Good morning, everyone, and welcome to the Spring 2012 Schwab Business Update. This is Rich Fowler, Head of Investor Relations for Schwab coming to you live once again from the cutting edge Schwab webcast center/converted conference room in beautiful San Francisco. It's looking like an okay day out here starting out. A few clouds, a couple of drops, just enough to be refreshing if you have your top down. But we're building a very pretty good pollen season out here, which I find affects me more in my old age, so I can arrive at the office looking like I've been up all night reading Nicholas Sparks or FOMC minutes or something equally depressing. Moving on, with me here today are Walt Bettinger and Joe Martinetto. By now, I think we're pretty used to this presentation format. We're doing an interim update today, so we'll spend just an hour with Walt and Joe sharing their perspectives on life at Schwab right now. We'll start up with prepared comments, and we'll go to Q&A until it's time to wrap up. Before Walt starts us off, let's spend a moment on the ever-popular forward-looking statements. The main point of which is to remind everyone that outcomes can differ from expectations. So please keep an eye on our evolving disclosures. And then let's cover how we'll take questions. Once again, we'll do so via the webcast console and via the dial-in as well. For anyone who doesn't already have it, that number is (800) 871-6752, the conference ID is 38866056. When we start the Q&A session, we'll ask the operator to remind us how the process works. Okay, we have the administrative stuff out of the way. We have our 2 terrific speakers lined up and ready to go. We're audible to the outside world, always a good thing. So let's begin. Walt, would you start us off?

Good morning, everyone. Thanks, Rich. Thank you for joining us for our spring 2012 update. I'd like to go ahead and start with a quick and high-level summary of our strategy and managerial viewpoints. First and maybe most importantly, our strategy of viewing every decision we're faced with through the clients' eyes continues to resonate. We continue to believe it's the right strategy for today, for tomorrow and for the long term. The fundamental challenge, in our view, in the financial and investment services business is one of building and maintaining client trust, and we believe our strategy is highly successful at achieving this. The second, we continue to focus on the areas that are within our control and influence. That means looking at clients, building the earnings power of the franchise for the long term. We do believe that the current interest rate environment is an aberration. It's not likely to be the norm for years and years to come. And then third, although our revenues were significantly impacted by the extraordinary Fed actions under Operation Twist, we are moving past this bump in the road, and we're delivering growth. In the first quarter, retail investor sentiment did begin to improve. You can see that illustrated on the charts here on this slide that reflect client responses to our surveys. Investors are feeling better about their financial position. They're feeling more and more confident, making decisions at least relative to the past few quarters. That said, the old and, I might even argue, outdated means of evaluating retail client engagement by measuring trading activity really doesn't apply. Investors are engaging instead by adding to their investment accounts, implementing investment decisions. Their cash positions as a percentage of investment assets continue an overall downward trend, at least from the peak…

I was never a runner like Rich, so I hope I don't drop the baton here. But there's some great pictures out there, if you guys want to go find them, of Rich in his heyday. While we had an incredibly compelling story for long-term growth, but I think we're equally as confident in how the formula translates into growth here in the near term. So what I'd like to do now is turn our attention to a little closer point in time and look at Q1 first, which is actually a great business case for how the formula does work when we get to an environment where we're not facing economic headwinds. And then I'll go ahead and update you throughout the rest of the deck on some of the main drivers of earnings as we look forward through the remainder of 2012. So let's jump into Q1 and hit the economic environment here pretty quickly. So for the first time in a long time, we actually got a little bit help out of the environment. Instead of talking about markets that were flat to down, we're actually talking about market valuations that were up. Now everybody talks about the S&P being up about 12% in the quarter. That's great if you're actually a long holder and you're computing your gains in the quarter. I'd remind you as somebody who's computing fees that we're looking at average increases as opposed to point-to-point ends. And on average, the S&P was still up about 6%. So we had some help there in the quarter from that, and we will have some continuing help into Q2 if the equity markets stay with valuations consistent with where they are today. So we've got a little bit of help coming from the equity markets.…

Okay, thanks, Joe. Operator, could you just walk us through quickly one more time how to do the phone-based questions? And then of course, everybody knows that they can use the ask-a-question box on the webcast console.

[Operator Instructions] Your first question comes from Rich Repetto. Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division: My question is, Walt, when you talked about the 16% retail in advised offerings, and I'm just trying to see -- this is something, like sort of organically that you market to yourself or you try to convert your own customers to these offerings. Where can you get this number to go to? You feel comfortable that you could get it as a target. And then, a little bit on how it might impact, I know the ROCA on these advised offerings is higher, but how you look at sort of the incremental profitability there.

Sure. I don't know that we have actually stated a percentage where we think it can get to, but we think there is a meaningful runway up from 16%. There are hundreds of billions of dollars there of assets that are not under an advisory relationship, and we are in ongoing conversations with clients on a daily basis around whether they would be best served by that or not. Fundamentally, what we want to do is do what is in the best interest of the client. For some clients, it is in their best interest to move into an advisory offer. In some cases, they're better off as a self-directed investor. So we want to what's client's best interest. In terms of the revenue, the revenue swing is fairly substantial for our client who moves from a self-directed position typically into an advisory-based solution. Often a self-directed investor holds individual securities that have no ongoing revenue stream. They may have some mutual funds where we could be generating a modest amount of revenue. Most of our advisory solutions generate for us somewhere between, say, 70 and 100 basis points worth of revenue that we don't have to share with a third party. So the lift is meaningful as clients move into those advisory relationships. And therefore, it's very attractive for us from an earnings standpoint. But I just want to emphasize that really the driving factor for us is what's going to be in the client's best interest. Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division: Got it. And if I could, just one follow-up. Joe, you did talk about capital levels. I guess the question is, you were also, I believe, going through a transition to new regulators, OCC and the Fed. I was just trying to see how those negotiations going. And also I didn't quite get whether you implemented the guidance in regards to the performing second liens against nonperforming first, whether that's even an issue or did you implement it?

So from a capital standpoint, I'd say, at this point, we're pretty far along our preliminary conversations with the regulators, and they have a high degree of comfort with where we sit in terms of capital from everything they've given us. We have a high degree of comfort in terms of capital. So I think, were we to request permission to buy back stock or, frankly, we don't really need permission at this point, but we would probably want to have a conversation with our regulators just to maintain a good relationship there. Were we to engage in that conversation, my guess is, we could likely move forward with buybacks at this point if we chose to. But as I said in the remarks, at this point, we've got uses for that capital internally to support growth at returns that we think are acceptable, and that's the first place that the capital is going to go. But I don't think at this point we're constrained by regulators as much as we are by the dynamics of the business in terms of how we want to use the capital we're generating. The second part of the question, a little more detail about exactly what you're asking here? Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division: Well, I don't think this is an issue with you all, but if you have an accruing, a performing second lien or home equity loan, the regulators are encouraging you to put it in nonaccrual status if it is tied to a nonperforming first lien. So even though it's performing, if it's tied to a nonperforming first lien, they want you to put it in nonaccrual.

Yes, I've got to admit, I don't know the details on that. I do know that we've carried our -- all the troubled debt restructurings inside of our nonaccrual numbers for 12 months until we've cleared that 12 month barrier. I'd have to go back and check explicitly on whether we did that for seconds that are tied to firsts. But I can tell you that performance on the seconds portfolio continues to be even better than the first portfolio. So I don't think it's a big issue. My guess is that we've adopted the guidance, but I'd need to confirm that.

Your next question comes from Howard Chen. Howard Chen - Crédit Suisse AG, Research Division: Walt, the long term revenue potential you frame is pretty compelling. I'm just curious how you and the team think about the incremental margin on those revenues. And while 2016 is some time away, what are some of the things you'd like to invest in that maybe you're holding back on now?

To the first part of your question, we don't anticipate anything changing in the way that we manage the company from today, in the environment we're living in today into an environment that is a lot more attractive, like the math shows as you get out into 2015, 2016. We don't operate with a targeted margin percent. Rather, we apply very, very rigorous discipline to every spending decision, every investment decision that we would make to make sure that it's creating long term shareholder value. And then the balance of the revenue falls to the bottom line, and then we look to make the most appropriate decisions at that point to the extent there is excess capital. So I think the way we run the company today, with the discipline that we have at a $5 billion revenue level, would be exactly the same as we would run the company in a more normalized environment out into the future. With respect to the second part of the question, things that we would invest in, in frankness, Howard, I'm probably hesitant to share some of that because we've been known to have 1 or 2 competitors participate in these calls, too. So I mean, there are some things that we think about and that we anticipate potentially investing in. If at the point in time the environment improves, they still make strategic sense and will provide returns to our shareholders. But I don't know at this point that we're going to go through any specifics on them. I'm sorry for not answering that part. Howard Chen - Crédit Suisse AG, Research Division: No worries. And just secondly, you're seeing some acceleration in the core growth rate of the franchise. Just hoping to get your broad thoughts on what you're seeing, any changes on the competitive landscape, whether it be by the wirehouses, major banks and some of the discount players.

I don't think we've seen any significant competitive environment changes. I think that for a lot of our clients and new households, the environment feels a little bit better, and they're generating a little bit more wealth. Their bonuses may be a little bit bigger at work than they were back in '08, '09 and '10. And we're the beneficiary of that just like we suffered along with them as they experienced more financial challenges in their personal lives. Howard Chen - Crédit Suisse AG, Research Division: Okay, great. And then finally for me, Joe, you touched a little bit about the leverage and capital adequacy questions, but was just hoping to get a broader regulatory update in terms of where you are in the Fed transition and maybe thoughts on nonbank SIFI and money market reform as you all see it now.

Sure. So on the transition, this is, as I've said before, going to be a long-term cycle here until if and when we see the rules actually converge. So at some point in the future, my guess is we will see the treatment of thrift holding companies converge with bank holding companies, and we'll be all brought into one big bucket of financial institutions. But until that occurs, we'll continue to work with our regulators to make sure that they understand what we're doing and try to navigate those waters. But I don't expect to see even when that convergence of regulation happens substantial changes in our business as a result of that. The bottom line is, we're not brought into the SIFI bucket today, and it doesn't look like from the rules that have been proposed that we'll be brought into the non-bank SIFI bucket. But at some point, if those rules do converge, there is a potential that we could get pulled in as a bank if that's what happens. It looks like at this point, the biggest risk of that versus everything else that we're already trying to make changes around internally to come into compliance with the way the Fed would like to see things versus how the OTS like to see things would be a potential for getting some additional capital surcharge related to being over $50 billion. But I'd point out to people, we're not a large trading company, we're not a large international company. I would expect that we'll fall at the lower end of any capital surcharge that would be introduced. And with that, because the capital surcharges all go against the risk-adjusted numbers, our risk-adjusted numbers are so far in excess of any regulatory minimum that it's hard to see where that's going to have any impact at all in how we operate the company. From a money fund perspective, I don't know that we've got a whole lot more to add than what's already out in the popular press. I think we, like everybody, are waiting to see if and when a rule actually gets proposed. I would expect that there's going to be a fairly long comment period with a lot of comments that'll be entered. We obviously have some perspectives on the strength of the money funds and the changes that have already been made to 2a-7 and the strengthening of the liquidity positions and the credit positions in those funds. We believe today, having watched them come through the crisis of last summer, that those funds are in substantially better positions than they were in, in the beginning of the financial crisis, and we're hoping that, that's going to be factored into any thinking around rulemaking that ultimately gets promulgated.

Joe, let me cut in with some from the console. A couple of questions have come in. I know it's something that we give a lot of thought to, so I thought it might be good for you to enlarge on the situation vis-à-vis the bank and capital. And when we think about a normalizing environment and rates lifting, and obviously a big part of that, that revenue impact is going to be in the bank as a legal entity, how do we think about return on equity with the bank over the long term? What sort of expectations do we have for that?

So if you go back to precrisis levels of returns at the bank, we were well into the mid to high 20s in terms of return on capital. The only thing that's really changed in terms of the dynamic of the capital returns at the bank and what we see as a more normalized rate environment would be the fact that right now, the leverage ratio target is at 7.5% versus the old 6% target. So if we stay at a 7.5% target, that'll obviously have an impact, but there's even then, no reason to believe that we couldn't be around a 20% return on capital at the bank. There is some hope. I think the regulators have been kind enough to give us a guideline now to follow in terms of how to engage in a conversation with them around capital levels and a lot of that depends on running stress tests. And those of you who understand the structure of our bank could probably do this work on the back of the envelope and be pretty accurate. The risk components at the back are pretty small and self-contained. So as we run the bank through stress tests, it looks like we've got not just an adequate level of capital, but to us an excess level of capital. So we're hoping to engage with the OCC on a conversation around that 7.5% target to see if we can maybe whittle that down some going forward. But even without that, I would expect the bank is still going to be accretive for us toward returns on capital across the company.

Do we have another question from the phone, operator?

Your next question comes from Brian Bedell.

A question on both the intermediate and long-term view in terms of your cash management strategy with the money market funds in the bank. Maybe if you could just walk us through some scenarios of, if we did get money market fund regulation, to what extent you would prefer to move -- to try to sweep some of that cash into the bank, which obviously you generate much stronger returns from and should be accretive. And then to what extent the fact that the client cash as a percentage of client assets continues to move down? Do you feel that gives you a much bigger cushion to deploy that type of strategy?

Well, let me just first step back and cover the strategy of how we view cash at the bank. The predominance of cash that we have at the bank and that we would like to have at the bank is yield inelastic. In other words, it's sweep balances that clients expect to deploy within a reasonably short period of time into investment vehicles. And therefore, it is highly yield inelastic, and therefore, we're able to capture a fairly meaningful level of spread. To the extent clients are in money market funds as a cash investment strategy, and therefore, are presumably more yield sensitive, I don't think that we would be anxious to move that cash over into a balance sheet-oriented product like at the bank, where our spreads and of course, therefore, our returns, as Joe was just referencing, would be diminished. And so I think our expectation is, and I don't mean to make the answer too complex, but it is a little bit of a complex answer, Brian, that to the extent yield inelastic cash balances were affected by changes in money market regulation, I could envision that money potentially being money we would like to move to the bank. To the extent yield elastic or yield-sensitive cash balances were affected by money market fund regulation, I would not expect that we would want to move that to the bank. So if you get regulatory change that, for example, impacts prime money funds, which seems to be, if we were to get it, and it were to survive all the comments, the debate and maybe even litigation, it would seem most likely that prime money fund assets, at least in our business model, would head toward maybe a [indiscernible] type of money market fund as opposed to the balance sheet.

Great. It sounds like obviously you'd do the right thing for the client, and at the same time, you do have quite a bit of flexibility with the balance sheet strategy.

We do, and that's exactly right. We're not under a model where we're trying to force clients who are yield-sensitive into a lower-yielding bank product simply because it generates more revenue for us. Again, just like my answer on the advisory solutions, our strategies at the highest level all revolve around what's in the best interest of the client, and we've only utilized the bank as a monetization tool with respect to yield inelastic balances.

That's great. And then just a follow-up on that, on the net new asset outlook, obviously, the 8% to 10% is the sort of the aspirational goal, and you put up the 6% on those scenario slides. I guess the first question is, are those just scenarios and not your actual view over the next few years? And then secondly, dovetailing into that, if you can give us an update on the 401(k) plan traction, maybe just expand your earlier comments and whether you think that will contribute to net new assets, materially, say, by 2013 or 2014.

So let me take the second one first on the 401(k). I don't know that we're, at this point, going to say that it will be materially contributing by '13 or '14, although it is possible. It's so early; it's a little hard to tell. And again, we're only in the market right now with our mutual fund version of Schwab Index Advantage. The ETF version will be coming out, and there's a lot of demand that we are hearing from sponsors for the ETF version. A lot saying, I love this concept, I'm really interested, I think it's brilliant the way that you figured out how to handle things like fractional shares and address the, I would say, not realistic concerns around intraday trading with our ability to deal with free-riding issues. They are very interested, but they want to wait until we have the ETF version. So it's just a little hard to say, but I do think, in time, without putting a time constraint around it, it will have a meaningful impact in terms of our net new assets. And now that I've answered the second one first...

6% run rate.

So yes, on net new assets, all we tried to do is show you math. We did not give you projections of anything that we believe around execution outcomes. In fact, we tried to clearly exclude those things to just show you math on that projection. Our viewpoint is still that through the cycle, we believe that we will average somewhere between 8% and 10% on net new assets through the cycle. Obviously, this part of the cycle has been a quite lengthy one and still appears to have some unfortunate legs to it. But it was not a -- it's not a projection or an estimate. We just tried to do simple math and make it as easy to understand as possible without us changing a bunch of levers in the different illustrations we showed you.

Your next question comes from Jeff Hopson. J. Jeffrey Hopson - Stifel, Nicolaus & Co., Inc., Research Division: In terms of the assets that are moving into the advisory platform, I guess, any change in the pace of that activity? And then in the RIA channel specifically, any kind of at the margin change in asset allocation of where clients and/or RIAs are putting their money?

I think then on the retail side, the conversion of assets to advisory is fairly steady. Now you do see periodic pickups when the market does well. And you may see it slow a bit during more difficult market environments. But things have been so volatile, Jeff, for so long, it's really hard to draw parallels between that. So I would categorize it as fairly steady. Now we have seen a bit of a shift in where that money goes. We've had a lot of interest, for example, in Windhaven. I think we included in one of the slides the fairly rapid growth in Windhaven and the success there. So you've had a little bit of a shift in where it goes from an advisory standpoint. But I think the overall rate is fairly steady. Now in the advisory business, asset mixes continue to trend, I'd say, at a modest rate, but a fairly steady rate toward lower expense investment vehicles. So more ETFs, more index-oriented products, more passive management, things along those lines that generate probably less revenue than certainly, I'd say, 10 years ago. That trend is steady. Although again, we're talking big numbers. That's $800-ish billion, $700 billion to $800-ish billion. And so those changes occur fairly modestly over time, but I think it is steady. J. Jeffrey Hopson - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then within those passive products, any change in asset class? Or any change in the velocity, I guess, of activity at all?

I don't think we've seen a significant change. I mean, advisors have been -- maybe they've done, I'd say, a fairly good job of getting into the markets and staying in the markets. So their cash weightings tended to go down faster, and they've maybe caught a bit more of the upswing in the market. The only thing I'm hesitant a little bit in saying that is, we've continued to build out our cash solutions for our retail clients, like high-yield checking and things like that. And of course, we don't tend to enroll clients of advisors in that. And so even though retail cash weighting is higher than advisor, I don't know that it's necessarily because their investment cash is higher as opposed to we're just deeper into their cash wallet. But advisors, I think, if I were to look at it on average and over a longer period of time, have done a fairly effective job of ensuring their clients were fully invested and able to catch market upswings.

Your next question comes from Chris Harris.

I wanted to follow up on the index 401(k). It does sound like you guys are getting good traction there. I'm wondering, though, in your conversations with plan sponsors, what are you guys finding as the biggest objection to really wanting to take your -- with Schwab's plan? I mean, you guys in my mind have clearly a very compelling offering, and just wondering what it is that folks could possibly be objecting to if there is any objection at this point.

I think, Chris, what we've seen is, it's not so much an objection. They're just -- it requires a bit of time to understand it because it is so different than what has been the "industry norm" for so long. So most people would say, target funds are better than just giving someone a lineup of 25 funds and saying make your own portfolio, right? I mean, that's probably a fair conclusion. But they're not near as attractive as if you can have customized advice for every person, takes into account not just age, but risk tolerance, outside assets, spouse or partner situation. All the information a client's willing to share can be built into it. It's just that those kind of things haven't been available at a reasonable enough price point to make them practical for broad swatches of the population in general. So I mean, that's an example. What we have found is that the sales cycle is longer than traditional marketing of these type of solutions because you are, in effect, educating an entire committee about something that is vastly different. But what we haven't seen is after they've gone through that education, people say, "Well, this doesn't make sense." What we've seen them say is, "Why wouldn't I do this? Lower risk for me as a fiduciary, lower cost for my participants who are self-directed, lower cost for my participants who want professional help and that professional help is more customized, why wouldn't I do this, what am I missing?"

Okay, yes, that makes sense. And then in IBS, I know it's still really early days for you guys, but do you have anything that you guys could share with us as to like how that offering is being accepted right now or how it's being received or maybe any kind of data in and around how those early branches have been performing?

Well, we just have a very small sample set, right, because of where we've been opened. But I think the early sample set, without giving away too much metric because it'd be almost describing 1 or 2 branches, right? And that might be uncomfortable for our franchise partners there. So the early results are very strong results in a matter of months that may have been anticipated to take an entire year. So we're very encouraged with what is happening with the franchise we have out. Now again, in fairness, we are being very careful and selective as we put our pioneers into these positions. So we're not signing up people that we don't have great confidence will be quite successful. The Schwab model is very unique and different. When you speak to someone who may have been in the business for, say, 10 years and has built up, pick a number, $25 million in assets, it sounds on initial blush to them, how could I do $10 million of net new assets a year when I've taken 10 years to do $25 million? But of course, with our brand and our product set and solutions and our penetrations, that number is, we think, quite attainable, and I think the results will show that and are already showing that. But there is a process by which a candidate needs to realize that they're not playing the same game they were playing before. This is a whole new ball game when you're a franchise with Schwab.

Okay, I'm going to stop us there. We've gone a couple of minutes over, so probably from me talking too much at the beginning. So thanks, everybody, for your time today. We appreciate it. One quick administrative note. We still have an issue with e-mailing out of our server here, so we're going to post the slides on the IR side as quickly as possible for those of you who want them. So we'll get those up as quick as we can. That'd be the best place to get them within the next hour or so. So again, thanks for your time. We appreciate it. And we'll get together again in 3 months. Take care.