Charles Schwab Brokerage Trust Overview
The 2008 financial crisis triggered a series of bank failures in the U.S. From 2008 to 2012, the Federal Deposit Insurance Corporation (FDIC) closed 465 failed banks – by comparison, only 10 banks had closed in the five years leading up to the crisis. Brokerage firms were not immune, and we saw the largest brokerage firm failure in history – and the largest bankruptcy proceeding ever – when Lehman Brothers collapsed in the fall of 2008.
Understandably, investors today are concerned about the safety of their investment accounts – and what happens if their brokerage firm goes bankrupt. The good news is that most investors have multiple layers of protection – including the FDIC, the Customer Protection Rule, and the Securities Investor Protection Corporation (SIPC) – if their brokerage firm goes under. Many investors also worry about data breaches and what happens if their account is hacked. Here, we take a quick look at the measures brokerage firm Charles Schwab takes to protect customer assets and personal information. Also included: a brief profile of the company and its activities and awards. Read the full Charles Schwab review.
In the event of Schwab’s bankruptcy, the SIPC insures up to $500,000 in securities that they are not able to return to clients, excluding futures, precious metals and investment contracts (i.e LLPs). Additionally, each client is insured up to $150M in securities via Schwab’s third party insurance.
In the event of Schwab’s bankruptcy, the SIPC insures up to $250,000 in cash for each account held in a separate capacity (ie. individual account vs IRA). Additionally, clients are insured up to $1.15M in cash via Schwab’s third party insurance.
Your accounts at Charles Schwab are protected by several layers of insurance and other safeguards, including:
- Up to $250,000 banking insurance from FDIC (for deposits held at Schwab Bank);
- Up to $500,000 securities insurance from SIPC including $250,000 for claims of cash; and
- Up to $150 million per customer including a $1,150,000 million limit for cash from Schwab’s excess-SIPC coverage. Read below for the details.
Customer Protection Rule. In compliance with the Securities and Exchange Commission’s Customer Protection Rule, your securities – including stocks and bonds that are fully paid for and excess margin securities – are segregated from Schwab’s securities. That means if Schwab were to become insolvent, your assets would still be yours – and wouldn’t be available to general creditors.
FDIC Insurance. All deposit accounts held at Schwab Bank (including the Schwab Bank High Yield Investor Checking and Savings accounts) are insured through the Federal Deposit Insurance Corporation (FDIC) for up to $250,000. In addition, Schwab CD OneSource – Schwab’s CD marketplace – provides a platform to buy CDs from FDIC-insured banks across the U.S. FDIC offers no protection, however, for stocks, bonds, annuities, ETFs, mutual funds and U.S. Treasury bills, bonds or notes. That’s where SIPC comes in.
SIPC Protection. Protection for securities comes from the Securities Investor Protection Corporation (SIPC), a non-profit membership corporation created in 1970 to protect investments and increase investor confidence.
It was the SIPC that stepped in to help investors following the 2008 Lehman Brothers disaster, Bernard Madoff’s 2008 Ponzi scheme (the largest such financial fraud in U.S. history) and the 2011 collapse of MF Global.
Since Schwab is an SIPC member, you are protected up to the legal limits if it fails financially (if you’re not sure about a brokerage firm’s SIPC status, look for “Member SIPC” on its website, ads or literature, or do a search on the SIPC website). Specifically, SIPC provides up to $500,000 protection for brokerage accounts held in each separate capacity (e.g., individual account, joint account, IRA account), including a $250,000 limit for cash (this cash limit is cumulative, regardless of how many accounts you may have). There’s no requirement that you have to reside in or be a citizen of the U.S. to receive SIPC protection.
It’s important to note that SIPC won’t bail you out if your investments decline in value; instead, it works to return the cash, stocks and other securities (in number of shares – not absolute value) you had at a failed firm before it closed. Also, the SIPC protects your stocks, bonds, Treasury securities, CDs, mutual funds and certain other investments, but in general does not cover futures contracts (including commodity futures), or foreign currency.
Supplemental Insurance. Schwab clients receive an added level of protection through a supplemental insurance program underwritten by Lloyd’s of London, a respected name in the insurance industry. If Schwab goes under and SIPC limits are exhausted – and no more funds are available from Schwab’s estate – this “excess SIPC” coverage kicks in to provide up to an aggregate of $600 million, limited to a combined return to any customer from a trustee, SIPC, Lloyd’s and other London issuers of $150 million, including up to $1,150,000 in cash.
SchwabSafe. As for information security, Schwab takes several measures to ensure your personal information is safe, including:
- Advanced encryption technology to secure communications on schwab.com.
- Multilayered protections beyond login name and password before granting account access.
- Users are prompted to answer security questions if unauthorized account activity is suspected.
- Failed login attempts are limited.
- Extended Validation Certificates to help clients verify they are accessing an authentic site and not a "spoofed" site pretending to be schwab.com (look for https:// and a padlock icon in the address bar, plus a green bar in front of the web address to confirm you’re on Schwab’s official, secure site).
- Automated alerts and pattern analysis to detect suspicious account activity.
- Limits on the number of employees who have access to your personal information.
To give clients peace of mind, Schwab provides a Security Guarantee that states, "Schwab will cover 100% of any losses in any of your Schwab accounts due to unauthorized activity.'
With a reputation for providing excellent customer service and a reliable trading platform, Schwab has earned numerous industry awards. Here are just a few:
- Ranked highest in the J.D. Power Full Service Investor Satisfaction Study for 2016 and 2017
- Named #1 in Customer Service, Trade Reliability, Site Performance and ETF Choices in the Investor’s Business Daily Best Online Brokers for 2017
- Ranked #1 in Customer Service, Trade Reliability, and Mobile Platform/Mobile Trading in the Investor’s Business Daily Best Online Brokers for 2016
- Selected as one of the FORTUNE Top 50 "World’s Most Admired Companies" for 2016, ranking #1 for Innovation and Social Responsibility and #2 in the Securities and Asset Management category
- Scored an overall 4 out of 5 stars in the Barron’s survey of the Best Online Brokers of 2015
- Named #1 in Customer Service and Trade Reliability in the Investor’s Business Daily Best Online Brokers for 2015
- Ranked one of MONEY magazine’s “Best Banks” in 2015
Charles Schwab has long history of corporate social responsibility – including financial education programs, employee volunteerism and community involvement. Its initiatives include:
- Money Matters: Make it Count. In partnership with Boys & Girls Clubs of America, the Make it Count program teaches teens basic money management skills so they can save, spend and invest wisely.
- Schwab MoneyWise. The award-winning MoneyWise website and workshops tackle money management topics with hands-on tools and engaging content.
- Financial education in classrooms. Schwab provides a dollar-for-dollar match up to $100,000 for every donation to financial literacy-focused projects on DonorsChoose.org.
- Charles Schwab Foundation. Provides financial support to a variety of charities and community events selected by Schwab employees, with $4+ million given annual to directly support nonprofits.
- Environmental responsibility. Schwab researches, develops and implements multiple environmentally friendly practices to reduce its carbon footprint.
Charles Schwab is one of the world’s largest brokerage firms, with nearly 10 million active client brokerage accounts and $2.90 trillion in client assets. The company was built around a simple idea: put the clients first, and it works to "keep clients at the heart of everything we do by offering offer a better, more modern way to build and manage wealth." Incorporated as First Commander Corporation in 1971, the company became Charles Schwab & Co., Inc. in 1973. Fourteen years later, the Charles Schwab Corporation (SCHW) completed its initial public offering.
Today, Schwab is headquartered in San Francisco. It has 335 branches and employs about 16,000 people full time. The company operates four primary divisions: investing, wealth management, banking and trading. Its key people include: