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Schwab Impact: CRM Partners Announced for Tech Platform; Paulson Reflects on Crisis

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“Be Bold,” counseled Jim McCool, the executive VP who oversees Schwab Institutional Services, to a packed auditorium in the official opening session at Schwab Impact 2010 in Boston. McCool and Bernie Clark, who heads Schwab’s Advisor Services custodial platform for advisors, welcomed the audience of advisors, vendors and press—nearly 3,700 people are attending the conference—on Wednesday morning.

Clark announced that Schwab had selected, Microsoft Dynamic CRM and Junxure as three centerpieces of advisor technology that Schwab would integrate onto its technology platform on behalf of advisors that custody their clients' assets with Schwab.

Those three companies are the first partners that Schwab Advisor Services (SAS) has chosen, guided by advice from its RIAs, as part of its “intelligent integration” platform that was described by Neesha Hathi, VP of Advisor Technology Solutions (SAS) for Schwab, in a prior Weekend Interview on

The strategy behind intelligent integration was addressed by Clark (left) in an exclusive interview that formed the basis for Investment Advisor’s cover story for November 2010.

With that advisor-specific piece of business announced, the opening session of the annual Schwab conference turned to a conversation by Liz Ann Sonders, chief investment strategist at Schwab, with former U.S. Treasury Secretary Henry Paulson on the financial crisis and his recent book “On the Brink: Inside the Race to Stop the Collapse of the Global Financial System.”

A ‘Contained’ Crisis?

Paulson (below) noted that, early on, as the Bush Administration was wooing him to come to Washington, he repeatedly said “no.” But when he finally did say yes, it was his mother’s reaction that he said was the best: “It was one of the few times I’d seen her cry…she didn’t take calls for a while.”

Sonders asked why, early in the crisis, had Paulson and many others said that the crisis would be “contained.” Paulson answered that the “biggest miss” was that since “World War II” there hadn’t been a “really steep decline in residential housing.”

“I knew there were excesses,” Paulson said—adding that he’d felt the country was, “long overdue to have a financial crisis.”

But he did recognize that Fannie Mae and Freddie Mac, the two big government mortgage agencies-turned publicly-held mortgage securities buyers and securitization giants were, as Paulson says Goldman Sachs CEO Lloyd Blankfein put it, “‘U.S. government SIVs (structured investment

vehicles).’” They would eventually play a large role in the ungluing of the economy in 2008, and be placed into “conservatorship” or nationalized, by the U.S. and lead to the worst economic crisis since the Great Depression.

Paulson on Systemic Risk: ‘No Regulator’

Asked about the difference between the JPMorgan Chase takeover of Bear Stearns in March 2008 and the failure of Lehman Brothers that September, right after the Fannie-Freddie nationalization, Paulson noted that he was “quite unpleasantly surprised to look at the regulatory system,” and how dysfunctional it was, with “overlap” in some places and complete lack of oversight in others. There was “no regulator to look at systemic risk…The holding company for AIG wasn’t regulated,” parts of “WaMu, CountryWide, IndyMac and GE” he said, “no regulator was tasked with looking for systemic risk” there.

The long and short of it was that for Bear Stearns there was a buyer, an entity willing to “guarantee its capital book.”  With Lehman, while Barclays wanted to step in; its U.K. regulator wouldn’t permit it—there was no other buyer, and no way for the government to unwind it in an orderly way.

Paulson on Financial Reform

Paulson is “much more positive than negative on this,” understandably as some of the reforms provide some ways—at least in theory—to oversee systemic risk and unwind large institutions if necessary. Citing the “moral hazard” Paulson notes: “No institution should be too big to fail,” and adds that the U.S. needs to be able to “liquidate [an institution] in a way that protects the nation and economy.”

“We need more consumer protection and investor protection,” Paulson says, but “how those regulations were written and how they [would be] enforced—don’t know the answer to that.”


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