Charles Schwab is a financial services company that operates through various subsidiaries to provide asset management, discount brokerage, banking, and advisory services. Its closest competitors in the discount brokerage sector include Fidelity, TD Ameritrade, E*TRADE and Interactive Brokers. Schwab's asset management and advisory services pit it against larger firms in the sector such as Goldman Sachs. It's mutual fund offerings are increasingly competitive on cost versus well-known players like Vanguard.

Key Takeaways

  • Charles Schwab is one of America's largest financial firms focusing on individual investors.
  • The company was one of the first to offer discount brokerage services
  • Schwab offers a full range of financial services including and products, including ETFs and mutual funds.
  • Schwab also provides advisory services and banking to individuals.

Charles Schwab: History and Financials

In its early days, Charles Schwab made a name for itself as one of the world's first and leading discount broker services, and this segment remains a large part of the company's business. The company continues to offer a full array of brokerage services through its subsidiary, Charles Schwab & Co. It also operates Schwab Bank, a federal savings bank in Reno, Nevada, which was established in 2003.

Schwab also manages its own line of mutual funds and exchange-traded funds (ETFs), all of which are available to its clients alongside third-party offerings. These funds can be purchased through any of the account types Schwab offers including full-feature brokerage accounts, individual retirement accounts (IRAs) or its 529 college savings accounts. Schwab serves customers over the phone, online or in any of its 365 physical branch offices.

Schwab expanded aggressively into asset management and investment advisory services. As of August 31, 2019 Schwab held $3.7 trillion in clients assets under management. It also has12.1 million active brokerage accounts, 1.7 million corporate retirement plan participants and 1.4 million banking accounts. In 2018, Schwab earned $4.5 billion in operating income on $10.99 billion in revenue.

On October 3, 2019, Schwab announced it will no longer charge trading commissions for stocks and ETFs in the U.S.

The company's closest competitors in the discount brokerage sector are Fidelity, E*TRADE and TD Ameritrade. On October 3, 2019, Schwab announced that it will no longer charge trading commissions for stocks and ETFs in the U.S., which accounted for $80-$100 million in annual revenue. E*TRADE, TD Ameritrade and Ally Financial followed suit.

Assets Under Management

Schwab also leads its competitors in total client assets under management (AUM). As of year-end 2018, Schwab managed over $3.25 trillion in client assets, while T. Rowe Price had only $1.03 trillion in client assets and TD Ameritrade $1.3 trillion in client assets under management.

Schwab's expansion into additional market sectors means it will face increasing competition from established larger players, including investment banking firms such as Goldman Sachs.

Goldman Sachs' market cap on October 1, 2019, was $73.3 billion, significantly more than Schwab's $50 billion during the same time period. At the same time however, for Q2 2018, Goldman Sachs had just over $1.54 trillion in assets under management, roughly half of Schwab's $3.25 trillion AUM. While Goldman doesn't offer discount brokerage services, it does compete with Schwab in banking and advisory services.

Mutual Funds and ETF's

Schwab clients have access to 175 commission-free ETF's and more than 3,500 OneSource mutual funds, which carry no loads and no transaction fees. By comparison, TD Ameritrade offers 296 commission-free ETF offerings and access to more than 11,000 mutual funds, of which nearly 2,000 carry no transaction fee and no load. Meanwhile, Fidelity offers more than 10,000 mutual funds, 3,375 of which have no transaction fee, and many of those have no load. Fidelity traders also have access to 84 commission-free ETFs. Ally Invest offers 8,095 mutual funds to new investors. Of those, 1,672 funds have no load. In addition, customers making 30 or more trades in a quarter get their trading commission knocked down to $3.95 for stock and ETF trades and just 50 cents for options contracts.

Schwab's ETF offerings are also very competitive in terms of management fee and expense ratios, with index funds matching or exceeding the likes of Vanguard and Fidelity.

Research

Through Schwab, customers gain access to free stock reports from Morningstar, S&P Capital IQ, Thomson Reuters, Credit Suisse, and others. Fidelity also offers a suite of research tools with high-quality research. But TD Ameritrade offers the largest selection of independent, third-party investment research from 13 total firms (Standard & Poor's, Morningstar, Jaywalk, TheStreet, etc.) 

As for charting, Ally Invest's website boasts a great offering. Upper and lower technical indicators can be added to a chart, along with company events, such as splits, earnings, and dividends. Comparisons can be made to stocks, indexes, and commodities — a rare feature. Customers have their choice of graph styles, which include mountain, OHLC bars, and candlesticks. 

Customer Service

Schwab customers can get support via an online chat system, phone, fax, or e-mail. The phone service is staffed 24 hours a day, 7 days a week, and the reps are typically well trained.