My Review of Charles Schwab Online Brokerage Account and ETF

Charles Schwab is one of online brokerage site which offers financial service as well as a trading platform to buy online stock for its investors. Schwab also has over 300 local offices. They are able to offer a full range of banking (High Yield Saving, Checking and Credit Card), brokerage, and investment advisory services to their large client base. Other financial services include retirement planning, mutual fund trading, equity trading or stock trading, and financial planning. They are one of the largest financial brokers in the world with > 7.5 million accounts with customer assets in excess of $1.4 trillion.

As one of largest brokerage in the world, Charles Schwab was founded in 1971as First Commander Corporation. The current headquarter is located at San Francisco, CAUSA. Charles Schwab Corporation is a brokerage and banking company listed in NYSE with ticker: SCHW.

It currently uses its own clearing service to hold the client asset. Charles Schwab Clearing Services (CSCS), member of FINRA & SIPC, holds and clears all client trade. All Charles Schwab accounts are insured under SIPC up to $500,000 ($100,000 cash) and supplemental Lloyd’s of London coverage up to $150 million ($1 million cash).

The following is the standard fees / pricing of Schwab:

• Products: Stocks, bonds, mutual funds, options, CDs, insurance, annuities, foreign investments
• Market Orders: $8.95/trade
• Limit Orders: $8.95/trade
• Auto Phone Orders: $13.95 per trade
• Broker-Assisted Orders: $33.95 per trade
• Schwab’s ETF Market/Limit Orders: $0.00 per trade
• Mutual Funds: $49.95 & $0.00 for NTF funds
• Options: $8.95/trade+$0.75/contract
• Minimum to Open: $1000 for US-based accounts, $25000 or $10000 for foreign accounts
• Inactivity Fee: $0.00
• Some Other Fees: Wire Transfer Outgoing: $25.00 per transfer. ACAT Out: $50.00.
• Maximum Margin Rate: Based on proprietary base rate

Opening account is straight forward; you just need to fill the online application through Charles Schwab website. You can open individual, joint, custodial, and Individual Retirement Accounts (IRA) such as Traditional IRA & roth IRA. They may require you to submit some identification as well. The application only takes about 10-15 minute. Once you are done, you’ll need to wait for their approval. Then, you can setup how you want to fund your account.

There are 4 different ways to fund your Schwab account:

1. Wire Transfer – usually can be done same business day
2. Transfer an account from other brokers .This will take more than 10 business days
3. Mailing a check will take 5 business days
4. Electronic Transfer (ACH transfer) will take up to 3 business days.

For International or Foreign investor or non US resident, you can apply Schwab account through website. It will direct you to your regional international website. Typically, you will need to submit your account by mail. You will need to submit W-8Ben and ID or Passport along with your application. The minimum balance to open an account is $25,000.

The following order types can be placed on Schwab:

• Market
• Limit
• Stop Loss
• Stop Limit

For stock or ETF order, the standard commission is $8.95 per trade with no limit of shares amount. As noted, for broker-assisted trades, the commission is $33.95 per order. When trading during pre and post market hours, there is no additional fees such as ECN fees. Charles Schwab applies a simplified flat-fee based commissions structure. There is no catches or fine print notes for trading using Schwab. There are no limits on total trade size or price. If you are trading more than 10,000 shares or $500,000, you may be eligible for special handling and pricing.

You also can trade 11 Schwab ETFs for free. Details will be discussed below.

Stock trading (i.e. buy stock online) can be done through web based platform as well as software platform, StreetSmart Pro. StreetSmart Pro is available to active trading customers.

For option, the customer can use their option platform thru web. The cost of 1 contract will cost $9.70 commission fee ($8.95 ticket fee + $0.75 per contract), while 10 contracts will cost $16.45 commission fee.

For mutual funds, there are about 1,900+ no load no transaction fee mutual funds with no commission fee for buy or sell through OneSource Funds. There are 3,000+ mutual funds for selection with $49.95 per trade of mutual funds.

With many brokerages offering free Exchange Traded Fund (ETF) for trading, Schwab also offer 11 Schwab ETFs for trading. These ETF do have one of the lowest expense ratio, however the asset size is still small. The small asset also means the transaction volume is low; this will affect the bid-ask spread during buy and sell order of market hours. If you are holding for long term, I don’t see this as an issue since long term the low expense will help, though trading it for short term is not recommended in my opinion.

Eleven (11) of these ETFs do provide significant diversification. The ETFs selection consists of bond etf and stock ETF.

• Offer flat fee commission for trading
• Charles Schwab provides local branch offices. This offers face to face interaction
• Customer can choose various offering of investments
• Customer can get access to a variety of 3rd party research.
• Free trade on 11 Schwab ETFs such as Bond ETF, Domestic Stock ETF and International Stock ETF. These ETFs also has a low expense ratio.
• Also provide checking account & 2% cashback credit card
• Provide mobile support system for blackberry, iphone and other smartphones.
• Also offer global investing in over 35 countries including developed, emerging and frontier markets

• Lack of quality trade tools
• Overall trade platform disappoints & website is outdated
• No Forex & Future trading
• Option engine is outdated
• Trade commission is higher compare to other discount brokerages such as scottrade, lightspeed, zecco

Other Customer Complaint from research:

1. Issue with account opening due to lack of information
2. Issue with checking account due to customer error.

I would recommend using Schwab for trading stock & 11 free Schwab ETFs, research purpose and financial services. The option trading fee is still higher than other discount brokerage. The Schwab offers various platforms such as a standard web based platform, an enhanced web based platform named StreetSmart.com, a desktop software application named StreetSmart Pro and a mobile application. The mobile app has support for iPhone, BlackBerry and most other modern smartphone handsets.

Schwab offers good research tools, quality charts option, and reasonable commissions & pricing fees. The registration process is slightly longer and the margin rates is slightly excessive as well for customer. The stock trading experience is not one of the best, making Schwab a decent but not top tier discount broker. The option trading engine is very basic and option commission is more expensive than other brokerages. Schwab offers an excellent Dividend Reinvestment Plan (DRIP). Those who upgrade to the StreetSmart active trader platform receive an improved trading engine and charts. Schwab offers commission free ETF trading on Schwab branded funds.