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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
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Trouble Times for enterprises Fined by U.S Federals Market Downturn Chuck Schwab Reinstatement as CEO Refocus on what clients need Launch Charles Schwab Bank
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About 2004 Charles Schwab did an about-face to compete with stronger competition by cutting trading fees on average
Schwabs trading fees in line with those charged by discount brokers like Ameritrade and E*Trade However ratio of trading commission revenue to net company revenue continued dropping.
Computerized Recommendations
In 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 Recommendations
Schwabs 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.
In 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 Revenue
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Trading Revenue Asset Management and administration fees Net Interest Revenue
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In 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 Commissions By 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.
This was growing business for Schwab which was approaching the top five competitors in the market The Managed Account Platform is from Schwabs efforts to better segment its clients, attract and service wealthier customer segments
Scaling Experience
The cost to serve investors and the profits to be made from servicing investors were generally related to the amount of the customers investment under management
Small 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 invest Independent financial advisors in general served investors with six-figure-plus portfolios to invest
Scaling Experience
Schwabs sweet spot, customer segment that provided good profits was customers with investible assets between $50,000-$2 million Investors with more to invest could use the services of fee-based planners available through Schwab Institutional Accounts with more than $250,000 were assigned a relationship manager who helped with service, investing advice and asset allocation
Scaling Experience
One 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 representative
In 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 branches The 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 advisors
Registered 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 prior There 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 strategy The 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 assets
Schwab Institutional
Schwab Institutional reach the 1st place in market share in terms of client assets in 2005
Market Shares
Charles Schwab 23%
Fidelity 8%
Source : http://thetrustadvisor.com/tag/charles-schwab
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
Client Client Client
Charles Schwab
Some independent financial advisors in Schwab universe feared that Schwab would compete with them for financial advisory business Many advisors saw Schwab as an ally and a competitor
The 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.
For 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
210 full service branches 400 full Service Branches 90 satellite branches
Cost cutting had been an important priority for the company since Charles Schwab return to the CEO chair in 2004
One Schwab
In Schwabs prior organization model, it had 3 separate business group:
Independent Active Trader Advised Investing
Customers were assigned in a group based on their trading behavior in previous quarter The 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 Schwab
In 2006, Schwab segmented customers based on their needs, their value and potential value to the firm Serving customers with One Schwab point of view
In the past, Schwab separate website for each business. Nowadays, the company has a single integrated web capability In 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
Technology played a central role in the strategic shift that the firm made over the past few years
For example, Schwabs business model had changed from a transaction model to a relationship model. Transaction had become a commodity in brokerage industry
The 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
When 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:Dangerous Competitor
Fidelity headquartered in Boston is the largest mutual fund company in U.S., providing investment management, retirement and brokerage service Fidelity was such a leader in administering 401(k) retirement business Both Schwab and Fidelity looked for growth in similar areas such as online brokerages, RIAs However, 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 presence
Fidelity has only 110 branches compared to 300 branches for Schwab
Fidelity 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 trillion It 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 Schwab
Fidelity:Dangerous Competitor
Fidelity seemed to poured a lot of profit into technology
In 2004, the company spent $700 million in technology
In RIAs business Fidelity has had less success than Schwab. With $470 billion in RIAs assets, Schwab was 3 times larger than Fidelitys equivalent business Fidelity seemed to developed their RIAs business to compete with Schwab. Nowadays, Fidelity was offering technology-based products and services that resembled those provided by Schwab
Fidelity:Dangerous Competitor
Both of Schwab and Fidelity looked to increase their investment in technology to serve RIAs Worrying for Schwab Institutional was the fact that the Fidelity was such a leader in administering 401(k) retirement accounts
By the end of 2005, Fidelity managed $708 billion in retirement assets compared to only $159 billion for Schwab
As baby boomers aged and their retirement accounts grew, Schwabs retirement account customers might turn to Fidelity investment advisor to guidance
Reference
http://en.wikipedia.org/wiki/Charles_Schwab http://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_sch wab.html http://thetrustadvisor.com/tag/charles-schwab http://biz.yahoo.com/ic/54/54911.html http://investing.businessweek.com/research/stocks/private/snapshot.a sp?privcapId=36667 http://www.wikinvest.com/stock/Charles_Schwab_%28SCHW%29 http://aboutschwab.com/press/releases/pressrelease.cgi?release_id=944557