It's a rough time for Charles Schwab, the San Francisco-based discount brokerage firm.
First, word leaked out that its Schwab Advisor Network, which services a small group of wealthy clients, was trimming its network of money managers by 50 to 60 percent. And now they're feeling pressure from the on-line trading front as Bank of America begins offering free trades to anyone with $25,000 in deposits.
First, let's take a look at what happened to Schwab's plan to go after the high-net worth investor, by offering blue chip financial advice through a network of 320 independent money managers who would give clients with at least $250,000 to invest the same kind of advice and service they could receive from full-service financial services companies such as Merrill Lynch or Smith Barney.
Started in 2002, the program seemed to being working fine. Schwab brokers would refer the wealthy clients to the advisor network and each time one became a client, Schwab and the money management firm would share the revenues.
For the first three years, business climbed steadily and by mid-2005 more than 20,000 wealthy investors had become clients handing over $30 billion in assets to the Schwab Advisor Network.
But then something went wrong.
Schwab changed the rules, taking a bigger piece of the revenues and punishing those money managers who took clients without going through the referral process. Referrals began to slow down and the assets flow dropped about 14%.
Then came word that Schwab planned to cut more than half of the 320 advisors from the network. Some of the money managers expressed concern that this could cause as much as a 30 percent reduction in business, while others felt Schwab was just cutting out those advisors who weren't servicing enough clients to make it worth while.
Apparently a rift had been growing between the network of independent advisors and Schwab's own brokers, who were recently given new investment products that allow them to offering similar wealth management services. Basically, the brokers who used to refer clients to the advisor network are now competing with them.
As for the battle for on-line clients, it wasn't bad enough that TD Ameritrade and Etrade had already forced Schwab to cut its fees from $29.95 to as low as $9.95 a trade, now Bank of America is just giving it away -- offering up to 30 free trades a month for anyone with $25,000 to deposit.
Meanwhile, Schwab maintains it will remain competitive on all fronts, but intends to remain focused more on growing the higher net worth business, both from its own financial advisors as well as the Schwab Advisor Network of independent money managers.
Schwab's Investor Services President, Walter Bettinger, told Reuters that the fastest growth is in the firm's full service accounts, where customers pay a fee to have Schwab recommend investments and in some cases manage the portfolio for them. He said that new assets are "well on track" to reach $90 billion to $100 billion this year.