Taking Stock

Rolling with the Punches

Schwab saw the change in rate structure as a chance to execute the savings and investment philosophies that had been instilled in him as a child. "It was an opportunity to develop new and creative investment and savings vehicles," he says.

Schwab never intended to be just another discount broker offering bargain-counter trading for small investors who didn't want to deal with the big guys. From the outset, he established himself as an innovator--and an ethical one at that. "As soon as I established an identity as a discount broker, I wanted to create a reputation as an honest broker who sincerely cared about his customers," says Schwab.

Schwab discovered he had his work cut out for him. His first priority was toppling the image that discount brokers were slick operators offering third-rate, inferior brokerage services; rumors had circulated that discounters could not offer clients the best executions or market analysis and that they lacked sufficient capital to weather sudden market downturns.

Schwab separated his company from the huge Wall Street brokerage firms that depend on commissioned salespeople by paying his brokers salaries and awarding bonuses based on customer satisfaction. "That fundamental change altered the traditional paradigm of the brokerage industry," says Schwab. "It changed the entire relationship between customer and broker. Even today, if you get to the core of why we are different than traditional commission firms, it is that one single factor that makes us stand out. By paying our brokers salaries, we removed the concept of interest from the relationship."

Through innovative marketing, he began to offer a selection of low-cost and imaginative investment programs, such as no-fee mutual funds, computerized stock trading and specialized banking services. Without resorting to the high-pressure tactics common among many of the larger, traditional brokerage firms, he left it up to the customers to stop in at one of the branches and talk to a Schwab broker.

It was simply smart marketing that promtped Schwab to make himself the spokesperson for his company. In commercials, potential customers didn't see some slick actor pretending to be a Schwab broker; instead, they saw clean-cut, All-American Chuck Schwab himself, dressed conservatively and presenting a hard-to-resist, down-to-earth manner that clearly identified him as a no-nonsense, straight-talking professional ready to meet his customers' investment needs.

The plan worked. Schwab finished his first year racking up sales of $30,000 a month. In 1976, that figure doubled to $60,000 a month and continued to grow. "Revenues increased by about 40 percent a year," he says, "and moved very fast."

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This article was originally published in the November 1996 print edition of Entrepreneur with the headline: Taking Stock.

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