Schwab Headwinds?

[OldShooter]

Actually up until about 5 or 6 years ago they did have a default MM account where they would sweep funds. But they wanted to feature the bank, so 'sweeping' was moved to the bank. ...

Actually, IIRC they made that change not long after the time that they launched the zero-commission war. Instead of several percent payout with the MM they substituted a several basis point payout from the bank. They made a big hoo-rah about the FDIC insurance but IMO that was simply a smoke screen.

Basically the sweep is a tax on clients who aren't paying attention. My Schwab guy was quick to point me to SWVXX when I called to complain. Trading in and out of SWVXX is a minor annoyance but since I am not a trader it's only a few times a year.

 

[Car-Guy]

Actually, IIRC they made that change not long after the time that they launched the zero-commission war. Instead of several percent payout with the MM they substituted a several basis point payout from the bank. They made a big hoo-rah about the FDIC insurance but IMO that was simply a smoke screen.

Basically the sweep is a tax on clients who aren't paying attention. My Schwab guy was quick to point me to SWVXX when I called to complain. Trading in and out of SWVXX is a minor annoyance but since I am not a trader it's only a few times a year.

That's the way I remember it too.


And yes, SWVXX is great, IMO... A couple of clicks and money is moved in or out overnight. Pretty simple/quick.

 

[Texas Proud]

I would really really like them to sweep the money into SWVXX.... there is nothing preventing them from doing so except for loss of income...


But I agree that it is a small inconvenience to move money... but for me going forward it is at least once a month... I bought so many income producing securities that I have money coming in every month...

 

[tulak]

I’d find moving money would be a hassle. This is one of the reasons I like Fidelity. I use a brokerage account for all my checking and it’s a nice benefit to know that the balance is always invested in a high yielding sweep money market fund.

 

[OldShooter]

I would really really like them to sweep the money into SWVXX.... there is nothing preventing them from doing so except for loss of income. ..

Yes. That. They have made a business decision to use this approach to replace some of the income they gave up in trading fees. Actually, it is such a painless tax on investors who aren't paying attention anyway, I expected that Fido and VG would do the same thing. Schwab is a business; they need income to survive and if anyone should understand this it is investors.

 

[tulak]

Yes. That. They have made a business decision to use this approach to replace some of the income they gave up in trading fees. Actually, it is such a painless tax on investors who aren't paying attention anyway, I expected that Fido and VG would do the same thing. Schwab is a business; they need income to survive and if anyone should understand this it is investors.

It’s silly to think that Fidelity and Vanguard aren’t aware of the customer benefit of automatically sweeping funds to a high yielding mm account. If they changed it, customer’s would complain and quite possibly leave for a competitor.

And it’s not a question of paying attention. I have many debits/credits a week in my brokerage account. I doubt I’m that unique.

Finding a sustainable business model is a challenge. It’ll be interesting to see how it plays out.

 

[target2019]

Well, the record is now straight. Schwab did at one time sweep brokerage cash to a money fund.

At the time Schwab made this change we had little sitting in cash at the brokerage. And money funds were not paying much more than bank deposits, so it did not matter to us.

But, of course this does matter if you have a significant amount of income accumulating there.

It would be great to have a better sweep arrangement, but I don't expect this will happen soon at Schwab.

 

[pb4uski]

I would really really like them to sweep the money into SWVXX.... there is nothing preventing them from doing so except for loss of income...


But I agree that it is a small inconvenience to move money... but for me going forward it is at least once a month... I bought so many income producing securities that I have money coming in every month...

+1. Having to move money in and out of SWVXX is a pita and unnecessary, but OldShooter is right, it is a tax on customers not paying attention.

 

[Milkman]

Being a customer of TD for 26 years, I was aware of the issue of low interest on cash sweep amounts due to having IRA, Roth, and taxable accounts both for myself and also my wife. Since retiring 9 years ago, I set up bi-monthly distributions from the IRA accounts and used the cash in the taxable accounts as surplus funds when extra cash was needed. As a result I had quite a bit of cash in these sweep accounts. Keep in mind that until fairly recently the MM distributions were extremely low as well. The issue wasn't much of a problem When MM distributions rose to the 4-5% range, that was the catalyst that got me to utilize SWVXX for more than 80% of the combined cash in my accounts. In other words the problem went from trivial to significant.

 

[Cerys]

I am at Schwab, and I have Schwab bank. And frankly, anything I need to do I can call the 800 number and get it done. I had to set up a wire transfer to buy my house, and then a year later pay it off. And I had to do it. There was nobody that could do it for me, and it was from the brokerage side. It seemed to me at that point that they were working towards phone service centers that may or may not be 24/7.

In fact before I left California, I went to my Charles Schwab office, and discovered that it has been closed for over a year. I have been here in Pennsylvania for a year and a half, and I know where it is, but I have no need to go there. I am totally self directed, and I don’t need somebody sticking their fingers in my money.

Especially after hearing them after my husband died dumbing down my investments so I would understand them. Because I’m just a dumb widow. I taught him a few things… how could he not know about firecalc? He came up with some cockamamie number for me to take out of my accounts every year and I just shook my head and went nope…

Call me a cockeyed optimist but maybe this isn’t a bad thing?

 

[AudiDudi]

As a Schwab IRA customer from the mid 90's and a customer of TDAmeritrade from the early 2000's, I find the Schwab web interface to be very lacking. When they called me I told them that it was unacceptable that when viewing/trading in an account, they was no option to display the daily H/L or the Bid/Ask without going to another screen from the positions screen. The rep said he had heard that a lot and hopefully by the end of the year they will have that option. I'm still missing a dividend from today - they seem very slow to post them to the account. Their quotes can be slow to update. As an old fart that is resistant to change, I am trying to give them a fair chance but I am seriously considering moving accounts. I did appreciate the 2 Yeti 30oz tumblers they sent me a month ago.

 

[indiajust]

There are several layers to the story.

Merger with TD is completed, so layoffs and duplicated office closures, lots of staff on both schwab and TD jockeying as best practices acquired and others let go. Well managed process, last of the dust will settle tax time.

Next is the internal mistake of buying US debt. Same mistake made by mid tier banks. Significant impairment of asset value with much higher interest rates. Capital constraints if you hold to maturity, lock in losses if you sell. This is a self inflicted wound. Since Schwab is a captive bank, does not make any loans, the impact is less severe. I expect a few folks were let go over this.

 

[teej1985]

There are several layers to the story.

Merger with TD is completed, so layoffs and duplicated office closures, lots of staff on both schwab and TD jockeying as best practices acquired and others let go. Well managed process, last of the dust will settle tax time.

Next is the internal mistake of buying US debt. Same mistake made by mid tier banks. Significant impairment of asset value with much higher interest rates. Capital constraints if you hold to maturity, lock in losses if you sell. This is a self inflicted wound. Since Schwab is a captive bank, does not make any loans, the impact is less severe. I expect a few folks were let go over this.

Schwab Bank doesn't make loans? Are you sure about that?

 

[Gotadimple]

Schwab Bank doesn't make loans? Are you sure about that?

No they don't. They have an arrangement with Rocket Mortgage who makes and services the loans.

 

[indiajust]

The bank was created to serve as a sweep destination for all the various investment products. It also allowed checking privileges by account. No way to open a schwab bank account. You have to open one of the brokerage accounts, and then add check writing privilege. (of course, can't do that in IRA accounts, but you get idea) Bank is completely captive, only one customer, schwab brokerage.

 

[indiajust]

So they cannot issue personal loans, home loans, credit cards.... Only a margin loan against secured assets on their platform.

 

[indiajust]

Banking mistake was buying too much low rent government paper and then being surprised by the fed ramping up interest rates so fast. They got caught with too much long that got hurt by the ramp. Not fatal, but certainly not a good mistake to make.

 

[OldShooter]

... add check writing privilege. (of course, can't do that in IRA accounts ...

Actually, they send out small checkbooks that draw on IRAs for those of us who can make QCDs. It's a very nice system. Making a QCD is no more difficult than writing a check on my regular Schwab Bank account. We use them even for small stuff like public radio membership payments.

 

[OldShooter]

So they cannot issue personal loans, home loans, credit cards…. Only a margin loan against secured assets on their platform.

I dunno. I have a Schwab debit card and I know they have an AMEX from the brokerage side. Merchants, especially outside the US, hate AMEX so I have no interest in getting one. Unlike many, I just carry one credit card and am too lazy to play the points-chasing games.

The bank also has a loan program secured by a customer’s assets but I don't think it is legally a margin loan. “Pledged Asset Line” (https://www.schwab.com/resource/pledged-asset-line-from-charles-schwab-bank) that does not appear to involve Rocket.

Other than statements coming in separate envelopes, having the two entities is pretty transparent to me.

 

[aja8888]

Actually, they send out small checkbooks that draw on IRAs for those of us who can make QCDs. It's a very nice system. Making a QCD is no more difficult than writing a check on my regular Schwab Bank account. We use them even for small stuff like public radio membership payments.

I have both a checking account with my Schwab IRA and one with my Schwab brokerage account (Schwab One account). I also use bill pay from the Schwab one account.

 

[Sunset]

....
I wonder if they had a lot of TD Ameritrade customers jumping ship, or something? Anyway, I just told the guy that as long as they don't offer to take me to lunch and sell me on an annuity, they should be fine!

We did.
We moved our TD accounts to another brokerage.
Except for an account with 3 cents in it, so it will become a schwab account.

I already have a Schwab brokerage account and am only keeping it as I'm lazy. I don't like their system, someday I'll move the account.

 

[PatrickA5]

We did.
We moved our TD accounts to another brokerage.
Except for an account with 3 cents in it, so it will become a schwab account.

I already have a Schwab brokerage account and am only keeping it as I'm lazy. I don't like their system, someday I'll move the account.

Beat ya! I had a TD account with one cent in it for years. I couldn't get them to actually close the account. I even offered to let them keep the penny. Anyway, they transitioned that account to Schwab, so now I have a Schwab account with 1 cent.

If I ever decide to dump Chase/JP Morgan, I might move my banking over to Schwab. I like my self-directed JP Morgan brokerage because I can buy Vanguard funds for no charge - something I can't do in my Fidelity account (and probably Schwab).

 

[FREE866]

Beat ya! I had a TD account with one cent in it for years. I couldn't get them to actually close the account. I even offered to let them keep the penny. Anyway, they transitioned that account to Schwab, so now I have a Schwab account with 1 cent.

If I ever decide to dump Chase/JP Morgan, I might move my banking over to Schwab. I like my self-directed JP Morgan brokerage because I can buy Vanguard funds for no charge - something I can't do in my Fidelity account (and probably Schwab).

You can buy Vanguard ETFs for zero commission at Schwab

 

[tulak]

You can buy Vanguard ETFs for zero commission at Schwab

Same at Fidelity.

I own mostly Vanguard ETFs at this point since they are cheaper than their fund equivalent.