In 1973, Charles R. Schwab decided to disrupt an industry and challenge its limits. Until then, his chief focus was putting out a subscription-based investment newsletter, Investment Indicator.
But in 1973, Schwab and his partners formed Charles Schwab & Co., focusing on providing investments to the common person. Only two years later, that served to be prescient as the U.S. Securities and Exchange Commission essentially deregulated financial services with the Securities Acts Amendments of 1975.
Before that act, securities could only be bought through a salesman, who often drove up the price and pushed riskier investments to earn more. But with the 1975 Securities Act, companies like the newly formed Charles Schwab & Co. could charge whatever fees they saw fit.
Schwab was on record many times that the “established firms showed little concern for the needs of their customers.” So, his first order of business with the new act was to cut his company’s fees in half.
Second, all of Schwab’s salespeople were paid hourly instead of by commission.
He even set up a toll-free number nationwide that could take consumer orders 24-7. Systems for automation were developed and implemented.
To say these measures were revolutionary is an understatement. Many people thought he’d lost it and would surely sink his own firm! His competitors were outraged.
However, as we now know the story goes, that led to Schwab & Co.’s meteoric growth, forever changed the financial services industry, and democratized investing for millions of Americans.
A few years back in San Diego, I had the pleasure of hearing the elder statesman of finance, Charles Schwab himself, speak.
He talked about the industry and where things were going presently. Commissions on the wholesale platforms were already gone. Fee-based business is here and not going anywhere. Value needs to be demonstrated – and we need to find a way to charge for it.
So how does the advisor make money AND an impact in an environment that has changed and will continue to change?
In my humble opinion, we have to be able to:
It’s just the evolution of the industry, and if history has taught us anything, it’s that we can’t fight change.
Clients are now demanding more (as they should). Therefore, we must demand more from them AND ourselves.
However, I see that many people in my industry (and in general) just keep their heads in the sand. In life and in business, change is difficult.
If we take the path of limiting the challenges that we face, we will become completely irrelevant – obsolete.
So, the way I try to bridge the old with the new is by being fully transparent. Don’t be afraid to charge when value is delivered but explain why. What’s your value proposition? Make a huge difference in their lives. Show that you care. Because we do.
Rest assured that a robo or online service is NOT going to replace that or us. Value is value, plain and simple.
The world has changed even more since I heard Schwab speak only a handful of years ago. More changes are on the horizon.
It’s time to decide if we want to limit the challenges that this new world presents or to challenge the limits and see what we can really do.