Charles R. Schwab

Charles R. Schwab

Founder, Charles Schwab Corp.

Charles Robert Schwab Jr. is comfortable just being called Chuck. In fact, the multibillionaire founder of Charles Schwab Corp. prefers it.

“That’s what all the commercials say,” he gently chides, referencing the folksy “Talk to Chuck” marketing campaign aimed at deepening the connection between consumers and the expansive brokerage and banking conglomerate.

Mr. Schwab’s well-documented determination to launch a new kind of discount brokerage firm on the West Coast 45 years ago makes it easy to understand how he remains active in the business at an age – 79 – when most people might be enjoying retirement.

“His big thing was going into discount brokerage, and he put a lot of pressure on brokers and he took commission rates down,” said John Bogle, founder and former chief executive of The Vanguard Group.

Mr. Schwab recalls those early days of starting a business with just four people.

“Back then Wall Street had a complete monopoly on the [financial services] industry,” he said. “The contentious relationship with Wall Street was pretty extensive, to say the least.”

The upstart venture got a significant boost on May 1, 1975, when the 180-year-old practice of fixed brokerage fees was abolished, allowing commissions to be set by market competition.

“With the deregulation, we played a very important part in reconstruction of Wall Street,” Mr. Schwab said. “We split out investment banking, research and all those things. The old structure was blown up and the new structure was developing.”

But it was far from smooth sailing.

For example, Mr. Schwab said his early efforts to join the Pacific Coast Stock Exchange were met with challenges of whether what he was doing was ethical.

“They didn’t understand why I was charging clients less money,” he said.

Joe Ricketts, founder and former chief executive of TD Ameritrade, recalls the competitive energy between him and Mr. Schwab back in the mid-1970s, when both men were launching the earliest discount brokerages without a blueprint.

“Chuck Schwab, along with myself and a couple others, saw this opportunity unfolding and took advantage of it and changed an industry,” he said, adding that the professional rivalry had prevented the two men from becoming friends until a few years ago.

“What we were doing back then was scary to Wall Street and scary to the regulators, so they watched us very closely,” he said. “The industry pooh-poohed the idea of what was originally called negotiated commissions, whereas people like Chuck knew things were changing. He is one of the great entrepreneurs of America.”

May Day, as the deregulation of brokerage commissions has become known, spawned the discount brokerage industry that Mr. Schwab was forging and, ultimately, led to the birth of the modern day financial advice industry.

“The business of investment advice was insignificant, if at all, before the separation of all parts of Wall Street into components,” Mr. Schwab said. “The so-called discount brokerage industry enabled the advice industry to get started.”

Harold Evensky, founder of Evensky & Katz Wealth Management, said much of today’s financial advice industry can be traced to the innovations that spawned from Mr. Schwab’s original discount brokerage platform developments.

“I give him credit for putting financial advisers in business,” Mr. Evensky said. “Prior to the Schwab open platform you had to go to four or five different fund companies just to open accounts, and you can only imagine the difficulty of rebalancing.”

Mr. Evensky even gives Mr. Schwab credit for the current trend toward downward pressure on fees.

“Before Schwab, the scale that anyone could have a business under was very small,” he said. “We would not have a profession today without Chuck Schwab; it’s all been driven by him personally. Just like the pressure on fees, which is good for us and our clients.”

On the topic of compensation, Mr. Schwab believes there is “reputation risk from broker and adviser combos.”

“I truly believe in the singular fiduciary approach; you can’t be both broker and adviser in terms of a single relationship with a client,” he said. “I hope commission-based goes away, because I think it leads to the ultimate reputational risk.”

The other issue along those lines, he said, is “a recognition that there needs to be fee compression.”

“The cost of advice is not inexpensive, so advisers have to always be thinking of how they can lower costs,” he said.

The idea of Schwab the company navigating business relationships with both retail investors and the financial advisers who are competing for many of those same clients is part of a reality Mr. Schwab helped create.

“There are plenty of fish in the sea for advisers to provide advice,” said Cheryl Holland, founder and president of Abacus Planning Group.

Even the 2014 launch of Schwab’s own robo-advice platform isn’t enough to derail the support of advisers like Ms. Holland.

“There is a long history of Schwab competing with advisers, and I think launching a robo-platform is good for Schwab, good for the advice industry and good for the consumer,” she said. “Competition is good. If I can’t do a better job than a robo-adviser, I shouldn’t be in business.”

Mr. Schwab adopts a more diplomatic tone on the subject, but the point is essentially the same – that competition is progress.

“I think the financial advice industry will just get bigger and bigger,” he said. “Whether it’s today or 100 years from today, there is no substitute for effective financial advice.”

While it might seem like Mr. Schwab is still a long way from letting go of the business he spent most of his life building, he actually considers his ventures outside of financial services to be some of his proudest accomplishments.

For the past nearly 10 years he has been chairman of the San Francisco Museum of Modern Art, helping to increase the endowment by more than threefold to nearly $300 million.

Then there is the Charles and Helen Schwab Foundation, which was started in 1987 and has grown to almost $400 million.

The charitable foundation is focused on supporting children’s education with an emphasis on raising awareness and treatment for dyslexia, which Mr. Schwab didn’t realize he suffered from until he was an adult.

He now looks back at the undiagnosed dyslexia as “a benefit in the sense that I recognized I had great skills in some areas but there were limited areas.”

“I could really bring in other people to work with me who had great skills in areas that I did not have,” he said. “People had different points of view and different perspectives and different skill levels. It was, I think, serendipitous that it came out that way.”

Mr. Schwab retired as chief executive in 2008, and Walt Bettinger took over as president and CEO. But Mr. Schwab remains chairman of the company he founded in 1971.

– Jeff Benjamin


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