Despite its against-the-grain advertising, Charles Schwab Corp. is succumbing to the prevailing winds sweeping Wall Street: The discount-cum-full-service brokerage is suffering. The firm is considering significant layoffs, according to an internal memo that was released on the Internet earlier this week, although the size and scope of the layoffs is unknown at this time.
In the memo, written by co-CEOs Charles Schwab and David Pottruck and signed by several other senior executives, Schwab says that over "the next few weeks, we will be closely examining the organizational structures of the company and asking some fundamental questions. Are there some features of our decentralized enterprise structure that we should centralize? …Unfortunately, much of what we will be examining relates to our staffing levels—and some downsizing of our work force is inevitable."
The firm, which now offers advice from independent advisors as well as Schwab-employed brokers, had recently announced its intentions to grow the size of its private client group to grab a larger share of the high-net-worth group, which it had previously served through affiliates and through its U.S. Trust division. In addition, Schwab had made inroads in the separate account arena, with 2.2 percent of the marketplace, compared with 0.4 percent a year ago, according to Cerulli Associates. Layoffs probably wouldn’t scuttle those plans—high-caliber brokers tend to pay for themselves—but Schwab joins firms such as Merrill Lynch, Morgan Stanley and Prudential that have been cutting staff.
However, Schwab had already cut its staff deeply since the size of its company peaked in 2000, just after the long-running bull market ended, according to The Wall Street Journal. The news comes as Schwab recently publicly took on its rivals in a high-profile advertising campaign, riding the wave of the conflict-of-interest scandals that have impinged the reputation of Merrill, Salomon Smith Barney and others. "They’re kicking us in the ass for our mistakes," a Merrill broker said recently.
Consultants believe that consolidation in the brokerage industry will continue; lower-ranked producers will continue to be forced out of the business while other firms will poach better-producing advisors to shore up their position in the market. And there’s expectation that firms may end up buying each other as well.
A Schwab spokesperson was unavailable for comment, although the WSJ was told that the firm has made no decisions about the size of the layoffs. View the memo at internalmemos.com.