WASHINGTON -- Walter Bettinger has a blunt word for the futurist sort of thinking that envisions computers rendering the human worker obsolete: insanity.

Bettinger, president and CEO of Charles Schwab, sat for a far-ranging on-stage interview here at the Investment Company Institute's general membership meeting, during which he inveighed on subjects ranging from pending industry regulations to the importance of building trust with investors, and, of course, robo advisors.

Asked by ICI head Paul Schott Stevens about his thoughts on exchange-traded funds supplanting mutual funds, Bettinger was dismissive.

"I don't believe that the growth of ETFs means the death of mutual funds," he says.

Bettinger eschews the faddish predictions that so often attend the emergence of new products and services in the financial-services industry, recalling the introduction of the discount brokerage some 40 years ago. Predictions of the demise of the full-service brokerage or wirehouse model have not worn well.

"Now you have the insanity of the growth of robo advisors will be the end of investment [advisors]," Bettinger says. "I think all those things are silly."

Bettinger's comments on robo advising echo his more general thinking about the role of technology, which he sees as "the means to an end," that end being primarily to make life simpler.

"I just want to emphasize, it is a capability. It is a tool. I do not believe it replaces what people do," he says. "What I reject is the idea that technology will eliminate the responsibility and the needs to have personal relationships."

Stevens pointed out that technology has been integral to Schwab's ascent to become one of the titans of the industry, and, indeed, Schwab offers its own robo service.

Bettinger explained that Schwab was cautious in the rollout of that service, limiting the functions of the online advisory platform and ensuring that clients would have 24/7 access to live support personnel.


The notion of a fully automated advisory service with no human interaction or support might work for "a very small percentage of people," Bettinger allows, but not for the overwhelming majority of the investing community.

"Think of what a quality investment advisor or counselor does for someone," he says. "It's a whole pyramid of services. They might start with trust development or credibility development, and then they go to goal planning for that individual, risk evaluation. Then they get into portfolio construction. Then they do rebalancing. Then they do ongoing goal planning and risk adjusting. And maybe the most important thing they do is they play psychiatrist when the market's going down."

Bettinger boils down the central innovation of robo advising to having automated "a couple of the easiest parts of that stack," namely risk profiling, asset allocation and rebalancing.

"Now some people will be perfectly happy with just that piece, but the idea that it's going to replace that whole stack, I think, is naïve," he says.

After all, he reminded his audience, backers of the automated, online model "haven't figured out how to automate being a psychiatrist when the market goes down 40%. And I think one of the things to be proven is how these kinds of programs, including ours, performs in that kind of market environment."

Bettinger takes care to note that he is not predicting anything like the collapse of the online advisory model, though he says that while it has proven a "pretty good bull market idea," the jury is still out on how those services will play when markets begin to dip.

Bettinger's emphasis on personalized investment advice and building a plan tailored to a client's goals and risk profile underscore his view of trust as the currency of the industry. And he extends that emphasis on the human dimension of the advisor relationship to the recent financial crisis.

In the nadir of the Great Recession, RIAs who custody with Schwab commonly had clients carrying "upwards of 20%" of their accounts in cash, while rates historically have averaged around 8% to 9%, he says.

"But what's different is that the typical RIA got their clients back into the market in time for the market recovery, and many of the retail investors who are self-directed didn't. They lagged getting back in," he says.


If Bettinger holds a great faith in the value of the advisor, he takes a somewhat dimmer view of industry regulators. He acknowledges that regulators have a role, and that many of their efforts are well-intentioned and sometimes necessary, though he makes no secret of his preference for market forces to steer the industry and correct harmful behavior.

In particular, he has concerns about the proposal the Department of Labor has advanced to impose a strict fiduciary responsibility on advisors working in the retirement space.

Bettinger admits that the scenario of unscrupulous advisors cajoling retiring investors into rolling over a perfectly suitable employer-sponsored plan to a high-fee IRA is a real problem, but he worries that the rules, in practice, could restrict access to retirement advice and undermine consumer choice.

"The challenge in regulation so often is that virtually every regulatory effort addresses one side of a coin," he says. "We all know that there's two sides to every coin. And so often when we're making an attempt to address one area, we're actually creating a whole other series of potential problems on the other. And that's what's so hard about doing it with regulation. Market forces tend to address both sides of the coin, typically over time. The difference is they're maybe not as fast."

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