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USAA vs Charles Schwab


2019 Charles Schwab versus USAA Investments - which brokerage is better? Compare IRA/Roth accounts, online investing fees, stock broker mutual fund rates, and differences.





Introduction


Which brokerage deserves your money? Does USAA’s reputation for outstanding insurance product offerings extend to its investing services? Did the changes Schwab made in recent years hurt its model or is it now so good that it beats out other mega brokers, like USAA?


Investing Fees and Pricing


USAA

The fee schedule for USAA is $0 to trade stocks, ETFs, and options online. Clients pay $50.00 for phone assisted trades, $28.00 to trade corporate bonds, and $45.00 to trade government bonds.

The transaction fees USAA offers are reasonable, but are far from industry leading. Competing brokers at Schwab and Vanguard both offer better deals on simple online trades. The fee charged by USAA to trade government bonds is excessive. Retail investors can buy the bonds directly from the Treasury Department free of charge and when dealing with low yield bonds and many competing brokers will allow clients to avoid the fee as well.

USAA loses the battle of fees not only because several of its fee categories are higher than Schwab’s, but also because USAA does not offer no-fee ETF trading. ETFs are growing in popularity with retail investors because they permit investors to gain the advantage of index and mutual funds without meeting fund minimums and because they allow investors to trade funds during the trading day. A mutual fund may have a $10,000 minimum investment requirement, but ETFs can be bought or sold for the price of a single share. Investors looking to trade ETFs should not consider USAA as their primary broker.

USAA does offer a competitive product for investors looking to invest heavily in mutual and index funds. Members are able to select from a range of four and five star Morningstar rated funds and trade them without any additional fees. USAA’s fund portfolio is competitive with higher fee services, like Edward Jones and Chase Private Client. Most of their mutual funds are actively managed and charge a net expense ratio of .5% or more. Most of the USAA funds require a minimum deposit of $500 or $1,000. This minimum investment is far lower than the industry standard of $3,000 and is attractive for new investors who are just starting out.





USAA’s relationship with fidelity affords investors a major advantage in that they can now trade Fidelity no-fee funds free of charge. This relationship turns USAA’s platform from a dated, bare bones platform into a competitive portal to some of the best regarded low fee funds and actively managed products available. This makes USAA an option to consider for those looking to invest exclusively in mutual and index funds, but retail investors could get the same fund access and fee treatment by directly opening an account with Fidelity.


Charles Schwab

Schwab’s fees are notoriously low and are designed to attract investors who are flocking in folds to Vanguard. All clients, regardless of account balance or trade activity, pay $0 to place online trades of stocks, preferred stocks, options, and ETFs. Phone assisted trades are $9.95 and Schwab clients using their retail locations to place trades pay just $29.95 per trade. Customers trading Schwab’s own mutual funds or ETFs pay no charge to trade online and pay just $25.00 to trade with the support of a retail location. These fees are extremely low by industry standard and are lower than Vanguard, Fidelity, and E*Trade for most clients.

ETF investors will smile when dealing with Schwab, since it offers investors access to more than 200 commission free ETFs. ETFs from J.P. Morgan, PowerShares, SPDR, and Schwab can all be traded without fees and this range of choice makes Schwab an exceptional option for those looking to make everything from a complex portfolio to a simple three fund portfolio. Schwab’s house branded ETFs are outrageously inexpensive and sport net expense ratios that range between 0.03% and 0.06%. This is well below industry average and makes Schwab competitive with closed investment options, like the Thrift Savings Plan.

The simplicity of Schwab’s fee structure, extraordinarily low fees charged on investments, and enormous depth of ETF offerings make Schwab a clear cut winner.


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Advisory Services


Are you looking for support as you make your way through the maze of investment options? If so, you aren’t alone. Financial advising is an enormous industry precisely because the range of options can be intimidating and the tax consequences of making a mistake can be substantial. Both Schwab and USAA offer investors varying levels of support and investment advice, but is there a clear cut winner?


USAA

USAA members can pursue online investment education through an article database that is accessible through the investment portal. There, members find articles from USAA, Morningstar, and other financial analysis services. Content posted there addresses retirement, tax planning, and other personal finance issues. The downside to this education center is that the content is rarely updated, is not easy to search, and does not lend itself well to casual browsing. It is okay for people who know exactly what they want, but does a poor job providing general investor education.

USAA does offer traditional financial advisory services for a fee. The service charge ranges between 0.9% and 1.10% of your account balance and is charged in addition to fund prices. Advisors will consider your tax position, goals, and risk tolerance when crafting a portfolio for your investments. They will also rebalance accounts on your behalf. Most retail investors are losing the ability to stomach advisory fees of 0.9% to 1.10% and while that is an industry standard fee, when coupled with USAA’s house fund mutual fund fees, it will consume a major portion of a typical investor’s returns. To be competitive in the investing world, USAA needs to modernize their advisory services and streamline fees. This is especially true when dealing with low complexity investors who do not have unique tax situations or estate planning concerns.


Charles Schwab

Schwab is slaughtering the competition by lowering fees and increasing the level of service it provides to customers. The financial service firm well known for its high performing, actively managed funds and local operations recently launched a new wave of revolutionary financial technology that is bringing the advisory services and strategies once reserved for high net worth clients to the masses. Schwab now provides support for every investor, from those seeking zero advice or oversight to retirees looking for the assurance of a regular face-to-face meeting with a trusted advisor.

Schwab’s advisory service is a tiered offering. At the top end of the advisory service is Schwab Private Client. This service is reserved for high net worth individuals with at least $500,000 of Schwab invested assets. The service is offered at any of their brick-and-mortar locations and pairs Certified Financial Planners (CFPs) and other investment professionals with investors. Clients’ entire financial situation is analyzed and optimized for risk mitigation, returns, and tax efficiency. In exchange for a substantial amount of support, clients pay fees starting at 0.75% plus fund fees.

This fee is low by industry standards. USAA, Raymond James, Chase Private Client, and other competing advisory services almost always charge fees that exceed 1.0% plus fund fees for this level of support. Investors needing a high level of care should consider Schwab’s private client services if they demand in-person support. If distance support is acceptable, they should seriously consider making use of Vanguard’s competing advisory service, which charges a fraction of the fee while delivering a similar standard of care.

The recent breakthroughs in FINTECH are making financial advising cheaper and more readily available than ever before. Investors are able to have computer created and rebalanced portfolios that pair their desired risk to their desired performance for a fraction of the fee charged by human advisors. These robo-advisory services are popping up because more investors are recognizing that they do not benefit from the services or fees charged by traditional advisors. To win the battle against fees, Schwab is offering computer supported portfolio and investment management to its retail clients.

Schwab’s Intelligent Advisor financial planning tool helps people plan for major upcoming financial milestones. Users input their financial goals, desired timelines, and account data into the Schwab portal. The platform analyzes the fund allocation, forwards the data to a CFP, and arranges for a web conference between the investor and the CFP. An action plan will be briefed by the CFP during the meeting and the Intelligent Advisor service will continue to monitor accounts, make recommendations, and rebalance Schwab assets. The fee for this service is just 0.28% of non-cash Schwab account balance.




Intelligent Advisor services is a smoking hot deal for investors who want to make wise financial decisions, need the support of a financial expert, and do not want to see their returns sent to a high fee broker. The fee for this service is exceptionally low and because it is a percent of asset fee, is a phenomenal deal for low net worth investors who are just starting to plan for retirement. The service is such a good deal that retail investors may want to consider opening a Schwab account just to gain access to this service even if they intend on primarily trading through other platforms.

Customers uninterested in financial planning advice should consider using Schwab’s Intelligent Portfolio service. The service is free of charge. No fees, commissions, or service fees past Schwab ETF fees are connected to the service and customers only need to maintain a $5,000 minimum balance to take advantage of the service. Intelligent Portfolios is Schwab’s answer to Betterment and Wealthfront. It is a completely computer driven advisor that invests money based on a client’s timeline, financial goals, and risk tolerance. While Betterment and Wealthfront charge fees starting at 0.15% and 0.25% respectively, the fact that this service is entirely free is highly attractive.

Like Betterment and M1 Finance, Intelligent Portfolio offers the advantage of tax loss harvesting. This process uses the tax code to boost investor returns by creating paper losses within investment accounts. Investors do not need to do anything to take advantage of this service besides enable tax loss harvesting one time in the Schwab portal. Investors considering enabling tax loss harvesting should ensure that their Schwab taxable brokerage is their only taxable account to avoid conflicts and tax complications.

Schwab is a mission built platform. It was created to serve the needs of investors and it does exactly that. While USAA’s insurance offerings are hard to beat and while the addition of Fidelity products to the USAA family make it good for the typical investor, Schwab’s use of roboadvisory services and ultra-low fee offerings make it the hands down winner.


New Account Promotions


Charles Schwab: Make $100,000 deposit and get 500 commission-free online equity and options trades.

USAA: none right now.



Charles Schwab vs USAA: Which is Better?


While the two platforms offer investors different advantages, Schwab is the clear cut winner. The advisory services alone contribute enormous value to clients and will help young investors grow into wealthy, sophisticated investors. Most of the positive things that could be said about USAA could also be said about Fidelity, since the competitive USAA offerings are all Fidelity funds. Unless an investor wanted to keep everything under the USAA brand to simplify their financial world, they would likely do better by considering Schwab or Fidelity directly.