Topics: Mutual fund, Stock broker, Customer service Pages: 17 (7187 words) Published: May 1, 2014

It may sound simple, but the real key is anticipating what kinds of products and services investors are going to want. Like Wayne Gretsky, we want to skate where the puck is going to be.1
Charles Schwab, 1998

With the June 1, 1999 edition of the Wall Street Journal spread before him, Dave Pottruck, president and co-CEO of Charles Schwab Corporation (CSC), contemplated a piece of news that was about to send shock waves through the brokerage community. The newspaper had just announced Merrill Lynch’s decision to launch online trading on December 1st, 1999. Customers at Merrill Lynch would be able to trade online for $29.95/trade or, for a minimum annual fee of $1,500, make as many trades as they wanted. Now that Merrill Lynch had joined the online trading revolution, Pottruck wondered, how would this affect Charles Schwab & Co., Inc. (Schwab), and what should the company do in response?

As of 1999, Charles Schwab & Co., Inc. was CSC’s principal subsidiary.2 Schwab provided securities brokerage and related financial services to 6.1 million active customer accounts. The company had 304 branch offices in 47 states as well as offices in Puerto Rico, the


Rebecca McReynolds, "Doing it the Schwab Way,” USBanker, July 1998, p. 47. Other subsidiaries included Charles Schwab Europe, (CSE) a retail securities brokerage firm in the U.K., Charles Schwab Investment Management (CSIM), the investment advisor for Schwab’s proprietary mutual funds, and Mayer & Schweitzer (M&S), a market maker in Nasdaq and other securities providing trade execution services to broker-dealers and institutional customers.

Margot Sutherland and Kelly DuBois prepared this case under the supervision of Professor Robert Burgelman as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. The case was updated from an earlier version prepared by Jeff Maggioncalda in 1996. Copyright © 1996 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved. To order copies or request permission to reproduce materials contact our distributor, Harvard Business School Publishing at 1-800-545-7685 or write Harvard Business School Publishing, Boston, MA 02163. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means - electronic, mechanical, photocopying, recording, or otherwise - without permission.

Version: (D) 02/22/00

Charles Schwab & Co. Inc. SM-35

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United Kingdom and the Virgin Islands. Schwab employed 13,300 employees and was 40% employee owned.
Customer assets were $561 billion in June 1999. In 1998, Schwab had attracted $80.8 billion in net new customer assets and opened 1,380,000 new accounts. Revenue for 1998 was $2.7 billion. (Exhibits 1, 2, 3, 4 and 5) The company operated in four main areas: •

The retail services segment allowed individual investors to make trades through four channels: at branch offices, through representatives at call centers, via automated telephone service, and on the Internet. Schwab also offered referrals to independent fee-based investment advisors.

• Schwab provided custodial, trading and support services to 5,400 independent investment managers. In 1998, these managers had $146.4 billion in client assets at Schwab. •

The Mutual Fund Marketplace allowed customers to invest in over 1,600 mutual funds from 261 fund families, including 1,024 Mutual Fund OneSource funds.

The capital market segment provided trade execution services in Nasdaq, exchange-listed and other securities primarily to broker-dealers and institutional customers. The unit accounted for approximately 650 personnel and over 10% of revenues.

Schwab was incorporated as...
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