Corp. gave individual investors a chance to reap big stock market
gains and has been rewarded handsomely in return.
age begun in 1971 by now-chairman Charles "Chuck" Schwab has
focused on leveling the playing field for the average person.
Investing used to be considered the preserve of the wealthy,
with traditional brokerages charging high fees, guarding
information jealously and often putting commissions before their
Charles Schwab launched a discount brokerage unit in 1975, a
year of brokerage industry deregulation. The firm's new strategy
transformed the sale of stocks and mutual funds into a
mass-market retail business with low trading fees and a
philosophy of putting customers first.
"Chuck was always a tremendous advocate of investing for the
benefit of the average American," Walter Bettinger, the CEO
ofCharles Schwab (
), told IBD.
Bettinger said Schwab's goal was to create an ownership
society in which well-informed investors could move more of their
capital out of low-yielding savings accounts and put it to work
in the stock market. The risks were higher but so, too, were the
Growing Roots In A Recession
Schwab told IBD in 1998 that he was motivated by a fear of
poverty drilled into him by his father, Robert Schwab, who often
told stories about the Great Depression. Those fears intensified
in the recession of 1958, when at age 19 Schwab went looking for
a job in Chicago only to find long unemployment lines.
"I saw how financial insecurity can control your life," Schwab
said in the interview with IBD. "It shook me up, and it's driven
Schwab -- and individual investors -- got a big break in 1975,
when the Securities and Exchange Commission deregulated the
brokerage industry, abolishing fixed commissions that had kept
trading costs up.
Schwab slashed fees to far below those of big Wall Street
brokerages. Trading a block of shares went from hundreds of
dollars at a traditional firm to just $70 at Schwab.
Building the business wasn't easy. Schwab faced stiff
opposition from the old-line brokerage industry, which fought the
upstart's efforts to bring low-fee trading and transparency to
average investors. Schwab accused the big Wall Street firms of
trying to block access to financing needed to fuel the firm's
"We were breaking down the barriers. This really upset the
traditional firms," Schwab told IBD recently. "We were very
disliked. On one occasion I was called unethical."
Unfazed, Schwab went on, opening 100 branches around the U.S.
in the first decade of operation to educate individual investors
and providing 24/7 customer service by phone. And in 1996, with
online trading, Schwab became one of the first brokerages to let
investors research, buy and sell stocks on their own
"The Schwab model made it easier for investors to take control
of their accounts," said Charles Rotblut, a vice president at the
American Association of Individual Investors and editor of the
Baby Boomer Appeal
In the 1990s, Schwab branched into no-fee IRAs, bundled 401(k)
plans and no-load mutual funds, in part to attract baby boomers,
who were then entering their peak earning, saving and investing
years. The company grew, and its stock climbed.
"The later part of the 1990s and early after Y2K was a time of
individual investor awakening" as the Internet made investing
easier and more transparent, said Bettinger, who joined Schwab in
1995 after Schwab purchased the retirement plan services firm he
In the late 1990s, Schwab beefed up its website and became the
leader in electronic stock trading. By 1998, it had nearly 2
million online accounts, up from 360,000 when its Internet
service began in 1996.
Schwab profit and revenue soared amid the dot-com boom and
trading volume expanded. From 1995 through 2000, earnings per
share leapt 445% to 60 cents a share and revenue swelled from
$1.06 billion to $5.8 billion. Schwab shares continued to head
higher, becoming a big market winner of the 1990s.
From its low in August 1990 to the all-time high in April
1999, Schwab stock rocketed about 22,000%. That gain puts Schwab
among the great stocks of the past 30 years.
Schwab has continued to innovate in recent years by offering
managed portfolios and products and services for independent
"Schwab has done a good job branching out beyond their client
who walks in the front door," said Stephen Nielander, a lecturer
in finance at San Diego State University.
Nielander, also a partner at independent investment advisory
firm HPM Partners, said Schwab works well with third-party
advisers who can assist clients with "bigger needs beyond
These independent advisers keep their clients' assets at
Schwab and trade through the firm. In 2013, $946 billion of
Schwab's $2.25 trillion in client assets were under the guidance
of an independent investment adviser doing business through
Schwab. Clients holding another $155 billion of assets were
enrolled in fee-based advice programs, according to Schwab.
Finding ways to expand its client base has kept Schwab among
the biggest brokerages. It has more than 300 U.S. branches and
one each in London and Puerto Rico.
In 2013, Schwab brought in $140.8 billion in net new client
assets, up 25% vs. 2012. Its $2.25 trillion in client assets
trailed only Bank of America Merrill Lynch's $2.37 trillion.
For the year, Schwab's profit rose 13% to 78 cents a share on
an 11% increase in revenue to $5.4 billion. Meanwhile, the stock
rose 81% last year, far outpacing the S&P 500.
Bettinger said few consumers paid much attention to the market
40 years ago. That's changed thanks in large part to Schwab's
"We've helped clean up Wall Street," Schwab said. "We've taken
a lot of mystery out of the business."