Charles Schwab Franchise Expansion

Why Schwab Is Embracing A Franchise-Like Strategy To Fast-Forward Branch Growth


Feb. 14 2011 - Posted by Elizabeth MacBride

The Charles Schwab Corp.’s new plan to expand its retail branches with independent operators rather than employees is a way to jumpstart net growth through the branches, especially by improving asset retention, Charles “Chuck” Schwab and Ben Brigeman told analysts at a Feb. 3 meeting.

The company’s plans – and the strong support of senior executives – became clear as I listened to more of the analysts’ meeting. The risks of the strategy are also readily apparent, however: the two executives fielded tough questions about whether using non-employees to staff branches would damage the company’s brand, and what the incentive system would be. See: Schwab eyes massive branch network expansion using independent operators.

In a wide-ranging discussion, Chuck Schwab made several comments in support of the plan, which is mostly seen as the creation of Schwab CEO Walter Bettinger.

Asset Retention

“I like how we’re looking in a very emphatic way at more boots on the ground; we’ve had 300 (branches),” said Chuck Schwab. “It’s been pretty static to say the least…when we look back in five or six years, I think it’ll be a real add-on for net revenue growth,” he said.

The branch plan is difficult to analyze because Schwab is offering few details about how it will be structured (the first pilot branches are expected to be in place late in the year) but it is clear that company believes it could be a more cost-effective way to accelerate growth.

“Franchise growth is always faster — with all the employees and infrastructure — whether it’s financial services or sandwiches. That’s why those Subway shops are exploding,” says Philip Palaveev, president of Fusion Financial Network of Elmsford, N.Y.

Bettinger said the company has already had some inquiries from RIAs who might like to convert their business into a Schwab branch.

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