Slide 1
Case II-15CHARLES SCHWABCompany Background
3 Primary Business Segments Investor Services Advisor Services
Corporate and Retirement Services Headquartered in San Francisco,
California, USA 306 Branch offices in United States, operations in
45 states. 19 offices and our automated telephone system provide
Chinese, Korean, Spanish and Vietnamese language services. 12,200
Full-time employees 6.8 million client brokerage accounts, 1.1
million corporate retirement plan, 154,000 banking accounts and 1.3
trillion in client assets One of the worlds largest discount
brokerage firm
Timeline
Dot-com bubble Boom in trading volume Trade can placed by online
or by phone Acquire U.S. Trust and CyberCorp Chuck Schwab
Reinstatement as CEO Refocus on what clients need Launch Charles
Schwab Bank Trouble Times for enterprises Fined by U.S Federals
Market Downturn Changes in Retail Group Reduce numbers of RIAs in
the network Launch Talk To Chuck Campaign
The Reinstatement of Chuck
In 2004, There is milestones for Charles Schwab Corporation that
Charles Chuck Schwab, the founder is replace the former CEO, David
Pottruck in July 2004. After that he was immediately determined to
fix the problems and refocus the company.
Market Storm & Market BustThe late of 1990s Schwab get the
tremendous growth in Trade Volume and grew to eclipse leader in
this market, Merrill Lynch in 1998Business in Schwab exploded.
Commission trades were up 90% in Q1 2000 from the year priorThe
company seemed to lose the focus on customers, one of strategy that
made the company success. During increase in trade volume that
caused service levels at Schwab to plummet. Customer cant or delay
to reach telephone reps and in some cases trade failing to execute
due to computer glitches
Market Storm & Market BustAccording to program Market Storm,
which the company added 2,000 service reps to the 7,000 and a new
call center, its 5th in Austin, Texas. The market downturn is come
in 2000 and hit the company hard. By the August 2001, the firms
commission trading revenue had 50% drop from 242,000 trades a day
in 2000 to 134,000 trades a days in 2002 and continue falling to
101,500 in 2003.
Change in Volume TradingBoom in trading volume that arrived and
quickly ended in 2000Commission trading revenue dropped about
50%Trading volumeaverage per day
Market Storm & Market BustAnother problem that Schwab was
face is companys workforce. Schwab was famous for long-tenured
employees and often rated as one of the best companies to work for,
undertook several round of layoffs. Finally, shed half of its
workforce.By 2006, Schwab had workforce around 14,000, half the
size it had grown to by early 2000 and close to its size in the mid
1990s
Change in source of revenue at Charles SchwabIn 2000, 50% of
Schwabs revenue came from trading activity, and 27% came from
asset-based fees, for example by keeping custody of mutual fund
balances.In 2002, Schwab started to squeeze its less wealthy
clients by raising fees and transaction charges on smaller-sized
accounts. That caused some customers to defect to discount
brokerages such as Ameritrade, E*Trade and TD Waterhouse
Market Storm & Market BustAfter 2002 Trading revenue was
declined because Schwab raised fees and growth of
competitionAmeritrade + TD Waterhouse = TD AmeritradeE*Trade
acquire 2 companies, Harrisdirect and Brown Co.About 2004 Charles
Schwab did an about-face to compete with stronger competition by
cutting trading fees on averageSchwabs trading fees in line with
those charged by discount brokers like Ameritrade and
E*TradeHowever ratio of trading commission revenue to net company
revenue continued dropping.
Market Storm & Market BustU.S. Trust (1999-2006)In January
2000, Schwab acquire U.S. Trust for $2.8 billion. Schwab and U.S.
Trust had a combined 1999 net revenue of $4.5 billion and combined
client assets totaling $950 billion, as of early 200024 offices of
U.S. Trust were luxurious and hushed, catering to the asset
management to fewer than 10,000 extremely wealthy clients.Thats
different to Schwabs hundreds of storefront offices and 4 call
centers served the quotidian investment needs of companys millions
of middle-class customers
Challenge With Acquisitions
Challenges With AcquisitionsU.S. Trust (1999-2006)Charles Schwab
hoped to use U.S. Trusts technological expertise such as IT assets
to developed their financial research and administrative trustee
serviceIn 2001, U.S. Trust put small dent to Schwabs long
established reputation for probity after $10 million fined by U.S.
regulatorAfter that, there had been some upheavals at the top of
U.S. Trust as several senior managers and two CEOs came and went in
quick succession.Charles Schwab sold U.S. Trust to Bank of America
in November 2006
CyberCorp and CyberTraderCyberCorp and its subsidiary
CyberTrader, a fast-growing online brokerage with specialized
electronic trading technology for highly active traders.Schwab
aimed to provide CyberTrader technology to better serve active
online traders with a technology platform that gave them market and
analytical data and executed trades.
Challenge With Acquisitions
Chicago Investment Analytics (CIA)CIA developed proprietary
stock analysis based on quantitative modeling techniques for
institutional clientsSchwab apply the system to its retail-focused
equity rating system, Schwab Equity Ratings, which was launched in
2002 and subsequently used to build a number of proprietary mutual
funds.
Challenge With AcquisitionsSoundView Technology Group
Schwab paid about $340 m. to purchase SoundView in 2004SoundView
Technology Group, Inc. operates as a technology-focused, research
driven investment banking firm that provides services to an
institutional and issuer client baseSchwab acquire SoundView to
create a combined institutional research and trading capacity to
compete with major Wall Street institutional capital markets
players.Only 8 months after Schwab cited the lack of synergy
between the Capital Markets and Schwabs core business and sold its
capital markets business (Including 3 seats on New York Stock
Exchange (NYSE)) to financial firm UBS.
Briefly Flirting with Institutional Research and Trading
Computerized RecommendationsIn 2002, Schwab launched new
investing rating service, called the Schwab Equity Ratings
System.Its new own stock ratings was introduced by employing
Chicago Investment Analytics, a company Schwab acquired in 2000, to
use computers to evaluate stocks according to quantitative
metrics.The Schwab rating system assigned each rated equity a grade
of A,B,C,D, or F. A-Rated stocks, on average, were expected to
strongly outperform to overall equity markets over the following 12
months, while F-Rated is adverse to A-Rated.
Computerized RecommendationsSchwabs stock selection came out on
top of financial newspaper Barrons ranking of top stock picks in
2006, and since 2003 have consistently beat all or most of the
rankings produced by the top dozen Wall Street brokerage over a
three-year or five-year period as compiled by Zacks Investment
Research.Schwab Equity Ratings and other Investment analysis was
made available over the Internet to Schwab retail clients and
Schwabs institutional clients.
Gathering Assets, Gathering Fees and interest: De-Emphasizing
CommissionsIn 2000, 50% of Schwabs revenue came from trading
activity, and 27% came from asset-based fees, for example by
keeping custody of mutual fund balances.Just a few year ago, Schwab
charged some of the highest trading fees in the brokerage industry.
As trading volume across the industry declined and as
price-sensitive customers defected from Schwab, the companys
revenue, which were heavily dependent upon trading fees,
declined.
Source of RevenueSource of Revenue
Gathering Assets, Gathering Fees and interest: De-Emphasizing
CommissionsIn 2005, 79% of Schwabs revenue was derived from
asset-based products and services, and interest. Only 17% came from
trading revenues. The shift away from dependence upon trading
revenue allowed the company to drop its trading commissions
Beginning of 2006, Schwabs trading volume had again approached
the highs of 2000, but at a much lower commissions per trade. And
hit an average of 230,000 trades a day by 4Q of 2005.
Gathering Assets, Gathering Fees and interest: De-Emphasizing
CommissionsBy Late 2006, Schwab was organized into two primary
operating segments:Schwab Investor Services which provided
investment guidance, products and services to a full spectrum of
investors:Schwab Institutional which provides custodial, trading
and support services to independent investment advisors.There was a
third group called Schwab Financial products that developed
products and services sold by the two operating segments.
Schwab Financial ProductsSchwab Financial Products played a
unique role at the company. Created the high margin products that
provided much of the profitability for each of client
enterprises.These product and services helped reduce Schwabs
dependence upon retail trading commissions.By May of 2006, this
group had over $650 billion under custody. In total, Schwab had
around $1.3 trillion under custody by the middle of 2006.
Schwab Financial ProductsSchwab Financial Products also
encompassed lending through Schwab Bank, and asset
management.Schwab Bank offered traditional banking products and
service including below:FDIC-insured savings and checking
accountsMortgagescertificate of deposit(CD) accountscredit
cards
Schwab Financial ProductsSchwab Asset Management Products is sub
group of Schwab Financial Products.Asset Management Products and
Services (AMPS) ran the no-transaction fee mutual funds marketplace
called Mutual Fund OneSource.AMPS was also responsible for design
,market , development, and management the Managed Account Platform
which offered products called Separate Accounts
Schwab Financial ProductsServe as an alternative to mutual
funds, especially for wealthier clients.Investors in separate
accounts show individual shares in portfolios and reap the tax
efficienciesThese accounts were managed by institutional money
managers that were selected, monitored by SchwabSchwab charged its
managed account clients regularly quarterly feesThis was growing
business for Schwab which was approaching the top five competitors
in the marketThe Managed Account Platform is from Schwabs efforts
to better segment its clients, attract and service wealthier
customer segmentsSeparate Accounts
Scaling ExperienceThe cost to serve investors and the profits to
be made from servicing investors were generally related to the
amount of the customers investment under managementSmall investors
with around $50,000 to invest were received Mass Advice making do
with investment tools that were online.Most financial services
firms were interested in accounts with over $200,000 or more to
investIndependent financial advisors in general served investors
with six-figure-plus portfolios to invest
Scaling ExperienceSchwabs sweet spot, customer segment that
provided good profits was customers with investible assets between
$50,000-$2 millionInvestors with more to invest could use the
services of fee-based planners available through Schwab
InstitutionalAccounts with more than $250,000 were assigned a
relationship manager who helped with service, investing advice and
asset allocation
Scaling ExperienceOne key challenge Schwab faced was serving
clients with less than $250,000 in their accounts to feel they were
serviced well and service by the firm as oppose to an individual
representativeIn the investment industry, sales representatives
often took some or all of their clients with them when they
switched firm or open up their business.Branches network is
important in Schwabs business. Most of new asset come in through
the branchesThe physical locations were important to customers even
younger customers seemed reassured by the physical branches
Schwab Institutional
Schwab Institutional provide services such as asset custody and
back office operations to independent financial advisorsRegistered
Investment Advisors (RIAs)The business had grown from $50 billion
in assets under custody in 1995 to $439 in 2006, 25% increase from
the year priorThere are 5,100 RIAs work with Schwab in 2005, and
grew to 5,500 by late of 2006
Schwab Institutional
Because of well performing of RIAs business, Charles Schwab felt
he could sell U.S Trust without damaging strategyThe Schwab Advisor
Network (AdvisorSource) , a group of RIAs prescreened by Schwab
received prequalified client referrals from Schwab reps who felt
their client would be better served by an RIAs. In return, RIAs pay
a fee for referring clients and used Schwab to execute trades and
custody assetsSchwab Institutional reach the 1st place in market
share in terms of client assets in 2005
Source : http://thetrustadvisor.com/tag/charles-schwab
Schwab Institutional
Schwab Institutional
Schwab is largest custodian for RIAs by touch over of all
RIAs
Schwab Institutional
In October 2006, Schwab announced that it would reduce the
number of RIAs in Schwab Advisor Network program by more than
50%
Schwab reps was enabled to establish deeper relationships with
the remaining independent financial advisors in the network
Schwab Institutional
Some independent financial advisors in Schwab universe feared
that Schwab would compete with them for financial advisory
businessMany advisors saw Schwab as an ally and a competitorSchwabs
Financial AdvisorRIAs
Schwab Private ClientLaunched in the wake of U.S Trust
acquisitionAimed at higher net worth individuals, people with over
$1 million to investSchwab Private Client would assigned customers
to Schwab investment consultant to create an investment planThis
service did not manage clients money, nor advise on tax or
estate-planningThe service was aimed to fill a gap between service
provided by Schwab and by RIAs or financial advisors at U.S Trust
whose clients usually had at least $5 million to invest.
The Role For RetailSchwab Investor Services run Schwabs network
of retail investment offices, call centers and online services, all
of which provided customers with independent and advised investment
services, trading, and investment productsThis group is the core
group to prop up companys profitability when met the
troublePersonal Choice, pricing strategy launched in 2004. The
company started to charge fees to customers with less than $500,000
in assets(90%) for services that used to free. Many customers take
their account elsewhere
The Role For RetailCharles Schwab, companys CEO pointed that 2
problems that his company haveService and products price is higher
than competitorsBasic structure of discount broker didnt permit
company to develop relationship with clientsFor solve both of those
problems Charles Schwab appoint Walter W. Bettinger II, ex-chief
operating officer of the retail business for a new leader of the
retail organization
48% of new accounts were open through a branchSchwab point out
that many of branch in network become an unwieldySchwab make a
biggest change to reduce cost by closed some branch and added
others
Changes in the Retail Group400 full Service Branches210 full
service branches90 satellite branches
Changes in the Retail GroupThe cost savings gained from changes
in branches network were ploughed back into serviceReduce waiting
times in the call centersLower pricesCost cutting had been an
important priority for the company since Charles Schwab return to
the CEO chair in 2004
One SchwabIn Schwabs prior organization model, it had 3 separate
business group:IndependentActive TraderAdvised InvestingCustomers
were assigned in a group based on their trading behavior in
previous quarterThe structure didnt accurately reflect real
customer behavior and make 3 ways competition in the company. Each
group aiming to grow and take business from each other
One SchwabIn 2006, Schwab segmented customers based on their
needs, their value and potential value to the firmServing customers
with One Schwab point of viewIn the past, Schwab separate website
for each business. Nowadays, the company has a single integrated
web capabilityIn the past, a customer with $100,000 brokerage
account and $400,000 mortgage, was viewed discretely as 2 small
customers. Today, that customer is viewed and serviced as a
$500,000 client
The Role For TechnologyTechnology is a key tool for Schwab and
its competitorsFor example, one of Schwabs competitor, Fidelity
said it spent around $2 billion each year for technologyTechnology
played a central role in the strategic shift that the firm made
over the past few yearsFor example, Schwabs business model had
changed from a transaction model to a relationship model.
Transaction had become a commodity in brokerage industryThe most
salient ethos that ran through the company was the desire to
eschews the potential conflicts between that what was best for the
client and what was best for the company
The Role For TechnologyThe company had to leverage and scale
technology that it bought or developedFor example, use technology
to scale the number of customers it could effectively and
efficiency serveWhen Charles Schwab himself returned to the CEO
position, the company reestablished its focus on productivity. This
focus on efficiency extended to Schwabs technology operations
Competitor
Fidelity headquartered in Boston is the largest mutual fund
company in U.S., providing investment management, retirement and
brokerage serviceFidelity was such a leader in administering 401(k)
retirement businessBoth Schwab and Fidelity looked for growth in
similar areas such as online brokerages, RIAsHowever, Merrill
Lynch, TD Ameritrade ,Pershing, E*Trade, and Vanguard are also
important competition in Financial service to Schwab
too.Fidelity:Dangerous Competitor
Fidelity relying heavily upon its online presenceFidelity has
only 110 branches compared to 300 branches for SchwabFidelity has
$1.6 trillion in asset under administration by the end of 2006.
Fidelity surpassed compared to former asset leader Merrill Lynchs
$1.4 trillion in asset and Schwabs $1.3 trillionIt was believe that
Fidelity have been more profitability than Schwab because half of
Fidelitys brokerage asset were invested in Fidelity funds, as
opposed to one-eight at SchwabFidelity:Dangerous Competitor
Fidelity seemed to poured a lot of profit into technologyIn
2004, the company spent $700 million in technologyIn RIAs business
Fidelity has had less success than Schwab. With $470 billion in
RIAs assets, Schwab was 3 times larger than Fidelitys equivalent
businessFidelity seemed to developed their RIAs business to compete
with Schwab. Nowadays, Fidelity was offering technology-based
products and services that resembled those provided by
SchwabFidelity:Dangerous Competitor
Both of Schwab and Fidelity looked to increase their investment
in technology to serve RIAsWorrying for Schwab Institutional was
the fact that the Fidelity was such a leader in administering
401(k) retirement accountsBy the end of 2005, Fidelity managed $708
billion in retirement assets compared to only $159 billion for
SchwabAs baby boomers aged and their retirement accounts grew,
Schwabs retirement account customers might turn to Fidelity
investment advisor to guidanceFidelity:Dangerous Competitor
http://en.wikipedia.org/wiki/Charles_Schwabhttp://www.ryt9.com/s/prg/195960/https://www.schwab.com/
http://finance.yahoo.com/q/pr?s=schw
http://www.journal.au.edu/abac_journal/2004/may04/abacvol24no2_artical03.pdf
http://www.aboutschwab.com/about/history/index.html
http://www.1000ventures.com/business_guide/cs_fast_company_schwab.html
http://thetrustadvisor.com/tag/charles-schwab
http://biz.yahoo.com/ic/54/54911.html
http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=36667
http://www.wikinvest.com/stock/Charles_Schwab_%28SCHW%29http://aboutschwab.com/press/releases/press-release.cgi?release_id=944557
Reference
Thank
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Schwab Revenue ($ million)
Sheet1Revenue1999458020004963200140682002394420033896200442022005446420064,7032007529320085059
