Charles Schwab - Change in Marketing Strategy - 2002

Schwab to change marketing strategy
Firm to battle worries of investors on conflicts

May 2002 Sanfrancisco Chronicle

Charles Schwab will unveil new product offerings and a marketing strategy that capitalize on investor discomfort with the controversy over conflicts of interest that have plagued investment banks. One of the offerings is a new stock research service that will assign a letter grade of A through F to each of the 3,000 U.S. equities that the firm will cover.

The San Francisco brokerage intends to promote the service as free from those conflicts of interest on Wall Street.

In another service announcement that moves it far from its discount brokerage roots, Schwab also will launch an investment advice service for clients who want one-on-one dealings with a stockbroker.

Schwab also plans to set up a service that would even allow wealthy clients to delegate day-to-day management of their portfolios to independent advisory firms that are recommended by Schwab.

The moves come amid a prolonged downturn in trading activity for Schwab and other online brokers, as individual investors have been driven away by the bearish market and revelations over questionable corporate accounting and conflicts of interest on Wall Street.

Schwab said Monday that average daily trades were down 18 percent in April from the same month last year and down 6 percent from the preceding month.

Revelations about Enron, Global Crossing and a host of other companies have contributed to investor skepticism in the public markets. Meanwhile, concern has mounted that the analysts who promoted stocks during the Internet boom of the 1990s merely did so to attract the lucrative fees their banks could win by performing corporate finance services for the companies.

It's unclear how much cache independent research will have with retail investors. Industry observers say some investment banks have struggled with the concept of providing research service independent of their brokerage or investment banking operations but have been unable to find a way to make it "pay for itself."

Schwab's new research service, called Schwab Equity Ratings, is designed to help investors identify stocks that, based on Schwab's analysis, will either outperform or underperform the market. The research will be accomplished in part by quantitative computer analysis of company data as well as Schwab staff research. Schwab has been hiring staff to build its stock advisory service.

The stocks will be graded the same way a student gets scored on a test --

with A for outstanding, and F for failures, with A stocks expected to strongly outperform the market and F stocks expected to strongly underperform.

A's and B's will be considered buy recommendations, and D's and F's will be considered sell recommendations. Schwab is expected to offer an equal number of buy and sell recommendations, whereas Wall Street research is frequently dominated by buys.

This research, which is now offered to Schwab's private client and signature service customers, will be made available to to all of the firm's brokerage clients beginning in the fall.

http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2002/05/16/BU232237.DTL&type=business