Executive Summary (Part 5)

Schwab’s Performance & Strategies – Current and Future

Schwab’s shift in the value discipline from operational excellence to customer intimacy is not yet complete.  While in transition, there is confusion among Schwab’s fee-based advisor network as to what is their role and how do they fit within Schwab’s strategy to attract affluent customers with personal services.  Simultaneously, there is a large amount of distrust by individual investors of anyone connected to Wall Street that has caused online trading to decline, which also has decreased revenues from commission-based transactions.

The Schwab Private Client offering to wealthy customers falls short of providing the services that these individuals may expect from an advisor, i.e. the advisor would provide legal, tax and estate-planning advice.  Individuals who are attracted to this service offering may still be labeled “unknowledgeable investor” that require a certain degree of hand-holding and are willing to pay for only part of the whole package that a financial advisor would provide.  The knowledgeable, wealthy investor would seek services provided by money management firms that provide all the services for an asset-based fee.

Online tools like the Schwab Equity Ratings system provides an objective rating to individual stocks whose market capitalization is greater than $75 million; but small-cap equities below $ 75 million are not rated; yet offer a higher expected return.  Also, the individual investor has no more knowledge than his peer of what a change in the “grade” of an individual stock (up or down) indicates in the short-run.  In the short-run, this rating system may cause more variability among individual stocks that are sensitive to macroeconomic and/or political shocks that have been occurring during the last 24 months.

In the future banks will compete for the same customers as Schwab.  Also, some percentage of customers will value having all the services available to them on one account; which may include banking services.  In this respect, Schwab should consider rounding out services by offering banking and insurance products to service those customers that value having these services available alongside investment services.

Our advice to Mr. Pottruck is to segregate the brands that Schwab has acquired to appropriately segment its customers between affluent and non-affluent.  They can do this by expanding upon the U.S. Trust brand with those “less affluent” customers with $500,000 or more in assets by providing scaled services based on a fee structure and the needs of the customer.  The incentive/fee structure between Schwab and the independent advisor may need to be modified when a customer switches from the independent advisor to U.S. Trust.  For non-affluent customers, bundle individual services through the use of the web, telephone and cellular communication devices.


Evolving value discipline can cause disruption and confusion within the network of entities surrounding the firm that is transforming.  Having a clear, strategic vision of the end-point goal, combined with an honest appraisal of the capacity requirements to deliver the vision is paramount.  The role of IT within Schwab is an enabler to achieve the customer intimacy value discipline.  This depends on how closely the firm can align the needs of the customer with the technology that it currently uses or can develop as demand evolves.

Appendix II

Schwab Website

Charles Schwab Website
Charles Schwab Website

E*TRADE Website

ETrade Website Halden Zimmermann
ETrade Website

Ameritrade Website

Ameritrade Webpage Halden Zimmermann
Ameritrade Webpage

Merrill Lynch Website

Merrill Lynch Website
Merrill Lynch Website

Merrill Lynch Website

Merrill Lynch Website
Merrill Lynch Website

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