Schwab Independent Branch Services Representatives

Schwab Independent Branch Leaders (IBLs) are franchisees who operate Schwab Independent Branches pursuant to a franchise agreement with Schwab. IBLs may employ IB representatives (Financial Consultants, Associate Financial Consultants, and Client Service Specialists, who may or may not be registered).

IB registered personnel 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. IB employees also may share in the revenue earned by their IBL employer. Schwab notifies clients when they are assigned to an Independent Branch.

Independent Branch Leaders

Compensation

IBLs are generally 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, the overall amount of which is based on the revenue Schwab earns from clients whose accounts are assigned to their independent branch.

For purposes of revenue earned by the IBLs, the assets in accounts assigned to them are divided into two categories. As with employee representatives, the difference in average rates between these two categories is based on the time and expertise necessary to recommend and service different products and programs and the inherent complexity and variety attributable to such products and services. Because IBLs are franchisees rather than employees, and because they are therefore expected and encouraged to have more individual control of the management of their time, only two rates are applied to the assets assigned to them, rather than the three rates applied to assets in Financial Consultant Practices.

  • Advised Assets—Assets in accounts enrolled in Schwab Private Client™, Schwab Managed Portfolios™, Schwab Managed Account Select®, Schwab Managed Account Connection® (discretionary wrap-fee programs that include ThomasPartners® Strategies and Windhaven® Strategies), Schwab Intelligent Portfolios®, Schwab Intelligent Portfolios Premium™, or accounts managed by an independent third-party investment advisor to whom the client was referred through the Schwab Advisor Network® service, or assets invested in a variable annuity; and
  • Non-Advised Assets—Assets not in the Advised Asset category, which include stocks, bonds, mutual funds, and ETFs, as well as payment for providing cash management services.

Each month, Schwab calculates and applies an Advised Asset Average Rate and a Non-Advised Asset Average Rate to the assets in accounts assigned to all Schwab Independent Branches.

The rates are calculated by looking at 12-month trailing assets and revenue from all Schwab Independent Branch accounts.

Schwab applies these Average Rates to the daily average assets in each category in accounts assigned to individual Schwab Independent Branches. The Average Rates change monthly, but the Advised Asset Average Rates are higher based on the factors noted above. An IBL, therefore, earns more money when 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, Permanent Life Insurance, Disability Insurance, and Term Life Insurance (collectively, "Insurance Products"), and fee-based financial plans to clients assigned to an IBL's Independent Branch.

After adding together the 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 and type of client. In years one through five, the IBL's payout share is adjusted using a multiplier ranging from 185% to 50%, and then, in years six and beyond, the payout share is adjusted using a 50% multiplier. (Note: 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 if the franchise agreement ends.)

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.

IB Representatives

Compensation

IB Representatives are employees of the IBL. They receive a salary paid by the IBL and, as determined by the IBL as their employer, may be eligible for a bonus.

The criteria used to determine the amount of the bonus may include such factors as Net New Assets, Branch Assets and Client Promoter Score.