How We Compensate Our Investment Professionals

How We Compensate

Our Investment Professionals

Since Charles Schwab & Co., Inc. (“Schwab”) was founded more than 40 years ago, we’ve been commit-ted to serving the needs of individual investors. One of our most important beliefs is that you should under-stand how the financial professionals assisting you are paid, so you can evaluate the recommendations you receive.

In this brochure, we identify the different categories of investment professionals who may serve you at Schwab and describe how they are compensated. This includes both Schwab employees and independent branch franchisees (and their employees) operating Schwab Independent Branches. Some of these com-pensation plans are based on revenue Schwab earns from clients or from product sales, and Schwab may pay a Schwab representative more for selling products or services on which Schwab makes more money. In addition, from time to time, one or more categories of our representatives may participate in short-term, temporary incentive programs focusing on a particular class of products or services, including new accounts and new assets to Schwab. The goal of these pro-grams is to raise awareness of these products and services and of how they 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, or other awards. Schwab may develop additional recog-nition events or programs from time to time. For more information, please visit our website at www.schwab .com/public/schwab/nn/legal_compliance/ compensation_advice_disclosures/.

revenue with Independent Branch 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.

Recent Changes

Compensation plans and revenue-sharing arrange-ments for both employee and independent branch investment professionals change from time to time. You can access the most up-to-date version online by visiting the “Investment Professionals’ Compensation” page on www.schwab.com. Below is a summary of recent changes.

Effective January 1, 2015:

Section 1: U.S. Branch Representatives • VP – Financial Consultants: Added Schwab

Intelligent Portfolios™ as a Service Pay Asset Category.

• VP – Financial Consultants: Removed the provi-sion that Service Pay for assets enrolled in Portfolio Management Services is subject to a floor.

• VP – Financial Consultants: Added Schwab Intelligent Portfolios as a Solutions Pay Client Solution.

• Associate Financial Consultants and Financial Consultant Assistants: Removed Schwab’s performance as the basis for funding the annual bonus program.

• Financial Consultant Assistants: Added as a new role.

Section 4: Specialty Representatives (Phone-Based) • International Financial Consultants (Client

Development): Updated the monthly sales incen-tive and quarterly bonus eligibility criteria. • Financial Consultants (Centralized Branch):

Replaced the quarterly bonus with Solutions Pay. • Prospect Development Specialists: Added

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• Investor Development Specialists: Updated the bonus eligibility criteria.

• VP – Financial Consultants (Executive Services): Removed Schwab’s performance as the basis for funding the annual bonus program.

• Trading Solutions Regional Managers: Updated the bonus eligibility criteria.

• Trading Solutions Consultants: Added a quarterly discretionary incentive component.

• Trading Solutions Education Specialists: Removed the provision that failure to meet threshold education enrollments could decrease compensation.

Section 5: Schwab Independent Branch Service Representatives

• Independent Branch Leaders: Added Schwab Intelligent Portfolios™ to the list of advised assets.

• Associate Financial Consultant: Added as a new role.

We invite you to read this information carefully and to contact us at 1-800-785-3965 if you have any questions. (For multilingual services, call 1-800-662-6068. For services outside the U.S., call +1-415-667-8400. U.K. residents should call 00800-0826-5001; Swiss residents should call 0800-563711.)

Types of Investment Professionals

There are several types of investment professionals you may work with at Schwab:

1. U.S. Branch Representatives • VP–Financial Consultants • Associate Financial Consultants • Client Service Specialists • Financial Consultant Assistants • VP–Branch Managers

3. Service Representatives

• Customer Service and Brokerage Service Representatives

4. Specialty Representatives (Phone-Based) • International Financial Consultants (Client

Development)

• Financial Consultants (Centralized Branch) • Prospect Development Specialists • Investor Development Specialists

• Financial Consultants (Participant Investor Concierge)

• VP–Financial Consultants (Executive Services) • Client Service Specialists

• Advice Consultants

• Trading Solutions Representatives • Fixed Income Specialists

• Insurance Services Annuity Specialists

• Portfolio Solutions Group Investment Consultants 5. Schwab Independent Branch Services

Representatives

• Independent Branch Leaders • IB Financial Consultants

We’ve outlined how these professionals are paid below. We also provide information about other com-pensation or awards that any of these professionals may receive.

1. U.S. Branch Representatives

VP–Financial Consultants What They Do

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Financial Consultants may also assist clients who are not in their practice.

Compensation

Financial Consultants have two primary sources of compensation: Service Pay and Solutions Pay. Financial Consultants may also be eligible to participate in a Career Achievement Award Program, which rewards and retains our top talent for being dedicated to Schwab and our clients.

Service Pay

Service Pay compensates a Financial Consultant for building and maintaining relationships with clients in their practice. Each month, they are paid a percentage of the approximate annual revenue attributed to clients in their practice. In some cases, Schwab uses the average revenue of a category of assets or products. In other cases, we use the revenue generated by eligible transactions. Service Pay applies whether a Financial Consultant recommends or sells the offer or product to the client or the client makes the purchase or enrollment decision on his or her own.

Average Revenue Rates

The majority of a Financial Consultant’s Service Pay is calculated using Average Revenue Rates. Average Revenue Rates are calculated by blending the revenue for all of the offers or products in each category into one rate. The primary function of an Average Revenue Rate is to pay Financial Consultants the same rate for similar offers or products. For example, a Financial Consultant’s pay is calculated using the same rate for referring a client to most of our Portfolio Management Solutions, even though Schwab may make more money on one over another.

Because Average Revenue Rates differ for each prod-uct category, a Financial Consultant can receive more compensation if clients are invested in one category versus another, as the tables below demonstrate. While most similar products are bundled together to determine Service Pay for Financial Consultants, mutual funds and exchange-traded funds (ETFs) are not.

one of the over 4,000 third-party no-load, no- transaction-fee mutual funds available through Schwab’s Mutual Fund OneSource® service, compared to other third-party mutual funds for which Schwab charges a transaction fee. This is reflected in the table below based on Average Revenue Rates.

Financial Consultants receive less compensation for ETFs than mutual funds. They earn more compensa-tion if a client is invested in a Schwab-affiliated ETF or one of the over 100 third-party no-commission ETFs available through the Schwab ETF OneSource™ service (see table below) compared to all other third-party ETFs. Financial Consultants are eligible to receive 6%, 7%, 8%, or 9% of the firm’s Average Revenue Rate for the asset categories listed in the table below, depending on the Financial Consultant’s experience and past performance.

Service Pay Based on Account Balances

Asset Category Annual Service Pay per $100,000 of client balances (depending on whether the Financial Consultant’s payout is 6%, 7%, 8%, or 9%) Portfolio Management Services:

• Schwab Private Client™ • Schwab Managed

Portfolios™ • Schwab Managed

Account Services™ (which includes ThomasPartners®, Windhaven Portfolios®, Charles Schwab Investment Management Separately Managed Accounts, Diversified Portfolios, and Third-Party Managers)

• Variable Annuities

$43–$64

Schwab Advisor Network® and Schwab Intelligent Portfolios™

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Asset Category Annual Service Pay per $100,000 of client balances (depending on whether the Financial Consultant’s payout is 6%, 7%, 8%, or 9%)

Schwab and OneSource

Mutual Funds $21–$32

Schwab and OneSource ETFs $5–$7 Cash and Money Market

Funds

• Brokerage and Bank Cash • Charles Schwab Bank

Deposits

• High Yield Investor Checking

• High Yield Investor Savings • Schwab Money Market

Sweep Funds

• Schwab Purchased Money Market Funds

$33–$50

When a client in a Financial Consultant’s practice is enrolled in a participating Portfolio Management Service and receives a refund of their program fee under the Schwab Accountability Guarantee™, Schwab will debit the amount of Service Pay the Financial Consultant receives by a percentage of the amount of the fee refunded.

Eligible Transactions

Service Pay Based on Transaction Revenue Transaction

Type Revenue Service Pay

Equities $8.95 commission + $25 for broker-assisted trades $0.27 per online trade $1.02 per broker-assisted trade Options $8.95 + $0.75 per contract commission + $25 for broker-assisted trades $0.27 per online trade + $0.02 per contract $1.02 per broker-assisted trade + $0.02 per contract ETFs not in the Schwab ETF OneSource™ service $8.95 commission + $25 for broker-assisted trades $0.27 per online trade $1.02 per broker-assisted trade Transaction Fee Mutual Funds $76 transaction fee for purchase transactions + $25 for broker-assisted purchase and sale transactions $2.28 per online purchase $3.03 per broker-assisted purchase $0.75 per broker-assisted sale Fixed

Income Since the revenue Schwab makes on a fixed income trade varies based on the type of security and whether the trade is executed as agent or out of inventory, a blended rate of $58 per trade is used to calculate Service Pay.

$1.74 per trade Schwab Bank Home Equity Line of Credit (HELOC)

Since the revenue earned on HELOCs varies, a blended rate of 0.0182 on the outstanding loan balance is used to calculate Service Pay.

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Type Revenue Service Pay

• Margin Loans • Schwab Bank Pledged Asset Line® (PAL) Revenue earned differs from loan to loan based on a number of factors (e.g., loan size, rate, and duration). Example: A $100,000 loan produces $8,875 revenue x 3% = $266.25 annually 529

Accounts Revenue differs based on size of portfolio and on asset allocation. $5–$11 (depending on asset allocation) annually per $100,000 account balance Solutions Pay

Solutions Pay compensates a Financial Consultant for helping deepen relationships with our clients and for matching client needs with appropriate products. Financial Consultants receive a one-time payment each time clients with whom they work—both in and outside of their practice—bring Net New Assets to Schwab and enroll in certain products and services. Solutions Pay for in-practice clients applies whether a Financial Consultant recommends or sells the offer or product to the client or the client makes the purchase or enroll-ment decision on his or her own. The sole exception is for Schwab Intelligent Portfolios™, which the Financial Consultant must successfully recommend in order to receive Solutions Pay.

Financial Consultants only earn Solutions Pay on Net New Assets for practice and non-practice clients and for certain categories of products. For example, Solutions Pay applies to enrollment in one of Schwab’s proprietary Portfolio Management Services, but does not apply to mutual fund purchases. Generally, if assets leave a Financial Consultant’s practice, that loss is netted against asset gains to a Financial Consultant’s practice for purposes of calculating Solutions Pay.

Solutions Pay is paid to the Financial Consultant monthly.

Asset Consolidation Financial Consultant’s Compensation1 One-Time Solutions Payment per $100,000 Net Asset Flows (total

inflow of client assets minus the total outflow of client assets)

0.0008 x Net Asset Flows $80

Client Solutions Financial Consultant’s Compensation1 One-Time Solutions Payment Portfolio Management Services:

• Schwab Private Client™ • Schwab Intelligent Portfolios™ • Schwab Advisor Network® • Schwab Managed Portfolios™ • Schwab Managed Account Services™ (which includes ThomasPartners®, Windhaven Portfolios®, Charles Schwab Investment Management Separately Managed Accounts, Diversified Portfolios, and Third-Party Managers) 0.002 x amount enrolled $200 per $100,000 Introductions to Charles Schwab Bank for mortgages by Financial Consultants who are also employees of Charles Schwab Bank

0.002 x loan amount for new mortgages; 0.0011 x loan amount for refinanced loans $200 per $100,000 $110 per $100,000

11 Client Solutions Financial

Consultant’s Compensation1 One-Time Solutions Payment Referrals to Life

Insurance $175 per converted referral $175 Referrals to Long-Term Care Insurance by a Licensed Financial Consultant $175 per converted referral $175 Referrals to Schwab

Advisor Services™ $800 for referrals up to $30 million; $3,500 for referrals of more than $30 million $800 or $3,500 Referrals to Schwab Corporate and Retirement Services 0.002 x amount referred; $250,000 minimum to $10,000,000 maximum $500– $20,000 Referral to Charles Schwab Bank’s Administrative Trustee Services 0.0016 x amount referred $160 per $100,000

1 _{Schwab may cap the amount of incentive compensation}

that a Financial Consultant can earn from any one client from the Solutions Pay component.

Bringing Together a Financial Consultant’s Pay As an example, suppose an in-practice client of a Financial Consultant brings a portfolio of $500,000 to Schwab and invests it as follows:

The Financial Consultant would earn annual compensation as follows:

Payment Type Description Compensation Amount Solutions Pay (one-time payments) $500,000 transfer into Schwab $400 $200,000 enrollment into Schwab Private Client™ $400 Service Pay (annual payments) $200,000 balance in Schwab Private Client™ $85–$128 $100,000 balance in OneSource Mutual Funds $21–$32 $100,000 balance in Cash $33–$50 $100,000 balance in Transaction Fee Mutual Funds $2.28 (earned on purchase) TOTAL $941.28– $1,012.28 Associate Financial Consultants

What They Do

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 with potential new clients to identify and analyze their financial needs.

Compensation

In addition to a base salary, Associate Financial Consultants are eligible for a bonus based on three components:

• Manager Discretion—An annual bonus program determined based on manager discretion, which may include consideration of service quality, client satis-faction, teamwork, and ability to provide help and guidance to our clients.

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ensuring satisfaction with Schwab’s Portfolio Management Services (where appropriate), and assisting clients in using 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 manager discretion and client satisfaction in the branch.

Client Service Specialists What They Do

Client Service Specialists respond to the specific needs of clients and may direct clients to the appropri-ate Schwab representative.

Compensation

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.

Financial Consultant Assistant What They Do

Financial Consultant Assistants respond to the specific needs of clients and are assigned to specific Schwab representatives.

Compensation

In addition to a base salary, Financial Consultant Assistants are eligible to earn an annual bonus that is determined based on manager discretion, which may include consideration of service quality, client satisfac-tion, sales support, and teamwork.

VP–Branch Managers What They Do

Branch Managers lead a local market team comprised of Financial Consultants, Associate Financial

Compensation

In addition to a base salary, Branch 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 branch growth and productivity, client satisfaction, and development of staff. A Branch Manager’s bonus can be a significant amount, up to (but not limited to) approximately 45% of their total compensation.

2. International Branch Representatives

International VP–Financial Consultants What They Do

International Financial Consultants provide services primarily to our clients residing outside the United States.

Compensation

These Financial Consultants are paid according to the same incentive plan as U.S. Financial Consultants, except the pay rates and products offered may vary based on market locations. There is also a discretion-ary component determined based on manager discre-tion, which may include consideration of Net New Assets, client satisfaction, and teamwork.

3. Service Representatives

Customer Service and Brokerage Service Representatives

What They Do

Customer Service and Brokerage Service Representatives provide service to clients via tele-phone, email, and online chat; respond to telephone inquiries from clients about the products and services we offer; and may contact clients by phone or email. Compensation

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These representatives are also eligible for additional compensation that is measured by client satisfaction at an organizational level.

4. Specialty Representatives

(Phone-Based)

International Financial Consultants (Client Development)

What They Do

International Financial Consultants (Client Development) provide advice and guidance services to our international clients.

Compensation

In addition to a base salary, these representatives are eligible for monthly sales incentives based on gross asset inflow, funded new accounts, and enrollments in Portfolio Management Services.

They are also eligible to receive a quarterly bonus determined by manager discretion.

Financial Consultants (Centralized Branch) What They Do

Financial Consultants (Centralized Branch) work with clients who are generally more independent and prefer to work with someone by phone. They develop new and existing client relationships, taking a planning-based approach to understand a client’s needs and objec-tives. They provide guidance and support to help clients select the appropriate products—including investments, banking, and insurance—that help meet their objectives. Each Financial Consultant supports a practice, which includes clients who are assigned to that Financial Consultant as a primary point of contact. Financial Consultants may also assist clients who are not in their practice.

Compensation

In addition to a base salary, these representatives are eligible for Solutions Pay.

Solutions Pay

each time clients with whom they work—both in and outside of their practice—bring Net New Assets to Schwab and enroll in certain products and services. Solutions Pay for in-practice clients applies whether a Financial Consultant recommends or sells the offer or product to the client or the client makes the pur-chase or enrollment decision on his or her own. The sole exception is for Schwab Intelligent Portfolios™, which the Financial Consultant must successfully recommend in order to receive Solutions Pay. Financial Consultants only earn Solutions Pay on Net New Assets for practice and non-practice clients and for certain categories of products. For example, Solutions Pay applies to enrollment in one of Schwab’s proprietary Portfolio Management Services, but does not apply to mutual fund purchases. Generally, if assets leave a Financial Consultant’s practice, that loss is netted against asset gains to a Financial Consultant’s practice for purposes of calcu-lating Solutions Pay.

Solutions Pay is paid to the Financial Consultant monthly.

Asset Consolidation Financial Consultant’s Compensation1 One-Time Solutions Payment per $100,000 Net Asset Flows (total

inflow of client assets minus the total outflow of client assets)

17 Client Solutions Financial

Consultant’s Compensation1 One-Time Solutions Payment Portfolio Management Services:

• Schwab Private Client™ • Schwab Intelligent Portfolios™ • Schwab Advisor Network® • Schwab Managed Portfolios™ • Schwab Managed Account Services™ (which includes ThomasPartners®, Windhaven Portfolios®, Charles Schwab Investment Management, Inc. Separately Managed Accounts, Diversified Portfolios, and Third-Party Managers) 0.002 x amount enrolled $200 per $100,000 Introductions to Charles Schwab Bank for mortgages by Financial Consultants who are also employees of Charles Schwab Bank

0.002 x loan amount for new mortgages; 0.0011 x loan amount for refinanced loans $200 per $100,000 $110 per $100,000

Fixed Annuities, Variable Annuities, and Single Premium Immediate Annuities by a Licensed Financial Consultant 0.002 x annuity amount $200 per $100,000 Referrals to Life

Client Solutions Financial Consultant’s Compensation1 One-Time Solutions Payment Referrals to Schwab

Advisor Services™ $800 for referrals up to $30 million; $3,500 for referrals of more than $30 million $800 or $3,500 Referrals to Schwab Corporate and Retirement Services 0.002 x amount referred; $250,000 minimum to $10,000,000 maximum $500– $20,000 Referral to Charles Schwab Bank’s Administrative Trustee Services 0.0016 x amount referred $160 per $100,000

1_{Schwab may cap the amount of incentive}

compensa-tion that a Financial Consultant can earn from any one client from the Solutions Pay component.

Prospect Development Specialists What They Do

Prospect Development Specialists interact with prospects and clients via telephone—through inbound and outbound calls—and make referrals to a local branch when appropriate. They work to under-stand client needs and provide appropriate solu-tions.

Compensation

In addition to a base salary, these specialists are eligible for a bonus based on two components: • Sales Activities—A measurement of Net Assets

Flow and enrollments in Portfolio Management Services (such as Schwab Private Client™, Schwab Managed Portfolios™, Schwab Advisor Network®, and Schwab Intelligent Portfolios™).

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satisfaction, teamwork, and ability to provide help and guidance to our clients.

Investor Development Specialists What They Do

Investor Development Specialists interact with pros-pects and clients via telephone—primarily through outbound calls—and make referrals to a local branch when appropriate. They work to understand client needs and provide appropriate solutions. Compensation

In addition to a base salary, these specialists are eligible for a bonus based on two components: • Sales Activities—A measurement of Net Assets Flow

and enrollments in Portfolio Management Services (such as Schwab Private Client™, Schwab Managed Portfolios™, Schwab Advisor Network®, and Schwab Intelligent Portfolios™).

• Manager Discretion—An annual bonus program that is funded based on Schwab’s performance and deter-mined based on manager discretion, which may include consideration of service quality, client satis-faction, teamwork, and ability to provide help and guidance to our clients.

Financial Consultants

(Participant Investor Concierge) What They Do

Financial Consultants (Participant Investor Concierge) provide help to participants in retirement plans ser-viced 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, which may include keeping the participant’s assets in their retirement plan or rolling over to a Schwab IRA. If the participant decides to open a Schwab IRA, the Financial Consultant may recommend investments or other products and solu-tions once the account is opened.

Compensation

• 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, referrals to Schwab Trading Services or Charles Schwab Bank products that result in a conversion or sale, and enrollment in Portfolio Management Services (when appropriate). Sales compensation may be increased for client reten-tion and Net New Assets resulting from outbound calling efforts.

VP–Financial Consultants (Executive Services) What They Do

Financial Consultants (Executive Services) provide dedi-cated in-person relationships to executive participants of SCS plan sponsors. These representatives help service 401(k) and equity compensation plan needs, and they work with executives to identify other Schwab products and services.

Compensation

In addition to a base salary, Executive Services Financial Consultants are eligible to earn an annual bonus that is determined based on manager discre-tion, which may include consideration of client satis-faction, service quality, and Net New Assets to Schwab.

Client Service Specialists What They Do

Client Service Specialists respond to the specific needs of clients and may direct clients to the appropri-ate Schwab representative.

Compensation

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determined based on manager discretion, which may include consideration of service quality, client satisfaction, sales support, and teamwork. Advice Consultants

What They Do

Advice Consultants provide advice and education to participants of retirement plans serviced by SCS. Services may include personalized one-on-one consul-tations, evaluation of investments, portfolio and asset allocation, and discussion of financial goals (including retirement). These services relate to both investments in employer-sponsored retirement plans and other assets held outside of those plans.

Compensation

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. Trading Solutions Representatives

Trading Solutions team members identify clients whose trading needs are an appropriate match for Schwab Trading Services. They do not provide trad-ing advice. The group consists of regionally based Trading Solutions Regional Managers who work with local branches, as well as phone-based Trading Solutions Consultants and Trading Solutions Education Specialists:

• Trading Solutions Regional Managers (TSRMs) What They Do

These representatives support a designated region of clients assigned to local Financial Consultants’ practices. They work with Financial Consultants by serving as their primary point of contact for Schwab Trading Services. They also assist clients not assigned to a Financial Consultant’s practice. Compensation

manager discretion, which may include consider-ation of frequency of one-on-one client consulta-tions, regional client growth and retention, local market seminars and events hosted, market area lead-flow generation, and quality of interactions with clients and branches.

• Trading Solutions Consultants What They Do

These consultants interact with prospects and clients via telephone, through inbound and outbound calling. They work to understand client needs and make referrals to Schwab Trading Services, when appropriate.

Compensation

In addition to a base salary, these consultants have the potential to earn additional monthly and quarterly incentive compensation. The monthly incentive is based on the following criteria: – Increased client trading activity at Schwab due to

representatives promoting the use of Schwab Trading Services products and services. – Bringing Net New Assets to Schwab. – New-to-firm Schwab Trading Services client

relationships.

– Transfers of existing margin balances to Schwab. – Referring a client that attends a new client

concierge meeting, a consultation with a Trading Solutions Regional Manager, an in-branch workshop, or a live online event.

The quarterly discretionary incentive is deter-mined based on manager discretion, which may include consideration of efficiency, productivity, client engagement, service quality, and accuracy. • Trading Solutions Education Specialists

What They Do

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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

Fixed Income Specialists serve clients with fixed income investing needs. The group consists of Regional Bond Specialists and Bond Investment Specialists. Neither group earns commissions on transactions, 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, as a riskless principal, or from Schwab’s own inventory.

• Regional Bond Specialists What They Do

These specialists provide advice and service to Schwab clients specific to their fixed income investing needs.

Compensation

In addition to a base salary, these specialists are eligible to earn quarterly bonuses that are funded and determined based on the sales of fixed income products. 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, busi-ness development, quality assurance, teamwork, client reviews, and field partnerships.

• Bond Investment Specialists What They Do

Compensation

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.

Insurance Services Annuity Specialists What They Do

Annuity Specialists provide Financial Consultants and clients with information and advice on annuities avail-able through Schwab. They also provide existing annu-ity clients with ongoing service and support.

Compensation

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 Net New Assets to Schwab, field and client feed-back, and teamwork.

Portfolio Solutions Group Investment Consultants What They Do

Portfolio Solutions Group 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 investment choices. They schedule appointments with clients who have expressed interest in a portfolio consultation and take referrals from other Schwab representatives. They also work with clients who are invested in Schwab Managed Portfolios™, ThomasPartners®, or Windhaven Portfolios® and are not currently assigned to a Financial Consultant. They respond to telephone inquiries about these products and ensure ongoing suitability of investments.

Compensation

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Schwab’s performance and determined based on manager discretion, which may include consideration of the quality of the representative’s interactions with clients, client satisfaction, teamwork, training, profes-sional development, and accuracy.

5. Schwab Independent Branch Services

Representatives

Schwab Independent Branch Leaders (IBLs) are fran-chisees who operate Schwab Independent Branches pursuant to a franchise agreement with Schwab. IBLs may employ Independent Branch Financial Consultants (IB FCs) who are registered representatives, and/or Independent Branch Client Service Specialists (IB CSSs) 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 particu-lar sales, nor does Schwab pay them a saparticu-lary 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.

For purposes of revenue earned by the IBLs, the assets in accounts assigned to them are divided into two categories:

advisor to whom the client was referred through the Schwab Advisor Network® service; 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 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 may be 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 underly-ing assets in the enrolled accounts, such as share-holder servicing fees paid to Schwab by certain mutual funds. An IBL, therefore, may earn 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 (collec-tively, “Insurance Products”), and fee-based financial plans to clients assigned to an IBL’s Independent Branch.

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on the tenure of the IBL. In years one through five, the IBL’s revenue share is adjusted using a multiplier ranging from 200% to 55%, and then, in years six and beyond, the revenue 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 agree-ment. This results in a net payout for the month. IB Financial Consultants and Associate Financial Consultants

Compensation

IB Financial Consultants and Associate Financial Consultants receive a salary paid by the IBL and, as determined by the IBL as their employer, may be eli-gible for a bonus.

If you have questions about information contained in this brochure, please call 1-800-785-3965. For media inquiries, please call the Schwab Corporate Public Relations hotline at 1-415-667-9500.

Third-party trademarks appearing in this document are the property of their respective owners.

Please note that the information in this brochure does not apply to Schwab accounts managed by an indepen-dent investment advisor. Indepenindepen-dent investment advi-sors are not owned by, affiliated with, or supervised by Charles Schwab & Co., Inc. (“Schwab”).

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