I know you have great energy we saw you coming in. Group. A highenergy good evening. [applause] and the Program Director here at the commonwealth. Thank you for coming tonight with the program with Charles Schwab in conversation with adam lish and ski. How many of you are members . Thank you very much if not this is a great time to join there are terrific programs coming up when there is a gentle man named billy we will bel happy to answer any questions please take a moment to turn offta your devices that could make noise and i will tell you about upcoming programs. On halloween fox news anchor brett baer will be with us. On november 12th rich lowry. Jerry rice will be with us and november 15 at noon Mary Lou Henner will talk about why she has a unique condition that allows her to remember everything in her life. Also great travel programs ask our staff about those this february take an expedition to new zealand. A lot of good stuff coming up there are question cards in your seats please write your questions early and often make them questions and as legible as you can also signed copies of his book are on sale outside this room outside after the program please give our guests a warm welcome. [applause] i will hit the gavel that first i will reiterate i do discriminate in favor of legible questions. [laughter] you have been warned. This is one my favorite parts of doing the Commonwealth Club event welcome to tonights meeting of the Commonwealth Club i am at lish and ski in your moderator for tonights program it is part of the Commonwealth Club ethics and accountability series underwritten by the traverse familyly with the Bernard Osher foundation for the good that programs. Very pleased to introduce Charles Schwab found her former ceo and chairman of the Charles Schwab corporation and author of the new book invested. One of the worlds most influential financial executives as of 2019 nearly three. 6 trillion worth t of assets managed by Charles Schwab and Company Founding in 1971 with a 100,000dollar loan and has since grown into a Financial Services juggernaut. His memoir invested lays out the passion to invest change the way wee invest hard work and ingenuity that propels his vision into the leading Financial Service firms from stanford to guiding his company through decades of Economic Transformation and fluctuations he recounts the defining moments of his life while providing a unique insight into the evolutionary dynamics of Entrepreneurial Companies we are pleased to have a conversation with mister schwab about the heights how to use of Financial Management and having a fulfilling career and life please join me to welcome Charles Schwab. [applause] a lot of my fans are out here. I think maybe you stack the deck. I was thinking quit while you are w ahead. Start ate the beginning of your lifes work in 1975 you had an entrepreneurial moment so tell everybody about it. May first of 1975 and congress made a decision to make sure that commissions were all negotiable before they were fixed for over 200 years at certain levels fixed rates for the prior 200 years and on that day they democratized in many respects the ability to invest any way you wanted at any price depending on which broker you used be lower substantially others raise them like merrill lynchli it created a huge gap for us to enter into the business with full prices and hopefully Great Service so then we started the company because we knew change would occur. So today we have 20000 employees that we serve as customers. One of the common themes ofhi entrepreneurial that you identify that the things that you see and act on is what you separate you from everyone did so what congress wasnt a secret it was the opposite everybody knew about it. So can you reflect on what we now look back is obvious and what enabled you to create your business and why you could act on it. We were not the only firm that entered into that area that most were insc new york. We happen to be in San Francisco on montgomery street we had four employees i thought its a great idea to go into thiss business at the time so we did this before the change i had the idea customers wanted a better deal than being sold High Commission products some are true and most were hyper stories in their way to create a compensation for the broker wanted to have a place for people to invest. I got into itt because i was just out of Business School in 1961 and they worked as a financial analyst for the next ten years as a portfolio manager. Many brokers came to our firm and they said this is a bad business if you have the wrong foundation was based on Customer Service or values or the things you would hope for. So we decided ten years later and 73 we would start a company with this view in mind. So the first thing i did i dont want any salesmen in our company we compensated employees salary plus bonus and if we were really successful everybody got a nice bonus and if we werent so everybody was focused on Customer Service because what they wanted them to refer customers to us to grow and prosper and we were different then and have kept the same model the last 40 years. This is a profound point you make you decided your company would not sell but you were going to market and we will talk about w marketing because you identify yourself as a marketer. Your book has a lot of really nice detail about you, your early life, a californian through and through just to tell everybody a little bit where you grew up and how it was why thats part of your story. My paternal grandmother born in San Francisco in the 18 eighties my father born in San Francisco in the fifties forgot i was born in sacramento so basically ive grown up here and spent my whole life here in california for car went to school here so im a local guy. That was serendipitous in many respects for me it would never do in new york city many people didnt realize i started here in delta here in San Francisco and never had the environment the new york brokers had that was very beneficial also the fact that technology and innovation was clearly happening in Silicon Valley and San Francisco so i knew about those great things in the introduction to our company to made us much more efficient even before the internet we were applying the best technology. So it was really beneficial im lucky i was here and third we could it was so focused on new yorks we had all afternoon to clean up because there was so much paperwork it wasnt technology so we had the extra time to make sure the back office was clean a couple times they werent but for thefo p most part. [laughter] we did. You describe three things that were important early in your life to you. One is when you got out of college you had a lot of jobs. One of them was selling insurance i dont know if its right to say you were not good at it. I had a number of jobs and its really critical to encourage young people to get jobs i was a switchman on the railroad and i was between a first and second year in Business School so i said i better learn about the Insurance Industry because i was focused and i went to work at a bank the year before and i was a complete failure i really found out the stuff was so overpriced in terms of sales commissions and the list of all my family and friends and i never sold a single policy. [laughter] that i said this is not for me after six weeks and they encourage me toede quit. [laughter] you said you were skeptical about most insurance products. They are all built upon a sales content that is extraordinarily expensive if you analyze how they are constructe constructed. With those twentyyear endowments it was the stupidest thing to ever do because i was always interested in investing something that could grow faster than insurance yet it turns out mostly goes to the Insurance Company so that was early learning. Another early in current passion is golf played for the High School Team in santa barbara. I loved it. Other than enjoying it why is that such a bigt, deal quick. I really loved basketball but i wasnt tall enough. [laughter] nothing i could do about that i play junior basketball in college or high school and the other guys weree 6foot two and i was looking up to them. I decided maybe i should focus on golf because even then i was 57 i thought was my iconic man and i wanted to copy him. Many people notice that he ise dyslexic you said for four years you wrote you thought youu were stupid. Somehow or another i could not read as fast as my friends at school and it upset me a lot. My comprehension was not as good as theres. I had to read things a couple times to really understand what was goingt on. So to me it was a handicap is nothing you would speak about. But you didnt know. I discovered when my youngest son had the same exact issues i had in school at seven or eight and took him down to be reviewed to see his issue about reading and they came back and says he has issues and it was a great revelation to me his problems were identical to mine and explained everything but that whole science was undeveloped when i was young and its been analyzed for the brain how it functions slightly different in thats area where we deal with words and conversion of words. So it turns out for me a lot of issues i had early it was the big ahame moment four oh one so that point forward we decided to develop a Charity Service for other parents who had kids with learning issues calling the parents Education Resource Center we have many families come of moms and dads with a kid who cant read very fast. They are normal they just have a processing problem you have to identify. So books on tape is a great way to read books. [laughter] one thing i admired about your book it is very accessible to the average reader but you go deep into the major businesses. Its really a San Francisco story about a Company Started with four employees and it grew to 20000 over about 40 years time. All the ups and downs we were bought by bank of america one time and shareholders and there were issues there so we bought ourselvesel back after a struggle. That was 1987 so the story of that me going onto the bank of america board was really interesting. [laughter] and unfortunately we could free ourselves in by the company back in 1987 and then start new with a growth pattern so thats a fun story to review. A lot of your stories are fun and interesting. You mentioned how and why technology has always been important to schwab. Go all the way back to explain the First Time Technology was important and why you were so persistent about spendingen big money even though you didnt have big money. The first transaction i talk about in the book as an entrepreneur thats the whole company in 1979 to buy a Software System that would solve the beginning Software Problem we were getting more volume and more paperwork i had to solve this or we would go into the sink we would thrive thank god we worked ughard and we came out on the other end with a system that worked well. We were very honored to adopt this online system. It was not internet that did not come about until about 1995 so we had all these years of using a very efficient system i dont bore you with the information but the Software Cost 10000 at the time in the company was worth 500,000. [laughter] that was a big decision. You mention bfa as a Young Company growing quickly why did you do that in the first place quick. We thought they would lend us the money they suggested that and with our Business Model they thought its a Good Business maybe we ought to buy that company and diversify they flash some big numbers on me and having come from zero money 55 million was a lot of money and i own 40 percent which was a lot of money in 1981. So we finally decide to do that and make the transaction because as wewa grew we needed more and more money to grow we needed the capital and i was turned down by many venture capitalists and wall street did not come to my aid because we were creating competition by lowering the prices and thousands of customers were joining our company. So they did not want to finance it further so i had trouble raising money so it was very attractive at that time at my age. But soon over three or four clear we weree under the wrong umbrella and had to work her wayut out. But they also manageat a huge problems. Shipping went down the tubes and argentina and south america and on and on. Theres a big building in downtown San Francisco so i said cell aspect i convince them to sell us thats an interesting story. They said okay we will sell bidder. He highest but im not for sale. You can sell the company and i will start a similar one right street. He it was a real threat because i was going to doo it. I was upset with them because and then the next four years and went from 24 down to Something Like nine so i was unhappy for many reasons. So they could sell Charles Schwab but they cannot sell the person. Then name the rights there was a provision that was not for sale. It was serendipitous that my name and face with advertising g that time so then the namesake goes down with a similar competing company. So it was good for them. To but before that you mentioned the company was identified you were in the advertising in your name was on the door that wasnt 100 percent your idea. Can you talk about that quick. Its an interesting moment in time. The executive its not 1977 we had a great article about the company in the examiner. The San Franciscohe examiner. And how we are doing a growing soso he said lets use that picture of you in the ad. Meant to save 75 percent on transaction cost. We could barely afford advertising so we could afford and at about that size. Is that is that an egomaniac what will my wife say quicks . So we say we will try it once. The results were up ten times so we convinced everybody that it was bashful. And that was the way we would operate. So now i will abandon my script and go to their questions. I will read three that are similar to each other. What advice would you give to a 16 yearold justei starting investments to figure out his future path . What three pieces of advice can i take back to my High School Students and then my son graduates from college this year what advice would youu give as they get started with investing . I guess you get questions like this from time to time. Even from my 13 grandchildren. Its all about education. And how the world functions in the economic sense. It is called capitalist and free enterprise. Means creation and invasion thats all we love capitalism. And it comes from the creation of the human brain but with economics and how that functions it is an important way to start they dont have much in terms of the Economic Education so thats a real problem and Financial Literacy and frankly people get in a lot of trouble about credit cards and borrowing in those kinds of things. They have no clue they dont learn about that in school so it is education if you want to be successful get passionate and understand why you are there and read about it. You will have a great investmentan life let me drill down and play devils advocate. Advice to young person to buy index funds dont buy individual stocks because you will probably do it poorly the Academic Research proves most people do. Im a great believer in index funds having started one in 1991. And then the index funds however its a little bit boring. Is very boring. [laughter] and all the things that you see we have to solve that issue and one tenth of the share or one fraction of things. Or to take the gift and divided into 25 different stocks. Thats an easy way to get engaged and get involved. So i love index funds thats the way for most of us to do this at low cost. And the kids will make more mistakes early on to do thatan inexpensively. Spirit thats why venture capitalists do these days its a great system. Everything available for great ideas so that was not a flourishing area to speak of so im looking for capital. Do you have a f favorite mistake that was a plain failur failure. Too many read the book to see them all. We never knew for sure where we might end up the personnel and very early i knew i was lacking those capabilities you really got a great we didnt get the harvard mbasfo for sur. I respect you dont want to give everything away look at the fire festival theres a really funny story about his investments thats all i will say about it. And to address the growing problem of income inequality that is assigned by a schwab client. And education is the only way to get more people interested in why they should invest. And 30 years ago so there is a huge time. To developop a paycheck after we retired for a company that that is education which is critically important so all the things that government set up to incentivize people to say more and invest more. If i was president right now i would increase the taxes so people at the low end poverty levels it was increased a little bit