Founded as Charles Schwab & Co. in 1971 by its namesake Charles R. Schwab, the company capitalized on the financial deregulation of the 1970s to pioneer discount sales of equity securities. After a flagship opening in Sacramento, California, the bank expanded into Seattle before the 1980s economic expansion financed the bank's investments in technology, automation, and digital record keeping. The first to offer round-clock order entry and quotation, it was purchased by Bank of America in 1983 for $55million. Three years later, the profitability of the bank's no-charge mutual funds prompted the founder to buy his company back for $280million.[7]
In 1963, Charles R. Schwab and two other partners launched Investment Indicator, an investment newsletter.[8] At its height, the newsletter had 3,000 subscribers, each paying $84 a year to subscribe. In April 1971, the firm was incorporated in California as First Commander Corporation, a wholly owned subsidiary of Commander Industries, Inc., for traditional brokerage services and to publish the Schwab investment newsletter. In November of that year, Schwab and four others purchased all the stock from Commander Industries, Inc., and in 1972, Schwab bought all the stock from what was once Commander Industries. In 1973, the company name changed to Charles Schwab & Co., Inc.[9]
In 1975, the U.S. Securities and Exchange Commission allowed negotiated commission rates and Schwab set up a stock brokerage. In September 1975, Schwab opened its first branch in Sacramento, CA, and started offering discount brokerage services. In 1977, Schwab began offering seminars to clients, and by 1978, Schwab had 45,000 client accounts total, doubling to 84,000 in 1979. In 1979, Schwab risked $500,000 on a back-office settlement system called BETA (short for Brokerage Execution and Transaction Analysis), enabling Schwab to become the first discount broker to bring automation in house. In 1980, Schwab established the industry's first 24-hour quotation service, and the total of client accounts grew to 147,000. In 1981, Schwab became a member of the NYSE, and the total of client accounts grew to 222,000. In 1982, Schwab became the first to offer 24/7 order entry and quote service, its first international office was opened in Hong Kong, and the number of client accounts totaled 374,000.
In 1983, Stephen McLin purchased the company for Bank of America for $55million. In 1984, the company launched 140 no-load mutual funds. In 1987, management, including Charles R. Schwab, bought the company back from Bank of America for $280million.[10] In 1991, the company acquired Mayer & Schweitzer, a market making firm, allowing Schwab to execute its customers' orders without sending them to an exchange.[11] In 1997, it was fined $200,000 for failing to arrange the best trades for its customers.[12] The unit was renamed Schwab Capital Markets in 2000.[13] In 1993, the company opened an office in London.[14]
In 1995, the company acquired The Hampton Company, founded by Walter W. Bettinger, who became CEO of Schwab in 2008.[15] In 1996, Web trading went live, letting customers trade listed and OTC stocks, or check balances and the status of orders on the schwab.com website.[14] In 1998, dissatisfied by in-house results, the company hired interactive firm Razorfish to redesign the website. Years later the website would be entered in the Cooper-Hewitt Museum's inaugural National Design Triennial.[16] In 2000, Schwab purchased U.S. Trust for $2.73billion.[17] In 2001, less than a year after the acquisition of U.S. Trust, the U.S. Trust subsidiary was fined $10million in a bank secrecy law case. It was ordered to pay $5million to the New York State Banking Department and $5million to the Federal Reserve Board.[18] On November 20, 2006, Schwab announced an agreement to sell U.S. Trust to Bank of America for $3.3billion in cash.[19] The deal closed in the second quarter of 2007.
In January 2004, Schwab acquired SoundView Technology Group for $345million to add equity research capabilities.[20][21] David S. Pottruck, who had spent the majority of his 20 years at the brokerage as Charles R. Schwab's right-hand man, shared the CEO title with the company's founder from 1998 to 2003. In May 2003, Mr. Schwab stepped down, and gave Pottruck sole control as CEO. On July 24, 2004, the company's board fired Pottruck, replacing him with its founder and namesake. News of Pottruck's removal came as the firm had announced that overall profit had dropped 10%, to $113million, for the second quarter, driven largely by a 26% decline in revenue from customer stock trading.
After coming back into control, Mr. Schwab conceded that the company had "lost touch with our heritage", and quickly refocused the business on providing financial advice to individual investors. He also rolled back Pottruck's fee hikes. The company rebounded, and earnings began to turn around in 2005, as did the stock. The share price was up as high as 151% since Pottruck's removal, ten times since the return of Charles Schwab.[22] The company's net transfer assets, or assets that come from other firms, quadrupled from 2004 to 2008. Schwab's YieldPlus fund drew controversy during the 2007 financial crisis because of its -31.7% return.[23] Investors in the Schwab YieldPlus Fund, including Charles Schwab himself, lost $1.1billion.[24] Schwab closed the YieldPlus funds in 2011.[25] In April 2007, the company acquired The 401(k) Company.[26]
On July 22, 2008, Walter W. Bettinger, the previous chief operating officer, was named chief executive, succeeding the company's namesake. Charles R. Schwab remained executive chairman of the company and said that he would "continue to serve as a very active chairman".[22]
In 2011, the company acquired OptionsXpress.[27] The company also acquired Compliance11, Inc., a provider of compliance software.[28] In 2012, it acquired ThomasPartners, an asset management firm.[29]
On July 1, 2020, the company acquired Wasmer, Schroeder & Company, an independent investment manager of fixed income in separately managed accounts with $10.7billion in assets under management.[30]
On May 26, 2020, the company acquired USAA's investment management accounts for $1.8billion in cash.[31][32]
In June 2020, the company began allowing investors to purchase fractional shares.[33]
Effective on January 1, 2021, the company moved its headquarters from San Francisco, California to Westlake, Texas.[37]
Senior leadership
Chairman: Charles R. Schwab (since 1971)
Chief Executive: Walter W. Bettinger II (since 2008)
List of former chief executives
Charles R. Schwab (1971–1998)
Charles R. Schwab and David S. Pottruck (1998–2003); co-CEO's
David S. Pottruck (2003–2004)
Charles R. Schwab (2004–2008); second term
Marketing
In 2004, Charles Schwab chose Havas Worldwide (then called Euro RSCG) as its full-service advertising agency. The company launched a series of television ads featuring the slogan Talk to Chuck by Euro RSCG and directed/animated by Bob Sabiston's Flat Black Films in 2005. "Talk to Chuck" campaign appeared in print media, online, billboards, and branch offices.[38] A blog post in The Wall Street Journal described the ads as effective because they included a single memorable phrase.[39] In February 2013, Schwab hired Crispin Porter + Bogusky (CP+B) as its lead creative agency with Havas Worldwide remaining to create ads for ActiveTrader and optionsXpress.[40] The company launched an advertising campaign by CP+B with the slogan Own Your Tomorrow that same year.[41] In March 2015, Adweek reported on marketing material created by CP+B for Schwab's Intelligent Portfolio service.[42]
Controversies
Failure to disclose robo-advisor fees and allocations
In June 2022, the U.S. Securities and Exchange Commission ordered the company to pay $187million to settle its charges for failing to disclose fund allocations and fees for its robo-advisor clients. It was determined that between March 2015 to November 2018, Charles Schwab misled customers and prospective investors by allowing them to believe that its robo-advisor service had no hidden fees, and it did not inform the clients about the cash drag on their investments. The SEC stated that the company has made money from cash allocations in the robo-advisor portfolios by sweeping cash to its affiliated bank, loaning it out, and keeping the difference between the interest it earned on the loans and what it paid in interest to the robo-advisor clients.[43]
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US$18.84 billion (2023)
US$8.517 trillion (2023)
