Charles Schwab I Writing a Case Analysis Case Study

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Charles Schwab

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Charles Schwab: An Overview

Analyze the company's history, development, and growth

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 up 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 which saw a rapid influx of new investors into the marketplace. The firm also pioneered aggressive advertising to the consumer in the popular media. The popularity of day trading or quick trades made Schwab's low-cost model particularly attractive. However, the recent credit crunch has meant that Charles Schwab must rethink its strategy (Charles Schwab, 2011, Reference for Business).

Identify the company's internal strengths and weaknesses

Schwab has been swift to capitalize upon deregulation of the financial industry. In fact, it could be said that deregulation was 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).

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During the period when it was owned by the Bank of America in the 1980s, Schwab began to chafe under the additional regulations that it was placed under as a result of being owned by a bank. Schwab 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). Deregulation of the banking industry later freed Schwab and other firms connected to banks from some of the regulatory constraints limiting the risks they could take.

The nature of the external environment surrounding the company

Schwab's growth coincided with the financial sector's deregulation. The further spurred interest in the company amongst the small investors that have always been its lifeblood. Schwab's assets, like all firms, were hard-hit by the dot.com bubble and the real estate bubble's burst, and while hardened investors often use such times to buy up assets in the hopes that they will appreciate over the long-term, many of the small investors that were Schwab's bread-and-butter have left the investment marketplace entirely.

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