Legal & Compliance

Investment Professionals’ Compensation

How We Compensate Our Investment Professionals

Since Charles Schwab & Co., Inc. ("Schwab") was founded more than 35 years ago, we've been committed to serving the needs of the individual investor. We believe it is important for all investors to understand how the financial professional who is assisting them is paid. This can be one factor an investor considers when evaluating the information or recommendations that a professional provides.

Below we identify the different categories of investment professionals who may serve you at Schwab—including both Schwab employees and independent contractors and their employees operating Schwab Independent Branches—and describe how they are compensated. Some of these plans are based on revenue Schwab earns from clients or from product sales. Schwab may pay a Schwab representative more for selling products or services on which Schwab makes more money. Please note that the information below describes how Schwab pays employee professionals and shares revenue with independent contractor professionals, not how you pay Schwab for the services you receive. Information about what you pay Schwab for the services we provide can be found at www.schwab.com/pricing. We invite you to read this information carefully, and to contact us at 800-785-3965 if you have any questions.

Summary of Changes

Compensation plans and revenue-sharing arrangements for both employee and independent contractor investment professionals change from time to time. Recently, changes were made to Schwab’s incentive compensation plans. The following is a summary of the changes.

Effective January 1, 2013:

Financial Consultant Service Pay: The amount an individual Financial Consultant can earn in Service Pay in 2013 can not be lower than the amount of Service Pay earned by that Financial Consultant in 2012.
Financial Consultant Sales Pay: Changed the term "Sales Pay" to "Solutions Pay".
Financial Consultant Solutions changes: The payments will be made in one lump sum at the time of the transaction rather than being spread out over 12 months.
Modified the Variable Annuities within the Service section. This includes removing the Variable Annuities from the "Non-Fee Based Services" and including them into the "Fee Based Services" section within Table A.
Modified the Solutions area by removing "Referrals" to Variable Annuities under Advice and Products within Table B.
Modified the Circle of Excellence program for VP-Financial Consultants to include a Discretionary Bonus Incentive.
Added International Financial Consultants as a new category in Specialty Representatives.
Modified eligible compensation for the Fixed Income Regional Bond Specialist to include a quarterly bonus that is funded and determined based on the sale of fixed income products.

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How We Compensate Our Investment Professionals

Please click on the links below or scroll down to learn more about how each type of representative is compensated.

Branch Representatives

Client Service Specialists

Client Service Specialists respond to the specific needs of clients and may direct clients to the appropriate Schwab representative. In addition to a base salary, Client Service Specialists are eligible to earn an annual bonus that is funded based on Schwab’s performance, and determined based on manager discretion, which may include consideration of service quality, client satisfaction, sales support, and teamwork.

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Associate Financial Consultants

Associate Financial Consultants assist clients in our branch offices. They meet with clients who are not assigned to a Financial Consultant’s Practice as well as potential new clients to identify and analyze their financial needs. Associate Financial Consultants may refer more complex financial situations to a Financial Consultant when appropriate. In addition to a base salary, Associate Financial Consultants are eligible for a bonus based on three components:

Manager Discretion—An annual bonus program funded based on Schwab's performance and determined based on manager discretion, which may include consideration of service quality, client satisfaction, teamwork, and ability to provide help and guidance to our clients.
Circle of Excellence—A program through which Schwab awards additional compensation to all eligible Associate Financial Consultants based on how well they compare to their peers in terms of bringing Net New Assets to Schwab, enrolling clients in and ensuring satisfaction with Advised Offers and Managed Accounts (where appropriate), and assisting clients in utilizing the products and services offered by Charles Schwab Bank (where appropriate).
Client Promoter Score—A program that awards additional compensation to Associate Financial Consultants based on client satisfaction in the branch and manager discretion.

VP-Financial Consultants

Financial Consultants assist our clients through our branch office locations and also by phone. Each Financial Consultant supports a Practice, which is comprised of clients who are assigned to that Financial Consultant as a primary point of contact. Financial Consultants also assist clients who are not in their Practice. Financial Consultants are compensated based on four components described below: Service, Solutions, Circle of Excellence and Client Promotor Score, as well as Long-Term Incentives. Branch Financial Consultants may be eligible based on their experience and tenure to participate in a long term incentive program.

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Service

The Service component pays a Financial Consultant 7% of the approximate annual revenue attributed to clients in their Practice. For compensation purposes, Schwab estimates revenue by sorting assets in clients' accounts into the categories in Table A below. The categories do not correspond exactly to the revenue earned by Schwab for any particular sale, security, or service. We call this "proxy revenue."

Schwab uses proxy revenue instead of real revenue so that Financial Consultants earn the same compensation for similar products. For example, a Financial Consultant will earn the same compensation for recommending a Schwab proprietary mutual fund, a Schwab OneSource® mutual fund, or a transaction-fee mutual fund, even though Schwab makes more money on the Schwab proprietary mutual funds. Financial Consultants could receive more compensation if a client accepts certain recommendations that they make, as shown below by the proxy revenue categories. For example, a Financial Consultant earns more from recommending a mutual fund over individual stocks, bonds, or exchange-traded funds. As another example, a Financial Consultant earns more for recommending the investment of cash in a money fund over a certificate of deposit. A Financial Consultant also earns additional compensation for serving clients enrolled in Schwab Private Client™, which reflects the additional time that a Financial Consultant may spend serving clients of Schwab Private Client.

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Table A

	Assets	Financial Consultant's Compensation
Non Fee-based Services	Stocks Options Bonds Certificates of Deposit Exchange-Traded Funds Schwab Bank High Yield Investor Checking® Account Schwab Bank High Yield Investor Savings® Account	0.0028% of assets
Non Fee-based Services	All Mutual Funds All Money Market Funds All Other Cash Fixed Annuities¹ Margin Balances²	0.0350% of assets
Fee-based Services	Assets in accounts enrolled in Schwab Private Client or Schwab Advisor Network® ³ where Financial Consultant does not provide ongoing service.	0.0350% of assets
	Assets in accounts enrolled in Schwab Managed Portfolios™ , Schwab Managed Account Select® , Schwab Managed Account Connection™ (formerly Managed Account Affiliates® ), Variable Annuities¹ or Windhaven Portfolios™ ⁴	0.0595% of assets
	Assets enrolled in Schwab Private Client where Financial Consultant provides ongoing service.	0.0770% of assets

1. Applicable to insurance-licensed Financial Consultants only.

2. The proxy revenue for margin only applies to margin balances in a client's account greater than $5,000 but not greater than 10% of a client's margin borrowing capacity.

3. Referral credit on Schwab Private Client Advised conversions is only eligible to Financial Consultants who refer to another Financial Consultant to maintain the Schwab Private Client relationship. Referrals of Schwab Advisor Network accounts to Schwab Bank Administrative Trustee Services are eligible for credit based on the referred assets within 90 days of the initial funding date at 85 basis points for three years from the credit start date.

4. Note that if an account that is enrolled in Schwab Managed Account Select or Schwab Managed Account Connection is part of a household that includes accounts enrolled in Schwab Private Client, those assets will be measured for compensation purposes at the Schwab Private Client credit rate.

Example: A client has $100,000 in stocks, $100,000 in mutual funds, and $100,000 in cash. None of the assets are enrolled in a fee-based service. The annualized proxy revenue Schwab receives from that client is $1,040. The Financial Consultant receives 7% of that $1,040, which equals $72.80 in annualized compensation. The calculation is ($100,000 x 0.000028 for stocks) + ($100,000 x 0.00035 for mutual funds) + ($100,000 x 0.00035 for cash) = $72.80.

If the client then sells $25,000 of stocks and buys the same amount of mutual funds either on her own or after talking to her Financial Consultant, the annualized proxy revenue Schwab receives increases by $115 to $1,155, and the Financial Consultant’s annualized compensation increases by $8.05 to $80.85.

For 2013, Financial Consultants will receive no less than the service pay they received in 2012.

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Solutions

The Sales component pays a Financial Consultant for Net New Assets, Advice Enrollments and Product conversions, as defined in Table B and Table C. A Financial Consultant can earn Sales revenue credit for any client with whom the Financial Consultant has a relationship, including clients in the Financial Consultant's Practice and new client relationships not in their Practice. A Financial Consultant receives either 15% or 35% of the Sales revenue credit based on the Financial Consultant's graduated payout schedule. In general, asset-based revenue credits are paid out in a lump sum as long as the Financial Consultant stays employed; other credits are paid out at the time the transation is credited. Schwab may cap the amount of incentive compensation that a Financial Consultant can earn from any one client from the Sales component.

Schwab may cap the amount of incentive compensation that a Financial Consultant can earn from any one client from the Sales component.

Table B

Asset Consolidation	Financial Consultant's Compensation (Depending on the Financial Consultant's Payout Rate)
Net New Assets	0.0375% or 0.0875% of Net New Assets

Table C

Advice and Products	Financial Consultant's Compensation (Depending on the Financial Consultant's Payout Rate)
Mutual Funds	0.0375% or 0.0875% of Net Mutual Fund purchases— excludes money market funds
Advice Referrals— Schwab Private Client™ , Schwab Advisor Network® , Schwab Managed Portfolios™ , Schwab Managed Account Select® , Schwab Managed Account Connection™ or Windhaven Portfolios™	0.09% or 0.21% of Net Advice Enrollments
Schwab Advisor Network® , Schwab Bank Administrative Trustee Services	0.09% or 0.21% of converted referral for New to Schwab Advisor Network assets within 90 days of conversion date
Referrals to all Schwab Managed Portfolios™ or Windhaven Portfolios™	$38 to $88 for clients who are new to Schwab Managed Portfolios or Windhaven Portfolios™ ; limited to one credit per client
Transfers of Client Margin Balances into Schwab	Margin balance multiplied by 0.27% or 0.63%
Fixed Annuity by licensed Financial Consultant	0.0375% or 0.0875% of Net Annuity purchases
Single Premium Immediate Annuity by licensed Financial Consultant	0.105% or 0.245% of contract
Referrals to Term Life, Long Term Care, and other Life Insurance Products¹	$20 or $47 for converted referral
Introductions to Charles Schwab Bank for mortgage, home equity lines of credit, and pledged asset loans	Financial Consultants who are also employees of Charles Schwab Bank: $126 or $1,925 for referring a client to Schwab Bank who subsequently takes out a mortgage, also based on the size of the loan $92 or $214 for referring a client to Schwab Bank who subsequently takes out a home equity loan or pledged asset loan Additional quarterly compensation based on number of year-to-date closed mortgage referrals. Payment based on the highest tier attained year-to-date: $176 for 6 mortgages $902 for 10 mortgages $1,980 for 15 mortgages
Checking account openings with Charles Schwab Bank	$17 or $40 for each checking account opened
529 Accounts	$17 or $40 for each 529 Account opened
Referrals to our Active Trader Sales Team	$113 or $525 depending on how much more the client trades after the referral
Schwab Personal Financial Plan™ ²	$135 or $315 for converted referral
Equity Compensation Consultations²	$135 or $315 for converted referral
Retirement Consultations²	$68 or $158 for converted referral
Referrals for forward contracts, equity collars, and exchange-traded funds	Tiered Payment for converted referral: 0.0690% or 0.1610% of assets up to $5 million 0.0068% or 0.0158% of assets over $5 million
Referrals for Structured Notes and Structured CDs	Principal value of the note multiplied by 0.075% or 0.175% for converted referral
Referrals to Corporate and Retirement Services	0.105% or 0.245% on Net New Assets, limited to $10 million, for converted referral
Referrals to Schwab Advisor Services™	Referral of an Advisor to Schwab Advisor Services based on converted assets: $341 to $795 for up to $30 million $1,500 to $3,500 for $30+ million

1. Financial Consultants only refer clients to providers for whom Schwab performs services and from whom it receives compensation for those services.

2. Financial Consultants are not compensated for providing complimentary retirement consultations, Schwab Personal Financial Plans, or equity compensation consultations to clients.

Example: A client deposits $100,000 and purchases Mutual Funds. If the Financial Consultant's payout rate is 15%, they would earn $37.50 for Net New Asset Sales and $37.50 for Mutual Fund Sales, or $75.00 in total. This is based on multiplying $100,000 by 0.0375% from Table B and Table C for Net New Assets and Mutual Fund Sales, respectively.

Circle of Excellence Discretionary Incentive

The Circle of Excellence is a discretionary bonus program through which Schwab awards additional compensation to its eligible branch Financial Consultants based on how well they compare to their peers in terms of sales credits and asset consolidation. The criteria are subject to change periodically. Currently, eligible Financial Consultants qualify based on Revenue Credits from the Financial Consultant's combined Practice and Non-Practice clients, sales of Banking Products as listed in Table C (excluding mortgage production credit) and Net New Assets from the Financial Consultant's Practice clients.

Client Promoter Score

The Client Promoter Score is a program through which Schwab awards additional compensation to the top Schwab branches based on how well they compare against each other in terms of delighting clients as measured by Client Promoter Score surveys. A branch pool is funded based on branch results and the bonus is allocated based on individual contribution to the branch Client Promoter Score and manager discretion.

International VP - Financial Consultants

International Financial Consultants provide services primarily to our clients residing outside the United States, its territories and possessions. These Financial Consultants are paid according to the same incentive plan as other Financial Consultants, except for these differences: The Service rates may vary based on market locations and there are no Circle of Excellence or Client Promoter Score components; instead, there is a discretionary component determined by managers, which may include consideration of Net New Assets, client satisfaction, and teamwork.

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Service Representatives

Customer Service Representatives and Brokerage Service Representatives

Customer Service Representatives and Brokerage Service Representatives provide service over the phone to meet client needs, respond to telephone inquiries from clients about the products and services we offer, and may contact clients by phone or email. In addition to a base salary, these representatives are eligible to earn an annual bonus that is funded based on Schwab’s performance and determined based on manager discretion, which may include consideration of productivity, client satisfaction, quality assurance, referrals, teamwork, and client feedback. In addition, these representatives are eligible for additional compensation that is measured by client satisfaction at an organizational level.

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Specialty Representatives

International Financial Consultants (Client Development)

International Financial Consultants provide advice and guidance services to our International clients. In addition to a base salary, these representatives are eligible for monthly sales incentives based on goals set for bringing Net New Assets to Schwab, migrating clients to International branches, and opening new accounts. They are also eligible to receive a quarterly bonus determined by manager discretion, which may include consideration of client contact and satisfaction, client promoter scores, audit validation, branch workshop enrollments, and teamwork.

Financial Consultants (Client Development)

Some Financial Consultants provide services primarily to our clients with assets under $250,000 who are not enrolled in an Advised Offer. In addition to a base salary, these representatives are eligible for monthly sales incentives based on goals set for bringing Net New Assets to Schwab, enrolling clients in Advised Offers, successful transition of clients into a Branch practice when appropriate, and investment products sold. They are also eligible to receive a quarterly bonus determined by manager discretion, which may include consideration of client contact and satisfaction, client promoter scores, audit validation, branch workshop enrollments, and teamwork.

Prospect Development Specialists

Prospect Development Specialists interact with prospects and clients via the telephone channels—primarily through inbound calls, and make referrals to a local branch when appropriate. They work to understand client needs and provide appropriate solutions. In addition to a base salary, these specialists are eligible for a bonus based on two components described below:

Sales Activities—A monthly measurement of goals achieved in bringing Net New Assets to Schwab, conversions into Advised Offers, funded new accounts, and enrollments into Active Trader.
Manager Discretion—An annual bonus program funded based on Schwab's performance and determined based on manager discretion, which may include consideration of service quality, client satisfaction, teamwork, and ability to provide help and guidance to our clients.

Investor Development Specialists

Investor Development Specialists interact with prospects and clients via the telephone channels—primarily through outbound calls, and make referrals to a local branch when appropriate. They work to understand client needs and provide appropriate solutions. In addition to a base salary, these specialists are eligible for a bonus based on two components described below:

Sales Activities—A monthly measurement of goals achieved in Net New Assets, conversions into Advised Offers, funded new accounts, and enrollments into Active Trader.
Manager Discretion—An annual bonus program funded based on Schwab's performance and determined based on manager discretion, which may include consideration of service quality, client satisfaction, teamwork, and ability to provide help and guidance to our clients.

Financial Consultants (Participant Services)

Financial Consultants provide help to participants in retirement plans serviced by Schwab Corporate Services ("SCS"). For example, if a participant is eligible for a distribution or a rollover, the Financial Consultant discusses the participant’s options. These may include keeping the participant's assets in their retirement plan or rolling over to a Schwab IRA. If a participant decides to open a Schwab IRA, once the account is opened the Financial Consultant may recommend investments or other products and solutions. In addition to a base salary, these Financial Consultants have the potential to earn additional monthly incentive compensation based on the following criteria:

Service quality—A discretionary component that evaluates the Financial Consultant’s performance in educating participants about their options, which may include taking a distribution, leaving their money in their plan, rolling over to a third-party plan, or opening and rolling over to a Schwab IRA.
Sales activities—A measurement of Net New Assets brought to Schwab; referrals to a Complimentary Portfolio Consultation; referrals to a Branch Financial Consultant’s Practice; and referrals to Active Trader or Charles Schwab Bank Products that result in a conversion or sale and enrollment in Advised Offers (where appropriate).

Sales compensation may be increased for client retention and Net New Assets resulting from outbound calling efforts.

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VP - Financial Consultants (Executive Services)

Executive Service Financial Consultants provide dedicated in-person relationships to Executive participants of SCS Plan Sponsors to service their 401(k) and equity compensation plan needs and work with these Executives to identify other Schwab products and services given their needs. In addition to a base salary, Executive Service Financial Consultants are eligible to earn an annual bonus that is funded based on Schwab's performance and determined based on manager discretion, which may include consideration of client satisfaction, service quality, and Net New Assets to Schwab.

Advice Consultants

Advice Consultants provide advice and/or education to retirement plan participants of retirement plans serviced by SCS. Services may include personalized one-on-one consultations, evaluation of investments, portfolio/asset allocation, and discussion of financial goals (including retirement). These services relate to both investments in employer sponsored retirement plans and/or other assets held outside of those plans. In addition to a base salary, Advice Consultants are eligible to earn an annual bonus that is funded based on Schwab's performance and determined based on manager discretion, which may include consideration of the quality of representatives' interactions with clients, utilization of advice, and business development opportunities.

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Active Trader Representatives

Active Trader Representatives identify clients whose trading needs are an appropriate match for Active Trader. They do not provide trading advice. The group consists of regionally based Active Trader Field Sales Market Managers who work with local branches, as well as phone-based Active Trader Consultants and Active Trader Education Specialist.

Active Trader Field Sales Market Managers support a designated region, which consists of clients who are assigned to local Financial Consultants' practices. These Managers work with Financial Consultants by serving as their primary point of contact for Active Trader services. Active Trader Field Sales Market Managers also assist clients who are not assigned to a Financial Consultant's Practice. In addition to a base salary, Market Managers are eligible to earn an annual bonus that is funded based on Schwab's performance and determined based on manager discretion, which may include consideration of frequency of one-on-one client consultations, local market seminars and events hosted, market area lead-flow generation, and quality of interactions with clients and branches.

Active Trader Consultants interact with prospects and clients via the telephone channels, through inbound and outbound calling. They work to understand client needs and make referrals to Active Trader, when appropriate. In addition to a base salary, these consultants have the potential to earn additional monthly incentive compensation based on the following criteria:

Increased client trading activity at Schwab due to representatives promoting the use of Active Trader products and services;
Bringing Net New Assets to Schwab;
New to Firm Active Trader client relationships;
Transfers of existing margin balances to Schwab; and
Referring a client that attends a new client concierge meeting, a consultation with an Active Trader Field Sales Market Manager, an in-branch workshop, or a live online event.
Failure to meet the threshold of education enrollments can decrease monthly sales compensation.

Active Trader Education Specialists partner with Active Trader Consultants to help on-board new clients. Education Specialists conduct phone-based customized one-on-one consultations with new clients to teach them how to leverage Schwab's trading platforms, tools and research resources. In addition to a base salary, Education Specialists are eligible to earn an annual bonus that is funded based on Schwab’s performance and determined based on manager discretion, which may include consideration of quantity of one-on-one client consultations, quality of consultation interactions, client engagement, and whether clients leverage subsequent education.

Fixed Income Specialists

Regional Bond Specialists provide advice and service to Schwab clients specific to their fixed income investing needs. In addition to a base salary, these specialists are eligible to earn quarterly bonuses funded and determined based on the sales of fixed income products. In addition, they are also eligible for an annual bonus that is funded based on Schwab's performance and determined based on manager discretion, which may include consideration of the sale of fixed income products, relationship management, business development, quality assurance, teamwork, client reviews, and field partnerships.

Bond Investment Specialists advise and serve clients with their fixed income investing needs by responding to inbound phone calls. In addition to a base salary, these specialists are eligible to earn an annual bonus that is funded based on Schwab's performance and determined based on manager discretion, which may include consideration of the sale of fixed income products, quality assurance, the principal value of fixed income related transactions, teamwork, and initiative.

Note: Regional Bond Specialists and Bond Investment Specialists do not earn commissions on each transaction, and their compensation is not affected by whether an issue is underwritten by Schwab. Nor does it matter whether a transaction is executed as agent, riskless principal, or from Schwab's own inventory.

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Insurance Services Annuity Specialists

Annuity Specialists provide clients with information and advice on annuities available through Schwab. They also provide existing annuity clients with ongoing service and support. In addition to a base salary, these specialists are eligible to earn an annual bonus that is funded based on Schwab's performance and determined based on manager discretion, which may include consideration of bringing Net New Assets to Schwab, individual contribution to annuity sales for the team, teamwork, client feedback, and training initiatives.

Investment Consultants (Complimentary Consultation)

Investment Consultants provide clients who are not currently assigned to a Financial Consultant with a complimentary portfolio analysis or retirement assessment. They conduct a one-time, needs-based portfolio assessment and make recommendations from the full array of Advised Offers. They proactively contact clients by telephone, receive direct calls from clients, and receive call transfers from clients who have expressed interest in a portfolio consultation to another Schwab representative. In addition to a base salary these representatives are eligible to earn an annual bonus that is funded based on Schwab performance and determined based on manager discretion, which may include consideration of the quality of representatives' interactions with clients and utilization of advice and business development opportunities.

Schwab Managed Portfolio Service Representatives

Schwab Managed Portfolio Service Representatives work with our clients that are invested in Schwab Managed Portfolios™, responding to telephone inquiries about the product and ensuring on-going suitability of the investment. In addition to a base salary, they are eligible to earn a bonus which is funded based on Schwab’s performance and determined based on manager discretion, which may include consideration of the quality of representative's interactions with clients, client satisfaction, teamwork, training, professional development and accuracy.

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Other Compensation or Awards

From time to time, one or more categories of our representatives may participate in short-term, temporary incentive programs that focus on a particular class of products or services, including new accounts and new assets to Schwab. The goal of these programs is to raise awareness about products and services and how that may serve our clients' needs and thereby increase sales.

Certain representatives who demonstrate exceptional performance during the year may also be eligible to earn an annual trip through Schwab's "Chairman’s Club." Schwab may develop additional recognition events or programs from time to time. For more information, please visit our website at http://aboutschwab.com/about/compensation/compensation.html.

Schwab Independent Branch Services Representatives

Schwab Independent Branch Services representatives are independent contractors who operate, with their employees, Schwab Independent Branches pursuant to a franchise agreement with Schwab. These independent contractors are called Independent Branch Leaders, or IBLs. Their employees who hold a securities license are called Independent Branch Services Financial Consultants, or IBS Financial Consultants. IBLs and IBS Financial Consultants are not Schwab employees, but they are registered representatives of Schwab for purposes of securities regulations. IBLs receive a portion of the revenue generated by the activities and assets in accounts of Schwab clients assigned to their Independent Branches. IBS Employees also may share in the revenue earned by their IBL employer. Schwab notifies clients when they are assigned to an IBL.

Independent Branch Leaders

IBLs, generally, are not paid on commissions for particular sales, nor does Schwab pay them a salary or the incentive compensation earned by representatives who are employed by Schwab. Instead, they earn revenue from their business based on the overall revenue Schwab earns from clients whose accounts are assigned to their Independent Branch. IBLs therefore have an incentive to make sure their client accounts in the aggregate hold assets that generate enough revenue so that their monthly payout from Schwab (as described below) exceeds the fees and expenses they owe to Schwab or are otherwise responsible for under the franchise agreement with Schwab.

For purposes of revenue earned by the IBLs, the assets in accounts assigned to them are divided into two categories: (1) "Advised Assets," meanings assets in accounts enrolled in Schwab Private Client™, Schwab Managed Portfolios™, Schwab Managed Account Select® or Schwab Managed Account Connection™ (discretionary wrap-fee programs), or accounts managed by an independent third-party investment advisor to whom the client was referred through Schwab Advisor Network® service; and (2) "Non-Advised Assets," consisting of assets not in the Advised Asset category which include stocks, bonds, mutual funds, and exchange-traded funds as well as payment for providing cash management services.

Each month, Schwab calculates and applies an Advised Asset revenue rate and a Non-Advised Asset revenue rate to the assets in accounts assigned to all Schwab Independent Branches. The two revenue rates are calculated by looking at 12-month trailing assets and revenue from all Schwab Independent Branch accounts. This is done by dividing the adjusted revenue amount for each asset category by the associated assets. (Certain product-level expenses are subtracted and certain revenues not earned at an individual account level are excluded.) Schwab then applies these revenue rates to the daily average assets in each category in accounts assigned to individual Schwab Independent Branches, yielding an adjusted revenue figure for each asset category. The revenue rates change monthly, but the Advised Asset revenue rate is higher because Schwab generally generates more revenue on Advised Assets. This is due to the asset-based fees paid for advisory services and other revenue generated by the underlying assets in the enrolled accounts such as shareholder servicing fees paid to Schwab by certain mutual funds. An IBL, therefore, earns more money by successfully recommending that a client enroll or open an account in one of the services in the Advised Asset category.

Schwab also calculates the actual revenue earned by Schwab (often one-time but in some cases recurring) from sales of Immediate and Fixed Deferred Annuities, Long-Term Care Insurance, Term Life Insurance (collectively, "Insurance Products") and fee-based financial plans to clients assigned to an IBL’s Independent Branch.

After adding together the adjusted revenue figures for Advised Assets, Non-Advised Assets, and the actual revenues from Insurance Products and fee-based financial plans, Schwab then applies a multiplier based on the tenure of the IBL. See the table below. For assets of clients who transition to Schwab from an IBL's prior firm, the IBL may elect a constant multiplier of 50% in exchange for an increased ability to ask such clients to transition away from Schwab in the event the franchise agreement ends.

Tenure of IBL	Multiplier
Year 1	200%
Year 2	150%
Year 3	110%
Year 4	75%
Year 5	55%
Year 6+	50%

Finally, Schwab deducts certain monthly fees and expenses from the total adjusted revenue amount that the IBL owes to Schwab under the franchise agreement. This results in a net payout for the month.

IBS Financial Consultants

IBS Financial Consultants receive a salary paid by the IBL and, as determined by the IBL as their employer, may be eligible for a bonus based on a percentage of either their salary or the IBL's Net Payout.

The criteria used by the IBL to determine the amount of the bonus may include such factors as net new assets brought to Schwab, net new clients acquired through the efforts of an IBS Financial Consultant, or the portion of the Net Payout attributable to clients serviced by an IBS Financial Consultant.

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