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CMO Jonathan Craig on Schwab culture, philosophy, and staying ahead of fintech competitors

Charles Schwab may be forty years old, but its founding ethos of industry disruption remains central to its mission, according to Jonathan Craig, Schwab’s CMO. In a wide ranging interview, Craig covers how the company continues to focus on cutting cost from the financial services industry, how it competes with nimble “fintech” competitors, and how to bring trust back to a sector badly damaged by its own failings during the Great Recession of 2008–2009.

Below is both a video and transcript of our recent conversation, edited for both length and clarity.

John Battelle Schwab is an iconic brand, which started in the ‘70’s. But now it’s obviously a very large company. What is Schwab’s core mission?

Jonathan Craig What we believe and our Schwab story really hasn’t changed. You mentioned we were founded 45 years ago, but our core mission, our core beliefs haven’t changed. Ultimately what we believe as a firm is that investing, when done right, can really transform people’s lives.

It requires that it’s done right. There are so many challenges in the industry with high cost, manufactured complexity, a lack of transparency. Things like that that get in the way. Our core mission has been, for 45 years, to really drive cost out and transparency in. We’ve been pretty successful so far.

The company started as a disruptor. That was Schwab in the ‘70s.

I would say that is Schwab. I’m a little biased, but I think we’re very much the disruptor that we always were. In fact, we don’t think of ourselves that are incumbent in the industry. There’re so many examples of us disrupting the industry and disrupting ourselves on behalf of getting better outcomes for clients.

Just give you one recent example, Schwab Intelligent Portfolios is our automated investment advisory platform, sometimes called “Robo.” There was lore a couple of years ago about how Robos were going to take over the financial services industry. We built one in-house in eight months. Within six months, we’re the largest pure play Robo provider out there.

I think we’re still very much a disruptor. I’ll just say one thing about that because this is near and dear to my heart. I want to be at a firm that is challenging the industry. It’s hard to challenge the industry sometimes when you’re large and you’re doing very well. We’re more than two and a half trillion dollars of assets and just came off a record quarter, but yet we’re still disrupting.

It’s easy (to disrupt) if you’re a startup. Startups are funded to disrupt. It’s easy if you’re not doing well. But for a company that’s large and doing well, I think that’s where disruption is difficult but particularly powerful.

What would you say, if you look at the industry right now, is ripe for disruption?

I think there’re still lots of opportunity, but cost is such an important factor in the industry. I think sometimes people in the industry forget we’re in the outcomes business. Our goal is to help people achieve their financial outcomes and cost is such an important driver and such a drain on people’s outcome.

We continue to innovate around cost, as well as technology and lots of other things. But I just believe there’s more room to take cost out of this system and bring transparency in. That’s what Charles Schwab is very focused on.

You mentioned Robo-advisers. To me, Schwab is someone I can talk to, which seems counter to the idea of algorithms going off and taking care of my money.

Again, I agree completely. I think financial services is a complicated business. There’s so many behavioral finances, there’s so many challenges with individuals making the right decisions that it’s hard to imagine simply technology being the solution.

I will say, we believe in technology and if you want technology to be the solution, we have an offer, Schwab Intelligent Portfolios. But even that offer’s backed by people. We have 24/7 client service. We have branches all over the country. As a firm, we believe in the power of technology, but also in the leverage of people.

People matter in our category. There’s lots of studies of professional money managers who don’t even manage their own money because they understand the biases in dealing with their own money. Individuals have the same biases. I think, on balance, that we believe the combination of people and technology is going to win, not one or the other.

There seems to be a growing consensus that you don’t want to set it and forget it and let the algorithms decide. You want to have some integration between what people are good at and the creativity and the insights, as well as having algorithms that have always got your back.

I’ll just give you an example on why people are so important. We just came off, obviously, an election and a tumultuous time. Our clients are pretty savvy, so they know what they’re doing. But my fear is, clients that may have sold the day before the election because they don’t know what’s going to happen. They were concerned.

That type of time in the market is what’s so dangerous. Who knows what’s going to happen to market going forward. But if they sold the day before the election, obviously that was probably not at least five days in a difficult…the right decisions.

It was certainly something I thought about doing. But then we didn’t, and then the futures were down almost a thousand points. Then the market opened up!

The data is very, very clear. You need to be in the market consistent with your risk tolerance, and you shouldn’t try and time the market. As much as conventional wisdom might’ve said, “If this happens and this is going to happen, or if this happens, this will happen to the market.” It turned out to be wrong and you can never be right. It’s very hard to be right consistently.

Let’s talk about the culture of Schwab, the company, the way that the company feels if you’re inside of it. A friend of mine, about nine months ago, was very new to the company. He’d come from another large financial services company. He said, “It was night and day.” He said that there was a culture inside of Schwab that made it feel like everyone wanted you to win. That didn’t sound like a big financial services company.

I’ve been at Schwab 16 years. I can tell you the culture is very different. As a CMO, it’s difficult. One of my biggest challenges is try and get that story out there. It’s hard to do because like in this gentleman’s case, he had to experience it. But that would say two things about our culture that are very unique.

Number one, we are truly a purpose-driven culture. Everybody at Schwab comes to work every day to help clients achieve the outcomes they deserve. They do it by what we call “Seeing the business through client’s eyes.” Every single decision we make is rooted in, “What would a client think if they were in the room? What is best for clients?”

Everyone out there listening is probably saying, “Everybody says that. You could walk in and every company had on the wall, put the client first.” Trust me, at Charles Schwab, it is fundamentally true. I think if you talk to any of our 15,000 employees or our clients, I would feel very confident that in their own words, they would represent this idea of, “We do see the business through client’s eyes.”

The second thing I’ll say is I think we do take a long-term view. We are a publicly traded firm and we’re subject to quarterly results. Of course, we take those very seriously. But I think from a leadership standpoint, to use a hockey analogy, we skate to where the puck is going over the medium and long term.

That’s liberating because it allows you to do what’s right and not necessarily what’s right in the quarter, what’s right for investors and the firm in the long term. Investing is a long-term game, so we treat the business that way as well.

You have a founder culture. The founder’s name’s on the door. How has the founder culture permeated the culture of the company?

The culture does start with Chuck Schwab and it means everything. The values that he started the company with are still the values that we operate on today. He is still very involved. He’s Chairman of the Board. I’m lucky enough to sit two doors down from him.

He loves marketing, so we do talk quite a bit. I was lucky enough to work for him as his Chief of Staff, which is one of the most incredible experiences I’ve ever had. We are incredibly lucky to have Chuck Schwab at helm. As Chairman, he understands the individual investor better than anybody I’ve ever seen. He’s relentless about getting clients better outcomes.

That’s what he thinks about every day, and he loves disrupting. The values of the firm start with him, but they permeate all the way down.

Your industry has been the target of billions of dollars of venture capital to disrupt it. Not just what Schwab does, but more broadly, financial services, banking. Fintech is the broad category for this. But if you look at how things are done today, how customers interact with money and capital markets, are there changes that seem inevitable to you that are going to happen?

I think ultimately, the companies that win in the future are going to be companies that like today, that are remarkably easy to do business with. I think the financial services industry, if we’re honest with ourselves, in general, we could be easier to do business with.

I think what excites me most about some of the fintech innovation, I don’t think we see it as a threat. We see it as an enablement of companies like Schwab being even easier to do business with. I think that’s probably the number one thing.

People are busy. We live in a noisy, connected social media-driven world where people are overwhelmed with data. They are overwhelmed with noise. Money is not necessarily the number one issue on their mind, or at least dealing with their money probably should be the highest priority, but may not be. Companies that are remarkably easy do business with will succeed.

Living here in San Francisco is very helpful because we spend a lot of time with those companies, and also the VCs that fund them to understand where the industry’s going and how we can work together.

The financial services sector was the boogeyman of a global recession. We’ve had many financial services leaders here on the Shift Dialogs and I’ve asked them this question, which is, “What was that like to go through…not only to go through that significant downturn, but to have your industry blamed for it?”

I was actually worked for Chuck at the time, so I was front and center to being part of it. But obviously, it was a really, really difficult time. It almost doesn’t matter what it meant to the financial services industry, what it meant to the global economy was quite devastating. I think in many ways, we’re still recovering and still recovering from a trust standpoint.

As a CMO, that’s probably one of the biggest challenge is this, “How do we as an industry, regain their trust,” and also, “How does Charles Schwab separate itself?” Without going back to 2008, we didn’t take any TARP money. We didn’t need any government assistance.

We were solvent and solid and there for our clients. But folks on the street didn’t necessarily discern the difference between one firm versus another. Probably one of the biggest challenges that we still face post-2008 as an industry is trust. It’s a real challenge.

As CMO, that’s your job. Establish and protect and build that trust with consumers. Do you get the sense that consumers trust the financial services sector now, eight years after the downturn?

I think not nearly enough. All the data suggests in general that their trust is not where it needs to be. That probably wasn’t great before 2008, but surely 2008 had a significant impact. There’s been some events since then that continue to erode trust industry-wide.

I think we as an industry really need to take this idea, what I talked about before, seeing the business through client’s eyes. As an industry, we really need to do that because in some ways, maybe the lack of trust is deserved, but not in all cases.

Investing is such an easy thing to put off. It’s such an easy thing to ignore, and yet it’s so important that we as an industry can’t afford to give people a reason not to trust us. They need to trust the industry because they need to take the time to invest and ultimately go from being earners to owners. We come to work every day thinking, “How do we get people from earners to owners,” because owners gives them the freedom they need in the future.

The mechanism of trust is interesting to me and it’s something that we’re going to be talking about, the Shift Forum in February. How does someone feel that they are safe? Our traditional approach to that is regulation. After 2008, there was a whole thicket of regulation that was passed. As with all complicated regulation, there was good, bad and ugly. But with the new president, it seems that his approach is, “Let’s get rid of that. It’s in the way.” Does Schwab have a point of view about that?

No, it’s too early. But I would say this industry needs to be regulated. We certainly believe in regulation, well-founded regulation, but we certainly don’t have a point of view yet. But I will say I think for individuals, for them to trust an institution, they need to get involved. They need to ask questions.

Our marketing tagline, for lack of better words, “Own your tomorrow.” What’s underneath this idea of own your tomorrow is that you really need to engage, that we can build great products and services. But for you to get the outcomes you deserve, you really need to engage in the process.

That’s not just wealth, but health and every aspect of life. To get great outcomes, you got to engage. You have to be with a partner who wants to or embraces your engagement. I think in our category, not all partners have embraced your engagement as an investor in the process. Schwab does.

I would just say if you have concern around trust, it may be well-founded. Ask questions. Obviously, I think you’re going to like the answer at Charles Schwab, but you need to like the answers. You need to feel comfortable with the responses. You need to feel comfortable digging deeper and deeper.

How do you as a marketer at a large firm use data and technology to change the way you talk with customers?

At the end of the day for a marketer or a firm, data and technology used to be enablers. It’s so much beyond that now.

To me, the success of a firm and the success of a firm’s marketing is directly tied to the quality, integrity of their data, and then the use of that data and technology to deliver remarkably simple experiences, really surprise and delight them.

That change you just described is really about meeting customer’s expectations on their terms, and then surprising and delighting them every step of the way. I believe in that wholeheartedly. We believe in that. At Schwab, we spend a lot of time thinking through that.

It is a little harder in a supermarket, we have $2.7 trillion of assets, 10 million clients, and 10 million different paths to build for. But absolutely agree wholeheartedly in notion of creating the curated customer experience using data and technology that, again, makes us simpler to work with, but also surprise and delight them.

When you are marketing for share, when you’re trying to bring new customers to Schwab, what channels are you finding are working now that either are new or are surprising? You are in television, to be sure.

We do stay on it. The demise of TV has been long predicted. We measure everything. We have pretty sophisticated metric models that still reinforce the use of network TV occasionally, mostly for news and sports, which we do. Some surprising ones, we still use and see a lot of strength in local radio. Those are probably surprising to the NewCo audience.

At the end of the day, digital/social is where the future is. No surprise but obviously Facebook and Google are the places that have the data and can curate for marketers access to the clients with exactly the right profile. If we can deliver exactly the right content is where the future is. Clearly, lots of digital but TV is not dead yet.

You’ve said that customers in the future will have less brand affinity, willing to swap quickly. That may go to trust but it may just go to ease of use. What’s going on there?

It’s just the nature of the world. What we say is that brand loyalty is more transient than ever. That’s going to continue. What that means is not that brand doesn’t matter. It’s been a score of competence. Brand absolutely matters. It gives you access. It gives you permission to enter new categories. It gives you permission to make mistakes once in a while.

What we’re seeing is that the power of a brand, the brand loyalty doesn’t last as long as you think it did in the past. It doesn’t insulate you as much. In many ways, you’re only as good as your last innovation. The Canadians are a hard example, the BlackBerry.

The BlackBerry in 2010 was one of the top three brands in the world. A couple of years later, massive falloff of sales. It’s not because people didn’t love the brand. It’s because there’s innovation outside that brought a better product to market that quickly.

Is that what keeps you up at night? The idea that there might be just an amazing innovation that you just missed?

It does. It should. We fully acknowledge that our brand’s strength is very strong but we can’t rest on that. It comes back to the ongoing disruption, ongoing innovation. Most importantly, doing what’s right for clients.

In our category, it’s unlikely there’ll be a shiny new product or a shiny new thing that causes people to switch. It’s going to come down to, “Are you acting on the clients’ best interest? Do they trust you?” If that’s the case, we’re pretty well situated.

On your marketing spend, you have been spending less over time. Is that because you put more money into, for example, building product that has its own marketing loops built in, like Intelligent Portfolio?

We spent this year more than we did and then the prior years, to your point, relatively flat, but I don’t think spend is even a meaningful metric anymore. At the end of the day, paid advertising is only so useful.

Successful companies are companies who build great experiences and then combine that with great creativity and great storytelling. If you do that, the earned known media is essentially free. I get that question a lot even from my team. Everyone wants bigger budgets but as I say, I don’t want to be the CMO. We don’t want to be the team with the largest budget. That’s not a metric. We want to be the team that is backed by the strongest offerings and incubating the strongest offerings. Then we’re bringing those to market with the strongest creativity and storytelling.

There are so many examples of companies that have built massively successful businesses with almost no paid advertising. To be clear, paid media is still very important. You’ve got to get your message out there but it’s not about what you spend. It’s about the quality of your offer and the quality of your creativity.

How do you look at channels that are emerging but important in particular demographics? I’m thinking, for example, of Snapchat. A year ago, it might have been an interesting innovation budget. Is it now a central part of your media plan?

Without getting specific, we do set aside a certain amount of money in marketing for innovation specifically, less tied to near-term metrics. I’m very metric-oriented. I believe in data and technology. I believe in our modeling.

The majority of our budget, as you would expect, is very measured. Decisions are made in the moment based on the measurement but we do set aside a good amount of dollars purely focused on marketing and innovation.

It’s about testing new channels. There is some exciting stuff out there. Again, to talk about you’re only as good as your latest innovation, those channels, the channels I would have talked about last year and this year are different.

Are there any that you might point to that is interesting new developments?

In our category, probably we’re still…Facebook has been amazing. Facebook for us is hardly new. They’ve done an incredible job of being able to use their data for advertisers. Obviously, Google is an incredible company. We use Periscope. We use Instagram. We use lots of other channels. So far, our audience, too, tends to be a little older, generally speaking. We’re a scaled brand. We serve lots but our general target is a little older

If you’re a fan of the show, “The Billions,” it features hedge fund managers who have access to information that mere mortals don’t. They’re playing the markets backed by extraordinary technology in ways that it just feels like the average person can’t. You almost feel like maybe you’re just a rube, you know? It makes you feel like you can never really stand toe to toe with the titans of the industry, who are really just making money at your expense.

We, as an industry, make investing complicated. It need not be as complicated. In fact, even the language we use makes things complicated.

It doesn’t have to be. There’s always going to be someone on the street trying to sell the latest product. It’s going to beat the market and go straight up. That’s not how you get great outcomes. Where you get great outcomes, you stick to the basics. Those are, again, diversify, keep your costs low, work with someone you trust, and manage your taxes as well, and things will work out.


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