CHARLES SCHWAB INDEPENDENT

BRANCH BUSINESS MODEL ASSESMENT

retirement and employee compensation plans • Provides mortgages and other banking products through its subsidiary Charles Schwab Bank • It recorded sales of $5. based in San Francisco. California • Manages about $2.54 B and a net operating profit of $1. and planning. Charles Schwab Independent Branch Leaders (IBLs) are franchisees who operate Schwab Independent Branches as per an franchise agreement with Charles Schwab IBLs may employ Independent Branch Financial Consultants (IB FCs) who are registered representatives.5 million individual investors and institutional clients • Deals in financial research.. OR John Smith Nashua. and/or Independent Branch Client Service Specialists (IB CSSs) who may or may not be registered.3 trillion in assets for 10. TX Brian Carpenter Las Cruces.OVERVIEW Independent Branches ( Franchisees) • Charles Schwab is an American brokerage and banking company. Key Employees Chairman Charles Schwab EVP and CFO Joseph Martinetto Branch Locations IBL’s Salem. investment management. NH Mary Murphy Windermere. . FL Michael Wytiaz Dripping Springs.07 B for 2013. advice. NM Jackie Edwards IB registered personnel are not Schwab employees. but they are registered representatives of Schwab for purposes of securities regulations IBLs are generally paid revenue from their business based on the overall revenue Schwab earns from clients whose accounts are assigned to their independent branch.

The firm has till now opened 24 franchisees after a extensive screening of the applicants so as to reduce any contingent liabilities Revenue and expense sharing model to gain viability for both the franchise and the firm . the IBL may elect a constant multiplier of 50% in exchange for a continued customer loyalty Continuous monitoring of the independent branches performance compared with traditional branches staffed by Schwab employees so as to provide the support and services similar to the traditional branch. the IBL's revenue share is adjusted using a multiplier ranging from 200% to 55%. the revenue is adjusted using a 50% multiplier to retain the IBL’s For assets of clients who transition to Schwab from an IBL's prior firm.Strategy Highlights An initial franchise investment of $25.000 to $50. in years six and beyond. Schwab's proprietary market insights. Targeting the ultra rich segment of society which has a consistent growth in the recent years and focus on customer retention In years one through five.000 to be made by the franchisee which helps to reduce excess burden on the firm A wide range of support resources. including financial planning. including newsletters & initial clients provided by the firm IBLs earn revenue from their business based on the overall revenue .Schwab earns from clients whose accounts are assigned to their independent branch. and then.

SWOT Analysis for the Franchise strategy Strengths Opportunities The franchisee model targets specifically focuses on cost competitiveness and higher earnings Helps to service clients in the non branch locations Reduces the high cost of maintaining a branch significantly for the firm Generation of more clients which in turn helps to drive up assets and revenue growth Helps in customer retention and generation of new customers Helps to provide Customized services to clients specific to their needs Weakness Threats Reliance on external agents to bring in more business Cyclical nature of economic growth affects business & stiff competition from RIA’s Earnings are largely dependent on the overall state of the economy and on the investors' desire to invest their cash and trade securities on the capital market Implications of a tighter control by the firm can lead to a conflict between the firm and the franchisee Client retention becomes difficult as the firm does not have a direct relationship with the client Competitor firms can reduce the viability of model by upscaling there branch numbers and reducing there brokerage . charges and minimum fixed deposit to be maintained .

Ameriprise .Industry Response & Competitive Landscape The franchise program seeks to sign up established financial advisers who will operate independently under the Schwab name. Fidelity have no immediate plans for franchisee Ameriprise restricts its employees to work for the company for minimum 10 years. rich selection of products also gives the franchisee strategy a lead over its competitors The strategy also reduces the cost of setting up branches for the firm along with increasing the direct customer access . plugging into the firm’s product menu. before becoming a franchisee. or face paying high fees The possibility of creating a conflict with company branches or RIAs who use Schwab Advisor Services keeps competitors away from following such a strategy The franchisee strategy is being watched closely by the industry though there are no immediate competitors to this strategy Competitive pricing of the firm ‘s services and products such as free Personal guidance. services and technology so as to help the firm gain over its competitors The asset creation rate as reported by Schwab through some of these franchisee is impressive Competitors like TD Ameritrade .

Recommendations for Fidelity Focus on supporting and training the independent RIA’s to target affluent clients for its business Fidelity Investments provides its customers with very rich selection of investment products. However the firm needs to focus on first time investor related support to increase it client creation and retention More focus on making the company's online Retirement Income Planner more customer friendly and insightful to counter the franchisee strategy Focus on better client service mechanism via improving customer care and informatory sessions Focus on new products and client generation through community involvement and financial awareness campaigns . access to investment research .

Reference : • • • • • Company website Wall Street news Journal Forbes Financial Advisor IQ Reuters .