Schwab to expand ShareLink lines

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The American newcomers are likely to favour more phone-based services rather than share shops, writes John Murray

Private-client stockbrokers and the high street banks are bracing themselves for the arrival of Charles Schwab, the US share-dealing guru, via his eponymous company's takeover of ShareLink, the telephone-based dealing service.

But the £40m deal is unlikely to lead to the opening of a network of share shops in Britain modelled on the Schwab style in the US, where the company has more than 200 branches. Instead, ShareLink is poised to expand the range of products itoffers to its customers, moving into such areas as mutual fund and unit trust sales.

The ultimate goal may be to expand ShareLink into another telephone- based operation offering a wide range of financial services, along the lines of Midland Bank's First Direct business and Royal Bank of Scotland's Direct Line insurance subsidiary.

Nigel Simmonds, a director of private-client broker Walker Crips Weddle Beck, said: "If anything, clients are finding the telephone a more convenient way of dealing - it would be a step backwards to start opening branches up and down the country."

The link-up between Schwab and ShareLink is also unlikely to lead to lower commission charges, according to industry sources. Cut-throat competition between the high street banks, the smaller stockbrokers and ShareLink has already sliced margins so thinly that virtually no one is making money out of the business of execution-only dealing.

Indeed, Schwab's bid for ShareLink is timely as it provides a partner with financial muscle in a year when the British company is set to make a thumping loss - it has already reported a £500,000 deficit in the first half.

Graham Betton, of Manchester-based broker Siddall, said: "Brokers that stand still will not survive. It is necessary now to continually explore new services and keep up to date with technology while keeping costs low."

Michael Savory of Midland Stockbrokers said: "I don't think that any of us envisage an American scene being replicated here - it's just not the style. I think Schwab is much more interested in exploiting the opportunities for selling funds directly to shareholders by telephone.

"On the share-dealing front, when you look at the private investor base, you will find that some two-thirds hold no more than two stocks, so there is not a huge untapped market there. What one is more likely to see is the movement of the more sophisticated investor to the phone. As it is, ShareLink's commission charges are already undercut by us and, I believe, by other high street operators. The real difficulty for the smaller operators will be coping with the new settlement systems such as Crest which are on the way and which will require investment in technology."

ShareLink has been in the vanguard of the popularisation of share-dealing since it started up in 1987. But critics say its plunge into losses this financial year shows how dependent such an operation is on a bull market and on the business generated by privatisations, which is now tailing off.

However, the company points out that a recent survey of its client base showed that only 12 per cent of its total commission income was from privatisation shares.

Not that ShareLink has anything against privatisaions: a spokeswoman said that the company was looking at expansion into other geographical areas, inspired by the rash of privatisations abroad, especial;ly inEurope.

Hugo Quackenbusch of Schwab said: "I don't think that we're going to revolutionise the market in Britain, but clearly we'll be bringing our experience, expertise and technology into play alongside an organisation that has only been around since 1987 but has already built itself a good reputation."

But Graham Betton believes Mr Schwab may have some suprises in store: "He hasn't done this deal for nothing; I'm sure he's got something up his sleeve."