Is Charles Schwab a Scam?
Are you considering opening a financial account with Charles Schwab? If so, you may have some concerns about the safety of this company. Be sure to look over our research before opening an account.
Is Charles Schwab Safe?
There are several regulatory bodies that oversee Schwab to make sure it follows all rules and regulations. First up is the SEC. The SEC is the U.S. government’s enforcer of securities regulations. It has the ability to issue fines and file civil charges against broker-dealers for violations of America’s securities laws, which the SEC strictly enforces. Schwab’s SEC # is 801-29938. It has been registered with the SEC since 1971, so it is pretty old by industry standards.
Besides SEC oversight, Schwab is also a member of the Financial Industry Regulatory Authority (FINRA). This body crafts rules that member firms must follow. Brokerage firms aren’t required to join FINRA, although Schwab is a member. Its FINRA # is 5393 for self-directed broking.
Schwab also has an investment-advisory business. It is a separate company. As such, it has its own FINRA number. It is 151739.
On Schwab’s BrokerCheck profile, there are 289 disclosures. These are allegations by customers against it for a variety of issues. Typically, Schwab does not deny or admit to the allegations. Most of these were settled in arbitration.
FINRA and the SEC regulate securities trading. Schwab also has a futures business, and this side of the company will be regulated by the National Futures Association (NFA). Schwab’s NFA # is 0477394.
Charles Schwab BBB Review
The Charles Schwab Corporation, which includes banking, securities, and futures operations, has a profile at the Better Business Bureau. However, the company is not BBB accredited. A business is under no obligation to pursue BBB accreditation, and many do not.
There have been 93 complaints closed by BBB against Schwab during the past 12 months. Examples of complaints include unresponsive customer service and Schwab locking accounts. For details, follow this link.
Despite this small number of complaints, Schwab has a grade of A+ on BBB’s site. This is the highest possible score.
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Bank accounts and securities accounts at Schwab are insured. Bank accounts are insured by the Federal Deposit Insurance Corporation (FDIC) up to $500,000 per customer. Schwab Bank’s FDIC # is 57450.
Securities accounts have insurance through SIPC. The Securities Investor Protection Corporation has been defending brokerage accounts since 1970. SIPC is funded by member brokerage firms rather than the government, as is the case with FDIC insurance.
SIPC guarantees the number of shares in a trading account, not share prices, up to $500,000 per customer. Half this amount can be applied to uninvested cash. Because some Schwab customers may have more than these amounts, the brokerage firm has supplemental insurance through Lloyd’s of London.
This auxiliary policy is good for up to $150 million per account (including a cash limit of $1.15 million) with a brokerage house limit of $600 million.
Futures accounts have no insurance. As such, they carry a higher level of risk.
Is Charles Schwab Safe Judgment
Charles Schwab isn’t a scam. It is completely legit. It is as trustworthy as a brokerage firm can be. As with all forms of investing, there are always risks. The biggest is the loss of principal due to a decline in market value. If you’re willing to take on this risk with a Charles Schwab account, read on for our review of the company’s services.
Charles Schwab Review
Schwab is a full-service brokerage house that delivers tons of resources to help investors manage their financial lives better. Here’s how we grade the company’s services:
Schwab Investments Choices Review
Investors at Schwab have account choices in two basic areas: portfolio management and self-directed trading. Under either selection, there are a wide variety of account types. These include small business accounts, trusts, estate accounts, custodial accounts, retirement accounts, and charitable accounts.
Customers who choose the self-directed route get the largest selection of tradable assets. They are:
- Equities (including both over-the-counter and foreign stocks)
- Fixed-income securities
- Futures (and options on futures)
- Funds (mutual, closed-end, and exchange-traded)
Missing are forex and cryptocurrencies.
Managed accounts at Schwab have a smaller selection of financial vehicles but they come with professional investment advisors. The cheapest option is a robo advisor that is actually free (thanks to a large cash position). A human advisor can be added to the picture for $30 per month plus a one-time fee of $300.
Traditional wealth management packages are also available. The annual percent-based fee varies from 0.30% to 0.80%, depending on account value.
Schwab securities clients can reach a company associate over the phone 24 hours a day, 7 days a week. The futures department is open around the clock, but only 5 days per week. The banking unit has more limited hours. Schwab has some associates who speak Spanish and Chinese.
Schwab’s website has a human chat service that is up and running all hours of the day and night. There is also a document upload tool.
In addition to the features already mentioned, the Schwab site has a lot of self-help features on it (look under the Service tab). And we really like the company’s large network of brick-and-mortar locations (for securities accounts only). There are a few hundred locations in the U.S. and a handful in other countries.
Schwab has a really nice website where futures accounts, bank accounts, and securities accounts can all be accessed with a single login. Self-directed traders will like the trade bar that sits permanently at the bottom of the screen. It can display a medium-sized pop-up chart with volume at the bottom. Clicking on the trade link generates a web page with a trade ticket. Orders can’t be submitted directly from the trade bar, which is one weakness.
The order ticket has 4 available actions (buy, sell, sell short, and buy to cover). There are just 5 order types (market, limit, stop, stop limit, and trailing). At the top of the ticket, there is a Strategy drop-down menu that can be used to switch between stock and options trading. There are many spreads already installed. Examples include:
- Iron butterfly
- Vertical put
- Rollout spread
Charts on the Schwab website have tools, but there’s no full-screen mode. This problem is solved with StreetSmart Central, a browser platform. Launched from the Trading Hub link located in the upper-right corner, this piece of software does have full-screen charting. It also has an All-In-One trade ticket that can place orders for futures. Unlike the regular website order form, this one has some really advanced order types, like OTO (one triggers other) and contingent on time.
Charles Schwab App Review
Traders at Schwab can use one of two mobile apps. The first is StreetSmart Mobile, which, as the name implies, is modeled after the browser platform. During our test drive of the software, we found it to have some display problems. It is intended for futures trading.
The best trading experience will be found on the regular app, although it doesn’t have the ability to trade futures. It does have discrete tickets for options and mutual funds. Other highlights include:
- Artificial Intelligence
- Mobile check deposit
- Bill pay
- Media center with podcasts and CNBC
- Horizontal charting with tools
The one weakness on Schwab’s regular app is the lack of alerts.
StreetSmart Edge is Schwab’s desktop software. Edge has some additional tools that Central doesn’t have. These resources include Level II quotes, profit-loss diagrams, and direct-access routing. Other highlights include:
- Account switching
- Technical analysis from Recognia
- Point & figure charting
- Trade ticket with conditional orders
Edge has a demo mode on the login screen, which is a great way to practice the software. There are no minimum account requirements to use this great platform.
Pricing for Self-Directed Accounts
Self-directed traders at Schwab have no regular account fees and no minimum deposit or balance requirement. On top of these very generous features, there are no commissions on U.S.-listed stocks and ETFs. Notice that we said U.S.-listed. The brokerage firm does charge commissions on trades of over-the-counter securities and foreign stocks and ETFs.
OTC stock trades are $6.95 each, generally speaking. If an OTC stock is a foreign stock, the commission is $50. Commissions on stock trades conducted on foreign exchanges vary by exchange. Japanese stocks have a ¥2,000 commission, while German stocks are €19 each.
Then there is the mutual fund commission. It is $49.95 or $74.95 per purchase, depending on the fund. Some funds have no transaction fees at all. There is never any commission on the sell side.
Options are $0.50 per side, per contract. Futures are $2.25 per contract, per side. Bonds have varying transaction costs, depending on the product.
Charles Schwab Margin Review
Cash and margin accounts are both available at Schwab. A retirement account can be margin-enabled, which allows it to day trade.
The Schwab website and regular mobile app both show maintenance margin for an entered ticker symbol. This information is on a security’s profile.
For margin education, Schwab has good learning materials on its site that will be especially helpful to new traders.
What is not so helpful is an expensive margin schedule. Debits below $25,000 cost 13.325% annually. This rate does drop to a low of 11.625%.
During our investigation, we found a lot of educational resources on Schwab’s website and mobile app. On the website, learning materials will be found under the Research, Products, and Learn tabs. Examples we found include:
- Planning calculators
- Thematic Investing
- Working with a consultant
- New Client Welcome Center
- Market commentary
- Tax center
- Schwab Investing Insights, a digital newsletter
The mobile app has the same podcasts from the website plus YouTube playlists and streaming CNBC.
DRIP Availability: Cash dividends from securities can be automatically converted into additional shares. There is no charge for this convenient service.
Cash Management Features: As already mentioned, Schwab has an FDIC-insured bank. It offers both checking and savings accounts. The checking account has a Visa debit card with zero currency exchange fees and unlimited ATM fee refunds.
Extended Hours Trading: Besides the regular day session, Schwab offers morning and evening sessions.
Initial Public Offerings: Schwab clients can get in early on upcoming offerings of stock shares (the IPO hub is under the Trade tab on the website).
Fractional Shares: The 500 equities that make up the S&P index are eligible for fractional-share trading.
Recurring Mutual Fund Purchases: It’s possible to set up periodic purchases of mutual fund shares inside a self-directed account at Schwab.
Individual Retirement Accounts: Schwab offers several IRA types.
ETF and Stock Trading: With advanced software, DRIP, and fractional-share purchases of 500 stocks, Schwab is a decent pick. Fidelity offers fractional shares of thousands of stocks and ETFs.
Retirement Savers and Long-Term Investors: Schwab has target-date funds, annuities, a self-employed Traditional 401k, small business IRAs, education accounts, financial planning, learning materials, and so much more. Easy recommendation.
Beginning Investors: We would suggest Schwab’s robo service to new investors. StreetSmart Edge in demo mode would also be a good experience.
Small Accounts: Schwab’s robo account has a $5,000 deposit requirement. The hybrid robo-human account has a $25,000 minimum, and the company’s wealth management service requires a very steep $1 million. None of these are really ideal for small accounts. Firstrade (review), in contrast, has no minimums to open an account.
Mutual Funds: Schwab has over 6,000 funds, many of which have zero load and zero transaction fee. Its website also has good mutual fund research tools. However, TD Ameritrade (review) has over 11,000 mutual funds with over 4,400 having zero load and zero transaction fee.
Charles Schwab Review Judgement
Schwab is a legitimate investment firm with lots of financial tools. Advanced traders, beginners, and everyone in between will find good resources here.
About the Author
Chad Morris is a financial writer with more than 20 years experience as both an English teacher and an avid trader. When he isn’t writing expert content for Brokerage-Review.com, Chad can usually be found managing his portfolio or building a new home computer.