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Rating:Schwab Holds Out Olive Branch Not Rated 3.0 Email Routing List Email & Route  Print Print
Wednesday, October 10, 2001

Schwab Holds Out Olive Branch

Reported by Sean Hanna, Editor in Chief

Charles Schwab, ceo and founder of the eponymous firm says financial advisors will play a key role in the brokerage firm's business in the future. Schwab made the brief remarks at the broker's annual Impact meeting currently being held in Seattle.

Schwab told attendees that these are the some of the most difficult times that investors have faced and thanked them for their efforts in reassuring clients. He also thanked them for making the journey to travel to the conference.

"Advisors have done a supremely wonderful job and have been a voice of calm," said Schwab. He also predicted that professional advice will become more important in the future.

"Doing this on their own is not as easy as they [investors] thought it was," he added reflecting a quip from yesterday's conference by David Pottruck, the second Schwab co-ceo. Pottruck told attendees that he was among the many who discovered recently how hard investing can be. "I am taking more of my own money and placing it with professional money management," said a smiling Pottruck.

Charles Schwab the executive told attendees that the firm in partnership with advisors is a "best solution for objective, highly customized advice."

"Advisor solutions will be a permanent offering at Schwab," he concluded before introducing former Secretary of State George Schultz.

The remarks also echo those made by other executives at the conference. Those speakers have stressed the role played by advisors in building and complementing Schwab's business. They have also stressed that the competition is not between Schwab and advisors, but with existing players who already offer what is being called wealth management here.

Dan Leemon told advisors that Schwab only has a 3 percent share of what he termed "self-directed" investors. He added that advisors have a 5-6 percent share of the "validator" market in which investors seek advice. Schwab's US Trust has less than 1 percent of the "delagator" market, he added.

All of these markets are coming together under the wealth management rubric, explained Leemon, but that does not mean that Schwab and US Trust are aligned against their advisors. Other firms, Leemon pointed out, already control that market space. Schwab's brands and technology pair with advisor's customized offerings to create a superior offering to traditional firm's "mother ship" directed solutions, explained Leemon.

The remarks are likely a response to widespread advisor fears that Schwab will use its US Trust unit to move into advisors' market space. Those fears were quickly reflected in the question and answer period following Pottruck's remarks as the first question raised exactly that issue.

Advisors who heard the executives have provided praise for the Schwab executives willingness to address these concerns head on at the conference.
* * *
Keynoter Schultz provided advisors his views of current events and warned that though American had not been asleep, it was not fully awake. Bin Laden has succeeded in awaking Americans, and by doing so shown he did not understand American history, said Schultz.

He also predicted that despite the current coalition building, American military action will likely be restrictive and include relative few international partners including the British. "The targets are elusive," he explained, pointing out that they have a way of slipping away. Based on his experience in targeting briefings he said that attacks must be quick and decisive which precludes involving numerous partners.

Turning to the economy, Schultz said that monetary policy works. He also warned that "one-shot" spending as part of a fiscal recovery will not work. "Just look at the Japanese economy," he said. Any fiscal stimulus should involve ongoing and prudent spending, he explained.

He offered two fiscal steps that should be taken in his view: Move the reduction in marginal rates that were already in the tax-bill forward and to reduce the capital gains tax rates. Schultz credited Chuck Schwab with the latter idea. "Some people call it the capital gains tax," he said. "I don't. I call it the tax on the movement of capital. Why do we tax this so heavily?" he asked. 

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