This case analysis examines Charles Schwab Corporation, one of America's largest discount brokerage firms. The paper traces Schwab's history and growth from a deregulation-era pioneer to a nationally recognized brand for small investors. It conducts a SWOT analysis identifying Schwab's brand trust and low-cost model as key strengths, while noting vulnerabilities tied to its domestic focus. The analysis also evaluates Schwab's corporate and business-level strategies, its organizational structure, and how the firm adapted its offerings in response to the 2008 financial crisis. The paper draws on public filings and business reference sources to assess Schwab's competitive position relative to Fidelity and Vanguard.
Charles Schwab is one of America's largest financial services firms. It has positioned itself in the financial services market as a firm for the "average investor." It was a pioneer of the no-transaction-fee mutual fund, a financial instrument that became increasingly important for investors without a great deal of initial capital. Schwab opened storefronts all over the nation and was one of the first firms to use direct, face-to-face contact with average, small-scale investors as a marketing technique. Its low fees and personal touch caused Schwab to experience stratospheric growth during the 1990s stock market boom, an era that saw a rapid influx of new investors into the marketplace. The firm also pioneered aggressive advertising to consumers through popular media. The popularity of day trading and quick trades made Schwab's low-cost model particularly attractive. However, the credit crunch of the late 2000s meant that Charles Schwab had to rethink its strategy (Charles Schwab, 2011, Reference for Business).
Schwab was swift to capitalize on the deregulation of the financial industry. In fact, deregulation was arguably the most important component of Schwab's success: "On May 1, 1975, the U.S. Congress deregulated the stock brokerage industry by taking away the power of the New York Stock Exchange to determine the commission rates charged by its members. This opened the door to discount brokers, who took orders to buy and sell securities, but did not offer advice or do research the way larger, established brokers such as Merrill Lynch did" (Charles Schwab, 2011, Reference for Business).
During the period when it was owned by the Bank of America in the 1980s, Schwab began to chafe under the additional regulations placed on it as a result of being owned by a bank. The company continued searching for ways to become less dependent on commissions. "The introduction in July 1992 of the Mutual Fund OneSource, a program allowing investors to trade mutual funds (more than 200 in all) from eight outside fund companies, without paying any transaction fees, attracted more than $500 million in assets within two months and over $4 billion by July 1993; it was thus the most successful first-year pilot of any new service in Schwab's history" (Charles Schwab, 2011, Reference for Business). Subsequent deregulation of the banking industry later freed Schwab and other bank-affiliated firms from some of the regulatory constraints that had limited the risks they could take.
Schwab's growth coincided with the financial sector's deregulation, which further spurred interest in the company among the small investors who have always been its lifeblood. Schwab's assets, like those of all firms, were hard-hit by the dot-com bubble and the burst of the real estate bubble. While hardened investors often use such periods to acquire assets in the hopes that they will appreciate over the long term, many of the small investors who formed Schwab's core clientele left the investment marketplace entirely.
In today's cautious climate, investors are in search of a brand they can trust. Charles Schwab has always been a brand with a "human face." It makes investing easy and affordable, and small investors who experienced losses as a result of the 2008 credit crisis are likely to be drawn to a non-intimidating model of financial services. Unlike its major competitors Fidelity and Vanguard, Charles Schwab is also a U.S.-based firm. Concerns about firms being overly exposed to international risk may turn investors toward Charles Schwab.
The fact that Charles Schwab is a relatively small firm and is American-based could be a deterrent to some investors. Additionally, its emphasis on low-cost transactions has contributed to market volatility, which has drawn criticism in recent years.
"Brand trust, domestic focus, and economic threats"
"Low-cost services and small-investor focus"
"Governance model and financial literacy division"
You’re 59% through this paper. Sign up to read the remaining 3 sections.
Sign Up Now — Instant Access Already a member? Log inAlways verify citation format against your institution’s current style guide requirements.