In 1983, at the age of 22, I founded a company that provided retirement plan services to corporations and their employees. Twelve years later, Charles Schwab acquired my firm, and I’ve been privileged to spend another 14 years with Schwab since then. Over this past quarter-century, I’ve watched the financial services industry evolve a great deal.

 

At the beginning of my career, this industry was a wonderful place to work. It was a world where people like me could pursue the American dream while helping other people do the same. Today, I doubt that many 22-year-olds look at the financial services industry and see it the way I saw it those many years ago.

 

In the last year alone, financial institutions that once seemed invincible have shut their doors forever. Others have required buyouts or government bailouts to survive. Worst of all, the public’s confidence in the industry is extraordinarily low – and deservedly so.

 

It would be easy for industry veterans – and for the best and brightest young people aspiring to work in financial services – to throw up their hands and walk away.

 

I hope they don’t. And I believe they shouldn’t.

 

The current crisis presents an enormous opportunity. Today, the financial services industry has the opportunity to begin again – to regain the trust of the American people and keep it for the long term. My fervent hope is that the industry rebuilds itself so it never again contributes to the creation of another financial crisis like this one. Rather, our industry should serve as the very defense that ensures we never face a crisis like the one we are in today.

 

There is opportunity here, provided we all make good choices.

 

A DIFFERENT APPROACH

 

As Founder and Chairman Chuck Schwab writes in his accompanying essay, the financial services industry now has the opportunity to transform itself. The industry must coalesce around a set of guiding principles it will follow in the future: increased transparency, improved fiscal responsibility, and behavior that minimizes conflict of interest.

 

As the industry transforms itself, I believe it needs a constant reminder about whom it ultimately serves. And the industry would do well, in my opinion, to look away from Wall Street as it determines the course it will take. Instead, the financial services firm of the future should rebuild itself to meet the needs of all Americans – not just the privileged few.

 

What would that look like in practice? I believe our recent experience at Schwab holds many clues. Let me be clear: I’m not saying that our way is the only way, or that we haven’t made mistakes. We have. But it is an indisputable fact that Schwab has been successful with an approach that challenges many of Wall Street’s traditional ways of thinking and doing business. Our company today stands a good bit stronger than many other firms because of that.

 

What is the difference? It’s based on a very simple – and very important – concept: Everyone matters.

 

If the financial services system is going to seize this opportunity to rebuild itself and meet the needs of all Americans, our experience at Schwab points to three core ideas that matter most to the people we serve – values that must be at the heart of our industry in the future.

 

EVERYONE MEANS EVERYONE

 

Historically, the business models of financial services companies were designed to serve the upper quartile – the richest 25 percent of Americans. That’s a pretty profitable clientele to serve, but our industry today has a responsibility that goes beyond serving the most affluent. Years ago, financial services firms could easily focus on this top quartile of wealth, especially when virtually everyone else depended on defined benefit pension plans administered by the companies they spent their entire careers working for, plus a modest supplemental income from Social Security. Since the early 1980's, when the 401(k) plan was created, the number of companies offering these defined contribution plans has steadily increased – covering more than 50 million Americans in 2008¹ – while the number of defined benefit plans has dramatically declined, with about 20 million active-worker participants.²

 

According to Schwab’s own Rethinking Retirement survey, Americans expect less than one-quarter of their retirement income to come from traditional pensions, with another quarter coming from Social Security, leaving half of all retirement income to be covered by personal savings, Individual Retirement Accounts (IRAs), and other investments.³ The trend is clear: Responsibility for retirement planning and investing – and all the risks that entails – has increasingly shifted from institutions to individuals.

 

Schwab, too, was originally built to serve the needs of a narrow audience. In our case, it was self-directed investors. But, over time, we evolved to serve ordinary savers and investors, so we were prepared to respond when this “responsibility shift” began. We’ve learned firsthand that a financial institution like ours can succeed only when we truly understand and respond to the needs of ordinary savers and investors – people who are trying to increase their financial literacy, who are trying to learn how to bear the responsibility for their own financial well-being and that of their families.

 

The truth today and well into the future is that everyone – including the average American – must rely on the financial services industry to provide access to saving, investing, and the equity markets. Everyone depends on our industry to offer the advice, tools, services, and products needed to be financially fit today, and into the future. For the financial services industry to transform itself and thrive, it simply must accept that everyone matters.

 

Although there is great room for improvement in terms of the national savings rate and the degree to which Americans are preparing financially for their retirement and other obligations, statistics show that Americans have begun to embrace their responsibility. In the first half of 2008, U.S. retirement assets totaled $16.9 trillion, accounting for 36 percent of all household financial assets in the United States. More than 46 million U.S. households own some type of IRA.⁴

 

Even though tens of millions of Americans are taking direct responsibility for their own financial futures, they can never do it entirely on their own. They need resources, tools, coaching, and personalized help to succeed – and they need it from a resource they can trust.

 

Many companies, including Schwab, have invested heavily in web-based client-service technologies that enable financial services to be delivered on a mass scale and at a level of quality and convenience unimaginable just 15 years ago. But we also know that the online experience is not enough. People, wealthy or not, want and deserve interaction with real people. The financial services industry of the future must find ways to serve that need efficiently, effectively, and at a reasonable cost.

 

Good investment guidance requires a relationship, so at Schwab we’re striving to find ways to provide that capability in a leveraged way to reach a mass audience. We haven’t unlocked every aspect of the code yet, but through creative applications of both people and technology – coupled with simple, low-cost, but effective solutions – we believe we are on the right path. And when our clients are best served working with an independent investment advisor, we look out for them by making a referral to a local, independent professional.

 

Another cornerstone of effective help and guidance is our responsibility to provide financial education. We can’t expect everyone to understand how complex financial products and processes work, unless we invest in helping them learn. And we have the responsibility to simplify these products and processes wherever possible.

 

At Schwab, we make it our business to provide the information, tools, and resources people need to make informed financial decisions. That requires us to focus much of our efforts and resources on education. We provide frequent commentary on the markets and economic environment. Our website is filled with news and information that help clients manage their investments.

 

Even our philanthropic efforts are focused on promoting financial literacy as the foundation for financial well-being. Our Schwab MoneyWise® website (www.schwabmoneywise.com) helps build financial literacy for parents, teachers, and kids. Our alliance with Boys & Girls Clubs of America helps teens from underserved communities gain the money management knowledge and skills they will need to thrive as adults. Last year, we also sponsored the National Financial Literacy Challenge Scholarship Awards for high school students.

 

In addition, Chuck serves as chairman of the President’s Advisory Council on Financial Literacy. As that bipartisan group pointed out in its annual report to the President, a lack of financial literacy must be considered a contributing factor to the current financial crisis. Many Americans signed loan agreements they didn’t understand and couldn’t afford. Millions of Americans are either unbanked or underserved, leaving them outside the financial mainstream.

 

Our responsibility only grows when we acknowledge that everyone matters – and everyone needs some level of help and guidance.

 

EVERYONE NEEDS SIMPLE, COMMON-SENSE PRODUCTS

 

Innovation has been a cornerstone of the financial services industry. But today, more than ever, this innovation needs to be applied in the right direction. Too often of late, it seemed the industry’s innovations were just producing complexity, high costs, and dubious outcomes. Over the past several years, many financial services firms were busy creating ever more complicated financial products, expecting clients to simply trust their sales pitches and buy the products – often in attempts to reduce risk. Of course, we all know how that story ended – and who ended up bearing the majority of the risk.

 

The industry must keep innovating, but it must focus its innovation in the right direction.

 

For example, here at Schwab, we’ve seen tremendous success by offering simple products that provide high value: low-cost equity, bond, and ETF trades; asset allocation in managed portfolios; mutual funds;⁵ checking, and a credit card that pays 2 percent cash back on purchases.⁶ Our success with these products suggests to me that, for the average saver and investor, complexity is the enemy.

 

Because Schwab believes that everyone matters, we work hard to ensure that our products and services make good common sense to everyone who looks at buying them.

 

LEADING THE WAY

 

Chuck Schwab built a different kind of company some 35 years ago – a firm I’m proud to be part of today.

 

At its heart, our strategy is based on advocating for our clients’ interests and earning their trust. Operating that way has been a great strategy for us in good times. It’s proved to be an effective strategy for times like these, too.

 

In a troubled era, people turn to firms they can trust, and the facts suggest they trust Schwab. Even under unprecedented economic pressure, our net new assets in 2008 totaled $113 billion. The number of new brokerage accounts reached 889,000, up 10 percent. Total brokerage accounts rose 5 percent to 7.4 million. Corporate retirement plan participants were up 17 percent to 1.4 million. Banking accounts ended the year at 447,000, up 71 percent.⁷ And our internal research shows that client loyalty – the key to our long-term organic growth – is growing stronger every day.

 

During these tough financial times, our industry faces huge challenges, but there’s an enormous opportunity before us – to put people first and view everyone as our best clients.

 

Everyone matters. It’s an idea that can transform the financial services industry, and you can count on Schwab leading the way.

 

Walt Bettinger is president and chief executive officer of The Charles Schwab Corporation.

 

 

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¹  2008 Annual Report: page 12
²  Employee Benefits Research Institute, “FACTS from EBRI,” June 2007: page 2
³  Charles Schwab & Co., Inc., “Rethinking Retirement” website
⁴  Research Fundamentals newsletter, December 2008: pages 1, 5
⁵  Charles Schwab & Co., Inc., “Investment Products” on schwab.com website:
⁶  Charles Schwab Bank, “Banking & Lending” on schwab.com website. The credit card program is issued and administered by FIA Card Services, N.A.
⁷  The Charles Schwab Corporation, 2008 Schwab Annual Report, 30 March 2009