Retail Financial Services In 1998

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Harvard Business School

9-799-051
December 16, 1998

Retail Financial Services in 1998
Delivery of retail financial services in the US was undergoing substantial realignment. With the relaxation of regulatory constraints on traditional financial intermediaries—banks, mutual funds, insurance companies, and brokerages—products and services were becoming increasingly similar. Banks and insurance companies were selling mutual funds, and Fidelity and Schwab were offering a full line of banking products and services, although unbundled and separately priced. Investment advice, once the hallmark of full-service brokers, was being offered by almost everyone in some manner. (See Exhibit 1 for a list of product offerings in 1986 and 1997 of some of the world’s largest financial institutions.)

At stake was the $27 trillion of invested household assets, growing annually at 10%, only 27% of which was professionally managed in 1995. With the emergence of 401(k)-based retirement plans and the growing personal responsibility for retirement finances, US consumers were becoming increasingly interested in capital markets, albeit at an unsophisticated level. A dizzying array of products and services, and abundance of information in the popular press and on the Internet, had intensified consumer choices. With 20% of investors generating 80% of the profitability in retail financial services markets, financial intermediaries were focusing on two key segments: high net worth investors (the baby boom generation which stood to be the beneficiary of an estimated $10 trillion dollars in assets by the turn of the century), and technologically savvy investors who made their own decisions and executed them online.

Ten years ago, there were expectations that a “supermarket” of retail financial services would emerge with firms such as Sears, American Express, Prudential-Bache, and others, vying for customer control. In 1998, Sears was no longer in the business, American Express had retrenched, and Prudential-Bache had run into expansion difficulties. With the blurring of traditional boundaries between banking, mutual funds, insurance, and brokerage, broadline retail financial services had resurfaced. As the growth of independent financial advisors further complicated the mix, there was great interest in how it would all shake out.

All competitors were trying to alter their retail landscape, including First Union Bank, a regional concern with expanding geographic reach and highly automated branches; Fidelity Investments, the mutual funds giant which offered combined banking and investment accounts, as well as insurance and annuities; Travelers Group, which had recently joined its brokerage and insurance operations with Citicorp’s banking business, forming the world’s largest financial services firm; Merrill Lynch, the full-service broker selling a vast array of products and services within the context of personalized financial advice; and Charles Schwab, the aggressive discount broker broadening its products, and adding advisory services for the do-it-yourself investor. Research Associate Takia Mahmood prepared this case under the supervision of Professor Stephen P. Bradley as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 1998 by the President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. 1

799-051

Retail Financial Services in 1998

Banking
Once you have a customer base, the only limitation on what you can sell is your own...
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