Charles Schwab - Conservative but Smart

Charles Schwab (SCHW) gained $22 billion in new client assets during the fourth quarter. The online broker got over 200,000 new 401(K) plan participants and brought in an unprecedented $13 billion in assets from disgruntled investment advisors who left other firms. This is probably an ongoing trend given the disillusionment with Wall Street wire houses. Over the past five years, assets transferred to Schwab from other companies has quadrupled.

Registered Investment Advisors (RIA) are "the fastest growth channel in the wealth management business today," said Fred Tomczyk, the new TD Ameritrade CEO, at a recent conference for bank investors in New York. The disaffected brokers mostly come from the large wire house firms such as Morgan Stanley (MS), Merrill Lynch, UBS (UBS) and Smith Barney. Schwab now supports some 5,500 RIAs, more than any other firm. The San Francisco broker is talking with about 400 prospects who manage some $35 billion, according to Bernie Clark, senior vice president of sales at the firm's advisor services unit. Clark says that about $600 billion of assets controlled by brokers moves from one firm to another each year - mostly between wire houses. Schwab anticipates gaining $50 billion of this traffic.

Two UBS brokers, Paul Weinstein and Nadine Wilkes, left the outfit in 2008 because of the way it handled the controversy over auction rate securities, reports the Financial Advisor. The investments were promoted as cash equivalents, but turned out to be frozen assets. The two said they left the wire house business altogether because their clients were defecting, unhappy with UBS and its handling of the auction securities.

Mindy Diamond, a headhunter with Diamond Consultants in Chester, New Jersey, said:

Certainly there are plenty of advisors who feel incredibly frustrated, sold out if you will, and really lost confidence in the senior management at their firms, particularly Merrill Lynch and Smith Barney. Those would be the top two, particularly because (the advisors there have) seen their entire deferred compensation, which is their wealth accumulation, blow up. They've lost confidence in senior leadership and they felt people were asleep at the wheel. That's a common complaint.

In 2009, Schwab will be offering exchange-traded funds (ETF) for the first time. They will be competing against other big ETF firms, including Barclays, State Street and Vanguard. The only ETF mentioned specifically in Schwab's Securities and Exchange Commission filing will be similar to State Street's Dow Jones Wilshire 5000 Index.

CEO Charles Schwab, in a 2007 interview with Money Magazine, was asked what financial advice he would give to young people. "Buy index funds and ETFs. That might not seem like enough action to a 25-year-old, but it's the smartest thing to do." Schwab's conservative strategy prevented it from getting involved in risky investment banking and has not received any TARP bailout funds. Schwab pioneered discount online stock trading. Its more expensive full service Wall Street brokerage competition is in disarray.

Today, many big Wall Street brokerages are under the big tent of the still solvent large banks. New York bankers and brokers do not seem to have learned from history. The failure of New York's Bank of the United States in 1930 is seen by many historians to have started the collapse of the banking industry during the Great Depression. The Bank of the U.S. had heavily invested in real estate, which helped lead to its downfall. Milton Freedman and Anna Jacobson Schwartz called it the biggest failure in American banking up to that time.

"Go west, young man" is a quote made famous in an 1865 editorial by Horace Greeley. In 1841, he launched the New York Tribune, which he used to espouse his political views including western settlement. Perhaps we should look to the west for ideas about solving today's financial crisis!

Disclosure: no positions

Comments

[polarguy:]

I agree that Schwab is playing a conservative role in America's market . One
caveat is their lack of internal control over their SWYSX fiasco. Luckily I had an astute friend covering my back.

Feb 16 11:25 AM

[Burtbbb:]

I am one of the ones who left Citi Smith Barney for Charles Schwab in late 2008 because I felt Smith Barney cared more about serving its Corporate interesests than it did about its clients. When Smith Barney moved from Citi Investment Services (CIS) to Citigroup Global Investment Management it notified its clients they would be changing their fee structure for trading, but they did this without providing any schedule of fees. My first trade resulted in charging me seven times (7X) the previous fees under CIS! Despite my appeal to FINRA and Smith Barney there was never any attempt to rectify the charge. It is no wonder to me that so many Financial Advisors and clients are leaving Citi Smith Barney and moving to Charles Schwab.

Feb 16 01:58 PM

[Chas Justice:]

Excerpt from original post on Google Finance Discussions Ameritrade Holdings on 2/9/2009: finance.google.com/gro....... After reading PLEASE VIEW the Reserve's latest update in response to my post @: ther.com/pdfs/Press%20......

Does anyone wonder why AMTD's stock price has been so beat up, w/ all

the great opportunities they have in thinkorswim & TD-Bank's new

investment? B/c certain investors KNOW ABOUT FUTURE LACK OF CASH FLOW

DUE TO FUTURE LITIGATION, THAT HASN'T BEEN DISCOUNTED INTO THE STOCK

PRICE - BECAUSE CLIENTS CAN'T SUE THE COMPANY W/O VIOLATING AN

ARBITRATION CLAUSE UNTIL PRIMARY FUND DISTRIBUTIONS HAVE BEEN PAID

BACK IN FULL.

B/C the company directed The Primary Fund & >97% of all Reserve Yield

Plus investors to The Reserve.

Further, they directed investors to Reserve Funds, W/O DELIVERING

PROSPECTUS' - to a PRIVATE EQUITY FUND COMPANY.

Look into Reg-D SEC filings for Reserve Management Co, Reserve

Management Co., Inc., RESRV Partners, & finally Reserve Funds (the

cover up). You will see that the Reserve money market funds were

central funds to which, the Reserve Private Equity Series, Small Cap

Growth, & about 6 other PE funds, could take stakes in & WHIP STAKES

OUT of, such as The Primary Fund I (institutional investors tipped

off?? - The Reserve was the Institutional Investor?? If China

Investment Corp. couldn't get out, who could??).

Now lets see.. (1) it's a known fact that AMTD directed >97% of Yield

Plus fund investors (>$1bb fund). (2) My family was DIRECTED by TD-

Ameritrade to entrust >$6MM in the PRIMARY FUND (w/o prospectus); (3)

The Primary Fund had > $65 BILLION IN ASSETS UNDER MANAGEMENT BEFORE

the redemptions came in (don't let the $62 billion # fool you; there

was > $3billion a week prior.

I should know about this as I discovered the AMTD/Reserve relationship

in 2007. I had a personal trading account w/ Ameritrade in late 2007

(I'm only 25), while my family had the rest of our cash & investments

w/ Ameritrade (after they hassled my mother for > 1year to move assets

from Compass Bank, the bank my Grandfather co-founded & one to which

my Mother & my family have great sentimental attachment - promising

her a large bonus credit to her account & a high yielding money

fund). As my Mother is the trustee of my & my little brother's

trusts, she tries her best to make fiduciary decisions & felt as

though the bonus credit & Primary Fund's yield were in our family's

best interest & would be in my Grandfather's interest. Ameritrade

knew that we sold Compass Shares prior to the BBVA acquisition& was on

the prowl to GATHER ASSETS IN ANY WAY THEY COULD.

However, I became leery of The Reserve/AMTD relationship from 10/07 to

1/08.. that is until TD-AMERITRADE TERMINATED MY PERSONAL TRADING

ACCOUNT & FORCED ME TO DISCONTINUE COMMUNICATIONS w/ them regarding

The Reserve, Ameritrade, & the wealth God entrusted to my family,

BECAUSE I ASKED TOO MANY QUESTIONS. You see, I was concerned the high

yielding Reserve Fund as the current financial crisis began to

submerge. I wanted to know current holdings. Bruce Bent was quoted

in a WSJ article many years ago saying, "you can always gauge a money

fund's strength & reliability by their level of customer service.. If

you are nervous, just ask for the current holdings." I did just

that. Over & over. AMTD would only send us reports from greater than

6 months prior, an outdated prospectus, or asset allocation model (3

months of demands; didn't have as much knowledge in structured finance

at the time but now know there was a much more timely N-Q report).

I have documented conversations with my former employer (PE investment

firm), to which I had to retrieve holdings indirectly from an

executive at Bloomberg (weren't on traditional terminal). When I

found that all the Primary Fund holdings were comm. paper invested in

bank & financing company's, I DEMANDED ANSWERS. I WANTED TO KNOW THE

MOST TIMELY HOLDINGS & WHAT ASSETS WERE BACKING THE CP. However, they

didn't like my questions, & I was subsequently sent a letter stating

my account had been terminated & I was to discontinue communications.

I guess they didn't bargain on ME BEING THE ONLY 23 YEAR OLD worried

about the INDIRECT EXPOSURE TO SOUR ASSETS IN THE FORME OF OVERLOADED

PORTFOLIOS IN COMMERCIAL PAPER (as AMTD quoted they had "no DIRECT

EXPOSURE," on their website).

Looking further: take a look at all of the executives who left AMTD

right at the time my questions were raised. Look at there roles w/in

the company & you will see a picture being painted.

This is a crooked company, who deletes links from google to articles

to which I make comments about these issues. I love my Mother &

appreciate all the decisions she had to make for my family's long-term

future. IT KILLS ME TO SEE HER IN A SITUATION LIKE THIS, B/C SOME

DISCOUNT BROKER TOOK ADVANTAGE OF HER GENEROSITY. IT IS NOT HER

FAULT, & THE FACT THAT I WAS NOT ALLOWED TO COLLABORATE IN SOMETHING I

FELT WAS WORTH LOOKING DEEPER INTO, WAS DISALLOWED, IS OUTRAGOUS!

Why is Ameriprise, not Ameritrade, suing The Reserve? Why DID THEY

ALLOW OUR CASH TO BE WITH THE RESERVE MANAGEMENT INVESTMENT ADVISER, THAT HADN'T FILED IT'S FORM ADV WITH THE SEC UNTIL 2008? Lack of oversight & billions of dollars exchanged between PE CO'S, AMTD,
EXECUTIVES, & RESERVE FUNDS, FOR DIRECTING CLIENTS TO an illiquid investment.

Feb 16 03:43 PM

[mediapro:]

Any word on what ETF's Schwab will be announcing?

Feb 16 04:51 PM