The Charles Schwab Corporation is one of the biggest multinational financial services companies. It is among the leaders in global banking, electronic trading, and wealth management, both for retail and institutional investors. With over 360 branches, it is the third-largest asset manager in the world, managing over $5.9 trillion in client assets. 

Is Charles Schwab a fiduciary?: There are two different advisor roles working at Schwab, the “client relationship advisor” and the “VP-senior wealth” advisor. They have quite different roles that we’ll explain in more detail later. But they both get paid a base salary and an annual bonus determined by their manager based on client satisfaction and performance.

Investors and depositors often get taken advantage of because they don’t know what are the responsibilities of the advisors they’re dealing with. He might be putting his interest before theirs. We believe it is important for clients to know on what basis financial advisors are paid at the Charles Schwab Corporation, so as to avoid being taken advantage of.

What is a financial advisor?

There are lots of misunderstood terms in the financial industry, “financial advisor” is one of them. So let’s start with the basics. A financial advisor is a professional who provides financial services and advice to their clients, based on their goals and financial situation. 

In most countries, you can only be a financial advisor after you completed specific training and register with the regulatory body. In the US you have to have a series 7 and series 65 or 66 qualification examination. The Financial Industry Regulation Authority (FINRA) specifies that brokers, investment advisers, private bankers, accountants, lawyers, insurance agents, and financial planners may call themselves financial advisors.

What do Schwab financial advisors do? 

VP–Senior Wealth Advisors provide services to clients with at least $10M in investable assets at Schwab. They develop relationships with clients, taking a planning-based approach to understanding a client’s needs and objectives. They provide recommendations tailored to the client’s financial goals and with a team of experts to serve their unique needs.

VP–Financial Consultants work with Schwab clients by phone. They assess their clients’ financial needs, analyze clients’ portfolios, and recommend solutions offered by Schwab. They also provide service and advice to clients already invested in a Charles Schwab Corporation program.

How are Schwab financial advisors compensated?

 VP–Senior Wealth Advisors earn a base salary and an annual bonus that is determined by manager discretion based on their performance. Which takes into consideration client satisfaction, service quality, client retention, contribution to the team, and Net New Assets to Schwab.

Similarly, Client Relationship Advisors in addition to a base salary are eligible to earn an annual bonus that is again determined based on manager discretion. Which may take into consideration of the quality and frequency of client engagement, client retention, and client satisfaction.

Are there any hidden charges to look out for?

You want to make sure there’s full transparency when dealing with a financial advisor. Ask him for the full disclosure of fees. Even if your advisor doesn’t charge commissions, for example, he might impose trading fees. Or it could be that in some cases you may be required to pay a fee for opening and closing an account.

To ensure that you are not being charged unknowingly, make sure you review brokerage statements that clearly define all the costs associated with your accounts. Also, be sure to ask advisors to walk you through and explain the charges you may have to pay.

Are Schwab financial advisors fiduciaries?

First things first, a fiduciary (Investopedia Link) is a person or organization that acts on behalf of another and is legally obliged to put their clients’ interests ahead of their own. So in simple terms, fiduciaries are not allowed to recommend investments that aren’t ideal for your financial situation. On top of that, they also have to be registered with SEC, state securities regulators, or trade associations. And they also aren’t paid by commission.

Brokerage companies tend to not like fiduciary duties. And that’s understandable, it eats in their profits. But Charles Schwabs is the exception, it has publicly stated “Charles Schwab is proud to be the largest supporter of one of the fastest-growing segments in financial services – independent financial advisors who are entrusted with $5 trillion of their clients’ wealth.” 

However, if we read carefully the statement is about independent investment advisers who are fiduciaries. It does not include brokers among these advisers. The statement invites independent fiduciary advisers to execute their orders at The Charles Schwab Corporation, but it does purport to be one of them. 

So keep in mind a financial advisor working for them is a salesperson, not a fiduciary, and his advice is sales talk. Nonetheless, the fact that they are supporting it, even if not fully, is great news.

Bottom Line: Is Charles Schwab a fiduciary

Always, always, do your own research. Don’t just blindly trust financial advisors, even at an established company like the Charles Schwab Corporation. Ultimately, it doesn’t matter if you seek financial advice from a professional your finances are always going to be your responsibility.

You have to keep in mind that even the best financial advisors can make mistakes. Besides, you have to be wary of financial advisors, some maybe not working in your interest and only thinking about themselves.  Of course with a fiduciary, they are legally obliged to put your interest before theirs, but that still doesn’t mean that their judgment can’t be wrong.

Before choosing to trust a financial advisor look at his track record and values, they should align with yours. And make sure your advisor has already achieved or is achieving what you strive for. So in other words don’t choose a broke financial “expert” or you will go broke. And believe me, there’s plenty of them. Just like Warren Buffet said, “Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway.”