Walt Bettinger: The Future is Choice

To finish off Schwab's IMPACT week, Tom and I got some time with Schwab CEO Walt Bettinger, who has been President and CEO of The Charles Schwab Corporation since 2008. This year he celebrates 20 years at the company. We think you'll enjoy our brief, but enligtening visit. #SchwabIMPACT

Q. Tom and I were there at the beginning of “Financial Advisors Service" as I was an employee in the area and Tom was on the first Advisory Board. We were talking this week and decided that in effect — Schwab really started an industry of serving the needs of Advisors. This business has basically killed the “broker”. In fact no one ever says that word anymore — people now say “Advisor.” How satisfying is that to Mr. Schwab and you?

Ultimately, what’s satisfying to Chuck, me and all of us at Schwab is that more Americans are getting the advice and management of wealth that serves their interests and goals. While we take great pride in the success of our company and its strategy for serving advisors and investors, none of us at Schwab comes to work with the goal of claiming victory over anyone or any particular firm. Chuck founded this company out of a belief in the power of investing and what it could for individuals and families – if done right. He saw a way to give investors a better deal and better outcomes, and he was successful because he saw things through clients’ eyes. That’s still how we make decisions today.

What you are seeing in the evolution of how the industry and its professionals talk about themselves today is a recognition that the approach pioneered by independent advisors – holistic, client-centric, and firmly rooted in plans based on specific goals and objectives – really resonates with investors. So the traditional firms are adopting some of the same language and some of the same practices, moving away from commissioned-driven sales practices, though, frankly, those practices still exist, and too many investors are still paying too much for solutions and advice that doesn’t serve them well.

We’re very gratified if our support and promotion of independent advisors has helped push this industry to better align its practices with the interests of its clients. That’s a good thing, and a trend we should encourage.

Q. Schwab has always dealt with a need to innovate and evolve while balancing all of the other business lines. We’ve seen that happen for 25 years with the Advisor business at Schwab, even as Schwab has developed advice solutions of its own. And yet, we still hear concerns about conflict between your advisor band retail businesses, more recently with the advent of Schwab Intelligent Portfolios. Is there conflict? How do you balance the evolution of Schwab’s own advice services with the Advisor business, particularly given the importance of both to the company?

There’s no denying those concerns exist, though I think they are often fueled more by pundits than reality. It’s certainly not borne out by the success that independent advisors have experienced over the past two decades, at Schwab and in general. Today, through our Advisor Services enterprise, we serve over 7,000 advisors with more than $1 trillion in assets, and independent RIAs in general have seen assets in their care grow from $1.6 trillion to $4 trillion in the last 10 years. Nor do we really see evidence of conflict between advisors and Schwab retail out in the market. That’s because Schwab and advisors serve very different kinds of investors and appeal to very different mindsets. Our business with independent advisors is our solution for serving more affluent investors who want and need the breadth of service, customization, personalization and expertise that only independent RIAs can provide. Advisors are very important to our bottom line as a company, for sure, but they are important to us strategically, and philosophically, because the work they do is so beneficial to their clients.

Has Schwab’s retail offering evolved? Absolutely, but so has the advisory profession. All of us know that certain elements of the investment process are being commoditized, requiring new and innovative ways to add value and broaden our services. And as we have evolved, we have worked very hard to provide advisors the support and services they need to remain ever more competitive. Our development of Institutional Intelligent Portfolios is a great example of those efforts. Using that platform to automate a portion of the investing process, advisors have an opportunity to expand their appeal and compete for a broader range of investors, particularly at a lower end of the affluence spectrum than they have previously competed. In essence, it empowers them to compete for investors who might have previously thought to been in Schwab Retail’s territory from an affluence or mindset perspective. We’ve also just announced a new way for independent advisors to take on a greater role in our 401(k) offering.

Finally, we all still have huge opportunity for future growth and success. Together, Schwab and RIAs still serve only a small percentage of the investable assets in this country. By our estimates, there are $23 trillion in assets with high net worth household in the U.S. currently not served by an RIA but who would be ideal candidates for their services.

Q. The evolution of what Schwab has created seems to prove that people want a number of choices — sometimes on their own, sometimes with an independent advisor, and going forward, with the help of a computer algorithm. What’s your view on where the next generation’s choice is going to be — a person or a keyboard?

We don’t believe the answer is one or the other, but rather a combination of technology and trusted advice from a professional. When you look back at the history of Schwab, it’s helpful to remember that when Chuck first started opening branches, most observers thought it was folly. The prevailing wisdom was that self-directed investors would never want to go into a branch, nor did they think Chuck’s low-cost model could support a bricks-and-mortar network. But it turned out that with each branch opening, we attracted more clients who welcomed the choice to call us or visit us in person. So most people have never really wanted to go “all tech” or, for that matter, take care of all of their wealth themselves.

I don’t believe the next generation of investors will be any less nuanced in how they want to manage their money. Certainly, younger investors have come of age in a time when technology has changed their expectations of service providers. They demand and have come to expect immediacy, convenience and service on their terms. And they are surrounded by providers in other industries who are meeting those expectations with technology, apps on their mobile devices and service on demand.

At the same time, the generation that has come of age since 9/11 has been influenced by the economic and geopolitical turbulence of the past 15 years. It has left them feeling less confident, and more conservative about their finances. In some ways, they are more in need of a calming hand and trusted advice than the Baby Boomers. On the flip side, we are seeing investors across all generations enroll in new technology based investing solutions like Schwab Intelligent Portfolios.

Going forward, I believe the key to success will be combining human advice, wisdom and service with the best of technology, using the latter to transform and deliver our services in ways that are simple, transparent, and increasingly in tune with how our clients want to interact with us.

Q. You’ve been at this Company for 20 years now — it’s been a major part of your life. It’s shaped you to be a very successful CEO and you’ve helped lead the company to build on its heritage and reputation but also to move it forward in many successful and meaningful ways. How do think about the role Schwab has played in your life, and the role you play in continuing its success?

Schwab is a very special place, and it has obviously held a very special role in my life, from my early days as a client of Schwab to the opportunity to serve with, and learn from, Chuck Schwab and all of the tremendously talented people who help lead this company and care for our clients every day.

What was appealing to me about Schwab from the very beginning was the philosophy underlying its strategy. It’s a philosophy, as simplistic as it may sound, that if you do the right thing by your clients, they’re going to choose to do more business with you, and they’re going to refer more clients to you. It was very consistent with how I had tried to run my company.

Schwab is an also organization that recognizes the difference between who we are and what we do -- that we may operate as business people, but that we’re actually all people first. And I have benefitted tremendously from that recognition as I have balanced my responsibilities at Schwab with my family priorties.

So yes, Schwab holds a very special place in my life, but I don’t ever make the mistake of thinking Schwab’s success is about me. As Chuck has said, our job as leaders of the company is to ensure that Schwab is healthy, thriving and continuing to innovate for the many generations of investors to come. My job, and the job of others who work with me and who will follow in my footsteps, is to further our mission of extending the benefits of investing to as many people as possible, whether we do that directly, or through their retirement plans at work or through the trusted advisors we’re fortunate to have worked with for over 25 years. I’m honored and privileged to be able to contribute to that mission in any way I can.