Charles Schwab: Growth for the Future
Marcus Readus & Brea R. Silva
Team D
Boston University; MET AD 741
October 14, 2013
Abstract
This paper will discuss what direction the leading investment Services firm, Charles Schwab Corporation should take over the next ten years. To answer this question, an analysis of where Schwab and the financial industry are right now. In addition, it will examine what social and technological trends are shaping the way financial industry might be heading in the future. Lastly, it will recommend the direction the Schwab organization should take over the next 10 years.

Introduction
The Charles Schwab Corporation (NYSE: SCHW) is a leading provider of financial services, with more than 300 offices and 8.9 million active brokerage accounts, 1.6 million corporate retirement plan participants, 895,000 banking accounts, and $2.11 trillion in client assets as of April 30, 2013 (Krieger, 2013). Through its operating subsidiaries, the company provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC, www.sipc.org), and affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; compliance and trade monitoring solutions; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through Schwab Advisor Services. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides banking and lending services and products. This paper will discuss where Schwab and the financial industry are right now, what social and technological trends are influencing the financial industry, and the course the Schwab organization should take over the next 10 years.
Schwab and the Consumer Financial Industry Today
The Charles Schwab Corporation is a financial services company, offering securities brokerage, banking, mutual funds and other related financial services. The company also provides corporate and retirement services, custodial, trading and support services, investment, financial planning and investment advisory services. The company operates in the US, the UK and Hong Kong. It is headquartered in San Francisco, California, and employs around 13,800 people as of December 31, 2012. Schwab’s current SWOT analysis is:
Strengths
Ability to maintain leadership status in High operating expenses impacting margins discount brokerage coupled with strong client focus fuelling healthy business growth. Lack of presence in emerging countries increasing domestic dependence risk Diversified business model reducing business risk. Strong asset-liability management practices positioning it ahead of peers Weaknesses
High operating expenses impacting margins Lack of presence in emerging countries increasing domestic dependence risk
Opportunities
Options Xpress acquisition provides scope for clientele maturity, and increased Acquisition of Thomas Partners to prove beneficial Strengths
Consolidation leading to increased competition for market share Price competition likely to erode margins. Retail brokerage industry susceptible to high risk from litigation and regulatory fines and actions

The company recorded revenues of $4,883 million during the financial year ended December 2012 (FY2012), an increase of 4.1% over FY2011 (Krieger, 2013).The operating profit of the company was $1,450 million in FY2012, an increase of 4.2% over FY2011.The net profit was $883 million in FY2012, an increase of 2.2% over FY2011 (Krieger, 2013).
Schwab and other companies in this industry handle consumer investments. Major competitors in this industry include Morgan Stanley, Northern Trust, PNC Financial Services Group, Raymond James Financials, TD Ameritrade, US Bancorp, and Wells Fargo.
The traditional brokerage industry that sold stocks to individual investors has largely evolved into companies that either broker large stock trades for institutional investors or sell a variety of investment products to individuals. Instead of buying individual securities, many individuals now invest in mutual funds.
Major services are stock brokerage, investment advice, brokerage of bonds and derivatives, and the brokerage of mutual funds. Financial planning services account for a third of industry revenue, stock brokerage for a quarter, and financing for about 10 percent. The remaining revenue is comprised of income from brokerage of investment securities, derivatives, and other fees. Key growth drivers include improving economic conditions and increased transaction volume.
Charles Schwab’s current presence in the financial services industry is substantive. As of 08/31/13, Schwab currently has; $2.08 trillion in total client assets, 9.0 million active brokerage accounts, 1.3 million retirement plan participants, and 926,000 banking accounts (The Schwab Center for Financial Research , 2013).
For 3 months ending 06/30/13, Schwab has; $1.33 billion in quarterly net revenues and $256 million in quarterly net income. Schwab’s year-end financials for 12 months ending 12/31/12 are; $4.8 billion in annual net revenues and $928 million in annual net income (The Schwab Center for Financial Research , 2013)
Trends for the Future
There are varieties of social and technological trends that are going to affect businesses and the financial services industry landscape in the next 10 years. Schwab will need to consider these trends when determining their business plans for the future.
One trend that cannot be ignored is the fact that consumers are using their smart phones and tablets on the go. Mobile consumption of media grew about 8% from 2009 to 2012 in the United States most of which was spent in apps (Business Insider, 2013). To keep up with this trend, companies that currently have online services are optimizing their sites and creating apps that conform to mobile device requirements.
Hand in hand with mobile consumption is the trend toward user experience optimization and user customization. This customization of products and services to the user experience is becoming more and more popular. Financial services industries can use this trend to their advantage by showing clients that their products are designed and can be changed to meet their needs. Layout of online client services screens should be designed sow the client can arrange it to meet their needs.
The “Cloud” is a new computer architecture that allows for rapid deployment of changes and reduces costs. Many companies are making the move to this type of architecture to increase the fluidity of their systems. Their options in moving to this structure are public cloud services that are offered by companies like Rackspace, hybrid or a private cloud (CAREY, 2012). The latter option may be optimal for the financial services so they have better control on security and for regulatory issues that could arise.
Specifically in the financial services industry a rededication to customer service has been noted. Since the economic downturn in 2007, consumers and client have lost trust in this industry in particular. Earning clients trust and showing value are going to be required in the near future to keep and gain clients. One way this can be done is though the social media. This trend has become the new world of community and communication. These outlets of communication need to be monitored and used to communicate with clients and other entities. Ignoring of this trend can be highly detrimental to a company.
Big data and privacy/security are hot topics as well. Businesses have and gain a lot of information on their customer their systems need to be optimized to make use of all the customer data that is in their systems. This data can be used to improve or create new services and products and assist with marketing effort. This also leads to the interest in security and privacy. All of the information held by corporate systems are tantalizing for attack especially systems that contain financial information. Financial institutions must to be on the forefront of security to keep their systems safe and their clients date private. Recommendations
Based on the financial services industry, Schwab’s current positioning and the trending in the marketplace, there are a variety of actions Schwab could take to grow. We will focus on a preliminary assessment of the company prior to starting a long-term growth strategy as well as some suggested steps to take for growth and how to go about initiating the process of taking the following steps; re-addressing globalization, integration of social media into services and the addition of other financial services. In order for these areas of growth to be successful Schwab is going to need to continue to be agile and innovative.
Prior to setting any long-term goals, Schwab will need to breakdown their business by completing analyses and market research. Due to Schwab’s high involvement with partners, an extensive stakeholder analysis should be complete. This will help them assess the impact of current operations and proposed future ones to all parties in their business model. A breakdown of the company’s core competencies as well as rigidities should be defined. Assessment of the core competencies will assist Schwab with determining what projects they should tackle internally and which they should outsource (or collaborate with others) to complete. The rigidities need to be assessed to determine if there are any elements within the company culture holding it back that need to be changed.
Globalization of Charles Schwab’s online investment offerings presents an enormous opportunity. The statistics over the years about the predominance of market value of companies used to be in the U.S.--now it is outside the U.S. Therefore, prudent investors have to be diversifying globally, as opposed to just looking inside the United States (The Schwab Center for Financial Research , 2013). The internet has become an integral part of many companies operations. It helps to reach larger, more diverse audiences, increase market share and revenue and improve time-to-market.
The globalization of your web services also creates a web presence that enhances customer loyalty and projects a powerful global brand. It helps to link employees, vendors and suppliers and appeals to diverse ethnic and cultural communities in the U.S. However, Schwab’s model is a bit unique. It combines brokerage, banking, and asset management in a seamless, single website. Behind the scenes there are actually three or four different legal entities operating. That is permitted within the U.S, but much harder to do outside the U.S. Therefore, to go outside the U.S. in a big way, Schwab would probably have to give up one (and in some countries two) of those capabilities, and that really starts to take away what makes Schwab unique and special.
Schwab should dedicate marketing focus to integrating social media and services within a rigid regulatory environment. Social media has emerged as a proven tool to generate revenue and increase audience engagement for businesses. An increasing number of organizations are quickly adapting new social media strategies to benefit from the clear opportunity. Regulated industries like Schwab have recently found themselves in a cultural shift in the way they must market their brand. Driven by the prevalence of social media, regulated industry marketers must adapt their current initiatives to capture audiences online and harness the brand advocacy and hype realized by other businesses (Vlack, 2013). These regulated industries often face stringent parameters, policies and laws – that significantly influence how social media can be used. There are numerous workshops, presentations and literature to assist in walking this new integration “high wire”.
Schwab should explore expanding their financial services into areas such as loans, insurance, and credit. This is in a bid to compete with financial services companies that offer a variety of products and services in addition to securities brokerage. Some brokers have started subsidiaries that provide non-brokerage services, such as mortgages, loans, and insurance. Competitors like E*TRADE's savings bank offers customers bank accounts and credit cards. Other financial investment companies specialize in providing securities research to institutional investors.
However, the synergy among the various services means that depending on a single sector for profitability is diminished. Due to major banking law changes, most brokerages are considering the models of Citigroup and Morgan Stanley and diversifying into full financial service companies providing insurance, wholesale and retail securities trading, investment banking, commercial banking, research, and other financial products.
Schwab could consider many directions in their future growth efforts however, no matter what direction the company decides to take they need to be aware of an assortment of things. Including evolving technologies, changing needs with in the market, their customers current and upcoming needs, how their alliances are helping or hurting their company, and continue to be in search of new opportunities that will give their customers something to aspire to as well as increase their level of satisfaction with Schwab’s products and services. If all of these things are taken into account, Charles Schwab Corporation should be assured steady and stable growth long into the future.

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