Global Courant
Karl Schwab Corp. is the largest publicly traded brokerage firm in the United States with $7.5 trillion in client assets, and is a leading financial advisor services provider, one of the top asset managers of publicly traded funds, and one of the largest banks.
“It would be fair to characterize Charles Schwab as a supermarket for financial services,” Michael Wong, director of North American equity research and financial services at Morningstar, told CNBC. “Anything you want can be found on Charles Schwab’s platform.”
Over the decades, Charles Schwab has helped usher in a revolution in low-cost investing, all while surviving market crashes and fierce competition – even as the game moved one step further to zero commissions in 2019.
“Inherently this is a scale business. The bigger you are, the more efficient you are from a cost standpoint,” Alex Fitch, portfolio manager of the Oakmark Select Fund and the Oakmark Equity and Income Fund, which invests in Charles Schwab, told CNBC. “It allows you to lower prices.”
Several facets of Charles Schwab’s business compete with many longtime full-service brokers and investment bankers, including Fidelity, Edward Jones, Interactive Brokers, Stifel, JPMorgan, Morgan Stanley, and UBS. And it has to compete in the financial technology market against companies like Robinhood, Ally Financial and SoFi.
The melee reached a turning point in 2019 when Charles Schwab announced it was cutting commissions for stock, ETF, and options trading to zero, matching the fees Robinhood offered when it launched in 2014.
Soon other companies followed suit and cut fees, hurting TD Ameritrade’s business so much that Charles Schwab eventually took over in a $26 billion deal less than two months later.
Charles Schwab was one of the companies that benefited from the growth in retail investment during the coronavirus pandemic, and is now facing the fallout from the Federal Reserve’s aggressive rate hikes.
That’s because of Charles Schwab’s massive banking operations that generate income from sweep accounts, where the company uses money left over in investors’ portfolios and reinvests it in securities, such as government bonds, to make a profit.
Charles Schwab told CNBC that he could not participate in this documentary.
Watch the video above to learn more about how Charles Schwab battled the ever-evolving financial services market – from fees to fintech – and how the reward does not come without risk.
