David i dont consider myself a journalist. No one else would consider myself a journalist. I began to take on the life of an interviewer even though i have a life of running a private equity firm. How do you define leadership . What is it that makes somebody tick . We are here today with chuck schwab, one of the most wellknown figures in the Business World because of his ubiquitous face and because of the Great Company he has built, which is one of the leading companies in the u. S. He has just written a book called invested. We will talk about it and his life. Lets talk about something you made news with recently. Your Company Announced you will not just do discount brokerage. You will give away brokerage for free. If i have an account, i can trade for free. How do you make money . Charles thanks for having me on your show. I have known you for a while. David tell me the secret of how you make money when you are not charging . Charles a long time ago we started taking commissions and that is how we started this with lower prices long the way. Finally we got down to 4. 95. I said, we are so close to zero. Lets just go all the way. Google is search free. They do well by offering free search. Similar in our case, we think we will do very well offering our services for free for transaction. That is the commodity part of the business. The rest, people who need advice on different kinds of things, banking, managing accounts, but the fundamental service, we want to provide free. David i shouldnt worry about chuck schwab not making money. Charles we give up 4 of our revenue in that decision. David you started as a discount broker where you were giving lower commissions than the standard rates. Today you have become a conglomerate. You have 3. 7 trillion in assets under management but you make money on other financial services, correct . Charles correct. We are a conglomerate not in the original sense. We focus on what we do for individual investors and advisors who have individual investors. David when you started doing this did you envision you would be in anything more than the discount brokerage business . Charles i did not. We had a limited view of where we were at the time. Frankly we thought the original business would help maybe 10 or 15 of the population. People who did their research and wanted a simple transaction. Many people wanted help and advice. David one thing that makes you so wellknown is that your ads for many years featured your face grade was that something you decided you wanted to do . Charles our Company Started with a shoestring. I had a tough time raising money because wall street certainly didnt want to help me develop competition for them. As a consequence, our ads were really tinny when we started. People kept coming into our company and as we grow, we had some profitability. We had a nice article written in the San Francisco examiner about us. They used a picture of me. The director of advertising said why dont we use your picture sometime . It will show that real people work here. He convinced me after some conversation to try one. We tried it, results went up tenfold. People thought, there is a real person behind this business. I think that helped. My friends got over it. David when you walk downtown in San Francisco, can you walk without people saying theres chuck, and walking up and asking for advice . Charles for the most part people dont really recognize maybe i part my hair differently. David in the early days if someone called up and said, i want to buy 100 shares of ibm, someone wrote it out charles it was teletype and sent to new york. You bought 100 shares of ibm at 50 a share. Very early on, we were very early adopters of technology to make us more efficient. Fortunately i was close to Silicon Valley. Many of my friends were people in the valley itself. I was an early adopter. We were one of the very first ones to adopt internet in 1995. David one way you got customers all over the country, you had branch offices. Charles we found out early on about 50 or 60 of our customers wanted to come into a branch and know real people were behind the counter. David you had better technology, you had your face, which everyone got to like, and you had branch offices. One other thing made your company grow you decided to do more than just discount brokerage. You initially came up with the idea of people buying mutual funds through your platform. Can you explain how that works . Charles mutual funds were sold by salesmen who got a Big Commission for doing it up to 9 of the money invested went to commissions. I thought funds with no commission was the best way for investors to go about investing. I said this is crazy, why cant i offer this service to everybody . We went to the no lode companies. Give us a little bit of your Management Fee and we will offer you free. Clients loved it. David you had a coceo and the coceo had a heart problem and had to step back. You kicked yourself upstairs and made yourself chairman and someone else was running the company and it didnt work out so you came back into run the company for three years. Charles i came back in. I wasnt sure i wanted to, but i love the company so much i came back in 2008. I retired again as ceo and had walt take over. He has done a fantastic job. I am hanging around as the compass of the company. And pushing people. David when you graduated, did you say i am going to join a private equity firm . Charles as a kid i asked myself how to be successful and i thought a finance firm was the way to go. David so, one of the causes you have is something id like to talk about. Youve been very open about it, unlike many people who have this problem. Its called dyslexia. Charles right. David for those who arent familiar with it, it basically means its difficult for you to read in the conventional way that the average person can read. Charles right. David but the amazing part, in your book, as you describe it, is that you had it for much of your life, and you didnt know you actually had it. Charles right. David can you explain it . Charles our youngest son was about seven or eight. We had him diagnosed. It turns out he had all the similar, identical issues that i had as a young student, all the way through school, and was now just only seven, and he had it all the way through the rest of his career. It was a really aha moment for me to understand that yes, he got it, obviously, through dna, and as a consequence, i got into it, we both got into it my wife and i and we started an agency to help other parents that had identified kids with this issue. Turns out, one in seven people have some related issue around dyslexia, some learning difference. David so when youre young, and youre dyslexic, and there is no term for it yet, or you werent diagnosed, did you just think you werent that smart or did your parents think, well, he isnt that good of a student . How did you actually get through school . Charles early on, i read a lot of comic books. I read classic comic books. They had the picture, a few words, but i got all the stories. Whether it was moby dick, a tale of two cities. I was a wonderful student in the classics, but i got it through comic books. David but if youre dyslexic, or someone is dyslexic, does one compensate by hearing better, observing better, or being very good in math, as you are . Charles i think its a issue, fundamentally is what it is. Its the conversion of code to sound, and then to meaning, and then the reverse is true for writing. Because of that defect in our brain, were slow readers. David you were not a great student, i guess, because of dyslexia in high school, but you have said in your book that maybe you got into stanford because you were a pretty good golfer. Charles i am a pretty good golfer. I dont think it makes the academics too happy i got into stanford anyhow, but the fact was the coach was looking for some talent in the golf area. David did you play golf at stanford . Charles i did play golf at stanford, only as a freshman, and only for a period of time. I almost flunked out. I was not prepared for college at that moment. David you graduated from stanford. You went to Stanford Business school. You did pretty well at Stanford Business school. Charles i did. David when you graduated, did you say, im going to join a private equity firm or hedge fund or what did you do . Charles no. I always wanted to do research. As a kid, i wanted to find out how i could become successful. That was important to me. I came through the depression years, my parents did, and i wanted to sort of make money and get the resources to have choices in my life. So, i moved off, Found Financial Services was the way to go. So at age 13 or 14, i began to think about this thing, stock market, and i went to stanford economics, Business School, all Financial Investment management, all of that, in my early career. Then i worked after and during Business School for a small advisory company. I was a research analyst, portfolio manager, and i had the responsibility and the introduction to many brokers. Theyd come and sell us their stories. So i got to know the fundamentals of how wall street functioned. Its all by sales commissions. And some were bad incentives. David alright, so youre doing investment reports, but eventually, you realize you wont get that wealthy writing investment reports. So when did the brilliant idea come to you to set up a Brokerage Firm and a discount Brokerage Firm . Charles well, i started really in the early 1970s. I saw how difficult this business was. Its built upon brokerage was built upon how well companies could make money, the brokerage companies, and not how customers really wanted to do business. So, as it became in the conversation in 1973, in 1974, congress, the sec all thought that the Commission System was really not a particularly good one, particularly a fixedrate thing, and so the beginning of the end of that started in 1974. We had the test period, and then 1975, boom, we went to mayday. David so, when you wanted to start the company, did you just go down to Silicon Valley and say, hey, give me some money. I have a start up idea . Charles no, there was nothing like that available to us. I would have to go to friends for a little bit of money. I had some people in ypo who thought my business was great. That, of course, eventually led to our deal with the b of a. I went to them to borrow money. They liked our Business Model so much at the time, they decided to try and buy our company and i came from nothing, as i mentioned. So they enticed me to sell the company to b of a. I thought that was a great thing and would enhance our reputation as a discount broker. We were associated with the b of a, the largest bank of the time, and that was four years of that before i bought the company. David it sounds like a great idea. B of a, which is the epitome of the establishment, is buying this little, Renegade Company which is not the establishment. You not only sell it for 52 million charles a lot of money. David a lot of money. Also, you got on the board with bank of america. I think at the age of 43, you were the youngest person on the board. Charles Something Like that. And one of the largest shareholders. David the largest individual shareholder, the youngest person on the board, the establishment is there and you dont regard yourself as the establishment. So what can go wrong with that . It sounds great. Charles well, it sounds great then, but then the bank fell on some bad times. We couldnt continue to do our progression of new services. For instance, one case, we could not even develop our own money market funds, because the bank had to get permission because they were in trouble by their operational issues and loanloss issues, that we couldnt get the Federal Reserve to approve us to do our own money market funds. David ok. Charles and then i thought it was time that we should get out of the company. David well, you had one advantage of buying it back. You had the right to your picture. Charles i did. I had the name and likeness that went with me, and they could sell the company. We finally came to terms. David who was the clever lawyer that told you to keep your name separate . Charles i dont know. I thank him every day. Let me tell you. [laughter] david you bought it back for lets say 250 million to 300 million more or less. How did you feel . You sold it for 52 million, but you had to put up 250 million to 300 million to buy it back and, you know, a lot of your own money to do that. Charles david, back then, when i sold the company, the valuation, i sold it for about three times revenue. When i bought it back, i bought it for three times revenue. It was about the same. We had just grown that much in that time period. So, it was a fair deal for them when i sold to them, and a fair deal when they sold to me. David but you did whats called a leveraged buyout. Charles i did. David and it was a leveraged buyout, and you were advised by one of the leaders of the industry, George Roberts from kkr. So, you had a lot of leverage. In those days, leverage was higher than it is today. So, you had a lot of your net worth tied up there, and you also had a lot of your debt ahead of you. Charles i had all of my net worth there, and then some. David so you decided to try to deleverage quickly. The same year you bought it back, you decided to go public. Charles i did. David that was pretty courageous. Did anybody tell you that wasnt a good idea . Charles a lot of people. I said i needed to deleverage as quickly as i possibly could and fortunately, we did. Shortly after going public, we had the crash of 1987. That was another complication. David did that affect your business at all . Charles of course it did. Our stock dropped from 15, the ipo price, down to 6. David so your net worth went down a little bit . [laughter] charles yeah, more than half. That didnt bother me. Because we still had the company, we still had the opportunity, and having been a student of stock market cycles, i knew we would eventually return to more normal times. David as you look back on your career, the most important lesson you have taken away from what you have done, is it to innovate, Pay Attention to technology, be nice to people . Charles have a team of people that you really honor, that work with you, because you can do so many more things with other brilliance around you. David so your company now has a market value thats staggering compared to what it once was. I think your market value is about 56 billion. Something like that . Charles Something Like that. David 56 billion, and youre the biggest single individual shareholder still. Charles yes. David so, you have a net worth yourself thats fairly high. What is your view on the wealth tax . Do you think that a wealth tax is going to make Society Better or not . Or how do you look at it as somebody, like me, who is subject to criticism for not supporting such a tax . Charles i think its wrong directed, in many ways. I think we, as a society, and you probably dont talk about it as much, and i dont either, our philanthropy. And i feel like thats an obligation of all of us. I came from, really, nothing. I had plenty of incentive to create what we created. Of course, my wife and i have spent a lot of time over the last 20 years giving back money to different causes that we really think need improvement, whether its education or the art world or alzheimers issues. You name it, were probably supporting that. David so, youre a pretty famous face and obviously a famous person. So, in california, when youre famous, sometimes you say, i should run for governor, senator, president. Did you ever think of running for anything . Charles i was suggested to be appointed secretary of treasury one time under the bush administration. I thought, i just cant do it. I cant put everything in some trust and so forth. And i really felt that this is my purpose in life, develop a company like this. We have benefited so many people. Politics wasnt really my maybe if i was king. I like to make i guess i like to make things happen quickly. David so today, the way you view youre contributing to the country other than paying taxes, building up the company, do you spend any time advising government officials or do other things related to government . Charles well, im obviously very actively involved in politics. I think every individual in america should have some piece in the outcome of this country, and hopefully well hang onto free market systems for indefinite periods of time. Its provided for all of us, all the various benefits of creation of new things along the way and that was i think thats what were doing. Were at the heart and soul of free enterprise. David if you look back on your incredible career, and you say i made a mistake or two mistakes, what would you say is the biggest mistake you made that you think, if you hadnt made it, youd be even more successful . Charles i think, david, ive made a lot of mistakes and every mistake along the way, i think ive learned something from that. David so you have the benefit of having five children . Charles five children. David and 13 grandchildren. Charles yes. 13 grandkids. What a great chapter in ones life. David do your children or grand children ever say, can you give me a stock tip because ive got some money . I think you wrote, your oldest daughter once asked you for some stock tips and you told her to diversify. Charles well, i did. We have a mutual fund, an index fund, called the schwab 1000. I use that all the time for my kids, the etf portion of the thing. Ive taught them all about it, but in some respects, its a little bit boring. Id rather have the kids buy individual stocks. So, what im going to do coming up this spring, were going to introduce fractionalization of stocks. So you can buy a small fraction of facebook. David or amazon. Amazon is a high price. Charles amazon. David amazon, lets say, is trading 1300 a share. Some people cant afford 1300 a share. So they can buy charles how about 130 . How about 13 worth . David ok. So thats something you will be doing . Charles well be doing it for the young people. David so, as you look back on your career, the most important lesson youve taken away from what youve done. Is it to innovate . Pay attention to