Schwab cuts ribbon on first franchise branch

The Charles Schwab Corp. has opened its first franchised branch office. The Nashua, N.H., location opened Monday. The franchisee, Mary Murphy, is a four-year industry veteran formerly with MML Investors Services. Schwab had hoped to sign up its first franchisee in September, with a goal of adding 20 more next year and 40 in 2013. Schwab is now planning for 16 new offices for 2012, with three of them coming in the first quarter, said Andrew Salesky, senior vice president of Schwab’s Independent Branch Services. “Our objective was to open the first one prior to year-end,” he said. About 1,500 potential franchisees have expressed an interest in the program since Schwab launched a marketing campaign last June, Mr. Salesky said. “We’re taking the time to vet candidates,” he said. Schwab is targeting experienced advisers as potential franchisers. But observers said the economics of Schwab’s franchise plan make it tough for the firm to compete. Schwab is splitting revenue 50-50 with franchisees after the fifth year of operation. Out of their half, the independent offices must cover their own rent and employee salaries, plus pay for build-out costs and technology. Franchisees also pay an upfront franchise fee of from $25,000 to $50,000. Independent representatives and advisers in other channels typically keep 80% to 100% of their revenue, out of which they pay expenses. “We haven’t made any significant adjustment in the terms” of the franchising program, Mr. Salesky said. “Many of our late-stage candidates are seeing this as an attractive opportunity.” Schwab has stressed the power of its brand to build business in pitching to potential franchise partners. The franchise program is seen as another channel, sitting between the firm’s existing 300 existing company-owned branches and its independent RIAs. It is part of Schwab’s individual-investor business, reporting to chief executive Walt Bettinger. The website RIABiz reported the opening of the first franchised Schwab branch today.