Research Assignment Fidelity Investments PDF

CHARLES SCHWAB INDEPENDENT
BRANCH BUSINESS MODEL ASSESMENT
OVERVIEW
Independent Branches ( Franchisees)
Charles Schwab is an American brokerage and

banking company, based in San Francisco, California
Manages about $2.3 trillion in assets for 10.5
million individual investors and institutional clients
Deals in financial research, advice, and planning;
investment management; retirement and employee
compensation plans
Provides mortgages and other banking products
through its subsidiary Charles Schwab Bank
It recorded sales of $5.54 B and a net operating
profit of $1.07 B for 2013.
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, and/or Independent
Branch Client Service Specialists (IB CSSs) who may or may not
be registered.
Key Employees
Chairman
Charles Schwab
EVP and CFO
Joseph Martinetto
Branch Locations
IBLs
Salem, OR
John Smith
Nashua, NH
Mary Murphy
Windermere, FL
Michael Wytiaz
Dripping Springs, TX
Brian Carpenter
Las Cruces, 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..
Strategy Highlights
An initial franchise investment of

$25,000 to $50,000 to be made by
the franchisee which helps to reduce
excess burden on the firm
A wide range of support resources,

including financial planning,
Schwab's proprietary market insights,
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.
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, the IBL's

revenue share is adjusted using a
multiplier ranging from 200% to 55%,
and then, in years six and beyond,
the revenue is adjusted using a 50%
multiplier to retain the IBLs
For assets of clients who transition to

Schwab from an IBL's prior 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 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
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 RIAs
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
Industry Response & Competitive Landscape

The franchise program seeks to sign up
established financial advisers who will
operate independently under the
Schwab name, plugging into the firms
product menu, 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 ,

Ameriprise , Fidelity have no
immediate plans for franchisee
Ameriprise restricts its employees to

work for the company for minimum 10
years, 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, 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
Recommendations for Fidelity
Focus on supporting and training the

independent RIAs to target affluent
clients for its business
Fidelity Investments provides its

customers with very rich selection of
investment products, access to
investment research , 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
Reference :
Company website
Wall Street news Journal
Forbes
Financial Advisor IQ
Reuters

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CHARLES SCHWAB INDEPENDENT

BRANCH BUSINESS MODEL ASSESMENT

Independent Branches ( Franchisees)

Charles Schwab is an American brokerage and

Charles Schwab Independent Branch Leaders (IBLs) are

IBLs may employ Independent Branch Financial Consultants (IB

EVP and CFO

IB registered personnel are not Schwab employees, but they are

IBLs are generally paid revenue from their business based on

An initial franchise investment of

A wide range of support resources,

IBLs earn revenue from their

Targeting the ultra rich segment of

In years one through five, the IBL's

For assets of clients who transition to

Continuous monitoring of the

The firm has till now opened 24

Revenue and expense sharing model

SWOT Analysis for the Franchise strategy

The franchisee model targets specifically focuses

Helps to service clients in the non branch locations

Reduces the high cost of maintaining a branch

Generation of more clients which in turn helps to drive

Helps in customer retention and generation of new

Helps to provide Customized services to clients specific to

Reliance on external agents to bring in more business

Cyclical nature of economic growth affects business &

Earnings are largely dependent on the overall state of

Implications of a tighter control by the firm can lead to a

Client retention becomes difficult as the firm does

Competitor firms can reduce the viability of model by

Industry Response & Competitive Landscape

The asset creation rate as reported by

Competitors like TD Ameritrade ,

Ameriprise restricts its employees to

The possibility of creating a conflict

The franchisee strategy is being

Competitive pricing of the firm s

The strategy also reduces the cost of

Recommendations for Fidelity

Focus on supporting and training the

Fidelity Investments provides its

More focus on making the

Focus on better client service

Focus on new products and client

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