One on One: "I get a lot of honest feedback and truly valuable advice from advisers"

Nobody ever accused David S. Pottruck, the former wrestling star who oversees pricing changes at Charles Schwab Corp. and determines who gets the ax, of being a cuddly bear.

But the more power Mr. Pottruck assumes – having finally shed his title of co-CEO to become sole chief executive in May – the more he seems to warm to the advisers who keep $259 billion in assets with the San Francisco-based company.

At Schwab’s annual IMPACT conference in Washington last year, Mr. Pottruck was virtually everywhere, shaking hands and answering questions in his blunt style. By all accounts, he doesn’t let up in the conference off-season.

He can’t. Not only has he assumed even more of chairman Charles R. Schwab’s responsibilities, he is also filling a void left by turnover at the firm, especially the departure of Schwab vice chairman John Philip Coghlan in the spring,

Many think Mr. Pottruck, 55, is the right man to carry out Schwab’s mission of boosting its independent advisers while pursuing a parallel course on the corporate side.

“Dave is an incredibly competitive guy,” says Richard D. Steinberg, president of Steinberg Global Asset Management Ltd., a Boca Raton, Fla., firm with $315 million under management, most of it under custody with Schwab. “To have an advocate that plays to win is what we’re all looking for.”

Q At least anecdotally, Mr. Coghlan was the champion of the adviser in the corporate suite. Has someone else carried this torch, or has the need for that become obsolete in recognition of advisers’ importance to gathering and keeping assets?

A John was very visibly passionate about the adviser business. He had a lot of respect among RIAs, and he was an effective champion for them here at headquarters. In many ways, he imparted that sense of passion among the rest of those who still respond to advisers’ needs.

But I don’t want advisers to underestimate my personal commitment to this business. As CEO, I may be viewed as less visible on [Services for Investment Managers]-specific issues or someone who must focus on all Schwab’s enterprises. But SIM is a huge piece of my personal contribution to Schwab, and I have an incredible sense of ownership of this business.

Q Last year, you rolled up your sleeves and mingled with advisers at IMPACT. Will advisers see more of you, and will they see a shift in leadership at Schwab now that you are solely at the helm?

A I expect advisers will have the opportunity to meet with many members of our management team since IMPACT is being held in Schwab’s hometown of San Francisco.

I’m also eager to reconnect with advisers I’ve known for a long time as well as those people I’ve met recently. For many years, Chuck Schwab and I have made it a point to walk the floor, mingle and meet personally with advisers at IMPACT and other events hosted by Schwab Institutional throughout the year. I get a lot of honest feedback and truly valuable advice from advisers during these interactions.

Q The faces of Schwab Institutional have changed in recent years. Gone are Gerald Graves, Mr. Coghlan, Jeff Cusack and Rob Klapper. In are Deborah McWhinney, Edie Heilman and Joshua Rymer. Do you foresee a period of stability in the SIM ranks?

A There is a basic ebb and flow of personnel in any company, and especially one that grows 30% annually for 25 years and then goes through three grueling years of restructuring.

I’ve been with Schwab for 20 years, and I can’t think of a point in our history when we haven’t had some new faces playing new roles. Some of the people you mentioned, like John, Jeff and Gerald, have left to do new things – and we wish them the best. Others, like Rob, are still with Schwab and still contributing to our business, although in a different capacity.

Let’s not forget that our SIM business was started by Jim Hackley and me almost 17 years ago and is still an important focal point for my attentions.

Q How confident are you that Ms. McWhinney can succeed in her stated goal of cutting into the wirehouses’ domination of the affluent-investor market?

A I have 100% confidence that this can be done. Debby’s team has a plan for our advisers to gain share in the affluent market, and so far, it is producing fantastic results. You can see that in the increasing number of referrals and closed new business through the Schwab Advisor Network. You can see it in the record level of assets from advisers flowing into SIM.

It’s no secret that one of my objectives is to demonstrate the relevance of the Schwab brand to affluent investors. The Schwab team is doing an extremely effective job of integrating the adviser community into Schwab’s long-term strategy of attracting more affluent investors. That’s why you see retail marketing offers [being] leveraged and customized for advisers so they can benefit from the reach of those campaigns. Likewise, with the Charles Schwab Bank, we have a program that enables advisers to offer mortgage solutions.

Q Schwab’s branch network is the envy of your rivals. But you have also made cutbacks in this area. Advisers are concerned; the branches are referral founts. What are your plans for the branch network, and will future decisions regarding these branches give consideration to advisers’ needs?

A Quite simply, we overexpanded and, in some cases, set up offices in poor locations. That needed to be fixed quickly in this era of incredible focus on efficiency. Our branch network is still as strong as ever, even if the number of facilities has declined slightly. We currently have 356 branches nationwide, down from a peak of around 400 several years ago. Nevertheless, the number of referrals to advisers coming from our branches has reached record levels in 2003. I think that proves that a highly focused client navigation program, like the Schwab Advisor Network, will continue to add value to advisers.

Q Schwab has had to cut back its budget in recent years for obvious reasons. But this year, presumably, profits are rising. Could there be more-generous budgets, and how might advisers benefit?

A Even with tight budgets and an uncertain business outlook, we’ve continued to invest heavily in products and services that benefit advisers. Just to name a few: We’re investing in the development of the Advisor Transition Support service; we’re putting resources behind a total update of our portfolio management technology; and we’ve provided numerous enhancements to web trading on schwabinstitutional.com for ease of business and automation. On top of that, we’ve hosted more than a dozen operational workshops to give advisers’ back-office staff some valuable training and tips to help them work more efficiently with Schwab.

Q You are streamlining and expanding U.S. Trust Corp. You are building out private-client offices. Advisers have been told a thousand times that this doesn’t represent competition. Is your message the same on this shopworn but important point?

A Yes, because it’s still true. We respect that some advisers are concerned that Schwab is out to compete with them, and we appreciate opportunities to reassure people that there is ample room for us to grow our business, and support the growth of advisers at the same time.

Let’s remember that no one has a greater reason to carefully pay attention to these issues of potential conflict. SIM is one of our very best-positioned businesses. We are committed to its growth and the growth of the entire RIA industry.

We are committed to giving individual investors what they want. When investors are interested in an RIA solution, we are thrilled. Our creation of the Schwab Advisor Network makes that a sustainably profitable piece of our business model. However, some investors don’t want an RIA; they want to work directly with Schwab, or they want a big-institution-type solution like U.S. Trust.

Our people’s incentives are totally neutral on which solution the client ends up in, and strategically, I am totally neutral as well.

Q Schwab seems to have taken a noble tack with its succession-planning initiative at IMPACT. What is your take on the importance of succession planning?

A Easily half the advisers I’ve spoken with this year – and that is on hundreds of occasions – are worried about this issue. And it’s only going to be more attractive to advisers as they get closer to making decisions about the future of their practices.

SNAPSHOT

David S. Pottruck, 55, chief executive (since 2003) and president (since 1992) of Charles Schwab Corp. in San Francisco

Career: 1997-2003, co-CEO of Charles Schwab Corp.; 1992-97, chief operating officer of Charles Schwab Corp.; 1988-1998, president of Charles Schwab & Co. Inc.; 1984-88, executive vice president of marketing and advertising for Charles Schwab & Co. Inc.; 1981-84, senior vice president of consumer marketing and advertising for Shearson/American Express of New York

Education: bachelor of arts degree from the University of Pennsylvania, 1970; master’s in business administration from its Wharton School, 1972