Schwab pumps up sales side

Charles Schwab Corp. is finally going after its competitors by arming the posse.

In a move aimed at yanking assets away from resilient wirehouse brokers, the San Francisco-based brokerage company is going to change the roles of its 356 branches’ employees.

Those friendly, informative paper-shufflers are going to be augmented by brokers or transformed into brokers who are trained in chasing down leads and closing sales.

Deborah D. McWhinney, president of Schwab Institutional’s adviser business, Wednesday revealed the shift toward a more carnivorous culture and intent.

A financial adviser prompted the revelation during a question-and-answer session between Schwab management and financial advisers at the company’s annual IMPACT conference held in Schwab’s hometown last week.

“We’ve been in the service business, and we’re trying to move into the sales business,” Ms. McWhinney said.”We’ve been encouraging our branch people” to take a more aggressive approach.

William L. Atwell, executive vice president and president of client sales and service at Schwab Bank, is responsible for implementing the sales force in the branches, she added.

Stephen C. Winks, principal with SrConsultant.com in Richmond, Va., tells InvestmentNews that this next step fits a natural progression for Schwab.

“The model [of instructing branch representatives to refer clients to independent financial advisers] is working, so they’re saying, `We can really make this thing sing,”‘ he says.

Ms. McWhinney’s statements were elicited by an adviser in the crowd of 200, who complained that the Schwab branch reps in his town were getting thrashed in competition with wirehouse brokers.

“The retail people seem handcuffed in making calls and taking a more offensive position,” he said.

He lamented that Schwab branch reps were failing to realize their potential as referral sources.

Still, some advisers are leery of seeing Schwab brokers pumped up with sales hormones because it creates a new dynamic between Schwab – with its own advice offerings – and its independent advisers.

“It really depends,” says Timothy A. Pazyniak, investment manager with Eubel Brady & Suttman Asset Management Inc. in Dayton, Ohio, which has $2.7 billion under management. “Will it leverage the sales efforts of the adviser? Some advisers see it as a threat because Schwab has other places it can put people.”

Ms. McWhinney tells InvestmentNews she can see only good things coming to institutional clients from the retail upgrade.

“It’s a shift,” she says, “but it’s a healthy one; it’s the right thing to do.”

Certainly, it’s the right thing for Schwab to do, Mr. Winks says.

“This is huge because it’s a client acquisition methodology the wirehouses don’t have,” he says. “I’m wondering how anyone can replicate this.”

Ironically, Schwab is starting to get endorsements for its methods from an unlikely source – Wall Street research analysts.

“In 2002, Schwab attracted $47 billion of new assets, versus only $18 billion at Merrill,” Robert Sobhani, an equity analyst with Smith Barney Inc., states in an Oct. 16 report. “So far in 2003, Schwab is attracting $3 billion to $5 billion per month, whileMerrill lost $6 billion in the first half, and Morgan Stanley attracted $4.4 billion in the whole third quarter.”

The annoucement of the coming sales culture expanded on a theme that ran throughout the conference: Merrill Lynch & Co. Inc. and Smith Barney, both in New York, and other wirehouses have a soft underbelly.

To wit, the long-sought-after strategy for how to go after it is starting to gel: using Schwab’s more genteel 5,400 advisers, Schwab executives believe.

“You’re usually most successful when you’re going against wrap assets,” Myra Rothfeld, senior vice president of marketing for Schwab Institutional, told the advisers.

Mr. Winks finds this ironic, saying wrap assets should be the hardest to pry away, since they represent, in theory, the more consultative approach used by an adviser.

But he says that implicit in the sale of wrap accounts is the promise of service that is superior to owning a mutual fund. Mr. Winks says brokers have failed to deliver that service, and clients are noticing.

“This could really be an Achilles’ heel for Wall Street firms,” he says.

Yet advisers at the forum last week wanted to make sure that in partnering with Schwab, they don’t step into any traps themselves.

“We’re very confident that you’re not going to wake up someday and see Schwab in the headlines,” is how Randall W. Merk, president of Charles Schwab Investment Management Inc., put it.

Despite the appearance of several wire services headlines on Friday suggesting possible trading irregularities at Schwab, Mr. Merk stood by his comment, saying: “This didn’t reach into the Schwab fund family. There isn’t anything that winds its way back to portfolio managers and Schwab executives. This is operational procedure.”