CONFERENCE NOTEBOOK: SCHWAB ADDING PERSONAL TRUST

Charles Schwab Corp. is planning to expand its trust services and add private banking, co-chief executive David Pottruck confirmed last week during the San Francisco company’s annual confab for financial advisers.

He said the services would “raise [Schwab’s] game to the next level,” as competition in the brokerage business continues to heat up.

Mr. Pottruck added “we agree” advisers need the services, but it was too soon to offer details. Schwab has a trust service for retirement plans. It has resisted expanding into personal trusts for liability reasons, but has been under pressure from advisers trying to compete with banks, brokerages and insurance companies (InvestmentNews, Aug. 2).

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At Schwab’s traditional “town hall” session, an adviser wondered out loud whether the brokerage was worrying enough about Citigroup Inc. as it wages a public battle with Merrill Lynch & Co. Inc. Schwab’s chief strategy officer, Daniel O. Leemon, had opened the conference by roasting the New York brokerage’s new online services.

“Maybe we don’t pay enough respect to Citigroup as a competitor,” conceded Mr. Pottruck, who has worked with Citigroup’s co-CEOs Sanford I. Weill and John Reed — first at Shearson Lehman Brothers Inc. and, later, Salomon Smith Barney.

Nevertheless, he said, “While their resources are impressive, they face difficulties in being so big that they neutralize the advantages,” such as combining the disparate cultures within the organization.

Mr. Pottruck granted that the conglomerate “could create a more aggressive acquisition strategy now” that would really grab Schwab’s attention.

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There’s one thing investment pros agree on, and it’s that traditional valuation principles do not apply to high-tech and, particularly, Internet stocks.

That much was evidenced during a panel discussion that featured venture capitalist Bill Burnham of Softbank Capital Partners; Paul Cook, manager of the Munder NetNet Fund; Kevin Landis, co-founder of Firsthand Funds; and B. Anthony Weber, president and CEO of Veredus Asset Management LLC in Louisville, Ky.

Mr. Burnham, who before joining Softbank in September rose to fame as an e-commerce analyst — first at Piper Jaffray and later at Credit Suisse First Boston — said valuing the stocks is all about “betting on the future — and betting on a company’s ability to exploit it.”

Mr. Landis, whose flagship funds Technology Value and Technology Leaders are up 109.6% and 85.7% this year, respectively, says he pays for whatever looks to be a winner through a “first mover” advantage within a powerful trend. Mr. Landis also said he’s mostly interested in what fundamentals a company will be reporting three and four years from now when he’s deciding what to pay today.

Mr. Weber, seemingly the most conservative manager of the bunch, makes Internet infrastructure plays, such as Cisco Systems Inc. He looks at price-to-sales ratios rather than price-to-earnings.

Mr. Cook, whose Munder NetNet fund was up 72.9% year-to-date as of Wednesday, says valuating stocks requires a “certain blind faith,” as well as a firm belief in the possibilities of the Internet. The analytics he does rely upon are price-to-sales ratios in conjunction with growth rates. Mr. Cook, Mr. Landis and Mr. Burnham also stressed the importance of company management.

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If you think twenty-somethings aren’t worth pursuing as clients, think again, said Jonathan Hoenig, a 23-year-old Chicago area radio host-cum-financial services consultant. As Generations X and Y accumulate wealth and are increasingly the beneficiaries of their parents’ wealth, advisers would be wise to attract and work with these younger clients, he suggested.

It’s easier than most advisers think, said Mr. Hoenig. He advocated that advisers first speak to their clients about educating their children, then ask for an introduction to them or invite them to their office.

“Young people are money- obsessed and today, more than ever, they have money to invest,” Mr. Hoenig said. Establishing a good “vibe” with younger investors is “muy importante” he told the amused audience.