In some ways, reviewing Charles Schwab isn’t much different now than it would have been in the 1970s.
Guided by the philosophy of its founder, the Charles Schwab Corporation has been an industry leader for decades when it comes to disrupting the status quo to better serve its customers.
Table of Contents
- Charles Schwab Review: Quick Look
- What Is Charles Schwab?
- Who Should Use Charles Schwab?
- Where Schwab Shines
- Where Schwab Falls Short
- What Makes Schwab’s Investment Research So Good?
- Why Should I Use Schwab for ETFs?
- Schwab’s Intelligent Portfolios Premium
- Schwab Fined Nearly $200 Million for Cash Allocation Scandal
- Frequently Asked Questions About Charles Schwab
I updated this article in May 2023 and I review it every six months. You can find detailed notes on all updates here.
Charles Schwab Review: Quick Look
|Strong on research and ETFs
|Profits on customer cash aggressively
What Is Charles Schwab?
|Android App Rating
|iOS App Rating
|$0 for stocks, ETFs and options
Schwab gained popularity early in its history by reducing commissions and making it easier for individual investors to access the market. The company is largely responsible for the term “discount broker.”
Founder Charles R. Schwab sold his company to Bank of America in 1983 but bought it back in 1987.
The company made a splash that rippled across the industry when it announced commission-free trades in October 2019. And Schwab continues to expand: It acquired both USAA and TD Ameritrade in 2019.
Who Should Use Charles Schwab?
Schwab is a well-rounded investment company built to meet the needs of almost everyone. It has a long history of treating its customers well and offering competitive products.
Here are some examples of the investors Schwab serves well:
- Self-directed investors. In its marketing, Schwab seems to be pushing its advisors (robo and financial). But it’s still a great place to do business if you prefer to manage your own investment portfolio. Schwab offers a full range of features you’d want: research, education, renowned customer service, in-person branches, multiple platforms, good order execution, low-cost index funds and more.
- Passive investors with taxable accounts. Vanguard is the most prominent brokerage firm for index funds (which can be mutual funds or ETFs). But if you have a taxable account (as opposed to a retirement account), ETFs are usually preferable. Schwab may be unmatched when it comes to investing in ETFs, from research to selection to price.
- Value investors. In my opinion, Schwab offers better research than any other investment company. If you’re a value investor, you use fundamental analysis to find companies that are trading for less than they’re worth. You pour through company earnings and third-party analyses before buying stock. Schwab’s research tools strongly support value investors.
- Active traders who aren’t pros. Professional day traders are probably better served by other options. However, if you’re not a day trader but sometimes dabble with more short-term trades, Schwab’s platforms and tools should meet your needs. (Clark strongly advises against day trading.)
- Investors drawn to affordable, qualified financial advisors. Clark recommends Schwab’s Intelligent Portfolios Premium. After paying a one-time planning fee of $300, you’ll pay $30 per month to get ongoing access to a team of Certified Financial Planners (CFPs). I’ll go into greater detail on Intelligent Portfolios Premium a little later.
Where Schwab Shines
It’s hard to review Schwab and narrow the company’s strengths down to a handful of attributes.
But here are some of the easiest things to appreciate about Schwab:
- Research and tools. If you like to incorporate technology and data to help guide your investment choices, chances are you’ll love Schwab. I’ll discuss why Schwab’s investment research is special later in this article.
- Free trades. Most of the typical “discount brokers” now offer free trades on stock, ETF and options. But Schwab, competitive on price for much of its history, was the first to get rid of commissions altogether.
- Physical locations. Getting in-person help can seem quaint if you’re focused on online-only fintech companies. But Schwab operates more than 350 branches, so it’s likely there’s a location near you. That’s a real differentiator.
- ETFs. I’ll go into greater detail in a bit. But to put it simply, Schwab’s ETF offerings are strong. ETFs can be actively or passively managed just like mutual funds. They trade on the market and they don’t create extra tax burdens for individual investors in taxable accounts.
- Customer support. Schwab offers 24/7 phone and online chat support, and its customer support staff has developed a reputation for being pleasant and helpful. With the exuberance in the stock market in 2021 and into early 2022, new customers poured into most brokerage firms including Schwab. The company was transparent about the busier phone lines and made active efforts to avoid customer frustration.
Where Schwab Falls Short
Investment companies have to make some value judgments. How to make money, which products to offer and how detailed to make its features and information are all questions with no perfect answers.
With that in mind, here’s where Schwab’s choices leave something to be desired:
- Aggressively leverages customer cash for profit. If brokerages offer free stock, mutual fund and options trades, they have to find some other way to turn a profit. Schwab focuses pretty heavily on cash. It sweeps uninvested cash into an account that pays a meager 0.48% interest rate. Its robo-advisor portfolios also devote an outsized percentage to cash when measured against competitors. The SEC even hammered Schwab with a huge penalty for these practices in 2022. More on that shortly.
- Tools spread across multiple platforms. In order to take full advantage of everything Schwab offers, you’ll need to download a software program to your computer in addition to using the mobile app and website.
- Information overload. I sympathize with the design team that has to figure out a logical path for navigating Schwab’s site. The downside to Schwab’s meticulous effort to be almost everything to almost everyone makes website simplicity nearly impossible. Just look at the main menu from Schwab.com’s homepage:
Charles Schwab Review: What Makes Its Investment Research So Good?
Schwab’s layered approach to tools, education and platforms is a double-edged sword. It takes some thought — and frankly, some effort — to figure out the subset that’s best for you.
Schwab compounds the issue with names that aren’t always intuitive, so I’ve sussed out the definitions:
- Trade Source: Schwab’s web-based trading platform. It’s designed for buy-and-hold investors. It excludes some of the bells and whistles more active traders might want.
- Schwab Mobile: the company’s mobile trading app. It syncs well with Trade Source. Schwab has done a nice job of creating cohesion between the two.
- StreetSmart Edge: Schwab’s desktop-based trading platform. It’s a downloadable, customizable interface that’s designed for active traders.
- All-In-One Trade Ticket: allows you to enter orders across all of Schwab’s platforms, whether you’re trying to buy a single stock or execute a multi-leg options trade.
- StreetSmart Central: a web-based platform for futures trading.
- Schwab Insights: a content hub that combines real-time market insights and analysis with easily-filtered educational content.
The website, app and desktop software each have a different ecosystem of features. But if you can get oriented, Schwab probably delivers the best research of any brokerage firm.
Schwab’s in-house education and market commentary content includes frequent, timely updates. There are nearly a dozen Schwab webcasts that broadcast live every weekday, and there’s a quarterly magazine.
Customers can read third-party reports from giants like Morningstar, MarketEdge and Credit Suisse. You can find real-time news and earnings reports.
Schwab’s screening tools, used to look for specific types of companies or trades, are thorough and customizable. StreetSmart Edge goes deep, offering tools, charts and features for active traders.
TD Ameritrade runs another popular trading platform called thinkorswim. It will be interesting to see how Schwab integrates that into its current offerings.
Charles Schwab Review: Why Should I Use Schwab for ETFs?
Schwab consistently receives accolades as the best investment company for exchange-traded funds (ETFs), but its website tools are decidedly middle-of-the-road for ETFs. What gives?
Well, in order to unlock Schwab’s ETF powers, you first need to download the StreetSmart Edge software I mentioned earlier. On StreetSmart Edge, you’ll find what’s probably the best ETF screener on the market.
A screener is something that helps you filter a data set. For example, if you had a spreadsheet filled with thousands of birthday dates, the right code could pick out every person born on a Tuesday.
The screener within StreetSmart Edge allows you to filter ETFs through more than 150 criteria including performance and asset class. It’s customizable, so you can combine multiple criteria. It also lets you save and re-use combinations of filters.
Schwab provides users with reports from third-party analysts like Morningstar. You can also search for and compare stocks, ETFs and mutual funds side by side, which I have found to be unique in the industry.
Even non-customers can download and use StreetSmart Edge. And all ETF trades are commission-free through Schwab.
Schwab’s Intelligent Portfolios Premium
Money expert Clark Howard has three primary recommendations for people who are looking for a financial advisor:
- Search for fee-only Certified Financial Planners (CFPs) near you via the Garrett Planning Network.
- Use Vanguard’s Personal Advisor Services (PAS).
- Use Schwab’s Intelligent Portfolios Premium.
However, this service probably doesn’t make sense unless you invest significantly more than $25,000.
You’ll pay a one-time initial fee of $300. After discussing your financial goals, a CFP will create a roadmap for you that takes into account your income, expenses, investment portfolio, retirement plans and more.
After that, you’ll pay $30 per month for continuous access to a CFP (not necessarily the same one), your digital financial roadmap and online planning tools.
Here’s a look at the annual fees you’ll pay in the first year (including the one-time $300 charge) and second year based on your investment amount:
You’ll unlock tax-loss harvesting if you invest at least $50,000. The more you invest, the smaller the annual fee you’re paying, though the $30 per month charge stays the same.
Members of the financial media often refer to 1% as a benchmark annual fee for financial advisors. In truth, the fees financial advisors charge vary widely. For reference, Vanguard’s PAS charges an annual fee of 0.30% with no additional upfront cost.
Schwab’s Intelligent Portfolios Premium can be an inexpensive way to get full access to a CFP. But because of the pricing structure, the amount you invest can drastically change your annual costs for the better.
Personally, I find Schwab’s price structure to be deceptive to clients, intentionally or not. It’s a way to obscure the fact that Schwab is severely overcharging you if you have a relatively small amount of money invested with them through this program.
Schwab Fined Nearly $200 Million for Cash Allocation Scandal
Unfortunately, Schwab’s obscured high fees for clients invested in Intelligent Portfolios Premium isn’t the only way that the company has lined its bank account in a not-so-obvious way that hurts customers.
Schwab’s robo-advisor, Intelligent Portfolios, put a noticeably outsized percentage of clients’ portfolios in cash. Then the company pocketed more than 1% of the interest it earned for itself.
Clark preaches all the time about making sure all your financial advice comes from a fiduciary. That means someone with a legal obligation to look out for your best interests even if they put it ahead of your own. In this case, Schwab hides its profits in a way that’s going to give you worse returns so that it can roll out shiny, attractive pricing on the front end.
The Securities and Exchange Commission smacked Schwab with a $187 million fine “for not disclosing that they were allocating client funds in a manner that their own internal analyses showed would be less profitable for their clients under most market conditions.”
The SEC went on to say that Schwab “claimed that the amount of cash in its robo-adviser portolios was decided by sophisticated economic algorithms meant to optimize its clients’ returns when in reality it was decided by how much money the company wanted to make.”
Schwab’s new fine print, which I doubt the average investor will read, spells out that Schwab makes money this way. Part of the fine print reads: “Generally, an increase in market interest rates will mean that the Programs earn more revenue for Schwab Bank because the spread will increase.” In other words, the higher the interest rate, the more of your interest that Schwab will conveniently slip into its own pocket.
By the way, Schwab admits that it earned 1.18% on your cash in Q4 of 2021 when interest rates at banks were almost non-existent. Now that many of the best high-interest savings accounts are paying 4% or more, who knows how much more that Schwab is collecting?
It also increased its cash allocations within its robo portfolios from 6 to 22.5% to 6 to 30% in the midst of this scandal. So it is already starting to earn back the money it lost by paying the nearly $200 million fine.
Frequently Asked Questions About Charles Schwab
Does Schwab Offer a Robo-Advisor?
Yes. Schwab’s entry-level robo-advisor is called Schwab Intelligent Portfolios. It requires a minimum investment of $5,000 and doesn’t charge an account management fee.
However, the cash allocation of Schwab’s portfolios tends to be on the high side — typically between 8 and 10% depending on your risk tolerance and other factors. It also skews toward bonds.
According to Backend Benchmarking’s detailed report on robo-advisors in the fourth quarter of 2022, Schwab produced a three-year annualized return of 2.30%, nearly the worst among the robo-advisors the company measured. Schwab also ranked last in that measure for the previous four years.
Intelligent Portfolios also doesn’t offer tax-loss harvesting unless you invest at least $50,000.
As such, Intelligent Portfolios did not make my list of the best robo-advisors.
What Are Schwab’s Financial Advisor Options?
I’ve already talked about Schwab’s robo-advisor as well as Intelligent Portfolios Premium.
However, Schwab has some other options if you’re looking to work with a financial advisor.
If you have at least $1 million to invest, you can access Private Client. The annual fee starts at 0.80% and decreases if you meet certain investment thresholds.
Private Client gives you a team of people to work with. They’ll offer advice on insurance, taxes, retirement planning, investment management and more.
If you have at least $500,000 to invest, you can seek advice through the Schwab Advisor Network. These are local CFPs who are affiliated with and vetted by Schwab.
Schwab also offers Managed Portfolios ($25,000 minimum for a portfolio of mutual funds or ETFs) and Managed Account Select ($100,000 minimum for a portfolio of stocks or bonds) if you’re just looking for professional investment guidance.
Schwab’s ThomasPartners Strategies offers investment plans especially built for retirement years.
Can I Use Schwab As My Bank?
You can also get a variety of banking products and features through your Schwab brokerage account including:
- 0.48% interest on uninvested cash
- Free checking
- Debit card
- Online bill pay
- ATM access including unlimited rebates for out-of-network ATMs
- No foreign transaction fees on debit card purchases
- FDIC insurance up to $500,000
Does Schwab Offer Fractional Shares?
Yes, Charles Schwab offers fractional shares through a program called “Stock Slices.”
Fractional shares allow you to invest in a company based on a dollar amount rather than by buying a specific number of shares.
The price of one Amazon share is more than $2,000 as of May 2022. Previously, if your portfolio was small and you wanted to diversify, you may not have been able to justify buying a share of Amazon. Fractional shares have unlocked that capability.
Schwab’s “Stock Slices” are more limited than the fractional shares offered by some companies. Schwab allows you to invest in up to 10 companies at once with “slices” that cost as little as $5 each. But the companies must be part of the S&P 500.
Out of the three discount brokers that Clark considers his favorite children, Schwab is my least favorite personally.
There’s been a fierce debate in recent years about how big investment companies like Robinhood make money (via Payment for Order Flow, which gives investors a slightly worse price when they buy … we’re talking fractions).
Fidelity argues they don’t profit on PFOF, which Schwab has protested publicly, calling it a matter of semantics.
But one only has to look at Schwab’s robo-advisor product compared to Clark’s two other favorites to understand why I think Schwab’s profit method is more underhanded.
Vanguard: 0.3% fee, 0.07% expense ratio.
Fidelity: 0.5% fee, 0% expense ratio.
Schwab: 0.17% expense ratio; if you invest the minimum $25,000, you’re at 2.28% in annual fees the first year and 1.44% after.
Consider also that Vanguard and Fidelity beat Schwab on performance by a significant margin because so much of Schwab’s portfolios sit in cash.
To be fair, legacy companies can get fat and happy. Not Schwab. Despite being around for 50 years, Schwab is still fighting to serve its customers and outpace its competitors (new and old).
Schwab made major news when it eliminated commissions on trades and acquired TD Ameritrade. It will be interesting to watch how Schwab continues to merge its products and services with TD Ameritrade.
Its research and tools, as well as an abundance of A-to-Z products, do make it one of the two most substantial all-around investment companies because it serves almost anyone.
- May 10, 2023: Added the section on the $187 million fine the SEC levied against Schwab in 2022 along with context for the backhanded way Schwab treated customers. Updated “Final Thoughts” accordingly.