Charles Schwab Discusses Some Future Plans for Their 401k Business

When commenting on what Schwab would do with the proceeds from its sale of U.S. Trust, acquisition was part of the list.* Chuck Schwab commented:

"So you can count on us being highly disciplined in whatever we do. I think there'll be some interesting fill-in things. We are very interested, continuing to see impressed with the growth of the 401k area. That will be something that we will possibly look to acquisitions in that arena. We have I think something like $150 billion or so assets in that area now. We think that as area grows now there's automatic enrollment possibly because of the recent new pension act. Lots of things that really encourage us to really redouble our efforts in the 401k area."

Chris Dodds noted: "The 401k thing was interesting. I would encourage you if you can remember to pose some of your questions more specifically on that for Walt; because that is something the three of us spend a lot of time thinking about how we can enhance our presence in that very, very important space of individual investor savings."

The following question was posed by an unidentified member of the audience' "Then just also on the 401k business there's a lot of different pieces to the 401k business. If you could maybe give us a couple of options that you're looking at."

In response, Chuck Schwab said: "I will just give you a high-level and Walt will give you much more extensive and hope to save a question for him. 401k I think is probably one of the major areas for the individual investor, the American investor, to actually save. Now with this new automatic enrollment thing they finally put in, I politic-ed a lot for that particular things, that the younger people who opted out early on now will be sort of opted in automatically and you know from your own analyses, starting earlier is so much better because starting at 22 or 25 years of age and just putting small amounts aside by the time you are 40 it is pretty amazing what can happen particularly investment of some of your great mutual funds. And the compounded growth effect on all that stuff.

"So 401k will continue to be, is I think approaching $2 trillion now. The numbers I think the trajectory will easily be what it is or higher with the automatic enrollment and some of the other things that corporate America is beginning to do to make more encouragement of people to move into 401k, helping people along with managing that or at least getting them the professional assistance to get appropriate asset allocation and those kind of things.

"A lot of people get frozen when they -- the old laws were such that a corporation would be really worried that they would take on responsibility. Now the new pension act allows for corporations to encourage third-party vendors to come in and help out in terms of helping their individual employees do a better job of investing. And I think that will add to the whole momentum frankly of the 401k thing over the next five and 10 years.

"So there's also another component that is really -- is the rollover. As people now change their jobs probably more than they did 10 years ago or 15 years ago, the opportunity for rollover is really a fairly sizable one and we have been okay in this space. We're just going to redouble our effort. And with Walt's background and leadership there as he can add more substance to the conversation here, but we are frankly -- see that as a continuing opportunity and I think Schwab is a wonderful spot that fits into that niche pretty well."

"Our whole reputation and ability to deliver open architecture as well as education and advice, those are really hallmarks of the Company…," interjected Chris Dodds.

Schwab continued, "Enter the corporate decision-makers who are making decision about 401k as well as individuals who have the convenience of the 300 branches or so that we have across the country, so when they do roll over, guess what? There is a Schwab office in their community where they can go in and talk to somebody face-to-face about their growing assets and hopefully some of their liabilities."

When speaking further about possible business acquisitions, Chris Dobbs noted, "We're hoping and we're certainly looking to find some things in certain areas of our overall business. I think Chuck mentioned the most prominent one by far is the 401k space. But we are not looking to become highly, highly acquisitive. We are much, much more comfortable with organic growth that means leveraging the assets you know best. I think that is an operating model that Chuck, myself, Debbie, Walt, all are more comfortable with than trying to take on the very real, very difficult challenges associated with acquiring companies at attractive prices and then integrating them into a firm that has not proven itself extraordinarily well in terms of integrating acquisitions and reaping value from them and bringing companies into our culture, which has we said earlier, does have some fairly rigid elements to it. For better, for worse, that is one of the things you buy when you buy Schwab. We have some behaviors, some values that are just unchanging and unyielding, and that can make acquisitions more difficult."

* These are excepts taken from the lengthy discussion and are not in context.

You can locate the full discussion here.

UPDATE: Friday, December 22, 2006, Schwab announces the acquisition of the 401k Company.

Rick Meigs, President, 401khelpcenter.com, LLC

About | Glossary | Privacy Policy | Terms of Use | Contact Us

This work is licensed under a Creative Commons Attribution-NoDerivatives 4.0 International License.