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Walt Bettinger, CEO of Charles Schwab, welcome to the Industrialist's Dilemma and
to Stanford. >> I appreciate it, thanks so much, Rob,
it's a pleasure to be here. >> So
when the company started, the company started by disrupting the equities market.
And yet now you have $3.3 trillion under management at the company.
So you've gone from this disruptive upstart to what has become a very,
very important player in the financial services space.
But yet the company still thinks of itself as a disruptor.
Can you tell us a little bit about that? >> Well, I think our view is that
disruption doesn't have anything to do with how large you are or
how long you've been in existence.
Disruption is really a state of mind, and it revolves around two things.
One is your focus on your customers, and
not just their needs today but also the anticipation of what their needs will be.
And then the second, oddly enough, we think it's just courage.
It's the willingness to recognize that in order to grow,
in order to evolve in the business world we live in today,
you have to be willing to say, we do this for customers today, we've done this for
a long time, but it's not the right thing anymore.
We're going to have to change and
actually disrupt ourselves. >> So when you have to change something,
one of the important things we've talked about in the past is trust.
In fact, I think when we met last time you must have used the word trust
a hundred times.
How do you try new things and yet still maintain that trust with your customers
and your clients? >> Well, our business is so
much different than other businesses because it's about people's money.
And its about what we call OPM or other people's money.
And the way people deal with finances is much more emotional than maybe
buying a new suit or even buying a new car.
And the other thing you have to bear in mind when you're dealing with money is
that the markets don't just go up, they go down too.
And so unlike, say, a traditional retail model or a web-based model, we're going
to have our clients disappointed maybe 40% of the time when the markets move down.
And so trust has to be the core of the services we provide.
So that they believe and stay invested, and
help themself in the long run by being in the market even though there are ups and
downs. >> So if you have a great number of
clients, a lot of capital under management, trust is important.
And now we have new technologies, data and information, and
you know a lot about your customers.
How do you take data and use it in your business in a way that helps build trust?
And what are the risks that you've seen where it hasn't gone maybe
as you anticipated? >> Sure,
sure, well, we do have a lot of data, a lot of information on our clients.
What we want to do with that Information is find better ways to serve them,
to serve their needs.
What we don't want to do is use that data in a manner that
undermines the trust that we just finished speaking about.
And that can be complicated, because oftentimes we can know things about
our clients that maybe others don't know.
If they, for example, go to our website to the life event section and click on
divorce, we might know something before- >> [LAUGH]
>> Their spouse does.
And so what we do with that information to ensure that it's both held confidentially,
but also used to serve them not sell, is very,
very important in the building of trust. >> How
do you think about the younger generation?
The newer Schwab clients who want to interact with companies in different way,
the importance of mobile, less time they want to spend on the phone.
How do you use tools to help them as they get into saving and investing?
And how do you have to treat those customers differently perhaps
than say, my generation? >> Well, what's really interesting is that
the use of mobile platforms, digital, is not age-centric.
We actually have customers in all age ranges, up into the 90s, who are on their
mobile devices, on the web interacting with us in a more digital manner.
What we want to try to do is use technology to better serve
our clients in the areas where they don't want to necessarily speak to someone.
They can process something faster by just doing it in a digital or an online manner.
But we also want to make sure that there'is not a trade-off, so
that our clients can always speak to us about things that are important to have
a live person having a conversation with. >> So in the early days of Schwab,
the company was a technological innovator and built its own back-end for trades and
everything else.
And now in today's world, managing as large of an organization as you are,
how do you decide what technologies that Schwab wants to invest in and
keep in-house?
And where do you want to look to partner with other outside organizations?
And what are things that might impact your company that might not impact other large
companies and partnerships? >> Yes,
well, the challenge with technology is it's increasingly difficult, we view,
to create sustainable differentiation on technology.
What one organization can build, other organizations can build quite similarly.
And so we leverage technology partners in areas that we consider more commoditized.
And the type of work we do in-house is things that we think are unique to us in
creating unique capabilities.
One of the other dilemmas in an industry like ours,
which has such stringent oversight from a federal regulation standpoint is anyone we
partner with really has to have the same level of regulatory oversight that we do.
And that rules out a lot of technology companies for
us to try to do business together with. >> So as you look forward the next 5
to 10 years, and you think about all the changes that you've seen in the business,
you've now been with the company over 20 years since they acquired
your first company, what do you think about over the next 5 to 10 years?
What are the top two or three things that are keeping you up at night?
>> Well, the thing that's happening in our
industry is not different than what's happening across business everywhere.
And that is this concept of no trade-offs.
The consumer can expect, and will actually be able to get, the lowest price,
the best service, and world-class advice.
That's not what has historically been
the way the world operated in the investment services arena.
That you made a trade-off historically.
I can have low cost, but I may not get the best service.
Or I can have great advice, but boy, am I going to pay a premium to get it.
All those walls are breaking down.
And the consumer's going to be able to get everything that they might desire
without trade-offs.
Frankly, we think they get that today at Schwab.
And that's partly why we've been acquiring market share as rapidly as we have.
>> So one final question.
Why is Schwab able to do that when other companies can't, be it the old-line
wirehouses or the new upstarts that are coming up in the FinTech space?
How are you and your organization able to be successful where others haven't
been? >> Well,
I think there's a lot of companies that have successful models that work for them.
But ours is a bit unique, we combine tremendous scale,
with well over $3 trillion in client asset, tremendous efficiency,
operating at a fraction of the cost of any of our publicly traded competitors.
We don't have legacy infrastructure, for example, high paid sales people,
things of that nature.
And of course, we've always been, as you mentioned, from the beginning,
technology driven.
And so we're in this constant effort to figure out ways to use technology
to be more efficient, enhance service, but also lower our cost.
And then the last thing, we're always willing to share it back with out clients.
Last year alone, we voluntarily reduced our pricing to clients
to the tune of about 5% of our overall revenue and yet
still grew revenue in the mid-teens. >> So really you are trying to be in that
one quadrant where you're the low cost leader and
the high service provider. >> I think that's the only way
organizations win, going forward in our business society.
You're going to have to be the no trade-offs companies to
really be the big winners. >> Well, thank you so much for
coming to Stanford and thank you for coming to our class.
>> It's an honor to be here,
thanks so much. >> Pleasure to have you, thanks.
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