How Schwab Does Innovation: Focus On the Client, Not the ROI


NewCo Shift Forum

The largest public investment platform decided to build its technology in house. It actually worked out.

Neesha Hathi, Charles Schwab

Neesha Hathi is EVP, Investor Services Strategy, Segments and Platforms, at Charles Schwab. That’s a long title for a short job description: Haathi runs Schwab’s platform, the technology millions use to manage their investing experience. In this talk from earlier this year at Shift Forum, Haathi explains how Schwab thinks about innovation. The answers may surprise you.

Neesha Hathi: I’m really excited to come and share a little bit about what we’ve been doing at Schwab. I’ve been in the Bay area since 2000 or so.

In the Bay area we often talk about startups and disruption and how that drives innovation, not only in financial services but in all industries. What I’ve experienced…I actually did participate in that startup boom for quite a number of years and then moved over to Schwab a little over 12 years ago.

One of the things that drew me to the company was this focus on clients and client experience. You’re going to hear some of the same themes that Tyler [Florence] just talked about. Our focus on clients is really what’s been able to drive us to innovate, and innovate so consistently.

I think because you’re a Bay area crowd you probably know quite a bit more about Schwab than many audiences, but we are now the largest publicly traded investment services firm in the country.

Forty years ago, when this man, Chuck Schwab, started the company, there really was only a vision, which was this vision around democratizing investing, so really creating accessibility for more individuals, for the regular person to be able to invest. That was his vision.

He had what’s going to sound like a very simplistic strategy, which is here on the slide. Looking at the world through clients’ eyes. This simplistic vision and his passion for this vision around democratizing investing was really what fueled the beginning of Schwab.

For those of you who know the story, innovation after innovation, whether it was 24/7 quotes, or online brokerage, or the start of a mutual fund marketplace — all of these were innovations that were created with this particular focus.

We are a pretty large organization now. Fourteen thousand employees at Schwab, and the question that I often get is, how do you scale this innovation? How do you not get worried about cannibalizing your revenue, or the baggage of all the back-end systems that you have, all the infrastructure that you’ve built, all the existing, wonderful clients that you have, but also have diverging needs over the years? I think it really has been that focus on clients.

If you focus on clients, meaning the client experience, you’re always listening to clients. You don’t actually think about disrupting yourself. You actually don’t think about cannibalizing revenue. Just to give you an example, when we have a meeting, we talk about a new offer or a new product, the conversation never goes to the ROI.

After the meeting, someone says, “Oh, wait. What about the ROI?” But during the meeting, no one ever talked about the ROI. Because it’s always about, how are we going to deliver a better experience to clients? How are we going to serve more clients? Because our vision is to be able to serve more and more clients.

In an industry that has often reserved the best services, the most capabilities for the wealthiest, we’ve had this mission that’s driven us to try to bring down the cost of investing, tried to bring more value, more services to investors at all levels.

I thought the best way to maybe demonstrate this would be through a couple of examples of the innovations that we’ve had over the last couple years. People who know Schwab often think of us still as an online brokerage. That’s really been our heritage.

About 12, 15 years ago we actually started moving into the wealth management space. These are the three aspects of wealth management the industry has for years focused on. For many years it’s really been reserved for those who have more affluence, because this is an expensive process. It’s a very manual, labor-intensive…it’s complex. It requires expertise.

As we stepped into wealth management, we started to provide solutions to many of our clients that sometimes we acquired organizations to be able to serve them and provide this type of wealth management advice as they were asking us to provide to them. But at times it was also just us trying new things.

One of the things that we kept hearing from our self-directed clients — we have a lot of clients who want to do it yourself, DIY clients — was that they still didn’t feel like they were getting their value. They still wanted help and guidance, but all this wealth management stuff that was out there was not meeting their needs.

What we did is we looked at that and we said, “The way technology is, what is it that they’re doing?” This comes back to how we listen to clients and really try to anticipate maybe not exactly what they’re asking for, but anticipating what they mean when they ask.

What we did is we actually created a new platform, Schwab Intelligent Portfolios, which we launched about a year-and-a-half ago. This is really an automated investing, or if anyone knows this space, a robo-advice platform that we decided to build in-house.

We looked at that. At that same time, there was all this innovation — the FinTech innovation that was going on around robo-advice. Really, the driver for this was not the external environment. It was actually our clients. Because of that, we were quite successful in launching it.

The platform has over $13 billion on it now. It has grown very quickly. It was actually that drive towards serving the client need that actually resulted in a platform that’s been so successful.

What’s next? As you look at this wealth management spectrum, the part of this wealth management spectrum that’s actually the most labor-intensive, the thing that we think is going to be the most impactful for clients is actually the first phase, that planning phase.

I don’t know how many people in here have a financial plan, but most investors do not have a financial plan. We have these investing principles. What’s the number one thing that you should have? A financial plan. Tons of research out there.

If you have a financial plan you get better outcomes. Investors who plan have three times’ higher net worth according to some of the studies that we’ve looked at. Still, it’s expensive, and for most investors it’s inaccessible.

By the way, it’s also kind of awkward. You often have to go into a financial advisor’s office and you’re sitting there with your significant other and talking about all kinds of things about your personal life and it could be really awkward.

What we decided to do…this is a little bit of a sneak peak, because we’re launching this next month, but we talked publicly about it late last year, is introducing a new offer to try to democratize financial planning.

This is really something that is an innovation, probably a little bit of a bet, because we believe that we can take something that’s traditionally been done by humans in an office in a face-to-face way and digitize it using virtual meetings, using online scheduling, using all kinds of technology to actually digitize the financial planning process.

If we’re able to do this, we’re bringing an incredible value. If you can imagine something that would provide financial planning, an automated portfolio, and an ability to track your progress, something like that would cost three percent of a person’s portfolio. It’s a really expensive thing for most investors.

By the way, if you have under a million dollars, there aren’t many financial advisors who necessarily would even want to provide this capability to you. For us, this is really about how do we democratize that vision of Chuck’s and bring it to more investors and start with a financial plan?

Just a couple of examples of how we think about this. The client experience has been at the heart and soul of what Schwab has been about for 40 years. When we talk about innovation, when we talk about client experience, it is the Kool-Aid that people drink when they come in the door.

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