Charles Schwab Bear's Rebuttal
by Rick Munarriz ([email protected])

I have to hand it to my Buffalo Bills-loving friend Dale, he definitely paints a rosy scenario of how 401(k) accounts are going to migrate to Schwab. They are not the cheapest option, but retirement plans will come for the service and the view of the Bay. Wait a minute! Isn't this the same Schwab that -- the last time the market took a one-day wallop -- got raked over the coals by the media for a lack of customer accessibility?

My fellow Fool compares that dark day, as I imagine the many other active sessions when Schwab Internet accounts couldn't get through to place transactions, to America Online's busy signal malaise.

Let's backpedal here. America Online was in an enviable position when its network could not handle the mass of cybersurfers after it switched to flat-fee pricing. Customers really had nowhere else to go. Sure, many Internet Service Providers trumpeted reliable connections, but the competitors could not equal the vast amount of proprietary and immediately loading content on AOL -- and more importantly, they also could not better the price.

If ISPs were charging a third of AOL's monthly dues and the content was comparable, then I think the exodus would have been more than obvious -- it would have been a stampede. That is what Schwab has on its hands today. Its rates are too expensive for the educated discount investor, yet too low to revive the juicy margins of yesteryear.

Then again, Dale is saying that falling margins are not as dire as one might think. (Note to self -- next time I set up a friend on a less-than-stellar blind date, rather than comment on good personality, go with "Hey, she's got low margins!") I know where my well-read Fool is coming from, turning over the assets faster will multiply the lower margins into respectable earnings, but let's realize that this is the argument of pointing to the sky from the gutter. Why will Schwab be any more successful than its peers? The company's foray into selling mutual funds or online trading is not original. For now it has overtaken the originators because the name Schwab sounds good at cocktail parties. The fact that the company has been reactionary and not visionary does not give me warm fuzzy feelings when the playing field eventually becomes level, and the true innovators will emerge as victors.

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