All right. We are live. Good morning, everyone. This is Rich Fowler, Head of Investor Relations for Charles Schwab. Joining me today are Walt Bettinger, our President and CEO, who's out of the office traveling, but joining us via phone to participate in the opening of this call as well as Peter Crawford, our CFO and our Senior Executive Vice Presidents, Joe Martnetto and Jonathan Craig, who are all here with me in San Francisco.
So thank you all for coming together on such short notice. We're here today to discuss an exciting transaction in financial services involving Schwab and USAA. Walt and Peter will start us off with some prepared remarks and then Joe and Jonathan will join in for Q and A before we wrap up. First though, we need to spend a moment on the inevitable wall of words, the purpose of which, as always, is to remind us that expectations inevitably evolve over time, therefore making it important to keep current with our disclosures. And with that, I'd like to invite Walt to start us off with his thoughts on the transaction and the benefits to USAA members and to Schwab.
Thank you, Rich, and good morning, everyone. It's an exciting day for several constituencies, certainly for the millions of USAA members who we'll work with to take full advantage of the features of our investing capabilities from equities to mutual funds, ETFs and to our premier advisory solutions. And it's also exciting for Schwab and for our stockholders. We're on offense at Schwab, striving to grow, build our capabilities, add to our scale, both organically and inorganically when of course that fits within our strategy. From a cultural standpoint, we believe this relationship creates powerful alignment.
USAA is broadly recognized as one of the most client centric or as they refer to member centric organizations in business today. And the continuing exclusive referral arrangement opens up the potential for meaningful organic growth at Schwab in the years to come. USAA is a special organization, not only for their commitment to serving those who serve us, both members and former members of the military and their families, but also for the way that they've served for almost 100 years. We know that third parties acknowledge this like Fortune Magazine and Satmetrics, but what was far more powerful to me was the approach that USAA and its CEO, Stuart Parker, took in discussing this transaction. Stuart was intensely focused on how we could arrive at an outcome that resulted in best serving USAA members and employees.
Frankly, I would share with you that it was refreshing to work with a fellow CEO who believes like we do at Schwab that all good things emanate from doing right by others.
From a
quick math standpoint, the assets and clients we are acquiring mirror our existing investor services business. About 3 fourths of them are self directed investors, while approximately 1 fourth are in an advisory relationship, typically a wrap program that invests in mutual funds and ETFs. And then of course, as many of you know, our similar statistics at Schwab are about eightytwenty. So the clients who are initially acquiring again are almost a mirror of our existing retail or as we refer to it Investor Services business. Now before I turn it over to Peter to cover some details, I'd just like to emphasize one more key point.
Although the 1,000,000 client accounts and $90,000,000,000 deep and enduring trust from its members is similarly important. For 40 years at Schwab, we've been about growing and serving more Americans and this new relationship with USAA should play an important role in ensuring that that continues for many years in the future. So Peter, let me turn it over to you.
All right. Well, thank you very much, Walt. And I will say I very much share Walt's excitement and enthusiasm about this transaction. It's truly a win win win, a win for the current USAA members who will now have access to a broader platform and the great value, while retaining the excellent client focused service, which USAA has earned many accolades. A win for the current USAA employees, more than 400 of whom will welcome to Schwab, where I'm confident they will find a similar mission driven culture focused around the client.
And a win, of course, for our stockholders who will see the benefits of this transaction materialize both in a near term increase in EPS and a longer term boost to our already industry leading asset gathering prowess. Now let's dig a little bit more into the details.
While I talked about
what this does to our scale, while it's certainly not transformational in that regard, it represents a notable increase in our retail footprint. That allows us to continue to drive down costs as represented by EOCA or our expense on client assets and boost the number of referrals we get from existing clients. In terms of financials, when you look at the EBITDA of the business, we paid a high single digit multiple on the current business and a mid single digit multiple on that business plus the synergies. We expect this transaction to be accretive on a cash basis in the 1st year after closing and on a GAAP basis in the 2nd year, and I'll talk more about that in a moment. There are meaningful synergies here, but in our modeling and in the forecast we're sharing today, we're taking very, very conservative assumptions regarding those synergies.
And finally, the referral agreement is really what sets this transaction apart. It provides us with the opportunity to meet the needs of USAA's 13,000,000 members, not a traditional referral agreement where they just send over blind leads. Rather, this is the intent is to integrate our wealth management offer into USAA's ongoing business such that it feels like an extension of their relationship with clients. Now as you saw in the press release, the purchase price is $1,800,000,000 in cash. Our expectation is to utilize organically generated capital and parent cash to fund this.
Of course, this transaction displaces a comparable amount of share repurchases, but our plan remains to continue utilizing repurchases as appropriate to help us track towards our 6.75% to 7% operating objective through conversion. This transaction is structured as an asset purchase. That means we're essentially buying the individual client accounts and not any of the legal entities through which services are delivered today. We'd expect this transaction to result in an increase in headcount of roughly 500 people with perhaps 400 or so of those employees coming from USAA, a focus on those who are maintaining client relationships and helping to ensure a smooth transition. And finally, because this is an asset purchase, the closing date is the conversion date, and we expect that to be somewhere in late Q2 or early Q3.
We're expecting about $140,000,000 of integration related spending with the vast majority of that happening 6 months prior to conversion to 6 months after conversion. Since this is an asset purchase, it means we step up the basis on the acquired assets and amortize that amount over time for both tax and GAAP purposes. The acquisition is subject to all the usual approvals. And from an accretion standpoint, we expect it to be positive on a cash basis within the 1st 12 months following closing. And in the 2nd year post close, mid single digit pennies of EPS accretion on a GAAP basis and low double digit pennies of EPS accretion on a cash basis, with those accretion numbers building over time as we continue to realize the scale benefits and the referrals build.
And to make sure there's no confusion, we did factor in those foregone buybacks in our analysis. Now we've taken a conservative approach in quantifying synergies, including in our modeling only those that are most we are most confident about. On the revenue side, the vast majority of the revenue synergies come from movement of the $7,000,000,000 of client cash from MoneyFund's new bank sweep. Note that we have not explicitly modeled in additional synergies around increasing share of wallet, increasing advice penetration and so forth, we think there's a lot of opportunity there, given the relatively low share of wallet this business currently has, but we want to take a conservative approach in our analysis. On the cost side, we're assuming about $100,000,000 of cost removal, which represents approximately 50% of the current cost base.
These costs represent a mix of things, including custody, technology and some shared services. And we expect the cost synergies to start phasing in immediately upon conversion with the majority of the impact expected sooner rather than later. USA members, as Walt mentioned, resemble our retail clients in many ways, albeit with higher propensity to utilize fee based advice and a somewhat smaller average account size than our typical retail client. Transaction increases our total account base and our retail fee based advice assets by a little less than 10% and also modestly increased our scale across other dimensions assets, DARTs and revenue. I'm often asked about our priorities with regard to M and A, whether we are more interested in scale driven transactions or ones that create the potential for higher organic growth.
What I really like about this opportunity is it offers both. Each component, the asset purchase agreement and the referral agreement, make financial and strategic sense on their own. When you combine them, that's what gets us really excited. This is an opportunity to increase our scale, helping us to grow revenue and continue to drive down EOKA That produces strong financial returns near term and longer term and that adds another channel to boost organic growth, a channel with a similar mission, client focus and desire to serve through this partnership their members' wealth management needs. With that, let's take some questions.
All right. We'll about to go we'll go to the question queue in just one second. Thank you, Peter. Remember, Walt could only join us for the opening, but as I mentioned, Joe and Jonathan are here to join in the Q and A. I should also mention that the slides will be posted.
If they're not already up, they should be up within the next few minutes. And with that, operator, do you want to start us off?
Absolutely. We'll now open up the queue for the question and answer And our first question comes from Dan Fannon of Jefferies. Your line is open.
Thanks. Good morning. I guess, first question, Peter, just around the accretion. And you mentioned, I think you factored in buybacks into the assumption, but you also said between now and close and after you could use them opportunistically. So could you talk a bit more detail about what the assumption is for capital return to get to the accretion numbers you've outlined?
Yes, great question. So, what we to answer your first question directly, what we assumed in the analysis that we shared with you is the net impact of not doing an equivalent amount of buybacks. So taking the $1,800,000,000 that's the capacity we could have used to do buybacks. We wanted to make sure we netted off that impact. In terms of our plan between now and conversion, to the extent that we have excess capital above what's needed to be at that 6.75% to 7% operating objective for Tier 1 leverage at conversion, which is which would be very much our aim, I think it's reasonable to expect that we'll be continuing to do buybacks.
Just the amount that we do will be somewhat less than we might have otherwise. In terms of the exact amount of buybacks, of course, it depends on what we see in terms of organic growth in the balance sheet, our earnings and so forth.
Our next question
Can you talk about the level of new accounts or net new assets that this could generate on an annual basis and maybe just a wide range in terms of framing it for us?
Yes, absolutely. So, let me just maybe set some context around this referral arrangement, because I think it's really important to understand how this is going to come about. I think Walt mentioned this in his opening, which is USAA's as we through our conversation with USAA, it was very clear that they're not looking to exit wealth management. They say it is very important to cementing the relationship with their existing clients and frankly to keeping some of the competitors out of the wallets of their members. What they're seeking to do with this transaction is to figure out a different way to provide those wealth management services.
And so the intention very much is to have this offer our platform be very integrated with the experience and with the conversations they're having on an ongoing basis with their members. So we're not sharing specific numbers in terms of what those referrals would be exactly. But I think you can kind of triangulate into a couple of different ways of looking at it. We've seen this business, this the West Wealth Management offer grow organically from an account standpoint, a bit above our traditional account growth overall in our business. If you think about the fact that as with our 13,000,000 members, they're adding 500,000 or 600,000 new members every year, 10% of them only 10% of them are using USAA or have been using USAA for Wealth Management.
That also gives you a sense of what we see as the opportunity. So I think it's reasonable to expect that our organic growth in terms of accounts would be we might see similar account growth versus our existing client base or perhaps even somewhat above that?
Thanks, Peter.
I think what we also bring to the table for the 13,000,000 members is a broader set of capabilities and generally lower cost. And when you combine both of those things backed by a common culture, I think the power of driving meaningful referral off that $13,000,000 combined with less than 10% penetration is pretty meaningful to say the least. And we expect to work closely with them making that happen since it's in our mutual interest to do so.
Okay. Thanks. Next question?
Thank you. Next question comes from Ken Worthington of JP Morgan. Your line is open.
Hi. Thank you. I wanted to follow-up on the referral network as well. What sort of access are you getting to the USAA members? Can you e mail them?
Can you call them? Can you mail them? Are you getting sort of real estate on the USAA website to market to them? So what access are you really getting to that sort of insurance client base?
Yes. This is Jonathan. I'll take that one. Again, as I mentioned, the way the deal is structured, we are the exclusive referral partner for wealth management. So it's in our mutual interest to drive meaningful referral and included in that, we'll work through all the details over the conversion time period.
But certainly digital access, certainly access via their employees, certainly events. So broad, broad access to their employee base as a way to drive referral to support what Peter said. They're not looking to exit the business. They're looking to have a partner to vector business to.
And if I could, is the deal about partially about getting closer to USAA? USAA offers like many different financial services products that Schwab does not offer today, maybe some Schwab used to offer in the past. But does this set you up to maybe distribute more financial services products maybe from USAA to the Schwab client base as well? Is that a factor here? Or is that just misguided thought?
So when we have been having these conversations with USAA over the last several months, one of the things that became clear and one of the things that made us very excited about this is USAA, which is transaction has very complementary products and services versus what we offer today. And so we saw a really a great opportunity to bring our 2 firms together in that way to provide a broad range of products and services that their members would like. In addition to the acquisition, in addition to the referral agreement, we will be distributing the USAA annuities through Schwab and bringing over a handful of people to help us provide more annuity alternatives for our clients and help them understand the benefits of annuities. We have been doing that for years offering annuities to clients, but we think the opportunity to bring on the USAA annuities, which are very, very competitive, as well as bring on some of that expertise will help us meet our existing client needs around that income generation in a way that should be better than what we've been offering before.
Awesome. Thank you.
Thank you. Our next question comes from Rich Repetto of Sandler O'Neill. Your line is open.
Good morning, Peter and Jonathan and Walt to be still on the line. Excuse me, I am a USAA member and you're purchasing something that at least the firm has a high standard of service. So I guess my question, Peter, is you gave us a little bit on the cost side, but can you talk any bit about the revenues that you're acquiring, whether they were similar at least on a basis point per asset basis to Schwab Retail?
So, I think it's helpful to think about the business we're buying in 2 pieces, the sort of asset wealth sorry, the advice offers, which is called through was a program called UMP and what we call the more self directed brokerage business. On the advised part of it, which is that 25 percent that Walt mentioned at the outset, the economics of that are similar but higher than from a ROCA standpoint than our traditional advice offers, just given the mix of products that those members have been using. On the brokerage side, the ROCA, the economics there today are a bit less than what we have with our existing clients. That's because they're still using the biggest driver of that is really 2 things. 1 is somewhat less trading per account than we have today.
But second and more importantly is the cash solutions for them where they're using a mix of brokerage cash as well as the money funds versus post grant conversion, we'll be moving all that over to the balance sheet.
So on a blended basis, would you
say it's a bit lower than since the 75% is lower?
Well, I think it's it kind of depends. I would say that on the 25% of the business that's in the Advise, it's higher. And on the 75% that's in the brokerage, it's lower. But again, the economics post transaction will look somewhat different because we will be moving that cash out of money funds over to our bank. And at that point, the blended economics on a go forward basis should be better than what we see in our retail business.
Okay. One of the well, and the step the D and A or what you're going to need to write down on the goodwill side, Could you quantify that a little bit?
Yes. So that's really the biggest difference between the GAAP and the cash accretion math is the impact of that amortization. Our assumptions are that the vast majority of the purchase price ends up being amortizable with a smaller portion being in that goodwill component. We amortize that over a relatively long period of time, but that does impact, of course, the GAAP accretion numbers.
Okay. That's very helpful, Peter. Thank you.
Thank you. Our next question comes from Michael Carrier of Bank of America Lynch.
Good morning. Thanks for taking the question. I guess just on the referral again, for the 13 members that you mentioned, I don't know if you have anything in terms of like average assets per member account that is the potential opportunity. And then separately, just given this deal and what you're seeing on like the landscape, your capital ratios, balance sheet trends, like should we be thinking that the inorganic growth or any of the M and A option could be more active for Schwab over the next few years?
Well, let me take the second question first, and then I'll turn it over to Jonathan to talk a bit more on your referral portion of your question. But as we mentioned on the call last Friday, there's no change to our M and A strategy. Yes, we're in a period where we are generating excess capital above that which is needed to drive the business forward and as needed to support the growth in the balance sheet, But that doesn't necessarily make us more or less inclined to do M and A. This is the right transaction, the right partner at the right time for us. We're always we're continuing to be on the lookout for other opportunities.
And I'd say just there's no change in that regard in any way. We look at a lot of things and we obviously we pursue relatively few. Let me turn it to John and maybe on the referral question. Yes. I think as I
said earlier, I think the opportunity is meaningful. In particular, half of the USAA clients have over $100,000 in investable assets. I think that represents a significant opportunity just with that stat. I'll also add again, as I said earlier, I think the USAA stable of wealth management and brokerage offering is strong, but when these members have access to Schwab, we have a broader set of capabilities. So I think you should think about and generally at a lower cost.
So I think you should think about the opportunity both in terms of deeper penetration of share of wallet, but also just a broader set of capability over here that we can expose to the USAA member base and that should have a meaningful impact.
Okay. Thanks a lot.
Thank you. The next question comes from Bill Katz of Citigroup. Your line is open.
Okay. Thank you very much for the comments and taking the questions this morning. Peter, may I stay with you? Could you flush out the synergies a little bit more, just back of the envelope based on what the Roca looks like and implied multiple? It looks like you're taking up a substantial percentage of the base expense rate expenses.
So I was wondering, at the beginning, what percentage of expenses is that and how quickly you mentioned a substantial part of it, but could you give us a little timeframe on, A, the revenue pace and then, B, the timing on synergies on the expense side?
Okay. Let me start with the revenue side, the revenue synergies. I would say, in our assumptions, 95% plus of the revenue synergies are coming from the monetization of the client cash moving it from the money funds over to Bank Sweep and that will happen right at conversion. On the cost side, it's more a little bit more complicated answer story. There are a number of different pieces.
Their EBITDA if you look at their margins today from on an EBITDA basis, they're kind of in the 40 ish percentile range. We're looking at potentially taking out about half of that cost. That will be a mix of some technology spending, clearing as we go to a self clearing model from using a third party clearing firm as well as other indirect kind of support type costs in there. What we really want to focus on is retaining the key servicing relationship management, wealth management individuals who are really helpful in terms of meeting the needs of the members, who know those members very well, can help ensure a smooth transition from them over to us, and we think will play a really important part in the future as we go forward.
This is Joe. Let me jump in here just
with a little bit of
reminder here. This is an asset purchase deal, not an entity purchase deal. So we're not bringing over all of the corporate infrastructure, all of the systems, all of the technology platforms. A lot of the work will be done prior to close to do all of the data mapping and the account mapping. So there's a substantial body of work that needs to get done to migrate those accounts to the close date.
But once that happens, then we'll be leveraging the Schwab platform. And I'd remind people that this kind of a transaction really leverages the work that we've been talking about now for a number of years. Our trading platform has been completely modernized. We can bring on new accounts at a very low marginal cost to serve. All the workflow automation we brought into the operations group provides us with tremendous amount of leverage to be able to absorb the volumes that we'd be seeing here.
So the majority of the costs post close will really be focused on the client service side as opposed to on the operational or technology side.
Okay. That's helpful. Just one follow-up. I guess, given this transaction, is this an interesting credit opportunity that just happened to present itself? Or Peter, is there sort of a shift or shift the strategy may be too strong, but is there sort of an incremental strategy here that could further consolidate in Wealth Management more broadly?
I think this is a unique opportunity for us in terms of the relationship that the combination of that transaction itself and the purchase itself plus the referral opportunity. But as Walt has mentioned, as I've talked about multiple times, when we look at potential inorganic opportunities to grow, we think industry consolidation is going to play a role in that. And so there's not that many opportunities out there in the market necessarily to be able to do that. So I would say there's really no change on our thinking from that standpoint with this transaction. I think this transaction is consistent, very much consistent with what we've said as being in our M and A strategy in the past.
Okay. Thank you for taking the questions.
Thank you. Next question comes from Chris Harris of Wells Fargo. Your line is open.
Hey, guys. What is the historical growth of this business in terms of net new assets or accounts if you happen to have it?
Yes. If you look at this business, they've been growing the account base. I don't have the asset numbers right in front of me, but they've been growing the account base within this business by roughly high single digits per year. So again, a little bit above. If you look at the account growth for Schwabble overall, I think we've been averaging kind of 6%, 7% account growth per year overall.
So a little bit it's been growing a little bit faster than that thus far. And that comes from both bringing on them, bringing on new members as well as further penetrating their existing membership base. And again, that's one of the things I think they feel is very exciting about this opportunity from their standpoint is the opportunity to they have 10% only 10% of their members use Wealth Management today. They'd like that number to be up much higher than it is today and so would we, of course.
Okay, got it. And a real quick follow-up, what is the anticipated impacts on your capital ratios from this transaction?
So we'd like to have our capital ratios post conversion be right at that 6.75 percent to 7% operating objective that we talked about previously. So really no change there in terms of what our objective would be post the transaction. Now of course, 2 days I'd just say 2 days before the closingconversion, our capital ratios will be somewhat higher than that because we'll have needed to have the extra capital on the balance sheet to be able to write the check.
Okay. Thank you.
Thank you. Our next question comes from Chris Shutler of William Blair. Your line is open.
Hey, guys. Good morning. Just wanted to follow-up on Ken's question from earlier, just to be clear on the marketing rights into the USAA member base. So, can you e mail their members? Can you physically mail their members?
What can you do?
Yes, this is Jonathan. We will be working with them in the details. But yes, again, we have full access with their support to their members and mutual agreement to drive referral.
Okay, got it. And then, I
mean, do you think is there any potential whatsoever for there to be confusion on
the part of the USAA members between what is kind of Victory Capital branded USAA and what is Schwab? Obviously, you're going to be doing different things, but I would think 2 different investment providers could get confusing. So, how do you avoid that?
Yes, that's a question I think I need to leave for the USAA folks to ask. I mean, we are the exclusive provider for wealth management. We're obviously aware of the transaction they've done with Victory, but we can't actually comment on that at this time.
Alright. Just one more quick one. How competitive was this process? And I ask is that the multiple seems lower than maybe what you would expect given some other private market multiples in the broker dealer space and the exclusivity, maybe some of it's that you're using some of their annuities, but any other color would be helpful?
Yes. So, there were multiple as we understand it, of course, there were multiple bidders. There's been a I would say, USAA ran a very thoughtful, methodical process, very transparent in terms of what their objectives were. As we understand, there were other bidders, eventually narrowed down to a single just us in terms of the final negotiations and conversations around this. And I think they ran a really good process.
I think from the USAA standpoint, the financial outcome was a big part of the equation, but also they really wanted to make sure that their members were being well served by the firm with which they were working. And I would and there seemed to be very good compatibility from that standpoint between their firm and ours through this process.
I would add, we saw that common set of values from day 1. I think that was certainly meaningful to us and I believe meaningful to them.
Okay. Thank you.
Thank you. Our next question comes from Brennan Hawken of UBS. Your line is open.
Good morning, guys. Thanks for taking the question. First question is just on the math on the cash. I think, Peter, you've mentioned that $7,000,000,000 converts over, but you've got 12.9% client cash in the deck. So is the difference that $4,500,000,000 or so implied difference between the $7,000,000,000 and the total, is that like purchased money market funds or cash that's in fiduciary accounts that will therefore not transition over to the balance sheet?
So the difference that yes, great good job putting all the pieces together here. There's about $4,000,000,000 a little over 4,000,000,000 dollars sitting on the balance sheet today that they're on their in their bank or their brokerage in the brokerage cash today. So that's the difference that you see there. So it's the $4,000,000,000 plus the $7,000,000,000 roughly $11,000,000,000 in client cash today divided by the roughly $90,000,000,000 in assets. That's how you get that math.
Got it. Okay. Thanks, Peter. And then when we think about the referral program on a go forward, number 1, I guess, what are your economics in the referral? Is there a little bit of frictional or cost like acquisition cost that's going to go to USAA that we should assume?
And the in thinking about how you guys consider this source of referrals, Do you think that this will remain at that high single digit account growth rate and therefore help to accelerate the penetration side? Or is there an expectation that it would grow similar to the existing Schwab base?
Okay. So there's a couple of pieces in that. 1, I think, was on the economics of the referral arrangement and the second was what we think about in terms of the ongoing growth rate. So I don't really want to get into the exact economics of the referral arrangement. What I would say is, we do pay them a referral fee for every converted account and it's higher referral fee higher fee if those accounts are larger than if they're smaller.
When we looked at this, we looked at it relative to other marketing channels and to ensure that it was consistent with or even better what we get from some of our other marketing channels. So that's one way to think about it. In terms of the ongoing organic growth, I think we'll have to see, but our expectation is that it could certainly be higher in terms of that organic growth rate than what we see in our existing business today, because there is so much untapped opportunity with the in terms of the share of wallet of the existing clients within this business as well as the broader membership base of USAA, we really have those two opportunities there that we think could drive very significant organic growth going forward.
Thank you for taking my questions.
Thank you. Our next question comes from Brian Bedell of Deutsche Bank. Your line is open.
Great. Thanks very much. My question was along the line of Brennan's before, but maybe just to add to that, do you for the penetration opportunity, do you have a good understanding of where U. S. And AA members are currently conducting their wealth management businesses in general to get a sense of the sort of the comparability of Schwab services with what they're doing now, but both from the ones that are using wealth management now and the growth in wallet share opportunity there and of course, the ones that might that are not using USAA?
And also similarly for banking given you have a very powerful online banking platform as well?
So, we it's hard to get that information in detail around which where the firms are which other firms are providing the needs for these for their members. My sense then from what we've seen is it's a broad cross section of the usual firms that you'd expect given the mix of these of the members and their wealth management needs, it's a broad cross section of firms.
And will there be sort of carrots to get them over, for example, bring X amount over and get X amount of free trade or something like that as a sort of a pitch to for client acquisition?
I think we'll work through over the next time period with how we manage that driving that deeper penetration. But again, I will say as I said earlier, I think by bringing over their UMP capability and their direct brokerage combined with what Schwab offers generally at a lower cost, I think we're going to offer a meaningful set of capabilities to their members that in the past they didn't have access to. So it's really a plus. It's a USAA plus situation. I think that's going to probably be the biggest carrot in terms of driving meaningful penetration.
Great. Thank you.
Thank you. And our next question comes from Michael Cyprys of Morgan Stanley. Your line is open.
Hey, good morning.
Thanks for taking the question. Just wanted to follow-up on some of your views around broader industry consolidation. Just hoping you could flush out a little bit more around how you see the landscape evolving broadly within wealth management and consolidation, if you could flush that out. And does this transaction preclude you from Let me answer the second question first. I don't think this transaction precludes us from Let
me answer the second question first. I don't think this transaction precludes us from pursuing other opportunities that may present themselves to us. The biggest driver there will be whether the opportunity makes sense for us in the moment. We think that given the size of this and the time line that we're talking about that shouldn't be overly disruptive or anything like that. In terms of your first question on industry consolidation, I think we've talked about this previously and I would say what I'd say is consistent with that, which is clearly this is a business where pricing matters, where having a low cost structure, having that our 16 basis points of the YOKA expense on client assets matters.
In a business like that, consolidation tends to happen more than there might other businesses. I think we've seen that historically. Where that leads us, hard to say. But we our focus is on creating a very scalable infrastructure, a very low cost structure, so that we can be a beneficiary of that consolidation to the extent that happens and opportunistically like what we're seeing right here take advantage of that and make the most of that.
Great. Just as a quick follow-up on the topic of M and A. I guess it's been some time since you've done a meaningful transaction. I guess just looking back, how is this different from prior deals that you've done? What sort of lessons do you take away from prior deals as you think about making this one successful?
And if you are sitting here 3, 5 years from now, what will define success with this transaction?
Yes. So, we definitely have tried to capture lessons learned from previous transactions. I mean, every transaction is different. This is different than Windhaven, Thomas Partners, Options Express, but even so, we try to take lessons learned from that. I think one of the things we realize is this requires dedicated people and we're creating a dedicated team to go work on this and see it through senior management, senior leadership commitment and support and support from the business around this.
That transition for both the employees and the clients that moment of transition is very, very important to make sure we retain the employees and we retain the clients. So I think we really try to capture a lot of lessons from what we learned from our previous transactions.
Okay. Do we have any calls left in the queue at this point, operator?
Yes. We have also have a question from Rich Repetto of Sandler O'Neill. Your line is open, sir.
I guess the one question I have, do you think that there is any it is more wealth management, Peter, is there any have you discussed this with the RIAs or your RIA committee and any conflicts with in the channel that you foresee?
No. I mean, the short answer, Rich, is we don't see conflicts between this and the RIA channel given the mix. I mean, it is wealth management, but it's the services that we provided to these members today are really no different than the services we provide to our existing retail clients. So we don't I know some of the early articles were talking about how this is a new foray into wealth management, but really it as Walt mentioned at the outset, the client the look of these clients are very similar to our existing clients today. I don't see any implications there on the RIA channel necessarily except some of these members may want an advisor.
And so through the extent to which we can put them into the Schwab Advisory Network, perhaps that creates some incremental opportunity for advisors to benefit from this transaction as well.
Yes, that's helpful. That's my question. Thank you.
Okay, thanks. I think we're going to hold there on the phone side. One of the questions just to try to get one of the questions in from the webcast that we've seen that I thought maybe I'd pose for the team here is whether the effort will be 100% branded as Schwab or will it be co branded? So thoughts on that?
I guess this is Jonathan. I'd start by saying the USA brand is probably one of the most admired brands in the industry. And when you combine that with what we think is the strength of the Schwab brand, it's a pretty powerful combination. And certainly with their support, we want to leverage the 2 together in the marketplace where we can. Having said that, once they refer over to Schwab, it will primarily be a Schwab relationship.
But again, I think the opportunity to bring 2 great brands together and in the marketplace is going to be powerful and fully expect to leverage that.
All right. Thank you. Okay. With that, I think we're going to wrap up and thank everybody for their time. And any follow on questions or anything we couldn't get to, folks, you can follow-up with the IR team.
And with that, thanks, and have a great Friday.