Invested with Charles Schwab

hi its Jill Schlesinger on this episode
of Jill on money we’ve got words of investing wisdom you
don’t go in investing with the thought that it’s going to be always a an up day
it has to be many down days too along the way that’s what markets do you just
have to have that pure and simple understanding markers are going to
fluctuate welcome to the Jill on money podcast we
are presented by Marcus by Goldman Sachs when you have an opportunity to bring an
iconic human being into a studio you just say yes it doesn’t matter whether
you have a jet-lagged crazy sleep-deprived presence you still say
yes and that’s what I did I said yes to Chuck Schwab yes that one
Charles Schwab investments you know he came into the studio told us about his
career and in between the story about his life we learned a lot about the
financial services industry here’s our interview with Chuck Schwab you’re
listening to Jill on money with Jill Schlesinger we are delighted to have a
special guest in studio Chuck Schwab he is the founder former CEO you have some
sort of emeritus title now I know I’m in chairman I’m executive chairman that is
a good role to have at your own company tell me I have a fantastic CEO who does
all the heavy lifting and I just come and show up for the board meeting
oh that’s great you’ve written a new book it’s called invested it’s a the
story of your business life so let me start with a question that we start with
every guest that is what is the best financial or career decision you’ve ever
made well I think of course starting the company having the early passion about
thinking that an investor’s needed another kind of choice about investing
how do you go about it the old traditional method of selling
stocks through stock salesmen really ended up being really old fashioned and
very expensive and not really leading to the best outcome so I started Charles
Schwab a company with a whole different view and the passion
and what was the view of the street or these big brokerage firms when you
opened your doors almost fifty years ago I always thought that the traditional
firms created products are created their ideas about how much money they could
make off the product first that was the first decision I tried that a completely
different way to look at things be the best thing for customers but what they
really liked first and if they liked it and we could offer to them and they
picked up on it then we would continue doing it but if it didn’t happen that
was unsuccessful they didn’t like it we would stop doing it had nothing to do
about making money it was all about making a great deal for our clients and
so what led you to think about the customer first I mean you come from a
different mold you don’t come from a big Wall Street family come from lawyers
right right fathers lawyer grandfather etc so I always thought well let’s you
know what’s fair for people could we get more people to invest because investing
I always I came to conclusion early on because I read a lot of biographies
about very successful people in the economy and it came to be that the
people did investing most of which didn’t in stock some did in real estate
but investing is really a very powerful thing that made people change their
lives in terms of their wealth lives their success life in business and yet
when you started this company in the 70s the vast majority of Americans were able
to claim that they were part of a pension they didn’t have to feel like
they had to invest so talked a little bit about how the world of investing
changed with the advent of the 401k and that
more people were just becoming I guess introduced to the concept of investing
well all that did occur the 401ks were introduced but I think even more
important more powerful movement that was going people were beginning to live
longer Social Security was sort of a wonderful thing in the 30s when it was
introduced average man lived until 65 now that’s almost twenty years later now
if you get up to that age it’s usually eighty eighty-five of the average and
some bird locking the beyond that so the advance in medical
science all those things in better living and thoughtful way to go about
lifestyle and so forth we’re all getting the benefit of longer lives
hence Social Security simply will not be enough to take care of our lives that
the way we been the custom our modern lives and we like to travel we like to
see TV we like to take vacations you know you know what so when you started
the company talk about the beginning and when you felt like it’s catching on so
if you’re in the early 70s you start this company this is crazy guy Chuck
when did you feel like okay this is gonna work well it would happen I
started with four people with the concept of doing discounted Commission
that was a very simple kind of thing and that was really started in 73 we began
in a very rudimentary way to do that and it got more and more perfected and by
1975 the SEC and Congress changed a uniformity of commissions from something
had been in place for 200 years they said let’s free it all up it’s free and
open competition now no more fixed rates the next day the newspaper had a couple
Oracle’s about it one was what’s really important to me
Merrill Lynch raises the rates 3% I said oh my god I have got a heck of a
business I can just keep it together keep our people motivated and so forth
raised enough money to build the capital of the company I got a heck of a
business and then what led you to think you should sell the business well it was
all a part of raising capital I didn’t have access to Wall Street they hated me
because I was a competitor and I was forming a really strong competitive
force and so the last person I wanted to support was Mickey Wright which is
looking back is pretty funny but many of them wish they had now because stock
price did really really well over the next ensuing years but at the very
beginning that money was a struggle always trying to raise money friends
relatives and so forth that was not always completely
successful but we scraped along and I convinced certain people that we had a
great future and maybe they ought to think about investment in the company so
eventually we did get there but always that pressure and so when Bank of
America came around to buy us and they flashed a couple numbers in front of me
I came from from nothing as it oh my god is that that’s a heck of a lot of money
maybe I should consider that because it really improved my net worth gone from
zero to a lot twenty million what happened when they make this investment
in you are you allowed to run Charles Schwab is a wholly owned subsidiary kept
our same auditors or same attorneys are same staff I had a separate board so we
were completely sort of an independent subsidiary but yes they owned all our
stock so they could pull the switch on me if they wanted to at any particular
time but they didn’t and they let us flourish and we grew from 1981 right on
through to 1985 who kept compounding and compounding so all the stuff we were
doing the Schwab was fantastic our customers really loved us and we did
perform really well for the bank but the bank fell into bed time itself the bank
separate of you the parent company telling about times some bad loans to
South America shivers and grease or cancelling on some of their debt and
they had lots of issues to deal with so the bank fell in these bad times and
started selling a few assets they had to sell their building they sold this thing
and then finally I said why don’t you sell my company back to me and we
eventually worked out that transaction and when did that happen that happened
1987 oh what a funny year to have something big oh yeah that was as I call
the tsunami year that was all kinds of things went on so it’s a very
interesting thing in the book itself talks about these things that was fun
for me to go back and recast all the little elements that we had to go
through but it’s a pretty exciting time exciting is not the word I would have
used because I was a young pup trader on the
the commodities exchange my father was a specialist on the floor of the American
Stock Exchange my uncle was a specialist on the floor of the New York Stock
Exchange so it was a dramatic time that’s what I would say and it was
intense you experienced that loss that dramatic day do individuals who are
trading at robbed jump ship or do they stand well for the most part people
stand I mean uh there’s a fraction that might be two or three percent that sort
of panic as such but you know experience is best there’s no Marcus to go down and
unfortunately when they do go down they go down much faster than they go up and
so recoveries always take a little bit more time than than the actual drop but
the drop you know for most of us think it’s an opportunity
oh you’re buying things at incredible prices I love I love when people go nuts
about when the market like even this past summer market goes down and I said
wait you’re buying into your 401k six percent cheaper than you did six weeks
ago what about that I mean you go to we all go to sales all over the world but
when it in stocks from sales seems like people more fearful how was the advent
of online trading what did that mean for your company our efficiency of doing a
trade has grown and grown and grown so the cost of us doing a trade is very
nominal frankly and so we reduced our prices all the way along for the last 20
years or so until finally last week was fine let’s make trading just free which
is a mind-blowing concept I’m so sad that my father’s not alive to see this
because I remember he used to say we’re on our way to zero and people would be
like what are you crazy I’ll be like you’re not zero they got to make money
right there’s nothing that so now you went from was it for 95 or not let’s
just call it five bucks to trade now it goes to zero and people are thinking
wait a minute how these guys making money what are they gonna do to make up
for that five bucks that they’re losing well there’s a variety of ways we have
people who use us for as an advisors we charge a small fee for doing that if you
want an advise account we have a bank so we make some money on the interest rates
between what interest rates are and what we pay our clients in terms of their
deposit account so there’s always a little ways to make
money and but the most critical thing is to have customers and have a lot of
customers and so we are very proud about the fact that we have almost four
trillion dollars and I say that with the T of client assets for this and so given
all that we thought well why not let’s deliver on to our clients a greater
value like zero and so maybe we’ll attract more customers what do you think
about the advent of Robo advisors you have a service through Charles Schwab
where you can put your money into an account and basically take your risk
profile and an algorithms gonna do the rest what do you think of that well I
think it’s an incredibly efficient way to for most the average person doesn’t
have the time to be thinking about this stock or that stock and go through all
the imaginations of oh I’m the markets down I should buy we do it for you sort
of automatically and we also do tax loss harvesting for you meaning we sell the
stock so you might have had a little loss and a portfolio and garner the loss
there so offset gains that you might have in your account there’s all kinds
of things that we do do automatically for people that’s a really a simple way
to sort of accumulate money over a long period of time so I guess the question
is if we watched you guys be the ones who broke through and push down trading
cost to zero could you ever see a time where advice pricing starts to drop in a
similar way I mean now there’s no guy sitting in a big fat Merrill Lynch
office who really can get away with charging eight and a quarter percent for
a mutual fund anymore right no okay so I would presume that if Charles Schwab and
Vanguard are both making the jump in to advise that that is going to put price
pressure downward do you agree with that well I think advice is a different thing
there’s a complicated educational process that goes on and what has
happened over the last bunch of years is schools don’t do enough help enough
education about financial decision making what should I do in my life and
all that so and so I’m doing a lot of work in financial literacy
but I think people got to get a little bit informed what what are my
requirements what I have to do in an overall sense so they’re not just
completely deaf and dumb about the whole thing but they’ve got to put some time
in to understand what it is to mean about sailing what am I trying to do
what’s my goals what’s what’s my opportunity this is chill on money I’d
still Schlessinger certified financial planner CBS News business analysts and
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Goldman Sachs Bank USA member FDIC and now back to our interview with Chuck
Schwab is the age of a managed mutual fund coming to an end yes I think so
index funds have been so prominent in the last 10 years or so they’ve grown to
half of the new funds that are being built up today and so it’s very
difficult to compete against in the index fund because the costs are so much
higher than an index fund and so people want to go lower costs do you think that
there is a danger there are some folks who are running around saying hey you
know what everybody’s in the index market goes down everyone’s gonna try to
get out at the same time it’s going to be a cascading downside risk that we’ve
now all piled into I don’t think it’s gonna be any different than before
market might might drop on those really awful days 10% 15% but you don’t
investing with the thought that it’s going to be always an up day it has to
be many down days to along the way that’s what markets do and you just have
to have that pure and simple understanding markers are gonna
fluctuate you think that it was helpful that you
were outside of like the New York Wall Street crowd that you could think beyond
the way business oh well I think back at my background I was many lucky moments
but I think the luck was for me that I was brought up on the west coast went to
Stanford and was around a lot of innovative type people and so being on
the west coast I wasn’t part of Wall Street and the old-fashioned ways of
doing things I could think about what would customers really like if we were
to really develop something new and different so I I interviewed Michael
Lewis a while back he’s a an interesting guy yes he does and we had this very
funny conversation because he said we were talking about how so much of
investing there is an element where people start talking it as if it were
gambling and he’s you know it’s not gambling he said you know if you talked
to really old-time traders and investors they’ll never tell you about their best
trades they’ll always tell you about their worst trade and he said and that’s
what I found interviewing golfers professional golfers never tell me about
their best round of golf they tell me how the three holes that blew the whole
tournament and so I’m wondering for you what you feel like is misunderstood
among the investment community about that this is not gambling so what is it
what is it the how should we be thinking about this well I think there’s a lot of
misunderstandings about that I mean to me the lottery is gambling you go down
buy your ticket for two dollars and forget about it and later the world the
pool and all of a sudden the money number comes out investing you’re
actually buying in to think about the fact the first time you he loved
McDonald’s hamburger and then all of a sudden gee that’s pretty interesting
then then you notice they built a second McDonald’s hamburger and then he built a
third what does that really mean it means they have more customers and all
of a sudden now they got 10,000 McDonald’s office and so that has been
an enormous accretion and value created by that come
that’s called growth and that’s what you really can get in investing in great
companies who have long history of serving customers therefore customers
pay good money for these things and they build new outfits new ideas new
innovation that’s what the crux of our great system here in America is all
about the innovation of new things and the
creativity of mind to do that and allow us to do that and by doing that you’re
creating value and that’s investors who see that and identify those great growth
opportunities they’re the successful investors we’ve been getting some
questions we take listeners they call up and they want to ask us questions and
they’ll often say things like well I want to get a hundred percent out of the
market or I want to put all my money and can you talk a little bit about your
experience with trying to time the market I’ve never been successful at
some times I think I can and I’ve tried it many many times of course when I
think a bottom is hidden and I would say of the last 10 bottoms I probably was
correct maybe one out of the ten times and I was really happy about that when I
encouraged my daughter get in now today’s the day November 9th is the day
to get in we were actually skiing I said today’s
the day we finished that after that morning of skiing said looking at the
reports today this is the day take every penny you have in your pocket book and
put it in the market but it doesn’t happen every time so how do you look at
the landscape now you are in the Bay Area there’s a lot of innovation we’re
hearing so much about many of these companies these unicorns who are
remaining private for much longer than say folks who did in your time when you
were before you went public what is the what’s the upside and downside of being
a public versus a private company and is there any lesson that we should take in
observing it well it’s it’s quite important your access to capital a
company grows and needs to capital and these new capital just doesn’t come fall
off of trees finally so you want to induce investors who see your
opportunity and and of course buy your stock and so forth it also allows those
of people who’ve worked for you for a long period of time I always like to
participate have everything one of my employ
participate in the upside of the company that they are bought into the concept
the purpose of what we do as a company and that’s truly important to have that
public available because you know we’re now a 40 year old company you know many
people are retiring so why shouldn’t they be able to take their stock and
convert to cash and to fixed income that will support them through the retirement
years talk about the financial services landscape is there anything at this
point in your career that keeps you up at night is there anything that you’re
worried about I think we’re in fantastic shape I think the advent of Technology
over the last 20 years the internet has just brought all this flow of
information to everyone and so it’s a great value financial services are a
fantastic value for people just like some other things in modern world today
because the advent of technology what about these FinTech companies that were
really looking like hot and then folks like Schwab jumped in and sort of ate
their lunch so if I had a FinTech company five years ago that I thought
was like oh my I’m on the way to getting a billion-dollar valuation now you’re in
the business and Vanguard’s in the business is my FinTech company now not
worth quite as much well I don’t know about that I mean we all look at great
ideas and so nobody in our business is above copping a great idea and we see a
great idea or some people going to zero commissions we’ll say or something else
a robo thing that’s a great idea and customers really like it and we’re gonna
go right into it also how would you decide whether to buy that or to create
it well it’s very simple mathematics how much will it cost you to build that
capability and the little firm has some really outstanding ideas patents and so
forth we’ll try to buy them do you have an insurance arm we have some insurance
it’s very modest in size we’ve never been big advancers of insurance thing
and we think it’s somewhat expensive in fact that may be another opportunity
yeah well I was thinking that it would be great if someone
like let’s say Chuck Schwab could say yeah the idea of an annuity is so
appealing right it is because in your brain and your little you know human
brain you say yeah I just want someone to pay me with my money I want my own
pension but of course the insurance industry I’ll say it you don’t have to
is a bunch of pigs and they charge too much oh it’s very annuities are
incredibly expensive and not only that then you get locked in if something
changes in your life something dramatic happens and you want to reverse it all
there are other ways I think to go about it that are is similar a highly
competitive lower cost and and so we’ll be helping our clients with those kinds
I can’t wait for that will you come back or maybe your daughter another promise I
promise your daughter carries in the business right anyone else any other
kids that’s the only have five children I have only once in a business she runs
our non for profit entities our foundation our charitable giving
institution that we have for our clients she also does a lot in financial
literacy helping mother for kids were very smart not to go into the business I
said to them I want them to follow their passions and lots of them didn’t have
the past summer non-for-profit passion they want to help people which I
understand we all do of course some want to do it full-time and others want to do
venture capital so they all do different things in life and they’re all in the
Bay Area everyone on the Washington Bay Area one one lives in Los Angeles what
do you think right now about less sort of big picture economy be a part of your
business is as you said collecting the spread between what you pay out on your
money market and that that flowed and what you’re using it for how will that
business fair if interest rates continue to go down well it’ll be obviously
margins will shrink some and so we’ll have to be innovative and think of some
of the things that might be helpful to our clients and they may want to use so
we’re always open for that I would you know we always want the best outcome for
our clients and no matter what so we’ll figure out something and we’ve done it
for 40 years and we’ll for the next 40 years we started the
interview and I said what was your best career or money decision he said your
best career decision was starting this company what was your worst oh my
goodness is all outlined in my book I’ve had many little make your worst pick my
worse well you know that’s part of life you got to have some burn your fingers
along the way and then you don’t do it again and one that has to almost learn
most my things by personal experience I try to read about it but nothing better
and more informative than doing it yourself
sad but true the only way out is to go thright through it you’re listening to
Jill on money okay it’s time for the Marcus minute we’re presented by Marcus
by Goldman Sachs sitting in the hot seat today Chuck Schwab are you ready to play
yes all right here we go what is one word to describe your
relationship with money keep it close to be what’s always worth spending on
investments what’s the dumbest thing you’ve spent money on Oh frivolous
things that I can’t see anymore how much do you spend on a haircut a hundred
dollars it’s your last day on earth you’ve got a hundred bucks in your
pocket what would your last meal be it would probably be a hotdog Chuck Schwab
the book is called invested changing forever the way Americans invest thank
you so much for joining us thank you very much thanks so much to Chuck Schwab
the book is called invested changing forever the way Americans invest we drop
new episodes of Jill on money every Tuesday and Thursday sometimes we sneak
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show is presented by Marcus by Goldman Sachs see you next week you

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