Schwab Client Life Cycle and Mutual Fund Trends

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Schwab Client Life Cycle and Mutual Fund Trends

• Presented By Evelyn Dilsaver, SVP
• Charles Schwab Asset Management

?2003 Charles Schwab Co., Inc. Member
SIPC/NYSE (1103-7085)
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Agenda

• Lifecycle Trends
• Tenure
• Funding Patterns
• Portfolio Clusters
• Mutual Fund Trends

Source Schwabs DBRM Lifecycle Study, October
2003
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The formative years set the stage for a lasting
relationship
Client Tenure
Life Cycle Client Tenure

• The first two years are the most important in
  gaining loyalty
• The longer a client has been with us, the longer
  they will stay
• Clients who expand from a Retail only
  relationship to any type of Advice relationship
  stay longer

Source Schwabs DBRM Lifecycle Study, October
2003
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Funding patterns and client tenure are closely
linked.
Life Cycle Funding Patterns

• A Client telegraphs in their first year what
  their funding will be like over the next four
  years.
• The prior years funding amount, tenure at Schwab
  and market conditions are all key factors
• In better market conditions a higher percentage
  of clients fund their accounts during the first
  months

Source Schwabs DBRM Lifecycle Study, October
2003
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Initial portfolio is the starting point to
understand future allocations
Life Cycle Portfolio Cluster

• The next step of the study was to assign clients
  to portfolio clusters
• The goal was to detect patterns over time and
  gain insight into the drivers that influence
  cluster selection

Portfolio Clusters Stock Dominant Cash
Dominant Fixed Income Dominant Mutual Fund
Dominant Mixed portfolio
Source Schwabs DBRM Lifecycle Study,
October 2003
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After the first year cluster movement stabilizes

• Clients in their first year have a greater chance
  of migrating than in subsequent years.
• The decisions client make in their first year may
  effect their portfolios for many years to come

Movement By Tenure
1st Year
Tenure (quarters)
Source Schwabs DBRM Lifecycle Study, October
2003
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Propensity drivers are different for each
portfolio cluster
Source Schwabs DBRM Lifecycle Study, October
2003
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Mutual Fund Trends At Schwab
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Schwab net flow trends mimic general industry
trends
YTD Net Inflows (B)1
2000 Net Inflows (B)1

• Value oriented funds account for majority of net
  fund flows in 2003
• In 2000, growth funds were heavily favored
• Turnover of investment manager names as style
  focus changes
• Historical return performance is key to garnering
  assets

1 Source Principal Invested Report, 8/31/2003