Charles Schwab, both the man and the full-service brokerage that bears his name, had an extremely busy 2019. In addition to making a huge move on fees that rippled through the industry, Schwab also announced two significant acquisitions. In October, Schwab cut its equity and ETF commissions to $0 in conjunction with the publication of its eponymous founder’s book, “Invested.” Schwab acquired USAA’s Investment Management Co. in July, but that takeover was overshadowed by the planned acquisition of competitor TD Ameritrade, which was announced in November. We’ll look at how Schwab ranks in an industry it has shaken up and whether it is the right broker for your portfolio needs. We've also reviewed the Charles Schwab Intelligent Portfolios robo-advisor service.
- Rated one of our best brokers for ETFs and ETF screeners.
- Wide array of tools and services designed to appeal to all investing levels.
- Mobile web platforms and native mobile apps are as fully featured as the desktop experience.
- Customers must take action to increase their returns on uninvested cash.
- On Nov. 25, 2019, Charles Schwab announced it would acquire TD Ameritrade's online brokerage.
Who Charles Schwab Is For
Charles Schwab is a full-service investment firm with technology that can suit a wide variety of investors, from active traders and self-directed investors who handle their own investing to clients who are looking for investment advice and portfolio management. Futures traders have to open a separate account, but unlike Fidelity, clients have access to that asset class.
Extremely robust ETF screener on StreetSmart Edge
Deep level of customizability on its StreetSmart Edge platform
Mobile web platforms and native mobile apps offer the same functionality
No automatic cash sweeps
Limited and basic ETF screener on the website
Almost all derivatives tools are on StreetSmart Edge
- On StreetSmart Edge, the ETF screener has 150+ screening criteria including asset class, Morningstar category, fund performance, regional exposure, and others. There are 16 predefined screens; results can be exported and viewed using your screening criteria or seven different. The ETF screener is available to both prospects (pre-login) and clients using StreetSmart Edge.
- The StreetSmart Edge platform has several levels of customization and personalization options and can be set up so that all of the tools you use regularly are at your fingertips.
- Schwab's focus for the bulk of the 2010s was to modernize its platforms and merge the technology acquired when it bought optionsXpress into their main offering. This development push resulted in platforms with the same look and feel from the web to mobile devices.
- Schwab does not automatically sweep uninvested cash into a money market fund, and their base interest rate is extremely low. You can get more interest on cash but you have to take action and move the money back when you want to place trades.
- In contrast to the excellent ETF screener in StreetSmart Edge, the ETF screener on the website is very basic. The mutual fund and fixed income screeners on the web are unattractive and outdated.
- If you trade derivatives, most of the tools are on the StreetSmart Edge platform, but equities traders will wind up referring to technology on the standard website.
Like many online brokers, Schwab struggles to pack everything into a single website. Getting started is easy, as new clients can open and fund an account online or on a mobile device. However, the website’s navigation involves two-level menus that are lengthy with dozens of choices, and occasionally cause confusion.
Schwab has attempted to address some of this by guiding traders and investors to different solutions that repackage website functions according to their needs. Trade Source is meant for more buy-and-hold investing, with all the relevant charts and research displayed in a clean interface. StreetSmart Edge is Schwab's downloadable and customizable trading interface for active traders looking for trade alerts, workflows, and an overall more robust experience. StreetSmart Edge can also be launched from the cloud but it requires installing a third-party application, Citrix, the first time it's run on a particular device. Although StreetSmart Edge is easier to navigate and has streaming real-time data, it is missing some of the screeners available on the website.
Placing a trade through the main website, Trade Source, and StreetSmart Edge is simple and straightforward. The view of your portfolio is slightly different with all three, but all show your holdings and the changes in value. Trade Source again has the cleanest visual representation, but there is little immediate analysis of your holdings beyond a basic allocation view.
Navigation on Schwab's mobile app is very similar to the website. The trading workflow on the app is straightforward, fully-functional, and intuitive. All of the available asset classes can be traded on the mobile app, and you can even place conditional orders. Your watchlists are the same across all Schwab platforms unless you are using the downloadable version of StreetSmart Edge and choose to save the watchlist on your local device. The mobile app-based news feed is solid, but the fundamental research is relatively light compared to what you have available through the web view. The mobile app charting function provides a nice range of technical indicators, but no drawing tools. In other words, traders can monitor and place trades in a pinch, but StreetSmart Edge is the preferred platform for digging in deep.
Much of Schwab's trading experience is built around the All-In-One Trade Ticket, which works across platforms. This type of order entry will be familiar to most investors, but there are resources to help you along if you get stuck. Futures traders are welcome at Schwab, but that whole function is cordoned off under StreetSmartCentral rather than as part of the trade ticket system. Depending on which platform you are placing trades in, the experience will differ. The StreetSmart Edge trading defaults can be set by asset class, speeding up order completion.
By comparison, there are fewer customization options on the website. In Trade Source, however, it is easy to have a selection of stocks streaming data and research with a wide selection of user-defined alerts. If a stock you are watching drops below a specific threshold or crosses its 15-day moving average (MA), for example, you can quickly jump to the tab and enter an order.
Schwab allows clients to trade fractional shares of stock with the midyear launch of Schwab Stock Slices. This service allows investors to purchase fractional shares in 1-10 publicly traded companies in a single commission-free transaction. The stocks that can be traded are described as, "America’s leading companies from the S&P 500," with a minimum of $5 per symbol.
Range of Offerings
Schwab enables trading in all available asset classes on its web, downloadable, and mobile apps. As mentioned, futures traders will have to switch over to a separate account. There is no cryptocurrency trading enabled, though clients can trade the CBOE Bitcoin futures.
- Stocks long and short. Short sales are authorized based upon shares available for loan at the time the short sale trade is entered. Schwab labels hard-to-borrow stocks on the quote screens; those are generally unavailable to short. When you are considering a short position, Schwab displays the annualized cost of borrowing the stock; this is an unusual feature and one we would like to see other brokers emulate.
- OTCBB (penny stocks)
- Mutual funds – More than 16,000 available; over 4,000 are no-load, no transaction fee
- Bonds – Corporate, municipal, treasury, CD, international, secondary markets, and new issues
- Futures options
- Simple and multi-leg options
- A robo-advisor is integrated into websites and mobile app
- International: Clients have the ability to trade online equities in 12 non-U.S. markets in their corresponding local currencies: Australia, Canada, UK, several European exchanges, Hong Kong, Japan, Norway. Currencies are available for cash conversion (i.e., clients have the ability to sell one currency in order to buy the equivalent amount of another, less currency conversion fees). Clients can purchase stock in the local market or hedge exposure to a foreign market by holding local currency.
- Forex (7 currencies)
- Fractional shares of stocks in the S&P 500 with a minimum of $5 per purchase
Schwab clients can enter a wide variety of orders on the website and StreetSmart Edge, including conditional orders such as one-cancels-another and one-triggers-another. Clients can stage order for later entry on the web and on StreetSmart Edge.
If you’ve been buying into a particular stock over time, you can select the tax lot when closing part of the position, or set an account-wide default for the tax lot choice (such as average cost, last-in-first-out, etc.). You can also set an account-wide default for dividend reinvestment.
Charles Schwab utilizes a proprietary wheel-based router for order management purposes, such as handling exchange outages, performing real-time execution quality reviews and handling volatile markets. Most orders in stocks and multiple-exchange listed options are routed to third-party wholesalers, balancing execution quality in terms of increased price improvement and improved execution quality statistics with its own cost savings. This score could be higher if Schwab had responded to our queries as written, but some of the responses were impossible to interpret. Quarterly information regarding execution quality is published on Schwab's website.
There is no trading simulator available to Schwab clients, nor is there the capability to automate and backtest a trading system.
Schwab kicked off the race to zero fees by major online brokers in early October 2019. At the time, the company stated, "We believe that removing one of the last remaining barriers to making investing accessible to everyone is the right thing to do for clients, and the fact that competitors soon followed our lead is a win for investors."
- Schwab charges no commissions for online equity, ETF or OTCBB trades.
- There is no per-leg commission on options trades. Per-contract commissions are $0.65.
- An order for 50 options contracts is $32.50.
- Covered call trade of 500 shares plus 5 contracts would cost $3.25.
- Mutual fund commission for funds outside the No Transaction Fee program is $49.95.
- New fixed-income issues have no commission. Secondary market trades are $1 per bond with no markup on the bond itself.
- Margin interest ranges from 9.325% for $10,000 balance to 7.825% for over $100,000 as of Jan. 2020
- Futures transactions are $1.50 per contract per side.
- Currency exchanges ranges from 1% for under $100,000 in value to 0.2% for over $1 million.
- No fees for inactivity, account closure or transfer, exercise/assignment, sending and receiving wires, sending checks, or paper statements and trade confirmations.
- Live broker fee is $25 per trade across asset classes.
- Most orders incur exchange fees, which are typically fractions of a penny per share or contract, which Schwab passes through to their customers.
International trades incur a wide range of fees, depending on the market, so take a careful look at those commissions before entering an order.
How This Broker Makes Money From You and for You
The pressure of zero fees has changed the business model for most online brokers. In lieu of fees, the way brokers make money from you is less obvious—as are some of the subtle ways they make money for you.
- Interest on cash balances: Schwab generates interest income from the difference between what you are paid on your idle cash and what they can earn on your cash balances. Schwab does not automatically sweep uninvested cash into a money market fund, and their base interest rate is extremely low. To get a better rate, you have to move the money around yourself and take it back out when you are ready to trade.
- Payment for order flow: Quite a few brokers generate income by accepting payment from market makers for directing their customer's equity and options orders to those trading venues. This is called payment for order flow. Schwab receives between $0.0009 and $0.0030 per share from the market makers that handle its orders. The firm receives $0.35 per contract from each options order, so it is making $1.00 per contract when you add in the $0.65 clients pay in commission.
- Stock loan program: Schwab earns revenue by borrowing stocks to hedge funds and short sellers for a fee. You share in this revenue by enrolling in the stock loaning program, but you cannot choose which stocks can be loaned. Those enrolled can view Schwab's prediction of potential income on the website.
- Price Improvement: On average, Charles Schwab clients receive price improvement on equity and options trades, but the firm did not answer our question in the format we requested so we cannot report it here.
- Portfolio margining: Schwab offers portfolio margining, which can lower the amount of margin needed based on the overall risk calculated. Typically, portfolio margining works best for customers who trade derivatives that offset the risk inherent in their equity positions.
- Schwab clients who are eligible can enroll in portfolio margining
- Eligible clients can enroll in the stock loan program and earn money when short sellers borrow their stock
- Interest rate paid on cash balances is low, though clients can manually move excess cash into a money market fund that pays more. Since there is no automatic sweep program, clients must make sure there is enough cash for potential trades.
- Customers can designate whether they want to enroll in a dividend reinvestment program at the time a stock is purchased
Schwab’s research offerings include flexible screeners for stocks, ETFs, mutual funds and fixed income, plus a variety of tools and calculators.
For stocks, Screener Plus on StreetSmart Edge uses real-time streaming data, filtering stocks based on a range of fundamental and technical criteria, including technical signals from Recognia. Traders can set the parameters that are most important to them and then integrate Screener Plus results with their pre-defined watch lists.
On the website, the screener includes MSCI ratings and 120 other criteria including Schwab equity ratings and 15 data points devoted to dividends. The ETF screener on StreetSmart Edge over 150 screening criteria including asset class, Morningstar category, fund performance, top ten holdings, regional exposure, and distribution yield. There are 16 predefined screens that can be customized. Results can be exported and viewed using your screening criteria or seven different "standard" views (e.g., ratings, fund performance, risk analysis, etc.). The ETF screener is available to both prospects (pre-login) and clients using StreetSmart Edge. The Schwab.com website has a very basic, somewhat old-fashioned screener.
Mutual Fund Screeners
The mutual fund screeners are rudimentary and look like something that one may have cooed over in 2002. The basic mutual fund screener has sixteen criteria selection, while the advanced screener offers 60 screening criteria. There are ten pre-defined screens with the ability to export your results. There are over 9,800 funds in the screening universe, which does not cover the 16,000+ that Schwab offers for sale. The mutual fund screener is available to both prospects (pre-login) and clients.
On the website, there are several pre-defined screeners that can be customized to the user's specifications; however, these screeners are really ugly and have little built-in help. There are also some options pricing and probability tools.
Fixed Income Screeners
The website has a basic-looking old school screener. Clients can search online for secondary market corporate bonds, municipal bonds, agency bonds, Treasuries, Treasury zeros, mortgage-backed securities and certificates of deposits (CDs). Search criteria for corporate bonds includes the sector and underlying stock symbol.
Tools and Calculators
On the website, you can access calculators for margins, portfolio mix, retirement and income guidance, tax efficiency, and others. You can also find tools for stock and advanced option strategy selection and hedging alternatives based on market outlook.
Trading Idea Generator
Idea Hub, a feature originally developed by optionsXpress (which Schwab acquired in 2011), offers options trading ideas bucketed into categories such as covered calls and premium harvesting. On StreetSmart Edge you'll find a long list of potential idea generators, including Idea Hub. You can add these tools as a tab to your layout to get back to your favorites quickly.
News and Research
Schwab's news and research offerings are among the deepest of all online brokerages. Schwab offers its clients free access to news feeds from BondSource, MarketEdge, Schwab Investing Insights Brief, Argus Research Alerts, Briefing.com, Morningstar Equity Research Alerts, Business Wire, PR Newswire, Credit Suisse, CFRA, and Vickers Insider Activity. MarketEdge includes dozens of news feeds and analyst reports. You can also check out technical triggers as recognized by Recognia. Premium third party research offered at a discounted price include Briefing. Com premium services, Investor’s Business Daily, MarketEdge Platinum, Trader’s Library, XTF ETF Experts, Wiley Trading Bookstore, StockCharts.com, Fly on the Wall, Quantcha, Options Play, and others. Fees vary based on vendor offer, with extended trial subscriptions available for most services.
Technical Analysis and Charting
StreetSmart Edge charts incorporate Recognia pattern recognition tools. Charting on the web is serviceable but more basic than on the StreetSmart Edge platform. Users can save all preferences, settings, studies, and layouts on both StreetSmart Edge and the website. Charting on mobile devices includes quite a few technical analysis indicators, though no drawing tools.
Schwab clients can link their non-Schwab accounts (investment and bank accounts, plus credit cards, loans, mortgages, and real estate from over 15,000 financial institutions) to get a full picture of their finances and investments that is automatically updated. You can see the combined total of all included accounts with a chart that makes it easy to track changes over time. The Schwab Portfolio Checkup Tool allowing you to analyze your investments, including those held outside Schwab, and calculate an internal rate of return. Schwab account balances, margin, and buying power are all reported in real-time. On the downside, there is no way to determine your expected income from dividends and interest.
StreetSmart Edge displays your positions along with balances, alerts, gains/losses, and transactions. As with all trading platforms, you are expected to know what you are doing, but there is a Notes tool that allows you to journal their trading activity and take a chart snapshot. This is helpful in evaluating your decision-making process after a trade has been made. Notes are not available on the website.
Schwab goes deep on investor education with their Schwab Live Daily broadcasts, research from the Schwab Center for Financial Research, an array of articles on the Insights & Ideas page, as well as webinars and in-person events for investors and traders.
There are 4-5 hours a day of live video in Schwab Live, accessible from the web and StreetSmart Edge platforms. The website has numerous video-based classes and other educational content, plus you can sign up for one of their regularly-scheduled webinars on various investing topics. There are archived webinars, sorted by topic, in Education Center.
You’ll find trading and economic commentary on Schwab.com, updated daily. The Ideas and Insights section has up-to-date trading education based on current market events. Life stage planning tools are mostly housed in the Intelligent Portfolio (robo-advisor) section of the website. Schwab's Knowledge Center acts as a combination FAQ and glossary while also offering help with the website, StreetSmart platform, and the mobile apps.
- 24/7 phone line
- Online chat with a human agent
- You can talk to a live broker (there is a surcharge for any trades placed via the broker)
For retail clients calling customer support, Schwab says its average wait time on hold was 22 seconds. They are quick to respond to customer complaints on Twitter, though most ask the customer to send a direct message with a phone number for an offline discussion. Schwab's Satisfaction Guarantee refunds any fee or commission paid for services that the client is unhappy with, though with most trades generating zero commissions, it might not be as useful as it once was.
Schwab's security is up to industry standards:
- Mobile app users can log in with biometric (face or fingerprint) recognition.
- Website and mobile apps use encryption and risk-based security technology to help defend against unauthorized account access.
- Clients can request two-factor authentication for logins and set up a challenge when accessing accounts from an unfamiliar device.
- Schwab carries excess Securities Investor Protection Corporation (SIPC) insurance provided by Lloyd's of London of $149,500,000 per account, which includes an aggregate $600 million for uninvested cash.
- Schwab has dedicated a page of its website to discuss what it does for online security and encourages its customers to do their part too.
- Through Nov. 2019, there were no significant data breaches at any Schwab location reported by the Identity Theft Research Center.
Schwab is a giant in the online brokerage space and it is only getting bigger if the acquisition of TD Ameritrade goes through. Due to its size and reach, Schwab is able to offer investors a wide array of services and tools including a top-notch mobile app. Over the last few years, Schwab seems to be encouraging its customers to work with an advisor, whether human or robo, as opposed to investing by yourself. That said, self-directed traders and investors can still choose to go it alone as the StreetSmart Edge and Trade Source platforms provide all the tools you will need. Unlike some of its direct competition, Schwab even welcomes futures traders even if it does make them play on yet another separate platform.
One of the biggest changes in Schwab's business is, of course, the elimination of fees. Interestingly enough, this decision hasn't hurt Schwab as much as it has some of the competitors. Schwab makes the overwhelming majority of its income on uninvested cash that customers have in their accounts, so getting rid of commissions on equity trades wasn't as big a sacrifice as it appears. When it comes to this interest, however, Schwab could serve their clients better by passing a little more of it on and automating sweeps of uninvested cash.
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