Walt Bettinger discloses expiration of unknown 'pact' to explain to Schwab investors why Bernie Clark, Peter Crawford and Joe Martinetto all chose to exit at once

Schwab CEO and co-Chairman Walter Bettinger made a startling reveal to explain why almost his entire leadership team – Bernie Clark, Peter Crawford and Joe Martinetto – is exiting en masse this year.

Bettinger said it's all part of a pact he made in 2019 with his C-Suite team to stick around until Schwab completed its merger [and integration] with TD Ameritrade (TDA).  See: Bernie Clark, renowned in RIA circles, is the highest-profile executive to leave in a Schwab shake out of veteran talent, but only after his 'unmatched' feat -- adding nearly 9,000 RIAs and $4 trillion in assets to Schwab custody

Clark, 65, Martinetto, 61, and Crawford, 55 are head of RIA custody, chief operating officer and chief financial officer, respectively.

Bettinger led off Institutional Investor Day, Wednesday (May 22), with his fullest explanation to date of how he lost three of his four top lieutenants in such a short span; all the departures were announced in a single May 16 press release. 

“The executive team made sort of an informal pact, and that informal pact was that whatever personal goals or personal objectives or phases that we might have or envision for the future or the coming years in our life, we were going to set those aside until we had completed or largely completed [the merger],” the CEO said

“That's why you saw the announcement that you did. That's why you saw it bundled. That's why you saw all three. 

"Joe, Bernie, and Peter put aside personal objectives they had and stayed through the integration and got us to the place where all we have left now is largely decommissioning the effort,” Bettinger added.

The pact

Earlier, Bettinger said Clark had ‘suggested’ the “time to make a transition” from his post would be following the merger's completion. 

The announcement turned heads in the RIA industry because of the pivotal role Clark has played since 2010 as head of the RIA unit.

In the four years since the merger was announced, the custodian has grown to $4.26 trillion in assets and about 15,000 RIAs, mostly under Clark's purview. 

Schwab declined to elaborate on the nature of the “sort of informal pact,” including whether it had any formal aspects to it, namely anything put in writing or compensation tied to the deal's successful completion.

Nor did Schwab answer how exactly the “pact” explains that three executives are leaving their jobs at once. 

The total executive team has 21 members, and Clark and Martinetto will be moving into different roles in the company.  

“I'm sure they had phenomenal reasons… not to take on this behemoth," said Cecile Munoz, president of U.S. Executive Search and Consulting, a recruiting and executive development firm in Los Angeles.

"It was probably sleep-depriving and a nail-biting endeavor. But they stayed on for each other, for their clients and the firm,” she says. 

Fractured culture

As it turns out, high-level, post-merger departures are the norm across companies, particularly in the upper echelons because of the high psychic toll of the transition, according a Harvard Business Review article, titled, ‘Why Do They Keep Leaving?’

“The exodus of incumbent executives decreases leadership stability, disrupts lines of communication, and fractures the organizational culture,” the  article states. 

The reaction on a popular job board among ostensibly Schwab employees was decidedly mixed. 

"Peter Crawford, Bernie Clark and Joe Martinetto have been the heart and soul of Schwab's success for many years," wrote one critic, kicking off the discussion under the headline, “The wrong leaders are stepping aside.”

“They have tried to counterbalance the ruthless, Machiavellian Walt, Rick and Jonathan, through the last few years. It's not surprising that they are finally giving up.

“If you think leadership decisions and messaging have been erratic in the last few years, watch how messy it will get after these leaders step away. Brace yourselves for more Draconian, 'my- way-or-the-highway' management coming.”

Still others thought it was time for new blood at the top.

Location, location, location

In Schwab's case, the cultural dislocation may have been exacerbated by the California company's "Texasification." 

In 2021, the financial services firm moved its headquarters from trendy San Francisco to an office park in Westlake, Texas, a suburb on the fringe of the Dallas-Fort Worth metroplex. Only COVID prevented the move earlier. 

Remaining Schwab c-suite executives, President Rick Wurster, RIA Head Jon Beatty and Chief Client Officer Tom Bradley, as well as Bettinger, all list Texas as their home base on their LinkledIn pages. 

Martinetto and Crawford still live in San Francisco, and Clark lives in Phoenix.

Of course, nobody faced tougher stresses than Bettinger. He declined to elaborate on how long he plans to stick around.

Hit and miss

The Schwab CEO explained why the pact with his trusted aides was a must-have when entering the TDA merger.

“I think it's fair to say at that time, Schwab probably did not have a stellar reputation for doing large-scale acquisitions and integration," he said. "Maybe it went back to the U.S. Trust transaction, but it wasn't a skill set that we were known for."

In 2000, Schwab agreed to acquire U.S. Trust, one of the nation's leading wealth management firms, for $2.7 billion in stock.

Schwab's made the deal, hoping to transition from a discount broker to a full-service advisory firm. But U.S. Trust  struggled after the acquisition. Schwab never found the synergies it had hoped for with its retail-brokerage business and sold the firm to Bank of America in 2007 for $3.3 billion. 

Schwab made another much criticized M&A deal in 2003 for SoundView Technology Group. It paid $15.50 per share, or about $345 million. Schwab sold it in 2004 to UBS for $265 million, a considerable loss, although it kept its research group.  

In July 2019, months before the TDA acquisition, Schwab bought USAA's Texas brokerage business for $1.8 billion and the right to market to its 13 million members. See: Schwab antes up $1.8 billion to buy USAA's ‘wealth management’ brokerage business -- and an exclusive crack (except for Victory) at the wallets of 13 million members

That deal appeared to come up a winner.  Schwab got 1.1 million USAA accounts and $80 billion in assets right off the bat and started reaping 1,000 referrals a week of USAA clients without investment accounts. See: Charles Schwab Corp.'s $1.6 billion USAA deal is yielding 1,000 referrals a week at the right price in an increasingly competitive client acquisition game

But the TDA acquisition dwarfed them all. 

Selfless leadership

In Nov. 2019, Charles Schwab announced its acquisition of TDA for $26 billion. The deal closed a year later, while the integration of the two firms went on for three years. 

“When we talked about it at length, one of the things that we all agreed on is that if we were going to move forward with this [TDA] transaction, we needed stability because stability and consistency would lead to accountability,” Bettinger said. 

Really, the pact's formation was an act of selflessness and leadership, Munoz says.

"For them to say, we can't get this one wrong because it was massive. I think that shows all the unbreakable support that these executive leaders have for each other and for their clients.”

Bettinger boasts that he completed the biggest and best deal ever in brokerage history.

“It was without question the largest, most complex, best-executed integration in the history of our industry," he said. 

"We brought over volumes more client information than any other acquisition and integration in the history of the industry.”

Schwab shares (SCHW) slipped a bit in today's trading to close at $72.27, down seven cents or 0.10%.