One on One: "As successful as Schwab has been … we still have a long way to go"

Charles Schwab Corp. is trying to pass through the eye of the needle, and it needs steady hands.

The San Francisco firm wishes to remain the go-to custodian of assets, and still forge ahead with providing potentially competitive advisory services of its own.

With that in mind, the company reorganized itself last October. One result was that the head of Schwab Institutional, John Philip Coghlan, took on broader powers as vice chairman.

In February, the company hired Deborah D. McWhinney to take his place at the helm of the adviser unit.

Until now, the banking veteran has stayed out of the public eye while earning her securities licenses.

“She has a combination of native intelligence, energy, team-building skills and a willingness to do whatever it takes to get a job done,” says David A. Coulter, former CEO of Bank of America and now vice chairman of J.P. Morgan Chase & Co. in New York.

Here, Ms. McWhinney talks about her new role, with her boss, Mr. Coghlan, at her side.

They talk about how the new structure benefits advisers who keep client assets with Schwab.

They also voice their belief that Schwab’s move to provide advice to the affluent through its U.S. Trust and private-client offices helps – rather than hinders – advisers.

Q Your work experiences do not neatly fit your new job description. What attracted you?

A D.M.: Ninety-one percent of the [affluent’s] assets are nowhere in the marketplace. They’re really with our competition. As successful as Schwab has been in the investor market, we still have a long way to go. That’s what was so exciting to me. I really like business, and I like to change things and move things forward, and that is what is most important right now.

Q What attributes led you to hire her?

A J.C.: She likes to get close to clients and hear from them what the issues are. We need that kind of person in this job. The second thing would be her experience with technology, whether it was Bank of America or Visa or the dot-com with which she worked.

The last part is that Debby is always oriented toward the future. We need someone whose helping advisers look over the horizon.

Q What things will you focus on more to help advisers?

A J.C.: I oversee our investments and annuities business, our 401(k) area and our efforts to serve corporations. I now have a role where I touch so many parts of Schwab that I can be much more effective leveraging all that to the benefit of advisers. I not only have the perspective, but I have the organizational connections to do that. I’m also on the Affluent Client Coordination Committee, where I coordinate the efforts of U.S. Trust with other parts of the firm and make sure that that’s to the benefit of advisers.

Q Has the new threat of heavyweight competition in the adviser market begun to affect the way you do business?

A J.C.: The major new entrant is Merrill Lynch, but none of them has the 14-year record of serving advisers and that unswerving commitment Schwab has demonstrated. I don’t think it’s an advantage to start late in this effort.

One thing we’ve been able to leverage at Schwab is teamwork. That allows us to work closely across different areas of the company. I think, in a number of those firms, they work as silos that don’t work well together.

Q Have your service offerings matured, or are you striving to provide another level?

A D.M.: We really believe there’s a lot of evolution that’s going to take place. And it comes back to that 91% [of high-net-worth assets] that still needs to find a home.

The adviser is still one of the best-kept secrets in the financial services industry, and I [know because I] come out of banking. There’s potential for real growth.

Q How will Schwab handle the issue of potentially competing with its advisers?

A J.C.: When Debby talks about the 91% opportunity, only 9% of the assets of affluent clients are either managed by advisers who use Schwab, are at U.S. Trust or in Schwab. The amount to which they overlap is relatively minimal. The assets are at full-commission brokerage firms.

We think the best thing we can do is to marshal our resources to attack those assets to help our firm’s growth. Schwab has other efforts directed toward the affluent – U.S. Trust, for example, and Schwab’s private-client offices.

What I think these allow us to do as a company is to invest more money in services that can be appropriate to the affluent than we currently do just to benefit advisers.

There are more wealth management services that we can bring over to the benefit of advisers. The Schwab private-client offices are making a website for very affluent investors. I can offer it to advisers as well.

You have to remember that advisers are $240 billion of assets at Schwab. In the first six months of the year, advisers represented 36% of all net new assets – far more than the historic level. Advisers are succeeding in the marketplace. We intend to invest more in it, not less.

Q An adviser might ask, “Why are you investing so much to do what advisers are doing?”

A J.C.: Well, it’s not to do what advisers are doing.

As an example, if you took a Schwab private-client office and what an adviser offers, and put it in a brochure, some elements would look the same. So if, for example, the Schwab private-client office is targeted for 200 relationships per manager, and you compare that to the 40, 60, 70, 80 relationships per manager you’d find at an adviser office, you can see these are not the same services.

Q But aren’t plenty of advisers still unconvinced?

A D.M.: Right now, we’re having round tables. In late July, Explore, and then we have Impact in the fall.

When we really talk with them, I would say, the vast majority walk away and say, “We understand what you’re doing, and we’re comfortable with where you’re going.”

Q Competitors say that since you have 70% to 75% of the market for adviser assets, you’ve got nowhere to go but down.

A J.C.: We do disagree with the characterization that we have 70% market share. We think our market share is far lower, in fact – well under 20%.

SNAP SHOT

Deborah D. McWhinney, 46, president, services for investment managers, at Charles Schwab & Co. Inc. in San Francisco

Career: 1999-2000, group president, Engage Media Services; 1995-99, executive vice president of business planning and strategy, Visa International; 1978-95, head of Bank of America’s consumer electronic-banking division

Education: bachelor’s degree from the University of Montana, 1977; graduate of Pacific Coast Banking School in Seattle, 1995

John P. Coghlan, 50, vice chairman, Charles Schwab Corp. and enterprise president of Schwab Institutional

Career: 1995, joined Schwab after founding San Francisco Grocery Express Ltd.

Education: bachelor’s degree from Stanford University, 1972; master’s in economics and public policy from Princeton University, 1975; master’s in business administration from Harvard University, 1977