A Heck of A Show

It was less than a month after the World Trade Center terror attack and the second day of U.S. air strikes against terrorists in Afghanistan, and there I was: 36,000 feet over Cleveland on my way to the Schwab Impact 2001 conference in Seattle.

My wife didn’t want me to go. Heck, I didn’t want to go. But now that I’m up in the air, my fear is gone. To be honest, I’m not sure exactly why. The increased security at Kennedy Airport when I left New York seemed like more of a nuisance than anything.

I was told by Schwab’s travel people to get to the airport two hours before my flight was scheduled for takeoff. The lines were long but they moved much faster than usual. It took about 20 minutes to get through the line to check in and get ticketed–that would not be bad for a New York airport even in pre-September 11 America.

The most visible difference in security at the airport appeared to be that the bag I checked was X-rayed. In retrospect, it’s amazing to me that they weren’t X-raying every bag before this terrible mess.

The other big change was that soldiers carrying rifles were patrolling the airport. The presence of the National Guard troops seemed like more of a show than anything else. Those guys are going to meet a lot of women, but I don’t think there’s much else for them to do. Everyone at the airport was talking about a New York Daily News story in which reporters smuggled weapons onto planes right past airport security. Having the National Guard walk around with guns at the airport won’t stop that.

Happily, the flight to Seattle was uneventful. To be honest, however, America has quite a way to go to make people secure from terrorism.

My family and I went to Israel in August 2000, just a few weeks before the start of the second intifada. It was a time of great hope, when there was calm between Palestinians and Israelis. Israeli security, even during that period when terrorism was less common than it’s been in recent months, was much tighter than it is in these fear-filled days in the United States.

When you walked into a shopping mall in Israel, for instance, a guard at every entrance searched through your bags. Even if the guard comes to know you because you go back in and out of the mall every day, your packages get searched each time.

When I entered the convention center in Seattle to attend the Schwab conference, I carried on my back a heavy, bulky computer knapsack. I strolled in and nobody checked my bag.

They checked my ID when I got up to the fourth floor registration desk, but by then I could have walked into another section of the building without a problem. I was told later that Schwab had decided to conduct random searches of bags. Sadly, I think Americans are going to have to get much tougher on security because you just know that these madmen are going to try and come at us again and kill more innocent people.

People from the West Coast just don’t get it yet. Easterners, New Yorkers in particular, seem to have been much more affected by the attacks. I don’t want to make it seem like we in the East have a corner on the grief, fear, and pain caused by the events of September 11, but I do think that we’ve been scarred to a greater degree than other Americans.

Despite my concerns, I’m really glad I attended Impact 2001. This was probably the best of the five Schwab conferences I’ve attended, and I think that the people who attended the show felt the same way. The fact that only 502 advisors showed up, compared with the 1,200 advisors who showed up in Denver at Impact 2000, actually made it better, at least in my opinion.

Apart from enjoying the smaller, more personal conference, there are more important reasons I’m glad I went. On a practical level, getting back to traveling again in post-September 11 America was like jumping into the water. Once you’re wet, it’s okay; you’re done with the hard part.

Still, I have to admit that when America started attacking Afghanistan just 24 hours before I was scheduled to leave, I thought about backing out and hoped Schwab would cancel the conference. And that’s the main reason why I am glad that I got on an airplane and went to a convention.

Keeping Things in Perspective

While I think performance reporting software and service bureaus (the subject of the panel I moderated at the show) are really important, and while I love to talk with advisors about insurance trusts and incentive stock options, we all know that these things matter little in the grand scheme of life. And one of the few good things to come out of the terrible events of September 11 is that more people are remembering the really important things. It is with that sense of proportionality and perspective that all of us are going to have to carry on with our lives and businesses even as we expect other terrorist attacks, and that makes all of us a bit heroic just for showing up at a conference.

Months earlier, I had agreed to moderate the panel on performance reporting software. With my history of covering Schwab in a way that hasn’t always endeared me to the company, I really wanted to moderate that panel. You see, Charles Schwab (the man, not the company) personally barred me from attending his press conferences three years ago after I accurately quoted him making a brutally honest but profane remark about wirehouse brokers. I’ve also written stories over the years detailing incidents when Schwab retail inappropriately contacted advisor clients, which resulted in policy changes at Schwab retail. While Schwab executives seem to like me because I’ve always been fair and accurate, they cannot help but look at me warily. So I was genuinely flattered by the invitation to moderate the panel, pleased that Schwab was recognizing that I’m an okay guy, even though my coverage is often not in line with the company’s wishes.

Now, maybe the spirit of solidarity that’s sweeping the nation is getting to me, but I have to do something I don’t often get the opportunity to do: praise Schwab. The company boldly pushed forward with the conference, even though the air strikes against Afghanistan began the day before it was set to start. Schwab scrambled at the last minute to book speakers like former Secretary of State George P. Schultz and former CIA Director Brent Scowcroft, who could address issues in post-September 11 America. Schwab also asked speakers on investment and personal finance matters to shift the focus of their previously prepared remarks to reflect the new realities. Schwab cut its planned five-day conference back to three days after the terror attacks, reduced attendance and exhibitor fees, and offered everyone who had signed up to attend before September 11 a refund. It would have been much easier and quite understandable to cancel the show.

No-Shows

About 750 advisors were signed up to attend the conference when the attack on lower Manhattan occurred. By Schwab’s estimate it’s likely that about 950 or 1,000 advisors would have attended the conference by the October 11 start date if the attacks of September 11 hadn’t occurred.

This would have been fewer than the 1,200 advisors who had gone to Denver a year earlier, and the growing roster of competing conferences might have been responsible for reducing the number of attendees. But more likely it was the slower economy and big losses in the stock market in recent months, which surely makes it harder for advisory firms to justify emptying their offices and leaving their clients to spend money on traveling to a conference.

Impact 2001 was supposed to be quite different than any of the previous 10 Schwab conferences. It was supposed to be a five-day conference: the first two days would address back-office issues, the last two days would be for investment advisors, and a day in the middle would be for both groups. The price: $850 to attend the first three or last three days of the conference, or $1,050 to attend all five. After September 11, however, everything changed.

The FPA Success Forum, the largest industry gathering of the year since the merger of the Institute of Certified Financial Planners and International Association for Financial Planning, abruptly canceled its conference in San Diego, which had been scheduled to start a day after the World Trade Center disaster. Of course, commercial air travel was grounded for several days after the attacks, and when planes initially started flying again they were mostly empty. People were depressed and unhappy and doing business almost seemed like inappropriate behavior.

Schwab, in the grim days following the attacks, used the Internet to conduct a survey of advisors and exhibitors who were registered to attend, and asked them to make a decision within 24 hours about whether they wanted the show to go on.

When the answer came back, according to Debby McWhinney, who runs Schwab Institutional, an “overwhelming” number said they wanted Schwab to move forward.

“There are always good reasons not to do what Stephen Covey [the author of Seven Habits of Highly Effective People] calls ‘sharpening the saw,’” says Curt Weil of Weil Capital Management in Palo Alto, California. “I’m in the middle of switching from Advent Axys to Centerpiece, we just started quarterly billings on October 1, and I teach Financial Planning 101 to CFP candidates at the local college and had to skip Tuesday’s class. You can always find excuses not to take time away from the daily stuff in running a business to rub elbows with the best and brightest in the industry, and find out what’s new in the marketplace and avail yourself of research you could never afford to buy on your own.”

Uh, Curt, isn’t the threat of terrorism a really good excuse?

“I’m not going to let those sons of bitches ruin my life,” Weil says.

How’s Business? Pretty Good

The 502 advisors who turned out for the conference were a smart bunch. As I walked the exhibit floor past the 200 booths for two days, I must have had conversations with 25 advisors in which I asked, “How’s business?”

The answer among almost all of them was “pretty good.” I was shocked. It has been my experience that advisors, as good small business people, won’t ever say things are lousy, so I really tried to probe. The people I spoke with were able to give me convincing details that indicated to me that the industry is faring pretty well despite the national tragedy and 20-month bear market.

One of the most poignant stories came from an advisor named Steve Check of Check Capital Management in Costa Mesa, California. Check managed $345 million in client assets going into the bull market rally of 1998. He’s a strict value investor and when growth stocks ran up out of control, he refused to buy into it. Instead, he stuck to his strategy and let some of his clients leave.

“Clients left because I wouldn’t play the bubble,” says Check, who’s now attended all 11 Schwab conferences. “I couldn’t do it because I felt then that what has been happening over the past year and a half had to happen. The question basically was whether it would happen before I went out of business.”

Check’s assets declined to under $100 million as clients deserted him. But things have since turned around. Check now manages $160 million and many of the clients that left have returned. “And now I have the track record,” he says.

Check’s story was my favorite, but just about every advisor that I spoke with at Impact 2001 was doing pretty well despite the market’s precipitous drop. “I told my clients that there could be a 100-year event at anytime,” Libby Mihalka of Altamont Capital in Livermore, California, told me.

Deb Wetherby, whose firm Wetherby Asset Management in San Francisco manages $550 million, says she had established a hedge fund of funds in August 2000 for her clients to go long and short, so she was well prepared. “We got six referrals from existing clients last week,” she says. “Our worst portfolios are down 15% and our best are down 3%.”

Stu Zimmerman of BAM Advisor Services in St. Louis says the uncertainty has been great for business. Zimmerman, who runs his own investment firm that manages $400 million as well as $1 billion that is managed for about 100 CPA firms, says not a single client called after the September 11 attack to sell out.

Ill Will?

Dave Pottruck, president and co-CEO of Schwab, opened the conference and wasted no time dealing with the big issue challenging Schwab’s continued success in the advisor business. The firm’s hegemony over the RIA market is being threatened by the ill will generated as some advisors have come to believe that Schwab has gone too far in competing with them. This has been a nagging issue for years, but it has become more acute in the last two years, with Schwab’s acquisition of U.S. Trust and the company’s launch of new services providing advice to high-net-worth individuals. Growing competitive pressure from TD Waterhouse Institutional Services and Fidelity Institutional Brokerage has grown as well.

“It’s important for me to address questions and concerns that threaten to get in the way of our relationship,” Pottruck told the attendees. “We need to deal with this question of trust.”

Pottruck assured advisors that “You are extremely important to our company.”

Advisors manage close to 30% of the $840 billion in assets at Schwab, which is held in 10% to 15% of Schwab’s total client accounts. Pottruck traced the beginning of competitive fears back to the introduction of the Select List about a decade ago, and said tension mounted with its 6,000 advisors after Schwab began marketing its own mutual funds, and then introduced a fund of funds.

“And as you know, we certainly heard concern from advisors over our merger with U.S. Trust and, more recently, with the introduction of Services for Private Clients,” Pottruck said. “Some of you may see this as a continuing series of annoyances over 10 years. But we see it as our ability to elevate our services as we listen to our clients and the result is incredible asset growth that we, and you, have enjoyed that is the envy of the entire investing world.”

Pottruck was blunt: “It doesn’t make sense that we would cannibalize your business.” He says Schwab is about to unveil new retail initiatives and seemed to be preparing advisors for the possibility that this, too, would appear to encroach on advisors’ turf, despite the fact that these new services are likely to be geared to less wealthy retail clients.

“Our biggest source of lost business is not big discounters,” he said. “It’s the full-commission firms that charge more, not less.” He said Schwab will be testing a lot of new products, “and you’ll hear about them in the advisor press, no doubt beneath some sort of scary headline proclaiming we’re after your clients.”

“We simply are not going to try to steal your clients,” he promised.