ADVISORS TURNING INDEPENDENT Interviews with “sophomore year advisors” April 9, 2013

2 Methodology What A telephone interview was conducted by Koski Research. When The interviews were conducted from February 14 through March 6, Who Forty independent investment advisors who have recently (during the past two years) become independent. Advisors participating have a portion of their clients’ assets custodied with Schwab.

3 Executive Summary From the initial thought to the actual move, it takes an average of two years for advisors to turn independent. In their own words, Advisors say freedom and control, independence and personal service are what they are looking for when they decided to turn independent. The majority of advisors (nine out of ten) say that providing more personalized service (98%), preferring to work for themselves (95%), seeing an opportunity for greater long-term personal financial success (95%) and a higher income (93%), as well as protecting their personal reputations (95%), are “important” (“very” + “somewhat”) in making the decision to go independent. Eight of ten say preferring to work for themselves (87%) and seeing an opportunity for greater long-term personal financial success (85%) are very important. Clients, for the most part, are loyal to their advisors. Six in ten advisors say the phrase “clients were immediately on board with the move” describes their clients “completely.” On average, 79% of clients make the jump with advisors when they turn independent.

4 Executive Summary Now that they are independent, all interviewed tell us they would make the decision to go independent again. Over 90% say, respectively, “I am happier now as an independent advisor” and “I recommend going independent to other financial advisors.” Nine in ten advisors say their firm is now better positioned for growth. Three in four wish they would have made the decision to turn independent sooner. In their own words, advisors tell us that they have found what they are looking for: Freedom to do things their way and have greater control Have the ability to provide personal service to clients And, be independent. The advice they would give other advisors is one of caution but action: be prepared, but just do it—don’t wait.

5 DETAILED FINDINGS

6 On average, Advisors take two years to make the move to independence Q3. How long did it take you to make the decision to become an independent registered investment advisor? Please include the time from when you first considered the idea to when you initiated the transition. Your best estimate is fine. (Base: Total Advisors: 40) Time it Took to Decide to Turn Independent Total Advisors Mean = 2 years

7 Self employment and long-term financial success are the most important reasons for turning independent Q5. Next, I am going to read you a list of potential reasons why some individuals may decide to become an independent investment advisor. For each one, please tell me if the reason was very important, somewhat important, or not at all important, to your own decision. (Base: Total Advisors: 40) Importance of Reasons in Turning Independent Total Advisors “Very/Somewhat Important” (Net ) 95% 98%80%93%85%53%

8 Selecting the best technology and obtaining quality legal advice top the list of most important steps taken during the transition Q7. As you made the transition to becoming an independent advisor, which of the following, if any, were important steps in the process? (Base: Advisors who started a firm: 34) Most Important Steps During Transition Advisors Who Started Their Firms

9 Most Advisors report their clients were immediately on board; just one in five lost clients Q9. I am going to read you a list of possible ways your prior clients may have responded to your move to independence. For each, please tell me if it describes your clients’ response completely, somewhat, or not at all. (Base: Total Advisors: 40) End-Clients’ Responses to the Move Total Advisors “Describes Completely/Somewhat” (Net) 90%68%50%13%20%

10 Advisors are pleased with their decision to become independent and would recommend the move to others Attitudes Towards Going Independent Total Advisors Q4. For each of the following, please say true if the statement applies to you and false if it does not. (Base: Total Advisors: 40)

11 Many Advisors say their firm is now better positioned for growth Q18. Now that you are an independent investment advisor, is your practice better positioned for growth than before? (Base: Total Advisors: 40) Firm is Now Better Positioned for Growth Total Advisors

12 DEMOGRAPHICS & FIRMOGRAPHICS

13 Most independent advisors started their own firms Q1. Which of the following best describes you? (Base: Total Advisors: 40) Advisors that Recently Turned Independent: Started or Joined a Firm Total Advisors

DemographicsTotal Advisors Percent of clients brought with you MEAN79% of clients MEDIAN93% of clients Number of clients brought with you MEAN102 clients MEDIAN60 clients Length of time as a financial advisor Less than 5 years13% 5 years up to 10 years17% 10 years up to 15 years15% 15 years or more55% MEAN15 years MEDIAN13 years Age Under 4033% % % % 60 or older10% MEAN46 years old MEDIAN43 years old Gender Male92% Female8% 14 On average, advisors have 15 years of experience, and work at firms with 12 employees with $100M in AUM FirmographicsTotal Advisors Number of employees at firm MEAN12 MEDIAN3 Total value of assets managed by firm Less than $25 million22% $25 million to less than $50 million15% $50 million to less than $100 million25% $100 million to less than $250 million23% $250 million or more10% Don’t know/Refused5% MEAN$100.8M MEDIAN$53M Number of clients firm has today MEAN194 clients MEDIAN150 clients Average account size MEAN$543K MEDIAN$400K Eight in ten clients made the jump to independence with advisors, which is around 100 clients The average account size for end-clients is just over $500K

Opinions expressed by interviewed participants are subject to change, and are in no way a prediction, projection, or guarantee of future performance. The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personal investment advice. Koski Research conducted interviews between February 14 – March, 2013 with 40 independent advisors who became independent during the past two years and custody with Schwab Advisor Services. Those interviewed have been working in the investment advisory space for 15 years and manage a median $100 million in assets. Koski Research is not affiliated with Charles Schwab & Co., Inc. Experiences shared are not a guarantee of future success and may not be representative of your experience. © 2013 Charles Schwab & Co., Inc. ("Schwab"). All rights reserved. Member SIPC. SIPC Schwab Advisor Services™ serves independent investment advisors and includes the custody, trading and support services of Schwab. Independent investment advisors are not owned, affiliated with or supervised by Schwab. ( )