MutualFundWire.com: Schwab's Four Internet Lessons

MutualFundWire.com

The insiders' edge for 40 Act industry executives!
an InvestmentWires' Publication

Wednesday, February 24, 1999

Schwab's Four Internet Lessons

What does it take to become a leader on the Internet, and perhaps more importantly, what mistakes should you avoid? There is probably no company that knows the answers better than Charles Schwab & Co., the leading provider of Internet trading. Charles Pottruck, president and co-ceo of the San Francisco-based brokerage firm shared tips based on his experience at today's IT for Wall Street '99 in New York City.

Oh yes, Pottruck also told the audience that the times are good for Schwab. In January, trading grew 150% from a year ago and more than $9 billion in net new assets flowed into the company's coffers (that is roughly $450 million a day).

OneSource grew to nearly $140 billion in assets and assets in Schwab's full fund offerings grew to nearly $200 billion.

Assets in Schwab's 5,000 member advisor channel also grew by 30% during 1998, he said.

Pottruck's four keys to success on the Internet are:

Price counts, but brand really matters.
How does Schwab compete when its rivals offer trading at $12, $10, or even $8 per trade when it charges $29? Pottruck's answer is brand.

"Our brand stands for trust, service, and reliability," he explained. He added that Schwab is not branding as a technology firm, but as a full-service broker operating on a new model.
Firms have to embrace information technology (IT) and the Internet.
Pottruck explained that IT staff needs to be at the center of your organization, not at some building down the river. He stressed Schwab's own commitment to IT by pointing out that it recently named two technologists to enterprise president positions as division heads. Pottrock also admitted that he knew nothing about how to use a PC until 1995, when he realized its future importance and had himself trained in the basics of email and spreadsheets and yes, even typing.
Innovate or immolate.
You can't stand back and build walls to protect your turf, Pottruck explained. "It has never been easier for clients to shop," he said. "None of us will control the client. Every customer is up for grabs." He concluded with what may have been a warning for the wirehouses: "If you are protecting your old model, you are going to be in for a tough time over the next few years," he warned.
Culture is the key.
Although outsiders may not see it, Pottruck said that Schwab's culture -- not its technology or customer service or other aspects is the key for its success. Schwab's business is changing so quickly that employees need seat belts on their chairs, he joked. What keeps employees and Schwab grounded is its sense of mission, he explained.

"Our mission is to be the most useful and ethical financial services firm in the world," he said. As an example of this commitment, Schwab is going to hold a company meeting with all 13,000 employees on March 13 to talk about where the firm is, where it has been, and where it is going. Employees will gather at 10 locations and have satellite hookups.

On a final note, Pottruck also passed along five myths about doing business on the Internet:

The Net will replace retail stores.
Economies of scale are never ending on the Net and will solve all cost and inventory problems.
Customers prefer self-service on the Net and there is no need for people.
Scaling a website is just a matter of adding another server and throwing the "on" switch.
No one can do it all so those with the best strategic alliances will win.