Charles Schwab: How Good Are Its Retirement Services?

Charles Schwab & Co., founded in 1971 and headquartered in San Francisco, has 9.9 million active brokerage accounts with more than $2.56 trillion in total client assets as of March 2016. If you’re thinking about placing your retirement assets with Schwab, here’s what you need to know.

Product Offerings

For retirement savings, Schwab offers traditional IRAs, Roth IRAs and rollover IRAs. For small business owners, Schwab has individual 401(k)s, SEP IRAs, SIMPLE IRAs, business 401(k)s and personal defined benefit plans. Schwab will help you transfer your IRA from another provider or roll over your 401(k)  from a former employer.

For retirement income, Schwab offers variable annuities, income annuities and fixed annuities. Schwab’s Mutual Fund Portfolio Builder provides suggested mutual fund portfolios with different asset allocations for different levels of risk tolerance.

Investment Selection

Schwab customers can invest in mutual funds, exchange-traded funds (ETFs), stocks, bonds, certificates of deposit (CDs), futures and options. Schwab offers 50 mutual funds, six fundamental index ETFs and 15 market-cap index ETFs of its own, plus access to thousands of no-load, no- transaction-fee mutual funds and around 200 commission-free ETFs  from other companies. Schwab Target Funds are mutual funds built around your projected retirement age and designed to take the guesswork out of constructing a portfolio. Schwab’s four MarketTrack Portfolios consist of index funds tailored to different levels of risk tolerance. Schwab’s three Monthly Income Funds offer monthly income plus long-term growth potential.

Professional Advice

Schwab offers 24/7 customer service to all clients regardless of how much they’re investing, including help with the paperwork and asset transfer to open an account. If you have at least $25,000 in assets with Schwab, you’re eligible for a complimentary Personal Portfolio Review, which entails discussing your short- and long-term goals, evaluating how your current investments fit with those goals and getting investment recommendations.

Schwab has nine levels of portfolio management services for investors who want ongoing, customized advice and/or portfolio management. The entry-level product is Schwab Intelligent Portfolios, a fully automated advisory service that builds, monitors and rebalances an ETF portfolio for you with a minimum investment of $5,000. At the high end are Schwab’s Private Client service and its Advisor Network Service, both for customers with at least $500,000 at the brokerage. Schwab’s personalized investment services are provided by registered investment advisors, meaning the advice you receive must be in your best interest, not the advisor’s. (For more, see Ethical Standards You Should Expect from Financial Advisors.)

Account Minimums and Investment Minimums

Schwab index funds, mutual funds, target-date funds, Monthly Income Funds and MarketTrack portfolios have a $100 investment minimum if you establish an automatic monthly investment. Otherwise, you’ll need $1,000 for a brokerage account. SEP IRAs, SIMPLE IRAs and individual 401(k)s don’t have a minimum-deposit requirement. If you want the higher level of service associated with personalized investment advice, account minimums range from $25,000 to $500,000.

Fees

There are no fees to open or maintain a Schwab IRA. Online stock trades cost $8.95 each. Bond trades are commission free for new issues of U.S. Treasury securities. CDs, corporate bonds, municipal bonds and government agency securities cost $1 per trade. Schwab’s OneSource ETFs are commission free; other ETFs cost $8.95 per online trade. Broker-assisted phone trades have a $25 service charge in addition to the usual commissions.

You can buy and sell Schwab’s OneSource mutual funds without paying any commission. Schwab charges a $49.95 short-term redemption fee on OneSource funds held for 90 days or less. Transaction fee funds for funds outside the Schwab system cost $76 to buy and nothing to sell. Schwab Intelligent Portfolios have no advisory fees, commissions or account service fees.

Expense Ratios

Expense ratios for mutual funds and ETFs vary by fund. Schwab’s index funds have expense ratios ranging from 0.09% to 0.29%, and each fund’s expense ratio is below the industry average for that fund category. Schwab’s OneSource mutual funds, which have no loads or transaction fees, have expense ratios ranging from 0.09% for the Schwab S&P 500 Index Fund to 1.06% for the Federated Strategic Value Dividend A Fund, which invests in stocks with a high dividend or dividend growth potential. Schwab’s Select List mutual funds, which are no-load, no-transaction-fee funds designed to generate income, have expense ratios ranging from 0.69% to 1.32%. MarketTrack portfolios have expense ratios of 0.62% to 0.66%, while Monthly Income Funds have expense ratios of 0.47% to 0.66%.

Schwab Target Funds have expense ratios of 0.48% to 0.82%, with the expense ratio increasing the further out your retirement date is. Each of these funds is slightly less expensive than the category average. Personalized portfolio management and advice services have different levels of expenses. Clients with at least $100,000 at Schwab who use the Charles Schwab Investment Management Service, for example, pay a fee of 1.35% of assets under management; the fee declines with higher asset levels.

Reputation

J.D. Power’s 2015 Self-Directed Investor Satisfaction Study, which surveyed more than 3,700 investors who make investment decisions without help from a personal financial advisor, gave high ranks to Charles Schwab across the board. The brokerage received a five out of five for overall satisfaction, customer interaction with the company, usefulness and ease of accessing account information, trading charges and fees and information resources (research, analysis and tools). It earned a four out of five for its product offerings. Charles Schwab came in first in this survey, just ahead of Vanguard and Fidelity Investments.

Safety

Your brokerage account securities (stocks, bonds, Treasury securities, CDs, mutual funds, money market mutual funds and certain other investments) with Schwab are covered by the Securities Investor Protection Corporation (SIPC), a nonprofit organization that will cover the loss of up to $500,000 in securities, including up to $250,000 in cash, if the firm goes bankrupt and your assets go missing. Schwab also carries $600 million in additional coverage, with a per customer limit of $150 million for securities and $1.15 million for cash. Any uninvested cash in your brokerage account at the end of the day gets automatically swept into Charles Schwab Bank, where it will earn interest and be FDIC insured.

In addition, because any mutual fund shares you own are held by a third-party custodian, neither Schwab nor its creditors can take ownership of them if the brokerage runs into financial problems. Schwab is a member of the Financial Industry Regulatory Authority (FINRA). (For more, see FINRA: How It Protects Investors.)

If your account loses money because the market declines or you make poor investment decisions, you’re out of luck – there’s no insurance for that, no matter which brokerage holds your money. (For more, see Are My Investments Insured Against Loss?)

The Bottom Line

Charles Schwab has a solid reputation for retirement services, and investors who are just starting out will particularly appreciate the ability to get started saving for retirement with just $100 a month. With services for everyone from beginners to those with half a million or more in assets, most people planning for retirement will find what they need at this brokerage. (For more, see Online Portfolio Management, DIY or Fee-Based Financial Advisor: Which Is Right for You?)