A Charles Schwab Franchise Offers The Best Of Both Worlds For The Right Financial Advisor


MARCH 23, 2021 • FA STAFF

Roughly a decade ago, Charles Schwab began recruiting select financial advisors to franchise with the company via a new business model: the Schwab franchise. While franchises are typical in the world of fast-food restaurants and convenience stores, Schwab’s model is somewhat unique in the financial services industry. The firm’s “Independent Branch Leaders (IBLs)” own their franchises and serve clients in their local communities just as any other local business owner does; at the same time, they’re able to leverage Schwab’s brand and centralized products, resources, and infrastructure.

With a strategy of steady, deliberate growth in untapped markets, the company now boasts more than 75  franchises across the country—from Corona, Calif. to Cape Cod, Mass.; from Windemere, Fla. to Bozeman, Montana—and it aims to accelerate this expansion over the next decade.

To find out more about the program, Financial Advisor Magazine caught up with Schwab’s Craig Taucher, Senior Vice President of Independent Branch Services, and Kevin Gerard, an Independent Branch Leader who franchised with Schwab in 2012, operating in the Milwaukee, Wisconsin area. We dug into the details of how the franchise model works, what makes it different from the typical financial services experience—including its revenue sharing compensation structure—what type of financial advisor makes a great Schwab franchise owner, and what the company has planned for the program’s future.


FA Mag: To get us started, can you describe the basic structure and mechanics of a Schwab franchise?

Taucher: The concept is similar to other types of franchises. Our Independent Branch Leaders own the franchise—they have equity in that franchise and the ability to sell it. They hire and pay their own staff. This makes it different from an employee type of experience. But Schwab helps them find the real estate. We sign the lease and do all the negotiations (they sign a sublease). We then do all the buildout, so from day one everything is set up for them to open their branch—the technology is there, the art is there—which is different from the independent experience where you have to do all of that yourself.

Gerard: Yes, exactly. Prior to opening my office with Schwab, I ran my own shop. I had to pay the utility bills, I had to do all the record keeping, I had to work with the regulators. I spent more than half my time doing housekeeping work rather than facing clients. Now all the heavy-duty back office stuff Schwab takes care of. And I get to spend my time doing what I enjoy most: meeting with clients, helping them understand their portfolios, giving them recommendations and guidance, and showing them the products Schwab has to offer that best meet their needs.

FA Mag: But Schwab IBLs don’t manage their clients’ investment portfolios, correct?

Taucher: That’s exactly right, so this role is not for everybody. There are a lot of financial advisors, independent RIAs for example, who want to manage client portfolios themselves, and those folks are not a good match for our franchise program—they would be better served on our Advisor Services platform. The reason is the key to this whole thing is scale. Our franchise owners focus on growing the business and providing high-level financial planning while leveraging Schwab’s wide-ranging suite of products, tools and services and team of specialists.

Gerard: For me, it’s a really good fit. I want to be client facing, but prior to joining Schwab I had to be a fixed income specialist for people who wanted that; I had to be a large-cap growth manager for people who wanted that; I had to be an international mutual fund guy for people who wanted that. Now I don’t need to be all of those things. Schwab has teams of specialists with deep knowledge and experience in each of those important area that can support me and my clients. I sometimes compare it to being a librarian. We’ve got this huge library with encyclopedias and magazines and newspapers and fiction. I don’t have to write the book; I can help someone find it on the shelf.

FA Mag: In addition to enjoying the kind of role Mr. Gerard is describing, what else goes into the mix of characteristics that make up a great IBL?

Taucher: There are really two attributes we’re looking for. First, we want a seasoned professional who has a track record of success and great ties to their community. They understand their local market, and they know how to position themselves. Secondly, it’s really important to us that the person believe in putting the client first. It’s not the revenues of the financial advisor, or of Charles Schwab, that come first. It’s not about selling certain products or services. It’s about having the deeply held belief that we’re here to support clients and help them find the right solutions.

FA Mag: So then, how are Independent Branch Leaders compensated?

Taucher: Most of the models in the industry are in some way a fee-based or commission model. Our franchise model is a true revenue share, based on assets. For the first five years, as they’re building their business, we give our IBLs what we call enhanced revenue, which helps them offset the costs of starting their franchise. After five years, it steps down to a 50-50 revenue share with Schwab. Our revenue share model is based on the assets that are gathered as franchise owners build their business.  We share revenue earned on the assets associated with the client account.  Revenue is derived from multiple streams, including net interest on cash, product sponsor revenue, and trading commissions.

FA Mag: This is where the idea of being able to focus on the client’s needs comes in, correct?

Taucher: Yes, if a client wants to be 100 percent in cash, no problem. If a client wants to be in a fee-based program, no problem. If a client wants to be a do-it-yourselfer, no problem. Our Independent Branch Leaders get compensated for all assets regardless of which products or programs those assets are in.

FA Mag: I suppose that makes growth all the more important. What has your experience with growing your business been, Mr. Gerard?

Gerard: When I opened the franchise in 2012, I was a one-man shop. Now it’s myself and a modest team. At the beginning, Schwab required that I grow my business by $10 million in assets per year. Well, we blew right through that number. We’re at about $2.4 billion right now. If you would have told me that within 10 years I’d be running a $2.4 billion practice, I would have said that’s not possible. But we win business left and right. We get tons of referrals from existing clients. It’s a very scalable model.

FA Mag: So how does Schwab make this happen? What’s the secret sauce?

Taucher: Our strategy is to marry three things: the right person, the right market, and the right real estate. And that formula has worked very well for us over the last 10 years. The reason we’re looking to accelerate growth over the next decade is the success of the model and a pipeline of interesting candidates. That said, we will only accelerate the growth to the extent that we find the right talent, in the right markets with the right real estate. That’s not something we’ll compromise on.

FA Mag: Are there any particular regions or cities where you’re especially interested in adding franchises?

Taucher: We’ve debated these questions a lot, but in the end the approach we’ve taken is to look across the whole country, and we first look for talent. If we find the right person, we consider whether there’s a market that makes sense. There are basically two market types we’re interested in: one in rural markets where there’s no Schwab presence at all, and the other we call infill markets, which are pockets of wealth sprinkled in between our company-managed branches. An infill market would be, for example, Corona, California, just south Los Angeles, or Windermere, Florida, which is a suburb of Orlando.

FA Mag: Sounds like a lot of research goes into this process. Does it often take a while?

Taucher: The average time from when we start talking to an individual to when the franchise opens is roughly 12 to 15 months. So yes, there’s a lot of research that goes into it. There’s a lot of market demographics and real estate strategy that goes into it. And we rely on our future franchisees to give us color as we work with our corporate real estate folks. What are the traffic patterns? Where do people spend time? Where is the franchise going to have great advertising?

Gerard: In my case, I had a location picked out before Schwab sent out their real estate team. It was one of those things where the local people knew about it. We all saw this shopping mall getting remodeled, and it’s got a history, and we knew it would be a great location—high visibility, a lot of traffic. Then Schwab took it over from there. They negotiated a great rent, they got me two designated parking spots right in front of my office. Clients love it.

FA Mag: What about marketing? How does the company help with that?

Taucher: The Schwab marketing team works with the franchisee, and they put together a plan based on the market. That can include radio advertising, billboards, digital marketing... Then the company helps them with the cost of that. We provide some funding upfront to go to market with, and after that we match what they spend up to a certain amount. And that help is ongoing for as long as they’re a franchisee, we share the cost of that marketing and the team is always there to help them.

FA Mag: You mentioned the plan is to accelerate growth. I assume you feel pretty bullish about the future of this model?

Taucher: We’ve had fantastic results for our franchisees up to this point. It has far exceeded any expectations that we at Schwab ever had as far as asset gathering, the retention of clients, and our client promoter scores, which is how happy the clients are. We think in the next several years, as the industry continues to change, and there continues to be pressure to drive down fees and commissions, that this model will be even more attractive to individuals who want a degree of independence, along with the opportunity to leverage a widely-recognized brand in an untapped market and hopefully grow their business.