Schwab was ten years into his career when he decided to venture off onto his own and start his own company. He had a vision for a business that would shatter the investing world. Schwab wanted to break down the barriers to Wall Street and make it easier for the average American to invest. How could he do that? Schwab had figured out how to lower the fees for buying and selling stock.
Schwab approached his uncle Bill, a fellow entrepreneur, who agreed to finance his nephew’s dreams. With a $100,000 loan, Schwab founded First Commander Corporation, whose philosophy was that the stock market should be open and accessible to everyone. After its first two successful years in business, Schwab bought out his partners, assumed all of the company’s debt, and changed its name to Charles Schwab & Co., Inc.
The young company quickly began to make a name for itself, especially in 1974, when the SEC initiated a 13-month trial period for the deregulation of certain brokerage transactions. While other brokers were using the time to raise commissions, Schwab decided to go the opposite route. He would create a discount brokerage firm. When the trial period was over, the SEC officially approved negotiated commissions, and the discount brokerage industry was born.
With that, Schwab branched out of San Francisco and opened an office in Sacramento. Advertisements began running across the country, portraying Schwab as a working class broker. By 1979, the company boasted over 33,000 customers. From there, Schwab began to introduce new features, including a 24-hour weekday quote service, and a state of the art computer system.
In 1981, Schwab made two prominent acquisitions and opened its first office in Manhattan. Two years later, the company was bought by the Bank of America for $57 million and celebrated its 500,000th customer account. Schwab continued to improve its services with the introduction of new online products like The Equalizer, and the touch-tone quote system SchwabQuotes. But in 1987, Schwab managed to buy back his company for $280 million and promptly went public. Its IPO of eight million shares sold for $16.50 each.
By 1994, Schwab had reached over $1 billion in revenues and $100 billion in customer assets. Its further growth was the result of an early focus on online technologies. Schwab launched Internet trading in 1996, and in just two years, it had gained over 1.8 million online accounts.
The collapse of the market would hit Schwab hard. Between 2000 and 2002, profits fell from $718 million to $109 million. In response, the company, which was under different management then, cut some 6,500 jobs. Then, after it did not bounce back as expected, the company called back its founder.
In 2004, Schwab returned as CEO to the company he had founded. Schwab hired outside consultants to assess the situation. After agreeing with their findings, he decided to cut $600 million in expenses and another 2,000 jobs. He also reduced fees and commissions, and closed down divisions that diverted attention away from the company’s original goal of serving individual investors. International offices were also closed.
Schwab wanted his company to shift away from being solely dependent on commissions to being a full-service broker. “We brought prices down, down, down so they are now essentially commodities,” says Schwab. “So if we want to succeed in this business, we have to move in a direction of adding other value to the relationship with our clients. And so where I might have said 15 years ago, 'We want to be the best discount brokerage,' today I want to be the best 'relationship company' in financial services.”
The company bounced back. Client assets rose from $942 billion in 2004 to $1.2 trillion just two years later. And now, Schwab wants to do it all again.
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