How Charles Schwab helped clean up Wall Street

Charles Schwab Chair

Charles Schwab is one of the few executives in the brokerage business who built an empire by actually caring about his customers.

In an hour-long interview, Schwab told me that when he got into this business it seemed to go against his very grain. He had thought of investing was a way for average Americans to buy homes, fund businesses, and pay for educations, family vacations and retirements. But everyone around him seemed to think of it as a sales program for lining up a steady stream of oversized commissions.

It was a business built on “great salesmanship,” he said. And a business “based upon how much you could extract from the client.

“I became aware of all these very bad deals for the average American investor,” he said. “They had to sell crappy stuff to make a lot of money, and they had unlimited upside with commissions.”

“People didn’t understand that when they bought a mutual fund, the next day they lost 8 1/2% because they paid an 8-1/2% load,” he said.   “The American public is very trustworthy. It’s amazing. They’re taken advantage of by these hidden costs and hidden expenses,” he said.

Click here to read my story on how Schwab democratized investing for Americans in Investor’s Business Daily.

1 Comment

  1. I agree, the days of high commissions and fees were kind of anti-retail investor. Today, brokerages are moving towards the fee model ( Wrap Accounts, or bundled accounts). They charge about 1.2% of assets to manage a mix of mutual funds and individual stocks. In addition, each mutual fund, other than Index Funds or ETF’s, charge their own management fee, often another 1.2%. So, in up or down markets, you are out – 2.4% upfront. There is no tactical advantage, as your advisor does not tell you when the economy is tanking and move your money into safe havens (cash) at the right time. You ride the market up and then ride it all the way down, while still paying fees.

    This can really hurt total returns over a long period ( say 20-30 years). That’s where Index Funds shine, as Vanguard repeatedly points out, as does their founder, John Bogle. He maintains there is a 0% chance an active manager can beat the market in the long run. ZERO chance, net expenses, commissions, trades, and taxes. Still, people give their money to the next potential Warren Buffet fund manager or Financial Guru.

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