Welcomeon you. Thank you for coming down to tonights terrific program with Charles Schwab, in conversation with adam. We are appreciative to have you here. How many are you are members . Thank you very much but if you e e not a member of this is a great time to join. There are all kinds of traffic programs coming up in a gray building with a great roof deck and programs like the one in d re and there is the gentleman named billy at the back of the room paid hello, thank you, billy. He will be happy to answer questions you may have about joining the club so please see him on your way out. Thank you, george. Youre welcome. Please take a moment and turn off your devices that make noise during the program and while you do that let me tell you about a couple upcoming programs at the Commonwealth Club. On october 31 halloween at noon, fox news anchor bret beyer will be with us. On november 12 is not a comment in that just so you know. On november 12 National Review editor rich lowry will be our guest. On november 12 in the evening in Silicon Valley legendary 40 niner jerry rice will be with us. And on november 15, friday november 15 at noon actress mary lou hunter who many of you may remember from the tv series taxi and we talk about why she is unique condition that allows her to member everything in her life. Gary interesting program. The Commonwealth Club has great travel programs and we encourage you to ask billy and our staff about those. D r example, the separate you can take expedition to new zealand with adventure, the son of mountaineer. Lots of good stuff coming up in there are question cards under seats for mr. Schwab and these will be elected during the program and brought to our distinct moderator. Please write your questions early and often and make sure they are questions. Try to make them as legible as you can we try to get to as many as we can. We also want to remind you sign copies of his books are on sale outside this room right after the program. Without further ado please give a warm commonwealth welcome to Charles Schwab and adamen lucian ski. [applause] boy, what a crowd. Im going to hit the gavel in a moment but before i do i will reiterate that there are dash i do discriminate in favor of legible questions. [laughter] youve been warned on that. Here we go. This is one of my favorite parts of doing a Commonwealth Club event. I can hear you. Welcome to tonights meeting of the Commonwealth Club im adam executive editor of a fortune and your moderator for tonights program. This program is part of the Commonwealth Clubs ethics ethics and countability series underwritten by the travers Family Foundation with Additional Support for the bernardup foundation for our god lid programs. Im now very pleased to introduce tonights guests, Charles Schwab, founder, former ceo and chairman of the Charles Schwab corporation and author of the new book, invested, changing forever the way americans invest. Charles schwab is one of the most influential financial executives with as of 2019 im not done, nearly 3. 6 trillion worth of assets managed by the autonomous Charles Schwab and company. He founded the Brokerage Firm i0 1971 with a 100,000dollar loan naand is since grown into a Financial Services juggernaut. Mr. Schwabs memoir invested lays out his passion to change the way we invest and the hard work, ingenuity and entrepreneurship that propelled his vision into one of the leading Financial Service firms in the world. From studying economics at Stanford University to guiding his company through decades of economic transformations and fluctuations he recounts the divining moments of his life while providing unique insight into the evolutionary dynamic of entrepreneurial companies. Today we are pleased to be able to have a conversation with mr. Schwab about the howtos of Financial Management and his advice on fulfilling career and life, please join me in welcoming Charles Schwab. [applause] a lot of my fans are out here. T a real pleasure. I think we stack the deck spirit i was again you might want to quit while you are ahead. Leaving right now. Lets start at the beginning, not at the beginning of your life but the beginning of your lifes work, if you will, it was in 1975 you hadl an entrepreneurial moment and would you tell everybody about that as you describe in the book. It was may 1, 1935 and the congress made the decision to make sure that commissions were all negotiable and before they were fixed for over 200 years at certain levels whether six rates all the way through the prior 200 years and on the day they liberated the whole thing and democratized in many respects the ability to invest anyway he wanted to and pay any price on which broker you use and we lowered our prices substantially and others raised their prices a little bit like Merrill Lynch and created a huge gap for us to enter into the business with low prices and hopefully Great Service and we started with four people, that was in 75 we started the company before because we knew thatt the chane would occur and so today we hae about 20000 employees that work with us and try to serve great customers. One of the, these of entrepreneurialism and youre right about being in entre nous or you identify as an entrepreneur is that the things you see and act on are what separate you from everyone else so for example, what congress did wasnt the secret but the opposite of a secret and everyone in these Security Industry new about it. Can you reflect a little bit ono why this what we now look back on as obvious and what enabled you to create your business why you were able to act on it and others do not. We were not the only firm that entered into that area of discounted commissions but there were a few others and most of which were in new york. We happen to be in San Francisco so the San Francisco story fromr stem to stern say the least so montgomery street i had four employees and i thought this was a great idea to go into this business and at the time so we started this a couple years before the 75 change but i had this idea that customers really wanted a better deal than being sold High Commission products and being sold stories along the way that some were true, most of them were hyper stories and it was aon way to create a commissn or compensation for the selling broker. And so, i wanted a place for people to invest and the reason i got into this because i was just out of Stanford Business school in 1961, i was, and it worked as a financial analyst for the next ten years or so. Portfolio manager and so many brokers came to our little firm and i was with a little teeny company near menlo park at the time and i just got to know this brokers this was a bad business. Its based upon the wrong kind of foundation and they werent based upon Customer Service work values and those kinds of things that you hope for so anyway we decided or i decided ten years later i was in 71, 72, 73 basically when we started to the company with this view in mind. First thing i did was i dont want any salesman in our company for no salesman. We compensated our employees by salary plus bonus based upon the success of the company. If we were successful everyone got a nice bonus and if he werent, and so everyone focused on Customer Service because they wanted to have them refer new customers to us and we wanted to grow and prosper and thats how we were different then and have been different and kept the same model for the last 40 years. You make this is a profound point you make early in the book that you come back to repeatedly. You decidedis your company is nt going to sell anywhere going to market and we will talk about marketing because you also identify yourself as a marketer you personally your book has a lot of really nice detail ilabout you and about your early life and your eight californian through and through and tell everybody a little bit about where you grew up and how it wan is part of your story . My maternal father, grandmother was born in saninrn francisco in the 1880s. My father was born in San Francisco in the 1950s. I was born in sacramento so basically ive grown up here and spend my whole life here in california. I went to school here et cetera so im really a local guy but that was serendipitous in many respects. I think the emphasis go ended up being, for me, i could do thins that he would not ever do in new york city. Many people do not realize i started the company here, built the company here in San Francisco and never had all the negative things that new york brokers hadfr and retained. That was t beneficial. The other part was the fact that technology and innovation was clearly happening in Silicon Valley and San Francisco and i had a lot of those great things in the introduction to our company to make us much more efficient then we were in all through those years even before the internet we were applying all the best technology so that was beneficial and lucky i was here in the third thing was we were able to market close 1 00 oclock so we had all afternoon to clean up that time because so much of the paperwork which was paperwork and it wasnt technology. We had extra time to make sure our back offices were clean all the way through and a couple times they words but for the most part we were able to have a clean back office. You describe and im going to touch on three things that were important early in your life to you and one is that when you got out of college you had a whole lot of jobs but you did a whole bunch of things. One of them was selling insurance and i dont know if its hard to say but you werent any good and you didnt like it and it did not work. Tell everybody. I had a number of jobs and i think its critical for you to encourage young people to get jobs, any kind of job and i had any kind of job but i switched on the railroad and speaking about i was between first and second year in Business School and i thought i better learn something about the Insurance Industry because i was focused on being in the Financial Services world so i wanted to work your bank and wanted to see about the insurance. I really found out the stuff was so overpriced in the sales commissions and they wanted a list of all my family and friends and i never sold a single policy. I started to analyze what this was about and i said this was not for me and finally after about six weeks i think they encourage me to quit. Id[laughter] you did not you said you were skeptical about most insurance products. Well, theyre all built upon a sales kind of content that is extraordinarily expensive. When you analyze how they are constructed and i learned that quickly and decided that i think it was a bad thing for most actually i would they had so many endowments, twentyyear endowments all my gosh, to anybody and i was the stupidest thing to ever doo because i was always interested in investing and i thought putting your money and something that might grow faster than an insurance product which sucks most of their charts out and goes to the Insurance Company so anyway that was an early learning. Another early passion of yours and current passion of yours is golf. I believe you got into it playing for the High School Team in santa barbara. You are right, adam. I love it. Other than enjoying it why is golf such a good deal . It turns out i loved basketball. L really loved fastball but turned out i was not tall enough. [laughter] nothing i could do about that. I played junior basketball in college or not in college but in high school and all of a sudden as a sophomore, junior i was these other guys were 62 and i was looking up to them paid i decided ab golf was an area i should focus on because even i thought that was my iconic man so i wanted to copy him and that was the reason i went for golf. Many people will know this but i suppose some wont know that chuck is dyslexic and i wanted to push you on something you wrote. Nt you said that for four years you wrote that for 40 years you thought that you are stupid. Slow somehow or other i cannot read as fast as some of my friends in the school. It upset me a whole lot. My comprehension was not as good as theirs. And so it was always i had to read things a couple of times to really understand what was going on. It was always to me it was a handicap but i never talked about it and it was the kind of thing never spoke to anyone about about how slow you might ybe in reading because theresa stigma attached to it. But you didnt know spirit i discovered when my youngest son had the same exact issues that i had in school, seven or eight, took him down to the review by psychologist and so forth to see what his issue was about reading and they came back and said your son has dyslexic issues and this that and the other things so it was a great revolution to find out that his problems were identical to mine as a kid and explained everything. Thee word dyslexia and that whoe science was undeveloped when i was young and its been relatively analyzed even for the brain functions slightly different where you deal with words and the words meaning in that sort of thing but for me and solved a lot of issues that i had earlier on. From that point forward my wife and i decided to develop a charity thing for service for other parents who have kids who have issues like that called the parents education resource centerer and we have many many families come, brilliant moms and dads who have kids who cant read fast and whats wrong with them and your normal and every other respect but you have a processing problem that you know, you have to identify and book on tape is a great way to read books. [laughter] one of the things i admired about a book is that it exposed the average reader but you go deep into the business events of your career for the scale of the business reader. Adam, its a story about a Company Started with four employees here in San Francisco and grew to 20000 over 40 years in time. All the ups and downs we were bought by the bank of america at one time and one time we were had very large hours of bank of america and issues they are so i had to we finally bought ourselves back after quite a struggle and that was in 1987 so the story about all that we go on thehe bank of america board s interesting and also you will love reading about that but fortunately we were able to free ourselves and to buy the company back in 1987 it was. Its a new growth pattern and its a fun story to review. A lot of your stories are very fun and interesting you mentioned a few minutes ago about how and why technology has always been important to schwab. Will you go all the way back and explain the First Time Technology was important and why you were so persistent about spending big money on it even when you do not necessarily have big money, right . The first transaction i talk about inn the book is about entrepreneur. I bet the whole company is 1979 and the whole company on buying the Software System would solve our beginnings of a problem as we were getting more and more volume and more and more paperwork and all that stuff i had to solve this thing otherwise we would go deep into the sink or we would thrive. Thank god we worked hard through that whole time and we were able to come out at the other end and a system that worked well so we were very on and adopting an Online System and was not intimate but it came back to 1995 or 1996 so we had all those years of using an efficient system that i talk about a little bit and i will not bore you with that information butfo the Software Cost me 500 in 1979 the company was worth 500,000 so that was a big decision, let me tell you. You mentioned bank of america moments ago and you are growing quickly and why did you sell the bank of america in the first place . We thought originally they would lend us money and they sort of suggested that and i said g they studied our Business Model and i thought this is pretty Good Business and maybe we ought to buy that company and diversify and they flashed a couple big numbers on me and having come from zero money myself 55 million was a whole lot of money to the whole company and i think i own maybe 40 of the committee wishes a lot of money, let me tell you then in 1981. We finally decided to do that and to make the transaction because i was faced with as we grew and grew we needed more and more money to grow. You need that in capital and i was turned down by many venture capitalists along the way and men of wall street did not come to my aid because we were creating competition and we were lowering the prices and making Great Service for customers and thousands of customers were joining our company as clients and so they did not want to finance it any further so i had a tough time raising money. The bma thing was an attractive thing at that time and the involvement of the company but soon over the next three, four years it became clear that we were under the wrong umbrella and had to work our way out of their. Not only that but they ran into huge problems. They ran into huge problems and lent money to shipping guys and it went down the tube and argentina they had all kinds of loans south america and it went on and on and they had to sell the big