Businessweek Extra - Charles Schwab

He's got such an amazing scope to his career and the pioneering that he started forty plus years ago definitely continuing today. Here's that conversation with Taylor Riggs and myself. All Right, so there are a few people probably in the investing world as well known and candidly as influential as Chuck Schwab. So thrilled to have him here in our studio in New York City. He's the founder, of course, of the Charles Schwab Corporation, a pioneer in many respect.

Great to have you with us, well, Jason, thank you. I love to come down and see Bloomberg keeps expanding your communication capabilities. Are wonderful, wonderful for our business. Actually, well, we appreciate that. So let's talk about your business. I want to talk about your book. You've got a new book out, it's called Invested. But before we get to that, I gotta ask you about sort of the news in the industry over the last couple of weeks. Pretty exciting.

So why now, what's happening? We just want to make sure our investors get the best deal possible, and that's called free, free trades. And so I've been on that pursuit that mission basically for almost forty years because I cut the commission's way back when when the regulation was permissible. And I've been on that quest for now forty years. So now we finally made it happen. Zero commission for transactions.

Now you might have to pay for other thing, but for transactions, it's zero, right, So chalk, what's great for customers is free. But how does that affect your business? Some people are saying it could impact revenue by a hundred million dollars a quarter. How do you make up for that loss in revenue? Well, it's about four percent of our revenue has been lost because of that. But every time we've ever made it a better deal for

our clients. We get more clients, and we will make it up in volume sort of speakcause people we have many other services. We have money market fund, we have mutual fund, we have advised accounts, we have other ways to make some money depending on what the client is looking for, uh, different levels of service and so. But trades will be free, and so we'll just hope more people will come and enjoy the benefits of SAL provides. So when you talk about volume, Chuck, that obviously means

that probably scale matters. You've got a big piece of the market. Now, are we going to see some consolidation here? I think it's very possible. Well, I don't know whether it will be successful in that pursuit, but I think in the industry you're going to see more consolidation, more firms getting together. You just have to have that scale and volume. And so we're prepared to do it if if the opportunity arrives, but if not, we're perfectly happy

to go alone. Chuck. Outside of volume, what do you say to critics from the street or companies like Moody's who had been taking a look at your credit writing after this decision. What else do you say to them about how you can also make up and grow despite this. Well, you can look at the past. It's pretty easy to see every time we've ever cut our commissions, it's always led to more business. It's been very consistent over many,

many years. So this is not the first time we've got commission just happened to be this time to zero. Our cost in terms of running our business is extremely low. We're probably the lowest cost provider in the business. UH costs about fifteen basis points UH per dollar of asset that we have at Schwab and to run the business, that means all our web sites, all the services of

branches and so forth. So we really put a lot of attention to our costs and so we're able to deliver to our clients a better value we think because of that, and so we're highly competitive and we'll continue to be competitive. We have many new ideas. Of course, technology has been really our friend in so many ways, has allowed us to be more efficient and deliver our efficiency on in terms of lower prices to our clients.

All right, so you talked about sort of the history your history in this business, Jock and you lay that out so nicely in this book, and it's funny. You know. The book is called Invested, the subtitle changing Forever the way Americans invest. I've read a lot of books, and I know that often people are given to hyperbole in their titles. This actually isn't hyperbole. It did it changed things. I think it changed Wall Street dramatically for the better.

I think so many people have adopted some of the same things that we put in place early on, and people thought, well, it does work, it does attract customers, do the right thing for customers, and may my goodness

people come to your front door right. So, using that as a backdrop and thinking about putting this book together, I would imagine you went back and thought about those sort of catalytic moments over the course of your career, not just the founding, but some pretty interesting moments along the way, including a buyout that didn't go and that pusion didn't know the way you wanted and l b oh then following on to take it back, tell us

about those moments that really stick out to you. Well, it's all laid out in the book Invested, and I had a great fun actually took two years to write the book with some a little bit of help along the way, but all the stories are my stories, and it was about starting out with four people, back in four people. How we have over twenty thousand, we have millions of customers and all that's all that great success. But the book talks about this is not a straight

line up at all. There's been a lot of a lot of downs, a lot of things that we learned along the way. Took persistency and took commitment, It took passion by many, many people who helped me along the way to make a great company. And so I thought it would be worthwhile to tell people about this great entrepreneurial experience. But all so it lets my employees know what we stand for as a company, the purpose of the company, how we help customers, and why we love

our customers. And also we'd like to have our our our customers themselves. Our clients read the book too, so they know our commitment. And why was taking back the independence of your company away from Bank of America so important to how Charles Swab operates today. Well, I think it's highly important that you we need to have a company of investment company like ours in place or so many of the giant firms, of these big investment banking

firms that don't really think exclusively about individual investors. We do. That's all we do is think about our clients. How can we do better job, and how the new innovations using new technology to come up with new ideas, how to make their life better in terms of their financial life, and so chuck as you think about your customers right now, let's talk about them. How they're feeling right now. We're in the midst of the longest expansion economic expansion in history.

I mean, people are feeling pretty good. The equity markets little volatility here and there, but generally the consumer feels good. Tell us what you learn because you see them trading every day. Well, I think our investors, you know, people who have been with us for a few years or know about the markets. They know markets go up nicely and everyone's really happy about that. They also know markets go down. Free markets go up and down. That's the

fundamental thing you have to understand about investing. And after that you find out the potential from investing, how you can really change the wealth, wealth for yourself, wealth to your family, and gives you all these new opera tunities that you might have as you go through life. So you know, the only thing that really grows normally, like real growth is companies. So investing in companies is a

wonderful way to go back. I always look at buildings, for instance, one building bibe and that building always remains the same. It never changes in size, it always remains the same. Stocks can grow from one Hamburger shop to ten to ten thousand. You know, one coffeemaker can take a couple of couple of coffees and all of a sudden is making millions a day. And that's but that takes place over a period of time. It's called growth, and that's what companies are able to do. Some of

the great companies are even do even more growth. I'm talking about now more growth coming well. I think innovation America is profound. I live on the West Coast where so much of the new innovations pop up at times, and it's it's just it's going to continue. The Internet has been just unleashed so much capability I think, and communication, and so I think there's huge opportunities new frontiers ahead. We just have to hang on, keep our safe safety

builts on and right, make the right happen. Well, and you're speaking my language giving given I'm out here in San Francisco in the midst of all of that innovation that you described. You were right, and that the markets go out, the markets go down. Investors know this. But as you look, do you get a sense that there is a special type of nervousness from investors right now that didn't exist, you know, a decade ago, two decades ago,

or does this feel business as usual? It's no different today than it was ten years ago or twenty year thirty. Let me tell you, Um, you go back, it's very interesting to do this. Go back some time and read, go to the library and get some of the newspapers of ten years ago, and you'll see what I mean. There's always some issue going on, and it changes. And that's what the dynamics are of a free society. Keep changing.

That the stories a little different, but there's still fear agreed, fear agreed to sort of up and down along the way. And so just understand, as investor, you've got to be a cool as a cucumber, let me tell you, And just hang in there. Make sure you're diversified don't put it everything in one little investment. Make sure you have ten, twenty or some index funds or things like that that really give you a breadth of experience and exposure to investing.

And so before we let you go, I gotta ask you, what's the one thing you want to make sure people take away from this book? I think I think it's about the values that our company has and how sustainable it is. And I wish more companies were able to keep those values front and centered, not only with their employees, but let their customers know what we stand for and what they can expect. And how do you do that? How do you do that on a daily base? How

do you, Chuck Chwab, I don't know I've done. I spent a lot of time in different branches throughout the country. I try to and try to instill my executives and my CEO, who has embodied Walt Benger fantastic, how we have maintained our values throughout these years. That was Charles Schwab, of course, of the firm that bears his own name. You and Taylor catching up with him, Taylor Riggs in yourself, and I think it was interesting because we have seen the world move to kind of a low rate, no

rate environment when it comes to trading. He took it further, he did, and again he's always at the center of the next thing in this business. Really good to catch up with him. You've been listening to Bloomberg Business Week Extra, we shorted Tune into Bloomberg Business Week Radio Live Monday through Friday at two bum Wall Street Time on Bloomberg Radio. I'm Karl Masser and I'm Jason Kelly. This is Bloomberg