Ten questions, ten answers from the iconic founder of the discount brokerage
Charles Schwab, founder of the Charles Schwab Co., addressed the more than 2000 financial advisers attending the annual Schwab Impact conference in San Francisco this morning.
The iconic business leader remarked how different this year's conference for financial advisers who custody with Schwab was from the first Impact conference held by the firm 20 years ago. “I had no idea that the industry would grow to this extent,” Mr. Schwab said, recalling how that first conference had an audience of about 200 to 300 versus the approximately 4,000 in attendance today.
He gave advisers an optimistic outlook on the growth of the RIA industry, suggesting he expected it to continue growing at a pace of about 7% — perhaps even faster, as it has over the last 5 to 7 years. The reason for the growth is simple, said Mr. Schwab. “The success of any business depends on the intensity of the relationship it has with its clients,” he said. And investment advisers, suggested Mr. Schwab, provide a customized financial planning relationship with their clients that can't be duplicated by other financial service channels. “We give advisers the platform to do this, but the rubber meets the road in the communities where advisers live with their clients.”
Mr. Schwab gave a long-ranging interview with CNBC's Maria Bartiromo discussing everything from the markets to the economy, from regulation to technology, from the importance of the election next year to the Occupy Wall Street movement.
On how the advisory industry has changed in the last 20 years and how it will evolve:
“The industry was a world of paper before the Internet. The combination of technology and support from our people working with advisers helps advisers serve their clients much better. The internet has provided the ability to integrate so many things from banking to brokerage. It's going to move towards the vision of mobility and the phenomenon of social media will affect every business.”
On what Chuck Schwab invests in
"I use advisers for my portfolio and my portfolio is pretty good now actually. I used to be highly concentrated in a few stocks, but I use all the products now. Advisers might say my portfolio is a mess, but I want to test all the products and services out there. Of course the environment has been really stinky for the last 10 years."
On the economy
"I worry when I watch CNBC, but I view the economy positively. I think things are not as bad as we think they are sometimes. I see a lot of positive things. We've deleveraged the economy; corporations have lots of capital; the Federal Reserve is incredibly accommodating; and we have record low interest rates. I tend to be more positive about things then you read in the headlines."
On opportunities in the markets
"I think there will be great rewards for clients in the market five years from now. Don't head for the hills. We (Schwab & Co.) pay a 2% dividend yield versus money market funds that pay nothing. It's a protection against inflation which I worry is rising, although Mr. Bernanke doesn't. Buy dividend paying companies with great brands. They can adjust to the environment. You have to be a psychiatrist to be a great adviser these days. It's not easy to convince not to go into cash but its never a place to be for any extended period."
On the Dodd Frank Act and regulation
"Dodd Frank is just beginning and frankly it's a disaster. The government needs to leave us alone and let us get back to economic freedom. We need to reward success not suppress it."
On the causes of the financial crisis
"We went wrong on some political decisions to increase home ownership. Philanthrophy is great but I still see people pushing to lend in areas that don't and shouldn't qualify for loans. We have to get back to basics. We've put so much fear of God and fears of Dodd Frank in the banking world that nobody is making loans anymore."
On the Occupy Wall Street movement
"There's no other way to solve our problems other than through robust economic expansion. You could talk to these people all day but they don't understand how the free enterprise system works. Right now we're in a funk but we know how to get out of it—through ingenuity. The world is not fair. It requires hard work and dedication. I have five kids. Some of them work hard and some work off this fairness deal."
On the Obama administration and the election next year
"As with companies, countries need great leadership. Every great company was founded by an entrepreneur who took risks and made tough decisions. Our country doesn't have that in terms of our leadership now. If the election was held today I know what the outcome would be. It's going to take strong leadership to get out of our situation and I hope we'll get it next November."
On whether he could start a Schwab today
"Given the regulations involved and the amount of time it takes to prove your reliability and your software, I don't think I could successfully start another Schwab today."
On the challenges for financial advisers today
"The adviser's role is as complicated today as any point in my lifetime. Advisers know that once investors get out of the market, it's hard for them to get back in. You can't achieve success without risk. Diversification is cheaper today. There are now low cost ways investors can protect themselves. They have to do that and it's what advisers do so well."
