as not only a cash monetization vehicle, but also as a key competitive weapon for both wallet share penetration and also client acquisition? Specifically, competing more with banks and transactional banking.

So it's an interesting question. Let me first say what it's not and then there can be some examples of where it can be used competitively. We're not interested within the bank is using it as a means to compete based on yield. That is not what our bank is there for. So we are not interested in being in the money changing business where we chase deposits or clients or assets that are yield sensitive. Are there opportunities without being yield sensitive to use it as a lever? Yes, there are. So for example, our pledged asset loans are an opportunity for us for growth. And we think about our advisors that we serve and all of their clients. It's a natural for virtually every one of their clients to have a pledged asset loan. If that client wants access, these affluent clients served by advisers wants access to money to purchase something. The advisor doesn't want them to sell their investments, we're not necessarily anxious for that and the client often doesn't want to either, the client wants access to rapid liquidity and so pledged asset loan is a huge opportunity. Again it's up about, I believe, about 50% year-over-year. Of course, our margin balances are also up about 8% year-over-year. But pledged asset line is an example. So in areas where we can utilize the bank to further our organic growth and take share without doing so, by playing, chasing money based on yield, we'll take advantage of those opportunities. Go ahead Chelsea, you're on a roll. You're on a better roll if you have the answers too.

I'll let you answer this one. How's the competitive landscape been evolving? It seems like traditional wirehouses are reenergized on wealth management businesses and some were challenged discount players are regaining footing, too.

Yes, the competitive environment doesn't change quarter by quarter, I would say, to a great extent. The wirehouse firms have great representatives and they build deep trusting relationships with their clients to a great extent. And they will always be a wonderful competitor as a result. That's good, that challenges us. It makes us get better in order to keep growing and taking share. So I have tremendous respect for them and maybe even more respect for their registered representatives who build these relationships with clients. In terms of the discount side, very, very small implications for us, not a lot of money movement back and forth in terms of share gains, wins, loss or anything like that. That's really not where the money is, as you may recall from the slide I had up there. So although they're there, they're not meaningful in terms of where we're going as a company and not meaningful in terms of the type of clients that we're pursuing relative to the ones that they pursue. Questions in the room? Chelsea -- oh, here's one right here. Here we go.

Two parts. Just when we think about the ETF strategy and I know it's early days, but what have you seen in terms of keeping client assets or bringing new client assets in? Because I think if we look at the fee rate, in, like, the advisory plus the ETS, it looks like the fee rate went down a little bit, but the asset growth could be offsetting that. And then just the second part, you mentioned in a more normal, say, earnings environment. You can focus more on the areas that you can disrupt the industry. Anything that comes out besides like pricing? I mean, you guys have been pretty active on the 401(k) side in terms of being a new strategy, but anything that comes up to mind?

So I think that the -- when you said advisory in your first part of the question, you're referring to the RIA business, in terms of price revenue compression there or are you referring to retail advisory?

It's overall. But, I mean, I think what I look at it is just the fee rate.

Sure. So what we're seeing with ETFs is not that ETFs are cannibalizing OneSource mutual fund or those types of revenue streams. They seem to be cannibalizing more individual securities. So individual stocks, in some cases, individual bonds. That's where we're seeing asset movement. We're also seeing a lot of new money go into those vehicles. So I guess that's a more subtle form of cannibalization, than the obvious movement of money from one pocket into another pocket. But we're not seeing -- again, the chart that was up there with OneSource growth, to believe to $235 billion today, that continues to grow quite strongly. So we're not seeing that cannibalization. But I would argue that even if we were, we would be doing the same thing, because that's what clients want. And we're going to operate the business through their eyes and serve them as the forefront of our priorities, and then figure out ways with our scale and our efficiency and in our business model to be strongly profitable. But we're not seeing that movement to ETFs, cannibalizing our other revenue streams to any meaningful extent. In terms of moves, in a more normalized environment, I'm probably not going to share some of the things that we think about there, because they're designed to be disruptive to the market. But I think if you just put yourself in the shoes of the consumer and say, if you were a consumer, what would be the ideal situation that you would like, whether you're a self-directed investor or you're an investor hiring professional management or you're an advisor looking to grow and build your own business, what would you ideally want to have? Those are the types of things that we're looking to deliver to them. Just as I think, in fairness, we've tried to do for the last 40 years. So, disrupting on behalf of the individuals and the firms that we look to serve, we think, is the winning strategy.

As you look at your advisory capabilities and other products, do you see any gaps or areas where you would like to muscle up even more in a manner similar to Windhaven and Thomas Partners?

I don't feel like we have any meaningful gaps right now, with our advisory solutions, that we're likely to be out engaged in deals on. Not that we're not always looking. But just to run through the math behind, for example, deals like a Windhaven or a Thomas Partners, we have the most successful referral program of retail clients to registered investment advisors in the industry, by multitudes. We refer and close hundreds of millions of dollars of business every month, and the revenue stream on that works out to somewhere between 40 and 45 basis points to Schwab, between the fee that the advisor pays us, as well as the regular revenue that we generate with those assets being part of our custodial platform for advisors. So, if you think about expanding the strategies that we undertook with Windhaven and Thomas Partners, where we buy the firm and then offer those services to capture a higher revenue stream, you'd have to only be acquiring firms where your revenue stream would be well in excess of the 40 to 45 basis points you make from referring them, to not only amortize the cost of the acquisition but then generate significant returns for our shareholders. So that math alone probably let's you rule out certain types of products that we are unlikely to go out and do acquisitions in, as well as helps you identify which ones would be in the opportunity set. And, of course, we've done 2 of them, that match that 2 large ones for flows, dividend, equity and then global asset allocation. And then, I guess, the other point, just to reinforce, probably relatively obvious, but it has to be asset class large enough to gather meaningful flows, to make a difference. So, to do it in a nichey asset class, where maybe you can get 90 basis points or 100 basis points. But it's such a small niche, really doesn't achieve much for us. Questions here live? Chelsea?

How does Schwab ensure that sales of advise offers, which carry incentives for the field, as Joe mentioned, are in fact in the best interest of the client?

Well, as with any type of sale, not just advisory-based solutions, we follow a very robust approach to compliance, whether that would be on the brokerage side, if there are suitability in the non-advisory or in the fiduciary position. If they are advisory, we have compliance units that do ongoing regular checking of every sale that occurs, that reach out to clients and confirm that they understood exactly what they're buying, what they're investing in, how it works, what its upside is, what its downside is. I mean, I think our track record is quite good in terms of not running into compliance-related issues relative to our fee-based advisory solutions. Another corresponding question that often comes up there are, what about the risks associated with the expansion of your advisory platform? Are you going to run into the potential of another dynamic like what was experienced 6 or 7 years ago, around YieldPlus? I think though things are very, very different. YieldPlus challenges were created from a client view, primarily from an expectation of a specific thing occurring, a very, very stable net asset value and then not actually occurring. These are solutions where clients, certainly at Thomas partners, Windhaven, Schwab Private Client, Schwab Advisor Network. These are solutions for clients to understand the volatility, and they're not buying something that they might potentially think will be highly stable and then it turns out not to be. They understand there will be ups and downs, so it's very, very different. Our view on building, designing and offering products where there's potential for the client mismatch, I think is well documented, even by our decision, a couple of years ago, to close our stable value fund that we offered within our 401(k) business is clear evidence of our sensitivity, from a risk standpoint, to offering products where clients might have a certain outcome expectation, but then maybe we can deliver potentially through no fault of our own, given environmental issues. So I think they're very, very different, but I might touch on it because sometimes that's a side question that comes up out of that particular topic. Maybe time for one more question. Do you have one more Chelsea? Nope, you do not. So are there any in the room? All right. If not, thank you very, very much for being here. It's great to be able to spend time with all of you. I'll also be around here at the break if there are additional questions that do come up. And I'm going to introduce John Clendening who is coleader of our Investor Services business. So, John?

Thank you, all. Thanks, appreciate that. Hello, everybody. As Walt mentioned, I'm John Clendening, and with Andy Gill, I'll be showing you an update on Investor Services. This is the part of the business that focuses on individual investors. In the retail part of the business, we serve those clients directly. We also serve clients indirectly, through retirement plans and corporate brokerage services. Today, we're going to focus entirely on retail. When were last together, Andy and I spent a fair amount of our time showing a broad perspective on performance in retail, on what we saw us to major growth opportunities within the retail business. As Rich talked about earlier, we're going to talk focus and is one of the opportunities today, the opportunity to build momentum in the affluent segment. I'm going to cover up a bit of background around that segment and then drill into how we're leveraging the Own Your Tomorrow platform to drive growth. Rich also mentioned, we're going to spend more detail than normal, probably there, given the change from time to check. Then Andy's going to come up and spend some time and how you been evolving our affluent offering, to ensure that we're always better serving clients in that affluent segment. So it's our 40th anniversary this year. We're very excited about that. Marks many, many waves of innovation in our past. Walt also emphasized, in his opening remarks, that we're in the midst of this multi-decade transformation of the company, into a full-service, high-value investment firm. In the retail business, we're now entering our fourth wave of growth. First wave, 70s and 80s, when Schwab was that pioneer discount brokerage, back when equity commission was a robust price of $70, considered an awesome deal way back then. The 1990s based on…

So when you look at that and sort of consider that piece of work, I think you'd agree, also, that it's very authentic. It's 100% authentic. It's intensely personal to someone like Chuck. Unexpected for a category. And maybe even most importantly, there is no way that you can substitute any other founder or any other current CEO into that advertising. It just wouldn't work. It wouldn't be genuine or authentic. It would come across is a story. And part of that reason is that values are simply different at Schwab. Now, next I'm going to show you an example of some of the advertising we're doing around our people, specifically our financial consultants. These guys are some of our greatest assets, but also some of our least well-known assets. When you meet one of these folks, you absolutely know they're fundamentally different than the broker at another firm. We figure that the best way to tell that story was to have some very real FCs tell it in their own words. Let's go ahead roll, Jeff. [Presentation]

So that's the first of many. In fact, the second FC spot broke late last night, early today, potentially. So we have 2 of these out now, several more to come. What you obviously notice is they're done in documentary style, but with a bit of a twist in the storytelling, it's there. And we do it in a way that allows the commitment that, that FC has to doing the right thing by their clients to very plainly be shown. So as part of this brand platform launch, we've also updated the look and feel of the brand. Example here is the schwab.com website. The look is meant to be more modern, more contemporary and highly appropriate for the million-plus clients that visit schwab.com every month. It's meant to also be a little bit more upscale than the prior version, but not in any way sort of exclusive or niche since Schwab is, obviously, a brand for everybody. We're activating a new platform across all client prospect touch points. What that means is everywhere clients and prospects are sort of communicating with Schwab, on an over time update to this new look and feel of the new brand platform. That's for television, print, branches, digital, you name it, relative to other venues like Hulu, a lot of eyeballs going to Hulu. You'll see advertising running in Hulu. From a media selection point of view, we're purposely aiming to get to people like Tobin. What that means is, on the television it'll tend to be news and sports. In print, news and also opinion leaders like The Atlantic. On the lower right, the sitelet, so this is where we drive prospects who want to learn a little bit more about Schwab, opportunity to see some client testimonials, hear more from…

Thanks, John. Hi. My name's Andy Gill, and along with John Clendening, I cohead Investor Services. John just shared with you the large asset opportunity we have in serving affluent clients, like Tobin. And he shared with you the brand platform that is already resonating with those clients. I believe with the changes that we've made in our affluent client offer over the last several years, that we are poised to accelerate growth among our affluent clients. So I want to spend a bit of time drilling down into our affluent client offer and how we'll accelerate that growth. We've quietly built a large and growing affluent client business. It's about 20% of our client base today. And our clients averagely have about $1.2 million with us, among those clients that have more than $250,000, and they're satisfied, a Client Promoter Score of 54 versus our 47 overall. But what I want to talk about is drilling down into 3 critical components that deliver our unique value proposition: first, the relationship, extending the relationship on our clients' terms; second, financial planning, helping clients understand how to get to their goals, to their priorities; and then finally, for-fee advice, Schwab's point of view to help them achieve those goals. So let's dig into relationships. The key to starting that relationship is really making accessible our experts, our financial consultants. And if you think about our target that John just talked about Tobin, in every single part of Tobin's life, people are trying to get to know him so they can serve him better. They're trying to get to know him so they can design and offer for him and tell him how important he is. At Schwab, we start by offering a relationship to our affluent clients, on a one-on-one basis,…

We have several from the web. Can you speak to how market share trends have evolved since the crisis for Schwab versus the large wirehouses? In recent years, organic growth metrics have improved dramatically at the wirehouses, suggesting incremental gains may be difficult to realize.

So big picture, if you look to our point to point post crisis to now, we gained well over 0.5 of a point of share, which is pretty good off a 5.5%-or-so sort of base, depending on what sort of definition you're using. We've continued to gain share. I mean, it's through this guys have recovered. I think Walt and Joe may have both covered that up front in their remarks. But there's still plenty of opportunity. And when you think about 3/4 of $1 trillion of money in motion, when you think about how those firms are regarded, they're not as wounded as they may have been immediately post crisis from a brand point of view, but there's still plenty of opportunity to grow and gain share. Question in the back here.

The question is about the opportunity, $11 trillion [indiscernible] opportunity and the 300 branches [indiscernible] 22 to 24 [indiscernible] branches and 1,100 consultants. What do you think you'll build out [indiscernible] to fully optimize to get [indiscernible]?

Okay. So the question was, for those who can't hear his question, the -- how big does the branch network need to be? How many financial consultants do we need? I think, given where we are in the cycle right now, we're probably at the size and at the growth pace that we want to be at. As the economic environment changes, as interest rates rise, we will likely expand that. I can't imagine a scenario where we don't have more branches, or we don't have more financial consultants to be able to serve those affluent clients. That said, we haven't picked a number. What we know is that extending relationships, extending planning, extending our for-fee-based advice is the #1 way that we'll attract and gain share among that target audience. Chelsea?

Who is serving most of who you would deem affluent clients today?

So it seems like the question is around who has the largest share potentially of affluent clients. The usual suspects are the same folks that showed up on the list that Walt mentioned have the largest number of these folks, right? So Morgan Stanley, Merrill Lynch, Wells and their new configuration, UBS. The interesting thing, though, is you've really got to pick apart the affluent market. And so in the spectrum of folks who are being served by this full-commissioned brokers, you have everybody ranging from, "I would like somebody to fawn over me and walk my dog and do those sorts of things. Do all that stuff for me," to even this sort of almost incidental active trader who finds himself in a historic relationship with somebody at the firm. That's why we talk so much around that slice of the market, that Tobin part of the market, where we believe that no one in that space is well serving the investor like Tobin. And so it's 2 out of almost 11, it's not the majority of that market, but it's a big, big nugget that we feel like we can go after. It's not properly served anybody in that space.

You focused much for your discussion on the affluent, but can you update us on what's going on with the younger Schwab customer formation and retention, what we used to call the nursery?

The nursery, yes. So we still continue to do well with the nursery. And one of the things we find interesting about the Own your tomorrow platform is, not only does it extend across the different businesses of Schwab, it also plays very well across different demographics and age groups. Why is that? Primarily because it's an attitudinal or a mindset sort of segmentation. So if you're young, I'll put you in mobile, if you are an entrepreneur who's young. I think about all those people in this part of the country as an example of that, you respond very well to message along those lines. Now for us, a young investor is somebody that's probably going to be in the late 30s, even early 40s. Why is that? Because they've now got to a point where they've accumulated some assets. And so again, we feel like we're doing very well with that segment. We don't know of another firm doing better with that segment. You may have seen some of the startups that have come to try to take over that segment or play in that segment, one of which [indiscernible] today. So we're doing well.

What are your -- these are a couple of product questions. What are your future plans for Schwab ETFs?

Well, we're very pleased the performance of Schwab ETFs today and, in addition, our Schwab OneSource ETF platform, where we have over 100 -- where we have 107 ETFs on the platform today. So we feel between that, our Fundamental Index ETFs, and the Schwab OneSource, we can meet all of the clients' needs for that diversified index product.

There's a question in the room up front.

Just a follow-up on the nursery or the younger population. What trends have you seen? If you look over time, just given the history, like their interaction with Schwab, just given the volatility in the markets, given what they've been experienced that they've been investing for the past 10 years. Just curious if the trends have been more depressed versus the high net worth or the affluent area.

Depressed in what way, Mike [ph]?

Relative to like historical trends, meaning the amount of money that they're committing to Schwab or bringing in the door or the amount that they're investing to the market versus...

We don't see a big difference there, and we don't see a big difference, very, very little change in terms of the diversification of the assets they are bringing. There was a speculation, I think, 2 meetings ago around, is it all cash, and our cash position really hasn't changed. So we see them acting like they have in the past. And we're attracting them through new channels. Things like chat are going to help. Things like mobile, they're going to help. That's the way they live their lives. And so we've continued to enhance our ability to meet them on their terms. Chelsea?

Another product question. A secular trend going on right now is clients seeking alpha through products like alternative products. With some of the private equity players starting to target the affluent retail investor, do you have any plans here to leverage their offerings?

We're studying that. We have an offering along those lines today. It's relatively small. We've been studying, is there an opportunity there, how -- what's the size of that opportunity as it relates to other things we may do to invest in the business. There's certainly elements or parts of our country that are most keenly interested in alternatives: New York; SoCal, another example of that. On the other hand, it's not the case that there's a large perception of a gap in the offer that we have today for high net worth clients, affluent clients, even ultra-high net worth across that spectrum of alternative investments. As we study, we look primarily at liquid alternatives, that sort of thing, and our clients can -- certainly can consume some of those product today on our platform in the form of mutual funds.

As you push more into the affluent space, how do you manage the increasing risk of alienating RIAs that compete for affluent clients?

So the reality is we both have about -- a little less than 7% of all the investable assets. So if you add this up together, we still don't get to 14%. There's a lot of assets out there. But we primarily play in the space that is -- that getting started, that nursery that we talked about all the way up to $1 million. And in affluent, it's really $250 million to about $1 million of investable assets, where clients are getting started with us. And when I -- when you look at the differences between why we have a Schwab Advisor Network, which continue -- we continue to refer about $4 billion a year in assets to Schwab Advisor Network. When you look at the differences, ours is scalable advice. It's fact-based. It takes Schwab's point of view. But at the end of the day, it's scalable advice. And if you look at Bernie's business, and he'll talk a lot more about this, those registered investor -- investment advisors are able to provide highly customized, highly sophisticated for those more affluent clients, who are likely $1 million and up. So we don't think there's -- we really don't think there's a conflict.

And in a lot of ways, it's very complementary. In fact, it always is complementary. We can see on the surface, it may look like there's a conflict there. But boy, the client differences are stark between those who choose an RIA versus those that end up at Schwab. On top of that, we've got very strict guidelines that prohibit our people from poaching into or reaching into the client base of our RIA clients. So there's not an issue there that's created.

On the trading front, can you comment on how much of our trading volume comes from mobile, the mobile channel and then also from options?

Both continue to grow. Both of them have seen good growth even over the last 12 months. I don't think we've shared the exact percentages, but both of those continue to be important parts. Our acquisition of optionsXpress has allowed us to continue to accelerate our options growth due to their very innovative tools, tools like Walk Limit, where, just in the last quarter, our clients were able to save about $1 million in execution by using that automated Walk Limit tool. So we're very bullish in terms of the -- our ability to continue to grow in the option space, and mobile will be a part of that. One more in the room.

I think under the new disclosure, the retirement business falls under your group, but I just wanted any update just on the passive strategy. There used to be like a pipeline just in terms of some of the clients that were signing up from that. So I don't know if there's -- that you guys are going to be broader.

Walt's going to take that one for us. Thank you, Walt.

Sure. We continue to have pretty good success with our Schwab Index Advantage program, recognizing that you have a whole infrastructure within the 401(k) industry that wants anything but it being successful because it's so unique and so differentiated. We have about 100 clients who are either already operating under Schwab Index Advantage or in the process of converting, and we have about 200 people who are in some form of the process of consideration to the program. So we're pleased with that progress. And as I've said at each one of the meetings, we expect that's a long-term play because of how dramatically different that program is than the traditional way that, that industry has operated.

All right. Any other questions? Chelsea?

What are your priorities from a regulatory perspective?

That sounds like great question. I was waiting for that one. Some of the biggest changes that we've had to deal with from a regulatory standpoint have been in our for-fee advice space. And that's why over the last 3 years, we moved Schwab Private Client to its own investment advisory to deal with the regulatory requirements. Our Schwab Managed Portfolios and Schwab -- our Schwab Managed Portfolios are managed in a separate fiduciary and obviously, ThomasPartners and Windhaven are. Schwab operates as a dual broker-dealer and RIA so that we can make referrals to those and also to Schwab Advisor Network. That's some of the regulatory component that we've had to operate under. The other big change that from a retail standpoint that we've had to deal with is the suitability rules. So we've had to get much more specific around documenting when we make a strategy recommendation, even if we're not making recommendations of individual securities. So let me give you an example. We come out of a financial planning conversation. The client truly is more self-directed, and they want to try it a little bit on their own. And we recommend a moderate risk portfolio based on a deep understanding of their needs and their risk tolerance. We would now need to document that we recommended a moderate risk portfolio and then what those pie slices look like. That's a change in the suitability rules. And so we've put automation in place to do that. And as Walt said, we put supervision in control. We can really make sure that, that's happening on an ongoing basis. All right. I think we're at time. Let me thank you for giving us your attention. And I think we're going to go to a break. There are lunches in the back for those in the room. It's going to be a working lunch. So I believe, Rich, we get 10 minutes? 10-or-so minutes, and then we'll see you back here. Thank you very much. [Break]

It's a great opportunity to be here with all of you. Thanks for giving me that opportunity. And I almost feel like I could ignore my presentation and address the questions that have been asked already in the room because they're so interesting as you go forward. And one of the things I would take the opportunity to talk about, and I think you'll see it in the things we'll be addressing as we go forward here, is this whole concept of "is the trend slowing?" I love when people say that it is the trend slowing, whether it's on ATIs or independents in general. And it just reminds me that so many of our competitors in this space have looked at this as a micro trend phenomena, a market trend phenomena and not a macro trend. And I'm reminded that over the decade-plus that I've worked in this industry, how many times our direct competitors in the purpose-built space have had their businesses up for sale because they didn't like the micro trend they we're in, but they hadn't looked at the macro trend and the significance of everything that's going on in the marketplace. So what I wanted to do today is start really by talking to you a little bit about what's going on with advisors, specifically, within their businesses in using that. I want to certainly talk to you about the firm, how we're helping to serve advisors and the things that we're doing and our strategies going forward. And then get quite specific with you about some of the things that we said we were going to do when we talked to you a short while back, and certainly we are doing them. So here's a macro trend for you. As you think about advisors,…

Just on the competitive side, I'm just curious over the, call it, the past year or so, just given the pickup in the equity market, like IPOs, even alternative offerings, do you sense more competition? How are you guys kind of stacked up versus whether it's the wirehouses, the other IRA providers? It's a different environment than we've seen over the past 4 years.

Yes, it's a very different environment. And I think the advisors -- statistically you can see that the advisors are winning in this game because people want more, they need more. In fact, the #1 reason they cite when they come to an advisor is, it's not return, it's typically they knew someone who's getting a better experience and they needed more themselves and then usually, third starts to address what return is. So their model -- and they're winning, and they're winning in their centers of influence. And they're winning through referrals, most of their growth tends to come through referrals. I think as we look at it is, we're winning because of the retention of those assets and the quality of service that we're giving them. But I think a point you're making is, it becomes a little harder for people to change the underlying relationship of a client while things are so good. And so I think that might be what we heard references a little bit of the slowing trend. But because it becomes so easy to access through other platforms, products, alternatives as a great example, there are multiple platforms out there. We're the custodian. We've greatly enhanced our custodial capabilities around alternative. There's very little you couldn't do with Charles Schwab in that aspect, so the assets tend to flow through. Most around liquid and registered, we like that market a lot better. IPOs, we do participate in IPOs on some level and the distribution of it. That's not proven to be a high demand item for advisors. So certainly, that hasn't been something either, and so I think the model's working, I think even in the upmarket, we're not seeing things are changing the downmarket. There was a little bit of a favor towards changing and moving into something different.

You had that interesting chart up there about how the advisors were fairly optimistic about the market, but not so much about clients meeting their longer-term objective when they get some kind of advise for a [indiscernible]. Is that more a product -- I think clients probably feel more comfortable going to an advisor and having someone to work with, but is it a product of the advisors maybe not having the right tools to get the clients to where they need, given that they have a good outlook on the market? Is it something you guys are working on? Or how do you kind of bridge the gap between the 2, between what the clients feel and the advisors see?

I think the advisors have spent the last 5 years educating their clients, cautioning their clients, bringing their clients, in some cases, into a new form of reality. Let's face it, 5, 6, 7 years ago, one of the biggest problems we had in the country is we thought that we were losing an entire workforce to retirement because 2007 was a high, and that didn't happen and retirement plans had to change and advisors had to sit down and redo plans, not once, probably more than once with their clients in creating the realities of where they wanted to be. And the other thing is, 80% of the boomers want to make sure that they not only have wealth to survive them, but they want to leave a lot to the next generation. That's a very different phenomena than the last generation. I don't know about you guys, but I don't think anybody is worrying about leaving me a lot of money. And now, that's something that we're starting to see. And so I think what it is for the advisors is it's a responsibility factor. I don't know that it is necessarily a capability. It's a responsibility factor and making sure that they're guiding clients who have stayed with them through this hard period of time to a place where they can accomplish what that long-term objective is. Because arguably, we've seen a doubling in purpose built providers around technologies, softwares, product providers. There, really, the capability is, I don't want to say it's limitless because obviously that's not the case, but it's not restrictive. The open architectural model now gives advisors really a wide array of almost any market that they want to find themselves into. Chelsea?

What do you attribute to the shift from less ATIs coming out of wirehouses and more coming from that other category you talked about?

Yes, I tend to think it's a trend, as Walt said. I don't think that's a micro, if you will. We know within the wirehouses, we can update on this. But there's always deals that have been signed within the wirehouse deals, forgivable loans, their cycles that they go through, people tend to find their way out, they begin planning. I can't tell you that there's periods of times when people begin thinking about. This a very long sales cycle to bring someone out of a traditional model into an independent model. And we have some $30-plus billion in our sales funnel, where we begin talking to people, sometimes 2 years before they're ready to do something. They're thinking about it at that point in time. We talked with people who are in their fifth year of employment and they're already planning, they started with the idea that they wanted to be independent, but knew they needed to start and gain a resume and grow a book of business and understand their clients and get credibility in the marketplace. There's an array of things. So I think we happen to find our way into the trust base a little bit. We happen to find our way into the banking space where team slot and the capabilities were a little bit better. When we do talk about teams, I do want to remind you, there's 6 people on a team, we still count that as 1. When I talk about 175 teams going independent, that may be 300 individuals, sometimes our competitors count individuals versus teams. I think it's important that you kind of understand that nuance. More teams come out now than individuals. We still find that more teams come out and join firms than they ever did before. So about 1/3 come out and join somebody, whether it's one of these strategic acquirers or perhaps a firm that they know. We found firms that are now building succession plans or, if you will, sophisticated buy/sell agreements for some of the smaller firms, where they can sign up with an option, perhaps to join the firm in case the unforeseeable happens within their firms. So we have a nice sophistication, it's why I say it's early innings because you're seeing a lot of entrepreneurial spirit around trying to create what will ultimately, I think, become one day a very, very sophisticated engine.

While you win much more new business than you lose, what did the detractors say?

It's interesting because we follow this extremely closely. And detractors, I'm going to say flat out, sometimes people say we're hard to do business with because regulation has become such, fraud has become such. And we still feel that our #1 priority is making sure we're protecting the assets. And we have to be in that position. It's just that we have to bring new tools, new capabilities, e-authorizations and e-signatures, bring things along the lines that will make it somewhat easier for them. I didn't even talk about some of the work we've been doing around our Alliance website to improve it. And Alliance is actually a service that serves clients of advisors. Nobody else has that in the industry. But we're actually creating an online outsourcing for some of that low value-added service that they can then send directly to us, which helps them enormously. I highlight it now because it also adds additional security to what we're doing because we have a point of contact with the client that leads us down a path where sometimes we can validate directly with that client if we so need to, and we can do it electronically. So those are some of the [indiscernible]. But I think hard to do business is one of those things that will stand out, and we have to stand in front of that one, we have to try and understand how to be better. But we don't want to be the place that's easy to do business and then ends up in a mess later on, on behalf of our clients, the advisors and their clients who are our clients. Okay. Well, I hope everybody enjoys the weekend if you're staying, and thank you very much. I'm going to bring up Joe to wrap us up.

Thank you, Bernie. So the beauty of the Internet is you get to read your reviews during the course of the day and top up anything where you might have been a little bit wrong as you get to the close session. So nice to be able to have that opportunity. So let me attempt to, in very clear and unambiguous terms, tell you what I'm hoping you're taking away from the day. First, nothing we said was intended to talk down expectations. What we were looking to do was make sure that your expectations and our expectations stay aligned as we take advantage of an environment where the financial headwinds are definitely starting to abate. So it's making sure that we stay in sync and one side doesn't run away from the other. But it wasn't a talking down of expectations. Second, we're winning in the marketplace. We continue to take share. How are we doing that? We have a set of strategies that are already developed, things that we have been working on in some cases for many years they're working in a marketplace and we are delivering on share growth and continuing to grow the franchise. It's a little bit frustrating, in fact, it is really frustrating that some folks continue to look at the comparison of Q2 versus Q2 last year, focusing on the headline GAAP number. We had a one-time gain in the second quarter of last year that was truly a one-timer. It was related to the settlement of a vendor dispute. It wasn't a trading book or investment banking benefit, it's not a business line that we're in. You really need to strip it out when you look at comparisons on the financials and focus on the fact that while GAAP was down 7%, earnings were up 11%. We're putting up better financial numbers, and we are not disappointed with what we did in the second quarter. In fact, we're pretty pleased and think they're strong results. We're poised to be able to continue to deliver better results from here as the financial leverage and the model should become more and more clear as we continue to work our way out of this environment. And we're prepared to deliver substantially better financial results as we see interest rates start to move up. I thank you for your time and attention. I hope everybody has a great weekend.