Charles Schwab Case Essay

1699 Words 7 Pages
Charles Schwab, a Stanford MBA, founded Charles Schwab & Company in 1971 in California. The company quickly established itself as an innovator. A defining moment came with the 1975 “May Day,” when Schwab took advantage of the new opportunities deregulation offered. Schwab would not provide advice on which securities to buy and when to sell as the full-service brokerage firms did. Instead, it gave self-directed investors low-cost access to securities transactions. From the late 80s to the early 90s, before the commercial use of the Internet, Schwab used technology to increase efficiency and quality and expand its services. Schwab’s innovations harnessed technology to the solution of business problem. As Schwab’s President and co-CEO …show more content…
Schwab impacted the industry in various ways. However, we need to first define the various types of firms that existed. The industry consists of three distinct types of firms: traditional full service brokers, limited-service discount brokers and
Internet brokers. The market share for these three types of firms was as following: Full service brokers – 74%, Discount Brokers – 20%, and Internet brokers 4%. Traditionally, full-service brokers have aided investors in making investment decisions through expert advice and guidance. They guide investors through the purchase and/or sale of stocks, bonds, mutual funds, options, and other financial securities. Their services are delivered through a network of local offices and are they highly compensated through their firms’ individual commission structure. Leading full-service brokerage firms include Merrill Lynch, Paine Webber, Dean Witter, Smith Barney, and Prudential Securities. Limited service brokers surfaced in the mid-1980’s to challenge the traditional full service brokers. They became increasingly popular in the late 1980’s and early 1990’s with knowledgeable investors who take an active role in managing their portfolios, trade frequently and want to minimize trading costs. The discount broker’s, such as Schwab, main advantage is that they offer investors discounted commissions. They are able to charge these reduced fees since they don’t employ brokers or investment researchers.
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