Schwab unveiled details about its “Independent Branch Services” program this week, amid criticism that the plan could hurt existing company affiliates.
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The company says the move is meant to expand the Schwab brand to smaller communities where there is no company presence, and that franchises will not compete with current company affiliates. Franchise branches will offer the same products, pricing, and services as the company-managed Schwab branches, with the same mass-affluent target market, but will be advisor-operated.
Candidates will propose a market they have a strong knowledge of and if Schwab determines the location is financially attractive, the company will offer a support package that includes a small list of starting clients, financial support, and a company turnkey equipped with Schwab technology. Schwab will also provide a revenue and expense sharing structure that offers support in the early years of the business.
Other Schwab support includes a local marketing program in which Schwab will match advisor expenditures dollar for dollar, and customized training and support.
Independent advisors who are awarded franchises will pay Schwab an initial investment of between $25,000 and $50,000.
Schwab first outlined its franchise plan at the company's analyst update meeting in February. The company plans to have five to ten franchise branches operating by the end of the year, and double that number in 2012.
If Schwab takes care in screening what markets new franchises will operate in, the company can avoid stepping on the toes of current affiliated advisors. But what happens in a few years as the company starts running out of “underserved” areas? Will they turn down a franchise fee to avoid creating competition between affiliates and franchises? As a Schwab affiliate are you worried about new competition from franchises?