TD Ameritrade 300

Is Charles Schwab Safe and Legitimate Brokerage Firm/Bank? Is Charles Schwab a Scam? Schwab BBB Rating 2021



Is Schwab Safe?


Have you thought about submitting an application for an investment account at Schwab? If so, you may have questions about this company’s strength and reliability. We’ve conducted all the leg work for you, and here are the answers:


History of Charles Schwab


Chuck Schwab began publishing an investment-advisory newsletter in 1963. In 1971, he founded his first brokerage firm, First Commander Corporation. This name was changed to Charles Schwab in 1973; and in 1975 it started a revolution by offering discounted commissions. This would not be the first price war in America’s brokerage industry.

In 1981, the new corporation opened a location in Manhattan and became a member of the New York Stock Exchange. A year later, Schwab became the first broker in the United States to offer order entry 24 hours a day, 7 days a week. At the same time, it started offering Individual Retirement Accounts.

In 1987, The Charles Schwab Corporation launched a stock offering in an IPO. In 1995, the company rolled out a website. Two years later, Schwab’s stock became part of the S&P 500. It remains part of the index to this day.

Finally, in 2019, the broker-dealer reduced equity and option commissions to $0, creating another shakeup in the brokerage industry. There’s undoubtedly more to come from this giant.


Schwab’s Size


Schwab has about $4.1 trillion (yes, we said trillion with the letter ‘t’) in client assets. This number includes all brokerage accounts types. They are managed, self-directed, taxable, retirement, etc. The $4.1 trillion figure does not include assets of Schwab Bank, whose cash deposits total about $270 billion—not a bad number itself.

The brokerage arm of the company has about 14 million accounts, which produces an average account balance of around $308,000.

To manage this rather large financial powerhouse, Schwab employs about 19,000 workers and manages over 300 branch locations.

While Schwab’s numbers do appear quite impressive, it actually is smaller than some of its competitors, including Vanguard and Fidelity. Schwab is larger than E*Trade.


Is Charles Schwab Legitimate?


There are two very important organizations that help deter bad behavior in U.S. securities markets. These are FINRA and the SEC. Schwab has membership in both of them, and that’s good news for Schwab customers.

Schwab’s FINRA number is 5393. This can be verified at BrokerCheck. FINRA’s profile reveals that Schwab first registered in 1971. In total, there are 281 disclosures on the broker’s profile. While this may sound like a lot, it’s quite common for brokerage firms to have some regulatory events. And remember that Schwab has been registered since 1971.

Some of the allegations against Schwab include failure to file suspicious activity reports as required by federal law, not adequately informing clients of the risks involved in investing in particular assets, and not following fund investment philosophies. Schwab did not admit to or deny any misdeeds; although it did pay fines to settle these and other cases.

While these allegations are certainly unsettling, they don’t necessarily mean that Schwab is unsafe. They do mean the broker is capable of deviating from standard protocol.

Schwab’s SEC membership number is 801-29938. Because the brokerage house is registered with the SEC, it is automatically registered in all U.S. states. Schwab is also a member of the Nasdaq and the CBOE.


Is Charles Schwab safe?


Is Charles Schwab SIPC/FDIC Insured?


Besides the regulatory bodies, there is also brokerage insurance for U.S.-based investment firms. Known as the Securities Investor Protection Corporation, SIPC provides half a million dollars of insurance for each customer (not each account) at member firms. Schwab is a member of SIPC.

SIPC is not the FDIC. SIPC only guarantees the number of shares sitting in an account, up to the maximum limit. It does not guarantee what the market price of the security will be.

For example, if you had 200 shares of AT&T sitting in your account, and the price went to $0, SIPC would be of no value. This is true of all American securities firms, not just Schwab.


Other Forms of Protection at Schwab


On top of SIPC protection, Schwab also offers a back-up policy from Lloyd’s of London. Known as “excess SIPC” coverage in the industry, the policy has a brokerage house limit of $600 million with a $150 million per-customer cap. This policy would only come into effect when SIPC coverage had been used up.

Schwab runs its own bank, and this section of the company comes with FDIC insurance. The company does not partner with multiple banks, which means the limit is just a quarter of a million dollars. Free cash balances in a brokerage account can qualify for FDIC protection instead of SIPC insurance.


Charles Schwab’s Better Business Bureau Rating


At www.bbb.org, we found a profile for The Charles Schwab Corporation. The brokerage firm has a rating of A-. This is only slightly lower than the highest rating of A+. The analyst justifies its less-than-perfect rating by citing past government actions against the firm.

There are 15 customer reviews at BBB for Schwab (recall that there are millions of Schwab clients) with an average rating of just 1 star. These reviews are probably from unhappy customers, so the average rating isn’t necessarily a red flag. Some of the complaints in these reviews cite bad trade execution, closing accounts without notification, and poor customer service. For details, follow this link.


Charles Schwab Safe


Recommended Articles


Charles Schwab Competitors
Charles Schwab Complaints
TD Ameritrade vs Charles Schwab



Recap - Is Charles Schwab a Scam?


Schwab is as safe as any other brokerage firm in the United States. No broker should be considered completely safe because the futures and securities markets have risks that banks don’t have. That said, it’s good that Schwab operates its own bank so that cash balances have the backing of the U.S. government.

The fact that Schwab has been in business for several decades is a big plus in our mind. Many brokerage firms today have a shorter history.