Charles Schwab in his downtown San Francisco office.
(Photo: Martin E. Klimek, USA TODAY)
Like many business icons, Charles Schwab's great business idea seems like simple common sense: Give small investors the same treatment big investors have always gotten.
For Schwab and his eponymously named discount brokerage firm, the first big opportunity began on May 1, 1975, when the Securities and Exchange Commission abolished fixed brokerage commissions. Companies such as Charles Schwab & Co. could now offer stock trades at much lower commission prices than competitors such as Merrill Lynch.
That's exactly what he did, and it sparked a revolution, helping make the stock market accessible to the small investor for the first time. Lower commissions meant that smaller investors could afford to buy and sell stocks just like the big guys did.
While a simple step, it earned Charles Schwab & Co. deep loyalty from investors - something that company still cultivates. "He has laid out a culture and philosophy that permeates the company, and it's based on a very simple concept that we try to execute on," says Walter Bettinger, CEO of Charles Schwab & Co. "If you do the right thing by your clients, if you do the best you believe that you can do, they will, in turn, make the choice to do business with you."
As he looks ahead to the future, Schwab's biggest worry is that the financial services industry failed investors in the bear market that began in 2007. "In many respects we shot ourselves in the foot," Schwab says. "I'm talking about the whole financial services industry. Just a few that made these giant mistakes that really revolved around greed. It could take a long time to rebuild that trust."
It took a long time to build Charles Schwab & Co. Schwab started in the investment newsletter industry in 1963 with a publication called Investment Indicator. Charles Schwab & Co., at first a traditional brokerage firm, made its debut a decade later in 1973.
It wasn't easy. Finding seed money in the days before venture capitalists was a struggle. "I'll never forget convincing my wife that 'This was such a great idea, dear, we should have a second mortgage on our house.' We could barely afford our first mortgage," Schwab says.
But the discount brokerage concept caught on, thanks to Schwab's investment seminars and brick-and-mortar branches, and by 1982, the company had 374,000 clients. Schwab himself had became famous enough in the early 1980s to sing "I read it every day" in USA TODAY's first ad campaign, along with Willard Scott, Diahann Carroll, Willie Mays and Mickey Mantle, among others.
In 1983, Bank of America bought the company for $55 million as banks rushed to become places where you could get checking accounts, stocks and insurance all in one place. It was a concept that never entirely succeeded. Although the company fared well under Bank of America, reaching a million clients in 1985, Schwab led a management buyback of the company in July 1987, taking the company public for $280 million.
Talk about bad timing. On Oct. 19, 1987, the stock market had its largest single-day crash in history, plummeting 22.6% - the equivalent of about 3,350 points today. Investors were skittish, the company had issues with its systems and a larger customer base. "Getting that all together was clearly a very testing time for me," Schwab said.
The company had another big test when Schwab relinquished the company's reins to David Pottruck, a longtime Schwab executive. Pottruck hiked fees and promoted a more upscale vision of the company - and sent revenue plunging. The company replaced him after a year, and Schwab returned to the helm. Bettinger took over as CEO in July 2008 - arguably the most difficult time in recent history to take the reins of a financial services company - and Schwab is now executive chairman.
To Schwab, the wounds from 2007-2009 are still wide open for investors. "That made a huge scar for our industry," he says. "We have to dig out of that as an industry."
The nation's legislative gridlock doesn't help. "We have to get back to negotiation," Schwab says. "A little has to come out of each person's hide to resolve all these issues." There's too much to be done with the nation's fiscal issues to let gridlock take over, he says.
But the financial collapse left Charles Schwab & Co. looking good. It was one of the largest financial companies that didn't have to take money from the government to bail it out. "Our reputation has been enhanced substantially with our stability, and our conservative way of running the company," Schwab says.
And Schwab is optimistic, not just about the financial services industry, but about the nation as a whole. "Educated people from around the world want to come here," he says. "The innovation that goes on is just profoundly important - it continues to be the engine that drives our future. If you're not innovating, you're going to go out of business fairly quickly."
Part of keeping the nation great, Schwab thinks, means getting people to invest early. "You can buy an index for $1,000 and get ownership in 1,000 companies," Schwab says. "But understand what you just did: You are an owner in 1,000 companies, and you're behind innovation and educating more people, which will allow this incredible growth engine we have in America. If we just rely on government for all our various services, we will have lost this opportunity for individual creativity and innovation that leads to opportunity for everyone."
One area of opportunity that Schwab is particularly passionate about is dyslexia. He's severely dyslexic. "One in seven people in America have some form of dyslexia," Schwab says." They have a tough time reading, taking the symbols of letters and converting letters into sound and meaning."
Schwab had to figure out his own strategies to cope with his dyslexia. "Back then, there was no science at all around the issue," he says. "I had to putter my own way through school and try and define my own strategies to overcome the issues I was facing."
Schwab wasn't able to put a name to his learning disability until he noticed his son struggling with the same issues he had. And he decided to help others. "My wife and I decided to devote a lot of energy to helping other families, because it's amazing how many families you come across who have a child or an adult who has this issue," Schwab says. "We set up an agency that helped about 1,000 families a month," he says.
At 75, Schwab no longer has to worry about whether he can pay a first or second mortgage: His net worth is estimated at about $4.3 billion. A former captain of the Santa Barbara High School golf team, he's a fit and a formidable golfer. So it makes sense that his favorite app is Weather.com. "I'm always checking the weather, whether it's a great day to play golf in the summer or go skiing in the winter," he says.
John Waggoner, USA TODAY