The following disclosure documents are provided for Schwab Intelligent Portfolios:
• Charles Schwab & Co., Inc. Schwab Intelligent Portfolios
Disclosure Brochure
• Charles Schwab Investment Advisory, Inc. Disclosure Brochure for
Schwab Intelligent Portfolios
Charles Schwab & Co., Inc.
211 Main Street
San Francisco, CA 94105
Tel: (855) 694-5208
intelligent.schwab.com
Schwab Intelligent Portfolios®
©2017 Charles Schwab & Co., Inc. All rights reserved. Member SIPC. CC1153059 REG85976-02 (06/17)
00194450
BDL100049-02
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November 30, 2018

Charles Schwab & Co., Inc. Schwab Intelligent Portfolios® Disclosure Brochure









Charles Schwab & Co., Inc.
211 Main Street
San Francisco, CA 94105
Tel: (855) 694-5208
intelligent.schwab.com




This wrap fee program brochure provides information about the qualifications and business practices of Charles
Schwab & Co., Inc. (“Schwab”). If you have any questions about the contents of this brochure, please contact us
at the phone number above. The information in this brochure has not been approved or verified by the United
States Securities and Exchange Commission or by any state securities authority. Schwab’s description of itself in
this brochure as a registered investment advisor does not imply a certain level of skill or training on the part of
Schwab or its representatives. Additional information about Schwab is also available on the SEC’s website at
www.adviserinfo.sec.gov.



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Contents
Advisory Business ...................................................................................................................................................................... 3
Services, Fees and Compensation.............................................................................................................................................. 3
Services ................................................................................................................................................................................. 3
Investment Strategies ...................................................................................................................................................... 4
Selection of ETFs .............................................................................................................................................................. 5
Rebalancing ...................................................................................................................................................................... 5
Tax-Loss Harvesting .......................................................................................................................................................... 5
Schwab Intelligent Portfolios® Sweep Program ............................................................................................................... 6
Fees and Compensation ........................................................................................................................................................ 8
Compensation to Other Schwab Investment Professionals ............................................................................................. 9
Performance-Based Fees .................................................................................................................................................. 9
Side-by-Side Management ............................................................................................................................................... 9
Benefits to Schwab Affiliates ................................................................................................................................................ 9
Conflicts of Interest and How They Are Addressed ............................................................................................................ 10
Account Requirements and Types of Clients ........................................................................................................................... 11
Retirement Accounts ...................................................................................................................................................... 12
Portfolio Manager Selection and Evaluation ........................................................................................................................... 12
Client Information Provided to Portfolio Manager ............................................................................................................. 12
Client Contact With Portfolio Manager .............................................................................................................................. 12
Additional Information ............................................................................................................................................................ 12
Risks ......................................................................................................................................................................................... 12
Disciplinary Information .......................................................................................................................................................... 13
Other Financial Industry Activities and Affiliations .................................................................................................................. 15
Code of Ethics, Participation or Interest in Client Transactions, and Personal Trading ........................................................... 16
Code of Ethics ..................................................................................................................................................................... 16
Participation or Interest in Client Transactions .................................................................................................................. 16
Order Routing and Trade Execution ............................................................................................................................... 16
ETFs ................................................................................................................................................................................ 17
Personal Trading ................................................................................................................................................................. 17
Brokerage Practices ............................................................................................................................................................ 18
Review of Accounts ............................................................................................................................................................. 18
Client Referrals and Other Compensation ............................................................................................................................... 18
Custody .................................................................................................................................................................................... 18
Investment Discretion.............................................................................................................................................................. 18
Voting Client Securities ............................................................................................................................................................ 18
Financial Information ............................................................................................................................................................... 18

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Advisory Business
Schwab Intelligent Portfolios® is an online investment advisory program (the “SIP Program” or the “Program”)
sponsored by Charles Schwab & Co., Inc. (“Schwab” or “we”). Schwab has been registered as an investment
adviser under the Investment Advisers Act of 1940, as amended, since July 24, 1987.

Schwab is also a wholly owned subsidiary of The Charles Schwab Corporation (“CSCorp”), a Delaware
corporation that is publicly traded and listed on the New York Stock Exchange (symbol: SCHW). The Program is
available exclusively to clients who open or maintain brokerage accounts at Schwab. Schwab began serving as
the Program sponsor on March 30, 2018. Previously, Schwab affiliate Schwab Wealth Investment Advisory, Inc.
(“SWIA”), another wholly owned subsidiary of CSCorp, served as the Program sponsor. The “Algorithm” and the
various parameters that help determine asset allocations and security selection in the Program—all defined
and/or described below—have not changed as a direct result of the change in Program sponsorship.

Services, Fees and Compensation
Services
Schwab Intelligent Portfolios provides automated investment advisory services to clients with at least $5,000 to
invest. Clients will receive a diversified portfolio composed of exchange-traded funds (ETFs), as well as an FDIC-
insured cash allocation (the “Cash Allocation”) that is based on the client’s stated investment objectives and risk
tolerance. The portfolio of ETFs includes up to 20 asset classes across stocks, fixed income, real estate, and
commodities. The Program is designed to monitor a client’s portfolio daily and will also automatically rebalance
as needed to keep a client’s portfolio consistent with their selected risk profile unless such rebalancing may not
be in the best interest of the client.

Schwab provides administration and related services for the Program. Charles Schwab Investment Advisory, Inc.
(“CSIA”), an affiliate of Schwab, provides portfolio management services for Program accounts on a discretionary
basis consistent with each client’s chosen investment strategy. Schwab acts as the qualified custodian for
Program accounts and provides trade execution, research and related services for Program accounts.
The Program is offered online through an interactive website and mobile application (collectively, the “Program
Website”). Clients can communicate with Schwab via electronic channels (i.e., email, chat, website or mobile
application), Schwab branches and via telephone.

Clients use a web or mobile application to determine whether the Program is appropriate for them and, if so,
are asked a series of questions that the Algorithm uses to determine their investment risk profile, receive a
recommended portfolio, and select an investment strategy. Clients complete their investment profile online and
are asked to carefully consider whether their participation in the Program is appropriate for their investment
needs and goals prior to enrollment. Clients can change their investment strategy by going online and
completing a new web- or mobile-based investment profile. Clients should periodically review their existing
investment risk profile and update it when their goals, risk tolerance or other aspects of their financial situation
change.

During the online application process, clients agree that records and disclosures for the Program will be
delivered, and agreements will be signed, electronically. This is a requirement both now and in the future. This
includes the disclosure brochures, supplements, and other documents relating to clients’ accounts. Each client
has an obligation to maintain an accurate and up-to-date email address with Schwab and to ensure that the
client has the ability to read, download, print, and retain documents the client receives from Schwab. If a client
is unable or unwilling to accept electronic delivery, the client’s enrollment in the Program and their account may
be terminated. If a client’s account is terminated, the client will be required to transfer the client’s account
assets to another account at Schwab or an account at another custodian; otherwise, the client’s account assets
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will be liquidated and proceeds will be sent to the client.

The Program Website allows prospective clients to review information about the Program, including general
information on the types of ETFs included as well as information about CSIA’s approach to allocating client
accounts. Clients may also monitor their portfolio’s allocation and activity, monitor their account’s performance,
and use a goal tracking tool to monitor whether their account is on target to reach their savings or income goal.
Clients may also initiate deposits and withdrawals from existing Program accounts or open new Program
accounts. Clients give investment discretion to CSIA to manage their account and make trades in their account,
and CSIA may therefore initiate or halt trading at its discretion and for any reason, including halting trading
under conditions when CSIA believes that continued trading may pose an undue risk of harm to Program
accounts.

The Program uses an algorithm (the “Algorithm”)—a set of rules embedded in a computer program—to: (1)
propose a portfolio based on a client’s answers to the online questionnaire; (2) identify portfolio rebalancing
opportunities; (3) identify tax-loss harvesting opportunities; and (4) initiate buy/sell orders for the tax-loss
harvesting and/or rebalancing opportunities it has identified, as detailed below. The Algorithm is designed to
perform a daily review of client accounts and holdings to identify rebalancing and tax-loss harvesting
opportunities as well as to initiate buy or sell orders when such opportunities exist; trade orders are then sent to
CSIA for review prior to the trade(s) being released for execution. Although the activities described in this
paragraph generally take place on a daily basis, there may be rare instances when they do not due to
unforeseen circumstances.

Clients will not be allowed to make trades in their account. Clients may request that certain ETFs be excluded
from their account, but CSIA is not required to accept account restrictions that it deems unreasonable. A request
to exclude certain ETFs from a client’s account may result in delays in the management of the account. The
client will be notified if the account cannot be managed with the requested investment restrictions. Clients also
may request that CSIA use a tax-loss harvesting strategy so that tax losses are generated to offset potential
capital gains in their account, subject to meeting minimum balance requirements (currently $50,000, which is
subject to change).

Accounts in the Program are not margin accounts, meaning clients cannot borrow money to buy securities in
their Program accounts and use the securities in the accounts as collateral for a margin loan.

Investment Strategies
Using asset allocations and ETF selection parameters determined by Schwab, CSIA has created a number of
investment strategies for the Program. The investment strategies consist of diversified portfolios of ETFs
combined with the Schwab Intelligent Portfolios Sweep Program (“Sweep Program”), which automatically
deposits, or “sweeps,” free credit balances to deposit accounts at Charles Schwab Bank (“Schwab Bank”). Each
investment strategy is designed to be consistent with a certain combination of investment objectives and risk
tolerance. Certain investment strategies are intended for taxable accounts and others for tax-deferred accounts
(such as individual retirement accounts). Certain investment strategies are intended for clients who are looking
for some level of income generation. Not all investment strategies will be appropriate for or available to all
clients. For instance, certain investment strategies will only be available to clients who are enrolled in the
Schwab Intelligent Advisory® program, a hybrid advisory service that combines financial planning and periodic
guidance from Schwab planning consultants with discretionary portfolio management through the SIP Program.
Schwab may add additional investment strategies or modify the parameters for existing investment strategies at
any time without prior notice to clients.
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Selection of ETFs
The written parameters established by Schwab place limitations on the universe of ETFs that CSIA may select for
the Program.

Schwab has ETF selection parameters designed to support its philosophy of low-cost and index-based investing.
In support of providing broadly diversified and risk-adjusted portfolios, eligible ETFs must represent well a
particular asset class in the portfolio, meet sufficient liquidity standards and be among the lowest cost (in terms
of its operating expense or “OER”) in their asset class or category. When it comes to replacing an ETF, CSIA also
considers the potential impact to clients, such as additional trading costs or other costs.


Eligible ETFs include Schwab ETFs™, which are managed by Charles Schwab Investment Management, Inc.
(“CSIM”), an affiliate of Schwab and CSIA. Schwab has instructed CSIA to select or retain Schwab ETFs in the
portfolios as long as CSIA determines they satisfy the above factors.

CSIA will generally select both a primary and secondary ETF for each asset class in consideration of, among other
things, tax-loss harvesting and requested investment restrictions. In limited circumstances, as determined by
CSIA, only one ETF may be used in certain asset classes. In such cases, the tax-loss harvesting feature would not
be available for execution in the affected asset class(es). To be eligible for consideration, ETFs designated as the
primary ETF in an asset class must have a share price less than a cap that is necessary to enable trading in
smaller balance accounts.

Schwab ETFs pay fees to CSIM that are described in “Participation or Interest in Client Transactions” below.

Rebalancing
The rebalancing component of the Algorithm is designed to conduct a daily review of client accounts for
rebalancing opportunities. If the allocation of the ETFs in a client’s account deviates by more than an amount
specified in Schwab’s parameters from the recommended asset allocation due to changes in ETF values, the
Algorithm will initiate a rebalancing trade order. Program trades are sent to CSIA for review prior to being
routed for execution. The Algorithm may also trigger rebalancing in cases when a client makes changes to their
investment profile or when a client requests to impose or modify restrictions on the management of their
Program account. Program accounts will be rebalanced by buying and selling ETF shares and depositing or
withdrawing funds through the Sweep Program. Program monitoring and trading are subject to systems and
technology constraints and availability, and while unlikely, may not take place daily.

Accounts below $5,000 may deviate further than the amount specified in Schwab’s rebalancing parameters as
well as the target allocation of the selected investment profile. Rebalancing below $5,000 may impact the ability
to maintain positions in selected asset classes due to the inability to buy or sell at least one share of an ETF. For
example, withdrawal requests may require entire asset classes to be liquidated to generate and disburse the
requested cash.

Tax-Loss Harvesting
Subject to meeting the minimum balance requirement of $50,000, clients may direct CSIA to employ a tax-loss
harvesting strategy. As discussed above, the Algorithm is designed to conduct a daily review of client accounts
for tax-loss harvesting opportunities. When the tax-loss harvesting threshold is met, the Algorithm will initiate a
tax-loss harvesting trade order for Program accounts. During this process, certain ETFs in the client’s account will
be sold at a loss to offset potential capital gains (although CSIA does not monitor the type and amount of capital
gains). The Algorithm also initiates a buy order to replace the ETFs sold for tax-loss harvesting purposes with the
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ETF(s) that CSIA reasonably believes are not substantially similar based upon different ETF indexes used by each
ETF.

The performance of the new ETFs may be better or worse than the performance of the ETFs that are sold for
tax-loss harvesting purposes. The utilization of losses harvested through the strategy will depend upon the
recognition of capital gains in the same or a future tax period, and in addition may be subject to limitations
under applicable tax laws. Losses harvested through the strategy that are not utilized in the tax period when
recognized generally may be carried forward to offset future capital gains, if any.

Clients should consult with their professional tax advisors or check the Internal Revenue Service (“IRS”) website
at www.irs.gov about the consequences of tax-loss harvesting in light of their particular circumstances and its
impact on their tax return. Neither the tax-loss harvesting strategy for the Program, nor any discussion herein, is
intended as tax advice, and neither Schwab nor CSIA represents that any particular tax consequences will be
obtained.

CSIA only monitors for tax-loss harvesting for accounts within the Program. The client is responsible for
monitoring their and their spouse’s non-Program accounts (at Schwab or with another firm) to ensure that
transactions in the same ETF or a substantially similar security do not create a “wash sale.” A wash sale is the
sale at a loss and purchase of the same ETF or substantially similar security within 30 days of each other. If a
wash sale transaction occurs, the IRS may disallow or defer the loss for current tax reporting purposes. More
specifically, the wash sale period for any sale at a loss consists of 61 calendar days: the day of the sale, the 30
days before the sale, and the 30 days after the sale. The wash sale rule postpones losses on a sale if replacement
shares are bought around the same time.

The effectiveness of the tax-loss harvesting strategy to reduce the tax liability of the client will depend on the
client’s entire tax and investment profile, including purchases and dispositions in a client’s (or client’s spouse’s)
non-Program accounts and type of investments (e.g., taxable or non-taxable) or holding period (e.g., short-term
or long-term). There is no guarantee that the tax-loss harvesting strategy will reduce, defer or eliminate the tax
liability generated by a client’s investment portfolio in any given tax year. Except as set forth below, CSIA and
the Algorithm will monitor only a client’s (or a client’s spouse’s) Program accounts to determine if there are
unrealized losses for purposes of determining whether to harvest such losses. Transactions outside the Program
may affect whether a loss is successfully harvested and, if so, whether that loss is usable by the client in the
most efficient manner.

If a client chooses to have tax-loss harvesting for the client’s taxable Program account, CSIA will seek to avoid
the wash sale disallowance rule in any other Program account with the client’s social security number as the
primary account holder. A client may also request that CSIA monitor the client’s spouse’s accounts or their IRAs
in the Program to avoid the wash sale disallowance rule. A client may request spousal monitoring online or via
the mobile application. If CSIA is monitoring multiple accounts to avoid the wash sale disallowance rule, the first
taxable account to trade an ETF will block the other account(s) from trading in that same ETF for 30 days.

Schwab Intelligent Portfolios® Sweep Program
Each investment strategy involves the Cash Allocation to the Sweep Program. The Cash Allocation will generally
range from 6% to 30% of an account’s value to be held in cash, depending on the investment strategy the client
selects based on the client’s risk tolerance and time horizon.

The Cash Allocation will be accomplished through enrollment in the Sweep Program, a program sponsored by
Schwab. By enrolling in the Program, clients consent to having the free credit balances in their brokerage
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accounts swept to deposit accounts (“Deposit Accounts”) at Schwab Bank through the Sweep Program. Schwab
Bank is an FDIC-insured depository institution affiliated with Schwab and CSIA.

The Sweep Program is a required feature of the Program. If the cash balances exceed the Cash Allocation for the
selected investment strategy, the excess over the rebalancing parameter will be used to purchase securities as
part of rebalancing. If clients request cash withdrawals from their accounts, this likely will require the sale of ETF
positions in their accounts to bring their Cash Allocation in line with the allocation for their chosen investment
strategy. If those clients have taxable accounts, those sales may generate capital gains (or losses) for tax
purposes.

The terms and conditions of the Sweep Program and Schwab’s ability to make changes to the Sweep Program or
move balances to a new sweep product are set forth in the Schwab Intelligent Portfolios® Sweep Program
Disclosure Statement that is made available to clients when they open their accounts. Clients should read this
document carefully and retain a copy for their records. Clients grant to Schwab the authority to change the cash
investment allocation from the Sweep Program to another cash savings or investment product or vehicle offered
by Schwab, an affiliate, or a third party.

In accordance with an agreement with Schwab, Schwab Bank has agreed to pay an interest rate on cash
balances in the Sweep Program which will be the greater of either (1) the rate determined by reference to a
third-party index (the average national money market deposit account rate for retail deposits at the $100,000
level based on a survey conducted by RateWatch), or (2) the rate paid on cash balances of $1,000,000 or more in
Schwab’s bank sweep program for brokerage accounts (known as the Bank Sweep feature in Schwab’s Cash
Features Program). The current rate for cash in your account and information regarding the rate Schwab Bank
pays for the $1,000,000 cash tier for brokerage accounts, as well as RateWatch’s methodology, can be found at
www.schwab.com/intelligent-cashrate.

Under the agreement between Schwab and Schwab Bank, Schwab Bank may change the method of determining
the interest rate upon 30 days’ notice to Schwab or upon a regulatory requirement. Schwab will notify clients if
it receives such notice from Schwab Bank. The rate may be higher or lower than the interest rates available on
other deposit accounts at Schwab Bank or on comparable deposit accounts at other banks. It may also be higher
or lower than other cash-equivalent investments, such as money market funds, that are available through
Schwab. Schwab does not intend to negotiate for rates that seek to compete with other capital preservation
investment options that involve market risk, such as money market funds.

Schwab Bank’s revenue from the Cash Allocation in the Deposit Accounts is dependent upon the difference, or
“spread,” between the interest rate Schwab Bank pays to clients on such deposits and the amount it can earn
from the extension of loans and the purchasing of investment securities with these deposits as well as the FDIC
insurance premiums it pays. Therefore, Schwab Bank’s ability to earn revenue from the Deposit Accounts is
affected by the interest rate negotiated with its affiliated broker-dealer, Schwab. This revenue is a component of
the overall revenue to Schwab Bank and its affiliates in connection with the Program. Funds in the Deposit
Accounts can also benefit Schwab Bank by providing it with increased liquidity, stable funding, and low cost
deposits. Schwab Bank intends to use the assets in the Deposit Accounts to fund current and new lending
activities and investments.

A portion of the revenue contributed to the Schwab entities from the Program is the revenue earned by Schwab
Bank in offering the Deposit Accounts. Schwab Bank will pay Schwab a fee for administrative services provided
in support of the Deposit Accounts as disclosed in the Schwab Intelligent Portfolios Sweep Program Disclosure
Statement and below in “Participation or Interest in Client Transactions.”
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Fees and Compensation
The Program includes the following services: (i) Schwab’s Program administration services, as well as trade
execution, custody and related services; and (ii) CSIA’s portfolio management services. Clients are not charged
an annual Program fee for these services. However, the SIP Program is not free of charge. Clients pay the
operating expense ratios of ETFs used in the portfolios, including Schwab ETFs, which affects the performance of
SIP Program accounts. Account performance is also affected by the Cash Allocation and the Sweep Program.
Schwab and its affiliates earn compensation from certain ETFs used in the portfolios and from the Cash
Allocation and Sweep Program, as described elsewhere in this brochure in “Schwab Intelligent Portfolios Sweep
Program”, “Benefits to Schwab Affiliates” and “Conflicts of Interest and How They Are Addressed.”

In programs similar to the SIP Program, clients might expect to pay an annual fee of 0.30% of client assets to
reflect the value and cost of these services. While clients are not charged a Program fee for services, due to
retirement accounts in the Program, for purposes of IRS rules, Schwab makes a nominal calculation that fully
offsets in the amount of 0.30% of the compensation that it or its affiliates receive from ETF transactions in
clients’ accounts. This includes advisory fees for managing Schwab ETFs™ and fees earned for providing services
to third-party ETFs participating in the Schwab ETF OneSource™ program (“ETF OneSource”), if CSIA selects
them to include in Program accounts. If this affiliate compensation ever exceeds 0.30% of client assets, Schwab
would refund the additional amount to client accounts or use it to pay account administrative expenses. The
result is that clients pay no annual Program fee.

Clients do not pay brokerage commissions in the Program to Schwab. However, if CSIA uses a broker-dealer
other than Schwab that is acting as principal (for its own account) to buy or sell ETF shares for clients, that
broker-dealer accepts the risk of market price and liquidity fluctuations when executing customer orders. The
broker-dealer adds a fee, called a “spread,” to compensate for this risk. The spread is not shown separately on a
client’s trade confirmation or account statement. Schwab does not act as principal for ETF trades in the Program
and does not receive any part of the spread.

Each ETF, including a Schwab ETF, pays investment advisory, administrative, distribution, transfer agent,
custodial, legal, audit, and other customary fees and expenses, as set forth in the ETF prospectus. An ETF pays
these fees and expenses, which ultimately are borne by its shareholders. Therefore, CSIM (a Schwab affiliate)
will earn fees from Schwab ETFs that are held in Program accounts.

Clients may incur sales charges, redemption fees and other costs, as well as tax consequences, if they redeem or
make other transactions in ETFs, mutual funds or other investments in order to fund Program accounts.
To the extent that cash used by clients to fund their Program accounts comes from redemptions of mutual fund
shares, ETFs or other investments outside of the Program, there may be tax consequences or additional costs
from sales charges previously paid and redemption fees incurred.

Pursuant to an agreement between CSIA and Schwab, Schwab pays all costs and expenses incurred by CSIA in
connection with the Program and with other research services provided by CSIA, plus an additional amount
based on a fixed percentage of such costs and expenses. CSIA does not enter into agreements directly with
clients and accordingly does not receive direct compensation from or negotiate fees with them. CSIA does not
enter into agreements directly with Program clients and accordingly does not receive direct compensation from
or negotiate fees with them.

Schwab provides administrative services to Schwab Bank in support of the operation of the Deposit Accounts;
Schwab Bank will pay Schwab an annual per account flat fee for these administrative services. This fee is more
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fully described in the Schwab Intelligent Portfolios Sweep Program Disclosure Statement.

The fees that clients pay directly and indirectly in the Program may be more or less than they would pay if they
purchased separately the types of services in the Program. Clients may be able to obtain some or all of the types
of services available through the Program on a stand-alone basis from other firms. Factors that bear upon the
cost of the Program in relation to the cost of the same services purchased separately include, among other
things, the type and size of the account (and other accounts that clients may be able to combine to determine
fee break points), the historical and expected size or number of trades for an account, types of investments and
cash held in the account, and the number and range of supplementary advisory and other services provided to
an account.

Compensation FC Compensation
Among Schwab investment professionals, branch-based and phone-based Financial Consultants (“FCs”) are most
often responsible for recommending the SIP Program to clients like you. FCs may be Schwab employees or non-
employee independent contractors who, with their own employees, operate Schwab Independent Branches
pursuant to a franchise agreement with Schwab. The FCs who operate Schwab Independent Branches are known
as Independent Branch Leaders (“IBLs”) or, if employed by such IBLs, Independent Branch (“IB”)
Representatives. In addition to their base salaries, FCs receive compensation for successfully navigating clients
to the SIP Program and other investment advisory programs and for servicing those clients after enrollment in
such programs. Although Schwab as a company may earn more or less revenue depending on what products and
services an FC recommends and a client purchases, Schwab has designed FC compensation to be neutral. This
means that, although compensation varies by the type of program an account is enrolled in, that difference is
based on “Neutral Factors.” Neutral Factors include the time, complexity and expertise necessary to understand
and recommend a program and to provide ongoing service to a client enrolled in a given program.

As independent contractors, IBLs receive a monthly “Net Payout” from Schwab, which includes amounts earned
on assets in investment advisory programs like the SIP Program and assets in commission-based brokerage
accounts, and it is from this Net Payout amount that IBLs pay their IB Representative employees. As with FCs,
the amounts earned by IBLs and IB Representatives vary by the type of program an account is enrolled in, based
on the same Neutral Factors described above. Based on these Neutral Factors, amounts earned by Financial
Consultants on assets enrolled in the SIP Program exceed the amounts earned on assets in commission-based
brokerage accounts but are less than the amounts earned on assets in some other advisory program accounts.

Compensation to Other Schwab Investment Professionals
Other Schwab employee investment professionals, such as Investment Consultants, Investor Development
Specialists, and Participant Investor Concierge Financial Consultants, can also earn additional incentive
compensation for educating clients in advisory services, including the Program. For detailed information on the
compensation of these and other Schwab investment professionals, please see our website at
schwab.com/compensation.

Performance-Based Fees
Schwab does not receive performance-based fees in connection with referrals to the SIP Program.

Side-by-Side Management
Not applicable. Schwab does not manage or recommend strategies in the SIP Program.

Benefits to Schwab Affiliates
Clients do not pay a Program management fee. However, Schwab affiliates do earn revenue from the underlying
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assets in client accounts.

This revenue comes from: (i) revenue earned by Schwab Bank, on the Cash Allocation in the investment
strategies; (ii) advisory fees received by CSIM from Schwab ETFs™ that CSIA selects to buy and hold in client
accounts; (iii) fees received by Schwab from third-party ETFs in client accounts for services Schwab provides to
them as participants in ETF OneSource; and (iv) remuneration Schwab may receive from the market centers
where it routes ETF trade orders for execution. More information about these revenues and their benefits to
Schwab affiliates is set forth under “Schwab Intelligent Portfolios® Sweep Program” and “Fees and
Compensation” above and under “Participation or Interest in Client Transactions” below.

Conflicts of Interest and How They Are Addressed

As noted above, Schwab Bank earns income on the Cash Allocation for each investment strategy. The Cash
Allocation is placed in an FDIC insured deposit account at Schwab Bank. The higher the Cash Allocation and the
lower the interest rate paid to clients, the more Schwab Bank earns. A lower interest rate means a lower yield
on the Cash Allocation. This is a conflict of interest. It is mitigated in part by the way in which Schwab Bank
determines the interest rate on cash balances in the Sweep Program by reference to the greater of a third-party
index (the average national money market deposit account rate for retail deposits at the $100,000 level) or the
rate Schwab Bank pays on cash balances of $1,000,000 or more in its sweep program for brokerage accounts.
Outside of the Program, clients have access to some cash alternatives that pay a higher yield, although they may
not have FDIC insurance. In part because of the revenue Schwab Bank generates from the Cash Allocation (an
indirect Program cost), Schwab does not charge an advisory fee for the Program.

Net interest revenue is a major source of revenue for Schwab Bank, including with respect to the Program.
Schwab Bank’s net interest revenue is generated by the difference between the interest rate that it can earn
extending loans and purchasing investment securities, and the interest rate it pays to clients on their Sweep
Program deposits. The difference between the rates earned and paid is the “spread.” Generally an increase in
market interest rates will mean that the Program earns more revenue for Schwab Bank because the spread will
increase.

Here is an example of how the spread works and the resulting revenue to Schwab Bank. Assume a $100,000
Program account with a 10% Cash Allocation ($10,000), which would be a moderate – aggressive investment
portfolio allocation. Using market interest rates from the third quarter of 2018, Schwab Bank earned about 2%
on an annual basis on the cash it invested net of what it paid to clients in the Program. Schwab Bank would have
received about $200 on that cash deposit annualized. This is two-tenths of one percent (0.2% or 20 basis points)
of the total client investment of $100,000. This example is for illustrative purposes only and does not
necessarily reflect the interest rate a particular client at a particular point in time receives or the revenue
Schwab Bank earns from that client’s Cash Allocation. We will update this example on a quarterly basis
beginning in January 2019, which you can see at www.schwab.com/intelligent-cashrate.

Note also that in the above example Schwab Bank would receive more than 20 basis points on a Cash Allocation
above 10% (as part of a more conservative investment portfolio allocation), and less than 20 basis points on a
Cash Allocation below 10% (as part of a more aggressive investment portfolio allocation). Historically the spread
has increased when market interest rates rose. Since the Program’s inception until September 2018, the overall
average spread Schwab Bank received ranged from 1.21% to 1.95%. For more information on how the Sweep
Program works, including how to determine current interest rates on the Cash Allocation, please see “Schwab
Intelligent Portfolios Sweep Program” above.

11


Because Schwab and CSIA are affiliated companies, Schwab has an incentive to select and keep CSIA to provide
portfolio management services for the Program. Similarly, CSIA has a conflict of interest in selecting Schwab
ETFs, which pay compensation to CSIM, and ETFs in ETF OneSource, which pay compensation to Schwab.
Schwab has a conflict in that it has instructed CSIA to select or retain Schwab ETFs in the portfolios, but only if
Schwab ETFs meet all the criteria noted above in “Selection of ETFs.” CSIA also has a conflict of interest because
it selects ETFs that it holds in other client accounts CSIA manages in other Schwab programs.

Asset classes in the Program include both market-cap and fundamentally weighted ETFs. Market-cap weighted
ETFs track indices based on the market capitalization of the index’s underlying holdings. Fundamental ETFs
weight holdings based on fundamental factors like sales, cash flow, dividend distribution, and buybacks. The
Program invests in both market-cap based and fundamentally weighted ETFs with the goal of helping to increase
diversification, reduce volatility, and provide better risk-adjusted results over time. Typically, fundamental ETFs
have a higher expense ratio than market-cap ETFs. The current method CSIA uses to select fundamentally
weighted ETFs is based on asset classification by a third-party provider and, in combination with the selection
criteria described above, results in Schwab ETFs being the primary ETF selection for fundamental asset classes in
portfolios.

Other than the conflicts of interest described in “Selection of ETFs,” Schwab’s written parameters do not allow
CSIA to consider compensation to Schwab or other affiliates in connection with selecting ETFs or managing
Program portfolios. CSIA must also follow these written criteria in selecting securities for, and removing
securities from, Program portfolios. Schwab reviews CSIA’s performance in providing portfolio management
services for the Program. For more information regarding how ETFs are selected for inclusion in portfolios and
on the fees earned by Schwab affiliates on ETFs in client accounts, see “Selection of ETFs” and “Fees and
Compensation” above.

Account Requirements and Types of Clients
Clients will complete an investment profile, open their account, and sign their Program contracts electronically.
Clients of the Program may include individuals, IRAs and living trusts. Organizations, such as corporations,
limited liability companies and limited partnerships, may also participate in the Program as clients. These types
of clients may not have the same client experience as individuals or trust clients. Clients that are government
entities or clients that are subject to the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”), are not eligible for the Program.

Clients must agree to accept electronic delivery of contracts, disclosure documents, prospectuses, statements,
and other materials. Assistance from a Schwab representative is available by telephone, email or web chat.
Deposits to the account must be made by wire transfer, mobile check deposit, transfer from another account, or
through the Schwab MoneyLink® service, which allows clients to make electronic transfers of funds to and from
their brokerage account. Clients may be provided the option to fund Program accounts with securities. Clients
authorize Schwab (or CSIA to instruct Schwab) to liquidate any securities used to fund Program accounts.
Securities may be liquidated at the client’s risk and expense and without taking into account the realization of a
taxable gain or a loss that may result.

Neither CSIA nor Schwab will have responsibility for the performance of those securities pending their
liquidation.

To be initially invested in an investment strategy, clients must meet all requirements of Schwab to open their
Program account and fund it with a minimum of $5,000. Not all clients or prospects will be appropriate for the
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Program. There is also a minimum balance requirement to request that CSIA employ a tax-loss harvesting
strategy, and a minimum balance requirement to maintain a tax-loss harvesting strategy.

A client that terminates their advisory agreement or brokerage agreements with Schwab relating to the Program
may unenroll from the Program or instruct Schwab to close their account. If the client terminates their
enrollment in the Program, the Sweep Program will not apply to the account. That account will have its own
sweep feature, which may have terms that are more favorable or less favorable than the Sweep Program.
Schwab may terminate a client from the Program for failing to fund their account with the required initial
minimum, for failure to maintain a valid email address or for any other reason, in Schwab’s sole discretion.
Schwab also may terminate a client from the Program if Schwab deems the client’s requested investment
restrictions to be unreasonable.

Depending on the reason for unenrollment from the program, the client may have the opportunity to resolve
the reason for their unenrollment. Upon removal from the program, the client’s enrollment in the Sweep
Program will terminate and the account will no longer be managed.

Retirement Accounts
Schwab does not and will not render advice on a regular basis pursuant to an arrangement or understanding
that such advice shall serve as a primary basis for investment decisions with respect to any retirement account.
Schwab and its employees and agents (i) are not fiduciaries as defined under the Internal Revenue Code; (ii)
have no investment or other discretion with respect to assets covered by the Program; (iii) will perform no
discretionary acts with respect to such assets; (iv) will effect only such transactions as instructed by clients; and
(v) will exercise no discretion and provide no advice as to the voting of proxies.

CSIA is the sole fiduciary, as defined under the Internal Revenue Code, in performing investment management
services and exercising discretion over the assets managed in any retirement account, subject to such
reasonable restrictions as the client may impose.

Portfolio Manager Selection and Evaluation
Schwab has selected CSIA to provide portfolio management services for the Program. Schwab believes that CSIA
possesses the requisite expertise to serve in this capacity. Schwab reviews the performance of the investment
strategies quarterly through standardized composite performance reporting.

Client Information Provided to Portfolio Manager
At the time a client enrolls in the Program, Schwab provides CSIA with information about that client’s chosen
investment strategy and any reasonable restrictions applicable to the client’s Program account.

Schwab provides updated information to CSIA as necessary thereafter in order for CSIA to provide portfolio
management services under the Program.

Client Contact With Portfolio Manager
Clients who wish to contact CSIA can do so by making a request to a Schwab representative by telephone or web
chat. Schwab and its representatives are the primary points of contact for clients in the Program.

Additional Information
Risks
Investing in securities, whether through the Program or otherwise, involves the risk of loss that clients should be
13

prepared to bear. The specific risks associated with the ETFs comprising the Program portfolios, as well as the
risks associated with securities held in those ETFs, are described in detail in the CSIA Schwab Intelligent
Portfolios® Disclosure Brochure. The rebalancing aspect of the Algorithm works to maintain asset class
diversification for each portfolio within defined parameters.

There are limitations inherent in the use of an Algorithm to manage Program accounts; for instance, the
Algorithm is designed to manage Program accounts according to the asset allocation selected for that account
and is not designed to actively manage asset allocations based on short-term market fluctuations. The Algorithm
is also not designed to consider certain factors such as short-term asset class volatility or individual tax
circumstances such as capital gains taxes; rather, its functions consist of proposing a portfolio based on a client’s
answers to the online questionnaire, identifying opportunities for tax-loss harvesting and rebalancing, and
initiating buy/sell orders accordingly.

Investment advisory personnel of CSIA oversee the Algorithm but do not personally or directly monitor each
individual Program account.

There is also a risk that the Algorithm and related software used in the Program for strategy selection, tax-loss
harvesting and rebalancing and related functions may not perform within intended parameters, which may
result in a recommendation of a portfolio that may be more aggressive or conservative than necessary, and
trigger or fail to initiate rebalancing and/or tax-loss harvesting trading.

Disciplinary Information
The SEC and other regulatory agencies and organizations have taken certain disciplinary actions against Schwab
for violations of investment-related statutes, regulations, and rules. The matters have been settled, and Schwab
has paid fines with respect to certain violations.

1. A disciplinary action initiated by the Financial Industry Regulatory Authority (“FINRA”) asserted that, in violation
of FINRA Rules 2010 and 3310(a), Schwab failed to implement policies and procedures that were reasonably
designed to detect and cause the reporting of suspicious incoming wire transactions occurring in August 2011.
Without admitting or denying the findings, Schwab consented to the described sanctions and to the entry of
findings. Therefore, in December 2013, Schwab was censured, fined $175,000 and required to conduct a
comprehensive review of the adequacy of its Anti-Money Laundering policies, systems, procedures (written or
otherwise), and training with respect to detecting and reporting suspicious incoming wire transfers.

2. A disciplinary action initiated by FINRA asserted that Schwab failed on 44 occasions during the second quarter of
2011 and on 245 occasions during the first half of the 2012 review period to provide written notification
disclosing to its customers a call date that was consistent with the disclosed yield to call in violation of SEC Rule
10b-10. Without admitting or denying the allegations, Schwab consented on August 23, 2013, to a censure and a
monetary fine of $12,500.

3. A disciplinary action initiated by the Chicago Board of Options Exchange (“CBOE”) alleged that Schwab: (1)
violated CBOE Rule 9.21 by disseminating sales literature and failed to withhold the sales literature from
circulation prior to incorporating the required changes specified by the CBOE; and (2) violated CBOE Rule 4.2 by
failing to adequately supervise its associated persons to assure compliance with Rule 9.21. Without admitting or
denying these allegations, Schwab consented to a censure and a monetary fine of $10,000 on May 29, 2013.

4. In May 2013, the CBOE alleged that from approximately November 8, 2011, through approximately December 7,
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2011, Schwab failed to have adequate supervisory procedures to assure compliance with the SEC Rule 14E-4
relating to partial short tender activity. The CBOE accepted Schwab’s offer of settlement consisting of a $10,000
fine and a censure. Schwab neither admitted nor denied the allegations.

5. A disciplinary action initiated by FINRA asserted that Schwab violated Municipal Securities Rulemaking Board
(“MSRB”) Rule G-14 by: (1) failing to report required information about certain municipal securities transactions
to the Real-Time Transaction Reporting System (“RTRS”) within 15 minutes of trade time in the first and fourth
quarters of 2010; and (2) failing to report the correct yield to RTRS for certain municipal securities transactions
in the second quarter of 2010. Without admitting or denying these assertions, Schwab consented to a censure
and a fine of $35,000 on July 26, 2012.

6. Schwab entered into a stipulation and consent agreement with the state of Florida on March 26, 2012, in which
Schwab was fined $1,100,000 and ordered to offer restitution to certain clients for distributing trade
confirmations to Florida clients between 2008 and 2011 containing inaccurate information with respect to
certain municipal bond, corporate bond and preferred equity security trades, and for failing to have adequate
written supervisory procedures with respect to the review of such trade confirmations, in violation of the Florida
Administrative Code.

7. Schwab entered into a consent order with the State of Nevada on November 2, 2011, in which Schwab was fined
$10,000 for failing to detect the lack of Nevada state registration of a non-employee investment advisor. Schwab
was found to have violated its own procedures and Nevada Administrative Code Section 90.321 for failing to
determine that the non-employee was acting as a professional investment advisor at the time the accounts were
set up or during the course of his management of the accounts at issue.

8. A disciplinary action initiated by FINRA asserted that Schwab violated Municipal Securities Rulemaking Board
Rule G-14 by: (1) failing to report required information about certain municipal securities transactions to the
RTRS within 15 minutes of trade time; and (2) failing to report the correct trade execution time to the RTRS for
some of these transactions. Without admitting or denying these assertions, Schwab consented to a censure and
a fine of $12,500 on June 17, 2011.

9. In January 2011, Schwab and its affiliate Charles Schwab Investment Management, Inc. (“CSIM”) (together, for
purposes of this disclosure, “Schwab”) reached agreements with the SEC, FINRA, the Illinois Secretary of State,
the Illinois Securities Department (“Illinois”) and the Connecticut Department of Banking’s Securities and
Business Investments Division (“Connecticut”) to settle matters related to the Schwab YieldPlus Fund®(the
“Fund”).

As part of the SEC settlement, the SEC found that Schwab violated certain investment-related laws and
regulations related to the offer, sale and management of the Fund from 2005 through 2008. In particular, the
SEC found that Schwab: (1) deviated from the Fund’s concentration policy with respect to investments in non-
agency mortgage-backed securities without shareholder approval; (2) made materially misleading statements
and omissions about the Fund and its associated risks before and during the decline of its net asset value
(“NAV”); (3) materially understated the Fund weighted average maturity (“WAM”); (4) willfully aided and
abetted misstatements and omissions appearing in Fund sales materials and other documents; and (5) lacked
policies and procedures reasonably designed to prevent the misuse of material nonpublic information about the
Fund. Without admitting or denying these allegations, Schwab agreed to pay a total of approximately
$118,944,996 in disgorgement of fees and penalties. As part of the settlement with the SEC, Schwab will also
take a number of actions to improve procedures and reinforce Schwab’s commitment to its clients. These
actions include retaining an independent consultant to conduct a comprehensive review of Schwab’s policies,
15

practices and procedures designed to prevent the misuse of material nonpublic information by or related to
Schwab’s mutual funds. The SEC settlement was approved by the United States District Court for the Northern
District of California on February 16, 2011. Additionally, the SEC has brought related complaints against two
former employees of Schwab.

The amount paid by Schwab pursuant to the SEC settlement included approximately $18,000,000 to be paid by
Schwab in settlement of the FINRA matter in which FINRA made related factual allegations against Schwab and
found that Schwab’s conduct violated FINRA’s just and equitable principles of trade and its rules pertaining to
communications with the public and supervision.

Schwab also agreed to pay approximately $8,567,364 in settlement of the Illinois matter in which Illinois made
related factual allegations against Schwab and found that Schwab’s conduct violated Illinois Securities Law
provisions relating to supervision of securities and advisory activity by employees and to maintenance of written
procedures reasonably designed to comply with securities laws and regulations.

Schwab also agreed to pay an amount not to exceed approximately $2,800,000 in settlement of the Connecticut
matter in which Connecticut made related factual allegations against Schwab and found that Schwab violated
applicable Connecticut laws and regulations by failing to reasonably supervise its employees.

Schwab and certain affiliated entities and individuals (the “Schwab Parties”) were named as defendants in a
number of Fund-related class action lawsuits filed in the United States District Court for the Northern District of
California in 2008. These lawsuits were consolidated into a single class action complaint that alleged violations of
state law and federal securities law similar to those described above. On March 30, 2010, the court granted
plaintiffs’ motion for summary judgment holding defendants liable for plaintiffs’ state law claim regarding
changes to the investment policy of the Fund, which plaintiffs alleged were made without shareholder approval
in violation of the Investment Company Act of 1940. The Schwab Parties entered into a settlement agreement to
settle the plaintiffs’ federal securities law claims for approximately $202,700,000 and the plaintiffs’ California
law claims for approximately $35,000,000. On April 19, 2011, the court entered an order granting plaintiffs’ and
defendants’ motions for final approval of the settlement agreements.

Other Financial Industry Activities and Affiliations
As noted above, Schwab is a wholly owned subsidiary of CSCorp, a Delaware corporation that is publicly traded
and listed on the NASDAQ (symbol: SCHW). Schwab is registered as a broker-dealer under the Securities
Exchange Act of 1934 and is a member of FINRA. Schwab provides brokerage services to clients located
throughout the United States and in some circumstances outside the United States. Incidental to its broker-
dealer business, Schwab offers its clients a variety of investment information services and products, including
seminars, periodicals, reports, guides, planning tools, brochures and other publications about securities and
investment techniques. Schwab also provides certain online data and financial reporting services.
Schwab is also registered as an investment adviser under the Investment Advisers Act of 1940. Schwab provides
other investment advisory services in addition to the Program. The SPC service is a nondiscretionary wrap fee
program in which clients receive periodic, ongoing advice from a team of representatives. In the Schwab Advisor
Network®, Schwab makes referrals of investment advisors to investors who are looking for assistance in
managing their assets and/or other financial planning activities. Advisors participating in Schwab Advisor
Network are independent and not affiliated with Schwab. Investment advisors pay a fee to participate in the
Schwab Advisor Network program.

Other programs in which Schwab acts as a registered investment advisor include the Managed Account Select®
and Managed Account Connection®(“MAC”) wrap fee programs, Schwab Managed Portfolios™ (“SMP”), and the
16

Schwab Intelligent Advisory® program, all sponsored by Schwab and the financial planning services provided
through the Schwab Personal Financial Plan™, Schwab Retirement Consultation, and Schwab Equity
Compensation Consultation. Separate agreements and disclosure brochures are available for these other
investment advisory services and would be provided at the time of referral or purchase.

Schwab does not trade futures and is not a futures commission merchant (“FCM”). However, for our customers
who have a desire to trade futures, we have a referral relationship with Charles Schwab Futures, Inc., an FCM
that is an affiliate of Schwab.

CSIA also provides portfolio management services in the Schwab-sponsored wrap fee programs, SMP, and MAC.
CSIA acts as a separate account manager in MAC through its ThomasPartners Investment Management®
(“ThomasPartners”) and Windhaven Investment Management®(“Windhaven”) business divisions. ETFs held in
Program accounts may overlap with ETFs held in SMP—ETF accounts and in accounts invested in Windhaven®
Strategies in MAC and similar strategies managed through other non-Schwab-sponsored programs.
In addition to Schwab and CSIA, other wholly owned subsidiaries of CSCorp are engaged in investment advisory,
brokerage, trust, custody, or banking services. CSIM provides advisory and administrative services to certain
proprietary mutual funds and exchange-traded funds marketed under the Schwab Funds®, Laudus Funds® and
Schwab ETFs™ names. CSIM also serves as a separate account manager in other Schwab wrap fee programs.
Performance Technologies, Inc. (also known as Schwab Performance Technologies®) provides portfolio
management software to independent registered investment advisors who custody assets at Schwab and also
provides certain software and services used in the Program.

Code of Ethics, Participation or Interest in Client Transactions, and Personal Trading
Code of Ethics
Schwab has a code of ethics adopted pursuant to Rule 204A-1 under the Investment Advisers Act of 1940 (the
“Code”). The Code reflects the fiduciary principles that govern the conduct of Schwab, its employees and agents,
when we are acting as an investment advisor.

The Code requires that Schwab’s covered representatives comply with applicable federal securities laws, report
violations of the Code, and for those deemed “access persons” by virtue of providing investment advice or
having access to certain related information, report their personal transactions and holdings in certain securities
periodically and get clearance before buying certain securities, including initial public offerings or private
offerings. The Code prohibits access persons from disclosing portfolio transactions or any other nonpublic
information to anyone outside of Schwab, except as required to effect securities transactions for clients, or from
using the information for personal profit or to cause others to profit. Access persons are also prohibited from
engaging in deceptive conduct in connection with the purchase or sale of securities for client accounts. The Code
is subject to change as necessary to remain current with regulatory requirements and internal business policies
and procedures.

A copy of the Code is available at intelligent.schwab.com.

Participation or Interest in Client Transactions
Order Routing and Trade Execution
In arranging for the execution of non-directed orders for equities and listed options, Schwab seeks out industry-
leading execution services and access to the best-performing markets. Schwab routes orders for execution to
unaffiliated broker-dealers, who may act as market maker or manage execution of the orders in other market
venues, and also routes orders directly to major exchanges. Schwab considers a number of factors in evaluating
execution quality among markets and firms, including execution price and opportunities for price improvement,
17

market depth and order size, the trading characteristics of the security, speed and accuracy of executions, the
availability of efficient and reliable order handling systems, liquidity and automatic execution guarantees, the
likelihood of execution when limit orders become marketable and service levels and the cost of executing orders
at a particular market or firm. Price improvement occurs when an order is executed at a price more favorable
than the displayed national best bid or offer. Schwab regularly monitors the execution quality obtained to
ensure orders are routed to market venues that have provided high quality executions over time.
Schwab receives remuneration, such as liquidity or order flow rebates, from market venues to which orders are
routed, and also pays fees for execution of certain orders. Quarterly information regarding the market venues to
which we route orders and remuneration received is available on our website at www.schwab.com or in written
form upon request.

Information regarding the specific routing destination and execution time of your orders for up to a six-month
period is also available upon request. Schwab may execute fixed income orders for customers as agent or as
principal for our own account. In the bond market, there is no centralized exchange or quotation service for
most fixed income products. Prices generally reflect activity by market participants or dealers linked to various
trading systems. A small number of corporate bonds are listed on national exchanges. Although Schwab seeks
access to major trading systems, exchanges, and dealer markets in an effort to obtain competitive pricing, at any
given time it is possible that securities could be available through other trading systems, exchanges, or dealers
at superior or inferior prices compared to those available at Schwab. All prices are subject to change without
prior notice.

ETFs
The ETFs that are eligible for inclusion in the Program are described above under “Selection of ETFs.”
Each ETF pays investment advisory, administrative, distribution, transfer agent, custodial, legal, audit, and other
customary fees and expenses, as set forth in the ETF prospectus. An ETF pays these fees and expenses, which
ultimately are borne by its shareholders. Therefore, CSIM (a Schwab affiliate) will earn fees from Schwab ETFs
that are held in Program accounts.

ETFs in the ETF OneSource program are also eligible to be selected for inclusion in the Program. Schwab has
established the ETF OneSource program under which ETFs can be traded without a commission on buy and sell
transactions. Schwab receives payments from the third-party ETF sponsors or their affiliates participating in ETF
OneSource for recordkeeping, shareholder services and other administrative services that Schwab provides to
participating ETFs. In addition, Schwab promotes the ETF OneSource program to its customers, and a portion of
the fees paid to Schwab offsets some or all of Schwab’s costs of promoting and administering ETF OneSource.
Schwab does not receive payment to promote any particular ETF to its customers.

ETF sponsors or their affiliates pay a fixed ETF OneSource program fee to Schwab each year for each ETF
participating in ETF OneSource. The program fees vary, but can range up to $15,000 per year for each
participating ETF. ETF sponsors or their affiliates also pay Schwab an asset-based fee based on a percentage of
total ETF assets purchased by Schwab customers after the ETF was added to ETF OneSource.
The amount of the asset-based fee can range up to 0.04% annually. Schwab ETFs do not pay any program or
asset-based fees to participate in ETF OneSource.

Assets in Program accounts are included in the calculation of the asset-based ETF OneSource fee to be paid to
Schwab by an ETF sponsor or its affiliates. Schwab may exclude other assets or other types of transactions from
the asset-based ETF OneSource fee paid by an ETF sponsor or its affiliates.

Personal Trading
18

Schwab monitors the personal securities holdings and trading of Schwab representatives. Schwab reviews
accounts of its representatives custodied at Schwab and applicable accounts custodied at other firms. The
surveillance program monitors holdings and trades against the Code and other applicable policies. Additionally,
Schwab representatives must disclose all securities accounts they own or control after their hire date and review
and confirm the accuracy of those accounts on an annual basis during their employment.

Brokerage Practices
Schwab does not select or recommend broker-dealers as part of the SIP Program. Clients agree with Schwab
that all brokerage transactions for the SIP Program will be routed to Schwab for execution. For additional details
regarding brokerage practices for the SIP Program, please refer to the CSIA Schwab Intelligent Portfolios®
Disclosure Brochure.

Review of Accounts
Schwab will contact Program clients at least once a year via electronic channels to ask them to update their
information on the Program Website if there have been any material changes. Clients who have experienced
material changes to their goals, financial circumstances or investment objectives, or who wish to impose or
modify restrictions on the management of their Program accounts, should promptly update their information on
the Program Website. Schwab will not change a client’s portfolio selection unless the client updates their
investment profile through the Program Website.

Program clients receive electronically a separate confirmation of each transaction and an account statement (at
least quarterly) detailing positions and activity in their accounts. The statement includes a summary of all
transactions made on the client’s behalf, all contributions and withdrawals made to or from the account, all fees
and expenses charged to the account, and the account value at the beginning and end of the period. The
statement may be based upon information obtained from third parties.

Client Referrals and Other Compensation
Schwab FCs and other employees, as well as IBLs and IB Representatives, receive compensation from Schwab as
explained in the “Compensation” section above. The SIP Program does not rely upon client referrals from any
non-Schwab entity or person.

Custody
Schwab has custody of assets in the SIP Program accounts and will provide an account statement, at least
quarterly, for each account. The account statements detail account positions and activities during the preceding
period. Clients should review their account statements carefully.

Investment Discretion
The SIP Program consists of discretionary portfolio management through a diversified portfolio of ETFs and a
Cash Allocation.

Voting Client Securities
Schwab does not have or accept authority to vote Clients’ securities (i.e., proxy voting) in the SIP Program.

Financial Information
Schwab does not require or solicit prepayment of an advisory fee for the Program and is therefore not required
to include a balance sheet for its most recent fiscal year. Schwab is not the subject of any financial condition that
is reasonably likely to impair its ability to meet its contractual obligations to its clients. Schwab is not the subject
19

of any bankruptcy petition, nor has it been the subject of any bankruptcy petition at any time during the past 10
years.









































©2018 Charles Schwab & Co., Inc. All rights reserved. (1118-8S3N) REG83246-05 (11/18)

This brochure provides information about the qualifications and business practices of Charles Schwab Investment Advisory, Inc. (CSIA or
“Adviser”) as an adviser for the above mentioned strategies. If you have any questions about the contents of this brochure, please contact us
at the phone number above. The information in this brochure has not been approved or verified by the United States Securities and Exchange
Commission or by any state securities authority. CSIA’s description of itself in this brochure as a registered investment adviser with the SEC
does not imply a certain level of skill or training on the part of CSIA or its representatives.
Additional information about CSIA is also available on the SEC’s website at www.adviserinfo.sec.gov.
November 30, 2018
Charles Schwab Investment Advisory, Inc.
Schwab Intelligent Portfolios®
Disclosure Brochure
Charles Schwab Investment Advisory, Inc.
211 Main Street
San Francisco, CA 94105
Tel: (415) 667-1910
Contents
Advisory Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Fees and Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Performance-Based Fees and Side-by-Side Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Types of Clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Methods of Analysis, Investment Strategies, and Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Disciplinary Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Other Financial Industry Activities and Affiliations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Code of Ethics, Participation or Interest in Client Transactions, and Personal Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Brokerage Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Review of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Client Referrals and Other Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Other Broker/Custodian-Related Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Custody . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Investment Discretion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Voting Client Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1
Advisory Business
Charles Schwab Investment Advisory, Inc. (“CSIA”) is a wholly
owned subsidiary of The Charles Schwab Corporation
(“CSCorp”), a Delaware corporation that is publicly traded and
listed on the New York Stock Exchange. CSIA is an affiliate of
Charles Schwab & Co., Inc. (“Schwab”). As of April 1, 2018,
Windhaven Investment Management, Inc. and ThomasPartners,
Inc. merged into, and became divisions of, CSIA. In anticipation
of this merger, on March 30, 2018, CSIA incorporated the
existing ThomasPartners® and Windhaven® portfolio manage-
ment teams to manage the respective assets and assume
fiduciary responsibility for the ThomasPartners and Windhaven
Strategies formerly managed by this affiliated investment advi-
sor. CSIA has been registered as an investment advisor since
November 5, 2009. Windhaven Investment Management, Inc.
was founded in 2010 when CSCorp purchased the assets and
intellectual property of Windward Investment Management, Inc.,
which had been registered as an investment adviser since April
2000 (and registered as Windward Capital Inc. since October
1994). ThomasPartners, Inc. was purchased by CSCorp in
December 2012. Prior to this acquisition, ThomasPartners, Inc.
traces its roots back to July 1970 under other names, including
Shorey-Huntington; during a change in control in 2004, the firm
adopted the ThomasPartners name.
This brochure relates to the portfolio management services that
CSIA provides for the Schwab Intelligent Portfolios® program
(the “SIP Program”). CSIA also manages portfolios for several other
Strategies or Programs, including: Schwab Managed Portfolios™
(“SMP”), Windhaven Strategies, and ThomasPartners Strategies.
The SIP Program offers clients a diversified portfolio composed of
exchange-traded funds (“ETFs”) as well as an FDIC-insured cash
allocation (the “Cash Allocation”) that is based on the client’s
stated investment objectives and risk tolerance. The portfolio of
ETFs includes up to 20 asset classes across stocks, fixed income,
real estate, and commodities. The SIP Program is designed to
monitor a client’s portfolio daily and will also automatically rebal-
ance as needed to keep a client’s portfolio consistent with their
selected risk profile unless such rebalancing may not be in the
best interest of the client.
The SIP Program is sponsored by CSIA’s affiliate, Schwab, which
sets investment policy and parameters and also provides trade
execution, custody, administrative and related services for the SIP
Program as described below.
The SIP Program is also used to provide discretionary portfolio
management in Schwab Intelligent Advisory® (the “SIA Program”)
sponsored by Schwab. The SIA Program combines the SIP Program
with additional financial planning services provided through
Schwab. Unless otherwise noted, statements in this brochure
about the SIP Program are equally applicable to discretionary
portfolio management that occurs in accounts enrolled in the SIA
Program. This brochure combined with the Schwab SIP disclosure
brochure and the Schwab SIA disclosure brochure (collectively, “the
SIP and SIA Brochures”) contain details about the SIP Program and
SIA Program, including a description of the automated component
(“Algorithm”) of the Program.
Schwab has chosen CSIA to provide portfolio management services
to the SIP Program accounts on a discretionary basis consistent
with investment policy and parameters developed by Schwab and
with clients’ chosen investment strategy, and to direct appropriate
trades in clients’ accounts. Schwab acts as the qualified custodian
for SIP Program accounts and provides trade routing and/or execu-
tion and related services for SIP Program accounts. Some ETFs in
the investment strategies are managed by Charles Schwab
Investment Management, Inc. (CSIM), which is also an affiliate of
Schwab and CSIA.
Schwab offers the SIP Program online through an interactive website
and mobile application (collectively, the “SIP Program Website”).
Clients use a web or mobile application to determine whether the
SIP Program is appropriate for them and, if so, are asked a series of
questions that the Algorithm uses to determine their investment risk
profile, receive a recommended strategy, and select an investment
strategy. Clients complete their investment profile online and are
asked to carefully consider whether their participation in the SIP
Program is appropriate for their investment needs and goals prior to
enrollment in the Program. Clients can change their investment
strategy by going online and completing a new web-based invest-
ment profile. Clients should periodically review their existing invest-
ment risk profile and update it when their goals, risk tolerance, or
other aspects of their financial situation change.
Clients agree to accept electronic delivery of contracts, disclosure
documents, prospectuses, statements, and other materials. More
information about the SIP Program is available in the Schwab
disclosure brochure provided to SIP Program clients.
The SIP Program website allows prospective clients to review infor-
mation about the SIP Program, including general information on the
types of ETFs included, as well as information about CSIA’s
approach to allocating client accounts.
Clients may also monitor their portfolio’s allocation and activity,
monitor their account’s performance, and use a goal tracking tool to
monitor whether their account is on target to reach their savings or
income goal. Clients may also initiate deposits and withdrawals from
existing SIP Program accounts or open new SIP Program accounts.
The investment strategies employed in each SIP Program account
are governed by a client’s agreement with Schwab.
In the SIA Program, clients respond to a series of planning-related
questions through an interactive SIA website, and a Schwab
Planning Consultant provides financial planning advice and recom-
mends an appropriate SIP Program investment strategy or strate-
gies. More information about the SIA Program is available in the
Schwab disclosure brochure provided to SIA Program clients.
Clients may impose reasonable restrictions on the management of
the account subject to acceptance by CSIA. See the “Investment
Discretion” section of this document for details on potential invest-
ment restrictions.
In addition, upon the request of its affiliate Charles Schwab Trust
Company (“CSTC”), CSIA may provide sub-advisory services to
CSTC in connection with the management of trust assets.
CSIA offers several types of separately managed account strate-
gies and manages $68,811,781,090 on a discretionary basis as of
12/31/2017. CSIA also manages $14,927,425 on a non-discretion-
ary basis as of 12/31/2017.
Fees and Compensation
Pursuant to an agreement between CSIA and Schwab, Schwab
pays all costs and expenses incurred by CSIA in connection with
the SIP Program and other services provided by CSIA to Schwab,
plus an additional amount based on a fixed percentage of such
costs and expenses. Schwab also provides CSIA with human
resources, legal, compliance, and other administrative and techno-
logical support services. The portion of the costs and expenses
paid by Schwab for the work done by CSIA may be adjusted by
Schwab and CSIA from time to time as more or fewer resources
are required. The SIP Portfolio Management Team serves as a
2
portfolio manager in the SIP and SIA Managed Account Programs
offered by Schwab. More specific information about the Managed
Account Programs appears in Schwab’s Disclosure Brochures for
those programs, which are provided to program clients. CSIA does
not enter into agreements directly with Managed Account Program
clients and so does not receive direct compensation from or nego-
tiate fees with them. Management fees may be discounted for
Schwab employees.
Additional Costs
As further detailed in the Schwab SIP Brochure, clients are not
charged an annual Program Fee; however, the SIP Program is not
free of charge. Clients pay the operating expense ratio (“OER”) of
ETFs used in the portfolios, including Schwab ETFs™, which affects
the performance of SIP Program accounts. Account performance is
also affected by the Cash Allocation and the Sweep Program
(defined below). Schwab and its affiliates earn compensation from
certain ETFs used in the portfolios and from the Cash Allocation
and Sweep Program described in the Schwab disclosure brochure
provided to SIP Program clients. Schwab will waive all of its trading
commissions on SIP accounts managed by CSIA. Please note that
Schwab’s waiver does not extend to any other non-Schwab broker
fees, commissions, account fees, or expenses. Information relating
to CSIA’s brokerage practices is included in the “Brokerage
Practices” section of this document.
ETFs held in SIP portfolios are subject to operating expenses and
fees as set forth in the prospectuses of the funds. These fees and
expenses are paid by the funds but ultimately are borne by clients
as fund shareholders. CSIA may also provide access to certain
ETFs, mutual funds, or classes of funds that a client might nor-
mally not be qualified to purchase. If an account leaves, these
investments may be liquidated or exchanged for the share class
corresponding to the size of the client’s individual investment in
the fund.
Compensation Earned by CSIA Affiliates
Schwab and its affiliates may receive an investment management
fee for managing an affiliated ETF or mutual fund, or other forms of
compensation in connection with the operation and/or sale of
shares of affiliated or unaffiliated ETFs or mutual funds, to the
extent permitted by applicable law.
As detailed below in “Methods of Analysis, Investment Strategies,
and Risk of Loss,” Charles Schwab Bank (“Schwab Bank”) earns
income on cash balances participating in the Schwab Intelligent
Portfolios® Sweep Program (“Sweep Program”), which presents a
conflict of interest. Additional details regarding the Sweep Program
can be found in the Schwab Intelligent Portfolios Sweep Program
Disclosure Statement and the Schwab SIP Disclosure Brochure.
These conflicts of interest regarding affiliate compensation are
mitigated by the fact that, subject to the Parameters defined below,
the CSIA investment decision-making process is independent of
and separate from Schwab, Schwab Bank, and CSIM.
Performance-Based Fees and Side-by-Side
Management
CSIA does not receive or charge any performance-based fees.
Types of Clients
Pursuant to the enrollment criteria established by Schwab, clients
of the SIP Program primarily include individuals, revocable living
trusts, and individual retirement accounts (“IRAs”). Government
entities and accounts that are subject to the Employee Retirement
Income Security Act of 1974 (“ERISA”), as amended, are not eli-
gible for the SIP Program.
To be initially invested in an investment strategy, SIP clients must
meet all requirements of Schwab to open their SIP Program
account and fund it with a minimum of $5,000. There is also a
minimum balance requirement to employ a tax-loss harvesting
strategy, and a minimum balance requirement to maintain a tax-
loss harvesting strategy.
Schwab may terminate a client from the SIP Program for failing to
fund their account with the required minimum, for withdrawing cash
from their account that brings their account balance below the
minimum, for failure to maintain a valid email address, or for any
other reason, in Schwab’s sole discretion. Upon unenrollment from
the SIP Program, the client’s enrollment in the Schwab Intelligent
Portfolios Sweep Program will terminate and the account will no
longer be managed.
Methods of Analysis, Investment Strategies,
and Risk of Loss
Pursuant to written investment policy and parameters provided by
Schwab (the “Parameters”), CSIA has created a number of invest-
ment strategies for the SIP Program that consist of diversified
portfolios of ETFs combined with the Cash Allocation in a single
account. The Cash Allocation is an allocation to the Sweep
Program. Each investment strategy is designed to be consistent
with a certain combination of investment return objectives and risk
tolerances. Certain strategies are intended for taxable accounts
and others for tax-deferred accounts. Certain strategies are
intended for clients who are looking for a level of income genera-
tion. Upon request from Schwab, CSIA may add, remove, or change
investment strategies used in the SIP Program.
Schwab sets the Parameters for the Cash Allocation for each invest-
ment strategy. These Parameters are set based on a disciplined
portfolio construction methodology designed to balance perfor-
mance with risk management appropriate for a client’s goal, invest-
ing time frame, and personal risk tolerance, just as with other
Schwab managed products. Schwab Bank earns income on the
Cash Allocation for each investment strategy. The higher the Cash
Allocation and the lower the interest rate paid, the more Schwab
Bank earns, thereby creating a conflict of interest for Schwab and
for CSIA. The Cash Allocation can affect both the risk profile and
performance of a portfolio. To mitigate any conflict, Schwab
instructs CSIA to construct the SIP Program strategies consistent
with the Parameters. More information about the Selection of ETFs,
Cash Allocation, Sweep Program, and Conflicts of Interest and How
They Are Addressed can be found in the Schwab disclosure bro-
chure, as well as the Schwab Intelligent Portfolios Sweep Program
Disclosure Statement provided to SIP Program clients.
The written Parameters established by Schwab place limitations on
the universe of ETFs that CSIA may select for the SIP Program.
Schwab has ETF selection parameters designed to support its
philosophy of low-cost and index-based investing. In support of
providing broadly diversified and risk-adjusted portfolios, eligible
ETFs must represent well a particular asset class in the portfolio,
meet sufficient liquidity standards and be among the lowest cost
(in terms of the OER) in their asset class or category. When it
comes to replacing an ETF, CSIA also considers the potential
3
impact to clients such as additional trading costs or other costs.
Eligible ETFs include Schwab ETFs™, which are managed by CSIM,
which is an affiliate of Schwab and CSIA. Schwab ETFs pay fees to
CSIM that are described in “Participation or Interest in Client
Transactions” below. Schwab has instructed CSIA to select or
retain Schwab ETFs in the portfolios as long as CSIA determines
they satisfy the above factors.
CSIA will generally select both a primary and secondary ETF for each
asset class in consideration of, among other things, tax-loss har-
vesting and requested investment restrictions. In limited circum-
stances, as determined by CSIA, only one ETF may be used in
certain asset classes. In such cases, the tax-loss harvesting feature
would not be available for execution in the affected asset class(es).
To be eligible for consideration, ETFs designated as the primary ETF
in an asset class must have a share price less than a cap that is
necessary to enable trading in smaller balance accounts.
CSIA receives a broad range of research from a wide variety of
sources that include Schwab-affiliated entities, other brokers, and
independent research providers, including issuers and trading
partners. CSIA may use written reports prepared by recognized
analysts who are specialists in the industry and may use computer-
based models to assist in portfolio management. CSIA may also
use statistical and other information published by third-party data
providers, industry, and government; information gathered at meet-
ings of professionals within the industry; and its own research of
investment trends.
CSIA creates diversified portfolios of ETFs combined with a cash
investment in a single account several Programs or Portfolios/
Strategies, such as Schwab Managed Portfolios™ – ETFs,
Windhaven® Strategies, and Schwab Intelligent Portfolios®. In addi-
tion, CSIA also provides portfolio management for ThomasPartners®
Strategies, which invests primarily in dividend-paying stocks, fixed
income securities, and fixed income ETFs. The parameters for
asset allocation for each differ from the others. There may be
times when clients in different Programs or Portfolios/Strategies
are investing in the same ETF; however, each Program or Portfolio/
Strategy has a separate portfolio management team making trad-
ing and investing decisions.
General Risks
Risk of Loss
There are inherent risks to investing in Schwab Intelligent
Portfolios, including, but not limited to:
Management Risks
CSIA applies its investment techniques and risk analyses in mak-
ing investment decisions or recommendations for its clients, but
there can be no guarantee that they will produce the desired
results. In addition, there is no guarantee that a strategy based on
historical information will produce the desired results in the future,
and if market dynamics change, the effectiveness of the strategy
may be limited. Each strategy runs the risk that investment tech-
niques will fail to produce the desired results. There also can be
no assurance that all of the key personnel will continue to be
associated with the firm for any length of time.
Investment Risks
Investments in securities, including ETFs and mutual funds and the
securities that they in turn invest in, involve various risks, including
those summarized below. In addition, each ETF and mutual fund
has its own investment style, which may involve risks different
from those described below. Clients and prospective clients should
be aware that investing in securities involves risk of loss that
clients should be prepared to bear.
Model Risks
Schwab Intelligent Portfolios may use quantitative analyses and/or
models. Any imperfections, limitations, or inaccuracies in its analy-
ses and/or models could affect its ability to implement strategies.
By necessity, these tools make simplifying assumptions that may
limit their effectiveness. Models that appear to explain prior mar-
ket data can fail to predict future market events. Further, the data
used in models may be inaccurate, and/or it may not include the
most current information available.
Algorithm Risks
There are limitations inherent in the use of an Algorithm to manage
Program accounts; for instance, the Algorithm is designed to man-
age Program accounts according to the asset allocation selected
for that account and is not designed to actively manage asset
allocations based on short-term market fluctuations. The Algorithm
is also not designed to consider certain factors such as short-term
asset class volatility or individual tax circumstances such as capi-
tal gains taxes; rather, its functions consist of proposing a portfo-
lio based on a client’s answers to the online questionnaire,
identifying opportunities for tax-loss harvesting and rebalancing,
and initiating buy/sell orders accordingly. Investment advisory
personnel of CSIA oversee the Algorithm but do not personally or
directly monitor each individual Program account.
There is also a risk that the Algorithm and related software used in
the Program for strategy selection, tax-loss harvesting and rebalanc-
ing, and related functions may not perform within intended param-
eters, which may result in a recommendation of a portfolio that may
be more aggressive or conservative than necessary, and trigger or
fail to initiate rebalancing and/or tax-loss harvesting trading.
ETF General Risks
ETFs in which the strategy may invest involve certain inherent risks
generally associated with investments in a portfolio of securities,
including the risk that the general level of security prices may
decline, thereby adversely affecting the value of each unit of the
ETF. Moreover, an ETF may not fully replicate the performance of
its benchmark index because of the temporary unavailability of
certain securities in the secondary market or discrepancies
between the ETF and the benchmark index with respect to the
weighting of securities or the number of securities held.
Investing in ETFs carries the risk of capital loss. ETFs are not
guaranteed or insured by the FDIC or any other government agency.
You can lose money investing in ETFs. ETFs in which the strategies
invest have their own fees and expenses as set forth in the ETF
prospectuses. These fees and expenses lower investment returns.
Although ETFs themselves are generally classified as equities, the
underlying holdings of ETFs can include a variety of asset classes,
including but not limited to equities, bonds, foreign currencies,
physical commodities, and derivatives. A full disclosure of the
specific risks of ETFs is located in the respective prospectus of
each fund.
ETFs may have exposure to derivative instruments, such as futures
contracts, forward contracts, options, and swaps. There is a risk
that a derivative may not perform as expected. The main risk with
derivatives is that some types can amplify a gain or loss, poten-
tially earning or losing substantially more money than the actual
cost of the derivative, or that the counterparty may fail to honor its
contract terms, causing a loss for the ETF. Use of these instru-
ments may also involve certain costs and risks, such as liquidity
4
risk, interest rate risk, market risk, credit risk, management risk,
and the risk that an ETF could not close out a position when it
would be most advantageous to do so.
Market/Systemic Risks
Equity and fixed income and other global capital markets rise and
fall daily. The performance of client investments is, to varying
degrees, tied to these markets. When markets fall, the value of a
client’s investments will fluctuate, which means a client could
lose money.
Asset Allocation/Strategy/Diversification Risks
The asset allocation decisions can result in more portfolio concen-
tration in a certain asset class or classes, which could reduce
overall return if the concentrated assets underperform expecta-
tions. The more aggressive the investment strategy selected, the
more likely the portfolio will contain larger weights in riskier asset
classes, such as equities. The asset classes in which an invest-
ment strategy in the SIP Program seeks investment exposure can
perform differently from each other at any given time (as well as
over the long term), so the investment strategy will be affected by
its allocation among the various asset classes. Depending on
market conditions, there may be times where diversified portfolios
perform worse than less diversified portfolios.
Geographic Concentration Risk
Portfolios concentrated in any one geographic region can be more
susceptible to that region’s political and economic risk. For exam-
ple, a portfolio that is concentrated in the United States will be
more susceptible to the United States’ political and economic risk,
as compared to a more globally diversified portfolio.
Trading/Liquidity Risks
A particular ETF may be difficult to purchase or sell or may become
difficult to sell after being purchased for a client account. CSIA may
be unable to sell ETFs on behalf of a client at an advantageous
time and/or price due to then-existing trading market conditions.
Large Investment Risks
Clients may collectively account for a large portion of the assets in
certain ETFs. A decision by CSIA to buy or sell some or all of a par-
ticular ETF or mutual fund where clients hold a significant portion of
such may negatively impact the value of that security.
Counterparty Risks
There may be a risk of an executing broker failing to deliver securi-
ties, especially due to the large volume of step-out transactions for
the Windhaven® and ThomasPartners® Strategies. This may result in
a loss to the client. CSIA, working with Schwab, will attempt to miti-
gate trading counterparty risk through its broker selection program
included in “Brokerage Practices.”
ETFs may have some “product” or “structural” risk associated
with underlying derivatives, as they will sometimes provide market
exposure through indirect means, like futures, options, and for-
wards contracts.
Custodian Risks
Schwab is a Securities Investor Protection Corporation (“SIPC”)
member brokerage firm and maintains SIPC protection. SIPC offers
protection of up to $500,000, including a $250,000 limit for cash, if
a member brokerage firm fails. SIPC covers most securities, such as
stocks, bonds, ETFs, and mutual funds, but does not protect against
market loss.
Tax Risks
The Program is not designed to address specific tax objectives.
There is no guarantee that the tax-loss harvesting strategy in the
Program will reduce, defer or eliminate the tax liability generated by a
client’s investment portfolio in any given tax year. Also, gains and
losses associated with some commodities may be taxed differently
than standard short-term and long-term capital gains and losses.
Clients should consult a professional tax advisor for help with their
unique situations.
Underlying Securities Risks
Equity-Related Risks
General Risks
The prices of equity securities, and thus the value of ETFs or
mutual funds that invest in them, will rise and fall. These price
movements may result from factors affecting individual companies,
industries, or the securities market as a whole. Individual compa-
nies may report poor results or be negatively affected by industry
and/or economic trends and developments. The prices of securi-
ties issued by such companies may suffer a decline, in response.
In addition, the equity market tends to move in cycles, which may
cause stock prices to fall over short or extended periods of time.
Large- and Mid-Cap Risks
Large- and/or mid-cap U.S. stocks, along with mutual funds and
ETFs that focus on large- and/or mid-cap segments of the stock
market, bear the risk that these types of stocks tend to go in and
out of favor based on market and economic conditions. However,
stocks of mid-cap companies tend to be more volatile than those
of large-cap companies because mid-cap companies tend to be
more susceptible to adverse business or economic events than
larger, more established companies. During a period when large-
and mid-cap U.S. stocks fall behind other types of investments—
bonds or small-cap stocks, for instance—the performance of
investment strategies focused on large- and/or mid-cap stocks will
lag the performance of these other investments.
Small-Cap and International Risks
Historically, small-cap and international stocks have been riskier
than large- and mid-cap U.S. stocks (see the “Foreign Investment–
Related Risks” section below for additional information). During a
period when small-cap and/or international stocks fall behind other
types of investments—U.S. large- and mid-cap stocks, for
instance—the performance of investment strategies focused on
small-cap or international stocks may lag the performance of these
other investments.
Fixed Income–Related Risks
General Risks
Bond markets rise and fall daily, and fixed income investments,
which generally also include instruments with variable or floating
rates, are subject to various risks. As with any investment whose
performance is tied to bond markets, the value of a fixed income
investment, ETF, or mutual fund will fluctuate, which means that
the client could lose money.
Interest Rate Risks
When interest rates rise, bond prices usually fall, and with them
the value of an ETF or mutual fund holding the bonds. A decline in
interest rates generally raises bond prices, and with them poten-
tially the value of a bond fund or ETF share, but could also hurt the
performance of an ETF or mutual fund by lowering its yield (which