New Assets Hard to Come by at Schwab

From Bloomberg News

Charles Schwab Corp.'s campaign to lure customers from rivals embroiled in analyst conflict-of-interest investigations bore little fruit for the biggest discount broker last year, a Schwab executive said.

The San Francisco-based firm attracted an average of about $10 billion in new assets from customers during each quarter of 2002, down from as much as $40 billion in some quarters of 2000, Chief Financial Officer Christopher Dodds said Tuesday at a conference sponsored by Citigroup Inc.'s Salomon Smith Barney. Customers leaving Schwab continued moving primarily to full-service rivals, he added.

"Even with all the scandals, we can't see a blip in transfers" from full-service firms such as Salomon Smith Barney and Merrill Lynch & Co., Dodds said. "There hasn't been much change in the dynamics."

Schwab spent about $211 million on advertising and other marketing costs in 2002. That included a series that sought to exploit the problems of some of the 11 brokerages that agreed to pay $1.4 billion to settle accusations that they issued rosy stock reports on companies to win their investment-banking business.

"Before, I very rarely heard a sell recommendation," reads one ad featuring a client identified as "John" who "moved his money to Charles Schwab in August 2002."

The firm ran a new ad recently that featured founder Charles Schwab leading a crowd over the Brooklyn Bridge along with the caption, "Join the Movement. More and more individual investors are discovering there's an alternative to traditional brokerage firms and are moving to Charles Schwab."

Schwab's advertising and marketing costs fell 14% last year from 2001 and may decrease 10% this year, Dodds said.

On Sunday, Schwab started a campaign during the Super Bowl that will cost $15 million to $20 million, the CFO said. Called "Fresh Start," it's aimed primarily at existing clients who Dodds said feel frozen by three years of falling markets.

For $95, Schwab brokers will analyze a customer's investment portfolio, recommend new stocks and make the trades without charging a commission. Although Schwab will offer the program to new investors who transfer $25,000, it is trying to "reengage" existing customers whose trading "is at historic lows," Dodds said.

Schwab customers historically have made five to six trades a year for every $100,000 of assets with the firm. That dwindled to an average of less than four trades a year in 2000, 2001 and 2002, he said.

About 98% of the new assets Schwab attracted last year came from new customers, Dodds said. Historically, about one-third to one-half of new money comes from current customers. "Our existing clients are pretty much frozen," he said.

Schwab's stock rose 5 cents to $9.56 in New York Stock Exchange trading Tuesday.

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