When individual investors purchase products or services from Schwab, Schwab may earn money from third parties or affiliates, in addition to the fees paid by our clients. This compensation may apply to products or services that are bought, sold, or introduced through Schwab, and it includes two primary areas:
Compensation related to investment products, including stocks, mutual funds, fixed income, and a variety of financial products, such as:
- Equities and Option Trade Execution
- Initial Public Offerings and Secondary Offerings
- Mutual Funds (e.g., Schwab Mutual Fund OneSource® Service and Other No-Transaction-Fee Funds, Transaction-Fee Funds, Load Funds)
- Exchange-Traded Funds
- Life Insurance, Disability Insurance, and Long-Term Care Insurance
- Fixed Income Securities
- Structured Products
- Schwab 529 College Savings Plan and Learning Quest® Education Savings Program
- Cash Awaiting Investment
Compensation related to investment advisory services, such as Schwab Advisor Network® and Schwab Private Client™
Please note that the information below describes how Schwab earns money from third parties or affiliates, not how you and other clients pay Schwab for services. Information about what clients pay Schwab can be found at www.schwab.com/pricing or in the disclosure brochures that describe Schwab's fee-based advice programs. Schwab also earns money on the idle cash in client accounts (see the Cash Features Disclosure Statement) and on margin balances in client accounts (see the applicable Account Agreement and Margin Disclosure Statement).
The information and practices presented here are subject to change without notice. More current information may be available. Please call 800-435-4000 if you have any questions or would like to request copies of any documents. Additional information on Schwab investment products, fees and commissions may be found at www.schwab.com.
As a broker-dealer, Schwab makes money when clients trade and hold stocks, options, mutual funds, exchange-traded funds ("ETFs"), bonds, and other securities in Schwab accounts, and when clients buy insurance and annuity products through Schwab. Generally, Schwab makes the most money on certain types of annuities and mutual funds as compared to other investment products. This is because of the arrangements we have with the third parties who provide those products and the related services we provide for those products, or because Schwab or an affiliate manages or provides those products directly. Schwab makes the least amount of money on stocks and bonds because we generally only execute the transaction and therefore only earn a transaction fee or compensation relating to the transaction. Each investment product is described below, so you have a general idea of how we are compensated for each.
In arranging for the execution of non-directed orders for equities and listed options, Schwab seeks out industry-leading execution services and access to the best-performing markets. Schwab routes orders for execution to unaffiliated broker-dealers, who may act as market maker or manage execution of the orders in other market venues, and also routes orders directly to major exchanges.
Schwab considers a number of factors in evaluating execution quality among markets and firms, including execution price and opportunities for price improvement; market depth and order size; the trading characteristics of the security; speed and accuracy of executions; the availability of efficient and reliable order-handling systems; liquidity and automatic execution guarantees; the likelihood of execution when limit orders become marketable; and service levels and the cost of executing orders at a particular market or firm. Price improvement occurs when an order is executed at a price more favorable than the displayed national best bid or offer. Schwab regularly monitors the execution quality obtained to ensure orders are routed to market venues that have provided high-quality executions over time.
Schwab receives remuneration, such as liquidity or order flow rebates, from market venues to which orders are routed, and also pays fees for execution of certain orders. Quarterly information regarding the market venues to which we route orders and remuneration received is available on our website at schwab.com or in written form upon request. Information regarding the specific routing destination and execution time of your orders for up to a six-month period is also available upon request. Schwab may execute fixed income orders for customers as agent or as principal for our own account. In the bond market, there is no centralized exchange or quotation service for most fixed income products. Prices generally reflect activity by market participants or dealers linked to various trading systems. A small number of corporate bonds are listed on national exchanges. Although Schwab seeks access to major trading systems, exchanges, and dealer markets in an effort to obtain competitive pricing, at any given time it is possible that securities could be available through other trading systems, exchanges, or dealers at superior or inferior prices compared to those available at Schwab. All prices are subject to change without prior notice.
To be eligible for IPO and secondary offering access, Schwab clients must meet an asset or trading threshold in their Schwab accounts and must participate in certain Schwab client segments or services. Schwab does not receive a syndicate fee, or dealer concession, on sales of these new issues to Schwab clients.
Schwab offers mutual funds through its Mutual Fund Marketplace platform ("MFMP"). When clients invest in a mutual fund in a Schwab account, Schwab may receive compensation from the mutual fund company for the recordkeeping, shareholder services, and other administrative services that Schwab provides to shareholders of the fund. These shareholder services include transaction processing, settlement of trades, dividend distribution, record maintenance, and distribution of statements, confirmations, prospectuses, and other regulatory shareholder documents. Schwab may also earn additional compensation from certain mutual funds for the administrative services Schwab provides in connection with various activities associated with sponsorship of MFMP as well as educational events and marketing opportunities. To the extent that any part of the fees described here are paid out of fund assets, those amounts are included in the fund's operating expense ratio ("OER"), which means they are indirectly borne by the fund's shareholders; any fees paid out of fund assets are disclosed in the fund prospectus.
Schwab Mutual Fund OneSource® Service and Other No-Transaction-Fee Funds ("NTF Funds")
Many investors at Schwab invest in no-transaction-fee funds through the Schwab Mutual Fund OneSource service, through which Schwab makes available a selection of no-load and load-waived mutual funds. NTF Funds pay Schwab an asset-based annual fee, which usually equals up to 0.40% of the average fund assets, however, the annual fee can range up to 0.45% of the fund assets held at Schwab. The fee may be subject to a monthly minimum that generally does not exceed $2,000 and applies beginning with the seventh full month after the fund is made available for purchase at Schwab. When adding a new fund to Schwab's NTF platform, NTF Funds also pay Schwab a one-time establishment fee, which Schwab may waive. The amount of this fee generally does not exceed $10,000 for the first fund added and $1,000 for each additional fund within a fund family after that. More information about Schwab's Mutual Fund OneSource service and Schwab's other mutual fund platforms is available on schwab.com.
- Schwab Affiliated Funds. Schwab currently has two affiliated mutual fund families: Schwab Funds® and Laudus Funds® (collectively, "Schwab Affiliated Funds"). Schwab's affiliate Charles Schwab Investment Management, Inc. ("CSIM") serves as investment advisor to both fund families. These Schwab Affiliated Funds typically pay CSIM a fee for investment advisory services, the amount of which is described in the funds' prospectuses.
- All Schwab Funds and Laudus Funds are part of Schwab's Mutual Fund OneSource service. Consequently, like unaffiliated Mutual Fund OneSource and other NTF Funds, many of the Schwab Funds and Laudus Funds pay Schwab an asset-based fee for the shareholder services that Schwab provides.
- Some Schwab Funds have adopted a shareholder servicing plan pursuant to which the funds pay fees for shareholder services ranging up to 0.25% annually. Also pursuant to this plan, some Schwab Money Funds™ pay Schwab 0.15% annually for shareholder services and an additional 0.15% annually for sweep administrative services Schwab provides to shareholders invested in Sweep Shares of the funds. Laudus Funds pay a fee ranging up to 0.10% annually for the shareholder services that Schwab provides.
- Aggregate Fees. In aggregate, the fees Schwab receives from Schwab Affiliated Funds may be greater than the compensation Schwab receives from unaffiliated fund companies participating in the Schwab Mutual Fund OneSource service.
Transaction—Fee Funds ("Fee Funds")
Schwab charges a transaction fee for the purchase or redemption of certain funds that are not included in the Schwab Mutual Fund OneSource service and other no-transaction-fee funds.
Most Fee Funds pay Schwab a low annual asset-based fee, typically 0.10% annually of the average fund assets held at Schwab, although the fee can range up to 0.25% annually. Some Fee Funds pay Schwab a set dollar amount per customer account in lieu of the low asset-based fee, typically $20 per account, but it can range up to $25 per account annually (a "per-position fee").
When adding a new fund to Schwab's platform, Fee Funds also pay Schwab a one-time establishment fee, which Schwab may waive. The amount of this fee generally does not exceed $10,000 for the first fund added and $2,000 for each additional fund within a fund family after that, but may range up to $15,000 for certain funds that require additional operational support.
Generally, Schwab does not allow purchases into load funds, but will accommodate redemptions out of these funds when the shares are held in a Schwab account.
To the extent a shareholder holds load funds in their Schwab account, load funds pay Schwab fees for shareholder services out of their distribution and/or servicing plans (i.e., Rule 12b-1 plans), the amounts of which are determined by the funds' boards of trustees and disclosed in their prospectuses. Shareholder service fees paid to Schwab pursuant to a 12b-1 plan are included in the fund's OER and are indirectly borne by the fund's shareholders.
Schwab may also receive fees for the sub-accounting services that Schwab provides to load funds, which will vary depending on the operational model. For assets held in omnibus accounts, either an annual per-account fee (typically $20 per account) or an annual asset-based fee (typically 0.10% of the average fund assets held at Schwab, although the fee can range up to 0.15% annually). In the alternative, Schwab may receive a networking fee for each sub-account, most often equal to $6 annually.
Assume that for each example in the table below, $10,000 was invested in the fund on January 1 and held until December 31 of the same year, and that the fund did not change in value over that period. The examples below are illustrative and hypothetical. Actual fees will vary depending upon multiple factors, including fluctuations in the values of fund shares, distributions paid by the fund, and differences in the fee rates negotiated between Schwab and particular funds.
- Assumed Annual Fees
Assumed Annual Fees0.40% of fund assets>Fund Payment*$40>
Assumed Annual Fees0.10% of average fund assets>Fund Payment*$10>
Assumed Annual Fees0.25% of average fund assets pursuant to the 12b-1 plan for shareholder servicing and a $20 omnibus processing fee>Fund Payment*$25>
* Fund Payment to Schwab excluding, for example, front-end loads, transaction fees, and other fees paid to Schwab by the client.
Certain funds or fund families may pay a flat fee to compensate Schwab for activities related to Schwab's sponsorship of the MFMP such as (i) investing in platform technology and systems necessary to maintain the MFMP; (ii) providing tools and services that allow Schwab customers or advisors acting on their behalf to make informed investing decisions; and (iii) maintaining educational resources related to mutual fund investing. If the flat fee were converted from dollars to an annual asset-based fee, it would compare to an annual fee of 0.10% or less of the average fund assets at Schwab on which Schwab does not receive other asset-based compensation.
In addition to the fees described above, Schwab earns additional compensation from certain mutual funds for the administrative services Schwab provides in connection with its sponsorships of educational events and marketing opportunities. The amount of such fees varies depending on the type and number of opportunities in which the fund participates.
For more detailed information about any of the fees discussed here, see Schwab's Financial and Other Relationships with Mutual Funds at https://www.schwab.com/public/schwab/nn/financial_and_other_relationships.html.
ETFs participating in Schwab ETF OneSource™ ("ETF OneSource") can be traded without a commission on buy and sell transactions made online in a Schwab account.
Third-party ETF sponsors or their affiliates generally pay Schwab an asset-based fee based on a percentage of total ETF assets purchased by Schwab customers after the ETF was added to ETF OneSource. The amount of the asset-based fee is typically 0.04% but can range up to 0.15% annually. Third-party ETF sponsors or their affiliates generally pay a fixed program fee to Schwab each year for each ETF participating in ETF OneSource. The program fees vary, but can range up to $15,000 per year for each participating ETF. Instead of a fixed program fee, certain ETF sponsors pay one-time "establishment fees" for the addition of each ETF to the Schwab ETF OneSource program. The establishment fees vary, but generally do not exceed $10,000 per ETF. At times, Schwab may enter into alternative fee arrangements with ETF sponsors or their affiliates for participation in ETF OneSource; these alternative arrangements might include a flat fee at the ETF or sponsor level. Regardless of how Schwab receives compensation from the ETF sponsor, the overall fee Schwab expects to receive from third party ETF sponsors for their participation in ETF OneSource or for ETF-related opportunities generally ranges from 0.04% to 0.08% per year.
Schwab also promotes ETF OneSource to its customers, and a portion of the fees paid to Schwab offsets some or all of Schwab's costs of promoting and administering the program. Schwab does not receive payment to promote any particular ETF to its customers. Schwab's affiliate CSIM serves as investment advisor to Schwab ETFs™, which compensate CSIM out of the applicable operating expense ratios. The amount of the fees is disclosed in the prospectus of each ETF. Schwab ETFs participate in Schwab ETF OneSource but do not pay Schwab a separate fee to participate.
Schwab has annuity-selling agreements in place with several insurance companies, which pay Schwab a commission for serving as the sales agent and for servicing the annuity contracts. The compensation paid to Schwab varies based upon the insurer and the type of annuity contract sold.
- For variable annuities, Schwab's compensation generally consists of an annualized "trail" commission, which is calculated and paid monthly or quarterly based on the average asset value of the annuity contracts. The maximum trail commission paid to Schwab is 0.60%.
- For fixed index annuities, Schwab's compensation is generally based on a percentage of the initial purchase payment amount. The commission rate will vary based on the type of fixed annuity contract purchased. The maximum gross commission payable on a fixed deferred annuity is a 4% upfront commission. The typical gross commission payable on a fixed immediate annuity is a 4% upfront commission. The maximum gross commission payable on a deferred income annuity is a 5% upfront commission. The maximum gross commission payable on a fixed index annuity is a 5.75% upfront commission.
Schwab has entered into marketing agreements with one or more licensed insurance brokers ("brokers" to offer life insurance (term and permanent), disability insurance, and long-term care insurance to Schwab customers. Brokers have selling agreements in place with a number of insurance companies. The insurance companies pay commissions directly to the brokers. The brokers pay Schwab a referral fee of typically 50% of the first-year (note: 35% of first year for New York) and renewal commissions paid to the brokers, net of all chargebacks.
When an investor buys or sells a bond or certificate of deposit ("CD"), Schwab may act as agent or principal. Acting as an agent means Schwab executes trades on behalf of clients in the secondary market and does not purchase or sell from its own account when trading for clients. Schwab earns a commission on these transactions. When Schwab acts as principal, the bond price includes our transaction fee and may also include a markup that reflects the bid-ask spread and is not subject to a minimum or maximum. When trading as principal, Schwab may also be holding the security in its own account prior to selling it to you and, therefore, may make (or lose) money depending on whether the price of the security has risen or fallen while Schwab has held it. When Schwab participates in a selling group or enters into a distribution agreement that gives us and our clients access to new-issue bonds or CDs, Schwab receives a selling concession, as described below, which is paid by the client and reflected in the overall price of the security. Schwab's customary selling concession, which does not differ among members of the selling group, ranges from less than 0.01% to 3% of the par value, or face amount, of the security, depending on the product. Schwab does not act as both principal and agent simultaneously in the same transaction.
Schwab makes available to its advisor services clients, through their advisor, various structured products; including principal protected notes, structured certificates of deposit, and buffered notes. Schwab receives a one-time dealer or sales concession, which is built into the purchase price, when clients buy a structured product. The amount of the concession typically ranges from approximately 0.25% to 3.5% of the par value, or face amount, depending on the structured product.
Schwab offers futures trading through its affiliate Charles Schwab Futures, a registered Futures Commission Merchant. Charles Schwab Futures charges its clients a per-contract commission.
The Schwab 529 Education Savings Plan and Schwab Learning Quest Education Savings Program are education investment programs administered by the State of Kansas pursuant to Section 529 of the Internal Revenue Code. These plans are managed by American Century Investment Management, Inc. ("American Century").
The portfolios available for purchase under the Schwab 529 Plan are managed by American Century as the Program Manager and are based on asset allocation models devised by Schwab and composed of mutual funds selected by American Century. These funds must meet criteria set forth in an agreement between Schwab and American Century. The portfolios include American Century and other third-party funds, as well as Schwab Affiliated Funds. Schwab receives a fee from American Century for providing services to Schwab clients invested in the Schwab 529 Plan. This fee is based on total assets held in the Schwab 529 Plan, other than in Schwab Affiliate Funds.
The Learning Quest program is composed of American Century Funds and Vanguard Funds selected by American Century as the Program Manager. The Learning Quest program is no longer available for purchase at Schwab, but Schwab receives a fee from American Century for providing services to Schwab clients invested in Learning Quest. This fee is based on the total assets held by Schwab clients in the Schwab Learning Quest plan and the average account size.
A Schwab representative may recommend any of the portfolio management services below. Generally speaking—although it depends on a variety of factors, including the amount and type of investments in a client's account—Schwab earns the most compensation when a client invests with a Schwab-affiliated manager, Schwab Private Client™, or Schwab Managed Portfolios™ – Mutual Funds. When a representative recommends one of those portfolio management services rather than another, or recommends a portfolio management service over holding individual securities in an unmanaged account, this creates a material conflict of interest for the firm because it can earn more money. The conflict of interest is mitigated, however, because we pay our representatives in a neutral manner and because they are trained to make recommendations in a client's best interest.
- Schwab Intelligent Portfolios® ("SIP Program"). The SIP Program includes the following services: (i) Schwab's SIP Program administration services, as well as trade execution, custody, and related services; and (ii) CSIA's portfolio management services. Clients are not charged an annual SIP Program fee for these services. However, the SIP Program is not free of charge. Clients pay the operating expense ratios of ETFs used in the portfolios, including Schwab ETFsTM, which affects the performance of SIP Program accounts. Account performance is also affected by the cash allocation in the portfolios and the Schwab Intelligent Portfolios® Sweep Program ("Sweep Program"). Schwab and its affiliates earn compensation from certain ETFs used in the portfolios and from the cash allocation in the portfolios and Sweep Program, as described in the Schwab Intelligent Portfolios SolutionsTM Disclosure Brochures. This revenue comes from (i) revenue earned by Schwab Bank on the cash allocation in the investment strategies; (ii) advisory fees received by CSIM from Schwab ETFs that CSIA selects to buy and hold in client accounts; (iii) fees received by Schwab from third-party ETFs in client accounts for services Schwab provides to them as participants in ETF OneSource; and (iv) remuneration Schwab may receive from the market centers where it routes ETF trade orders for execution. If this compensation ever exceeds 0.30% of a client's assets, Schwab refunds the additional amount to client accounts or uses it to pay account administrative expenses.
- Schwab Intelligent Portfolios PremiumTM ("SIP Premium Program"). The SIP Premium Program fee includes the following services: (i) planning services delivered by the Planning Consultants; (ii) ongoing access to financial planning tools; (iii) administration services related to the SIP Premium Program. No portion of the SIP Premium Program Fee is attributable to the discretionary management received through SIP. The SIP Premium Program fee consists of an initial planning fee of $300 and an ongoing advisory fee of $90 per quarter per billing group as detailed in the Schwab Intelligent Portfolios SolutionsTM disclosure brochures. Schwab and its affiliates also receive additional compensation from the SIP Premium Program as described above for the SIP Program.
- Schwab Managed Portfolios ("SMP"). SMP offers clients a diversified portfolio of either mutual funds or ETFs in a single account. Clients pay Schwab a program fee on non-cash investments for Schwab to act as the qualified custodian for SMP accounts and to provide execution, reporting, administration, and related services for SMP accounts; and for CSIA's management of SMP accounts on a discretionary basis consistent with clients' chosen investment allocations. Program fees range from 0.90% down to 0.20%, depending on the strategy a client selects and the amount invested. Schwab or its affiliates earn revenue from the underlying assets in client accounts. This revenue comes from (i) revenue earned by Schwab or its affiliates on cash; (ii) advisory fees received by CSIM from Schwab mutual funds or ETFs that CSIA selects to buy and hold in client accounts; (iii) shareholder servicing fees received by Schwab from mutual funds that participate in Mutual Fund OneSource®; and (iv) remuneration Schwab may receive from the market centers where it routes ETF trade orders for execution.
- Schwab Managed Account Services™. The Select program features discretionary account management services by money managers ("MMs") unrelated to Schwab. The Schwab Managed Account Connection® ("Connection") program features discretionary account management services by the Schwab Affiliate, Charles Schwab Investment Advisory ("CSIA"). Schwab and its Affiliate make more money when a Schwab representative recommends an affiliated manager as compared to recommending a third-party manager. This is a material conflict of interest for the firm. Schwab charges a program fee which covers the MM's asset management services, as well as one or more of the following services provided by Schwab: (1) execution of transactions in equity securities, ETFs, exchange-traded notes, and agency transactions in fixed income securities; (2) custody of account assets; (3) program administration; (4) monthly account statements; (5) quarterly performance reporting; and (6) the services of a Schwab representative relating to program accounts. The program fee for Select and Connection ranges from 1.35% to 0.35% on the first $500,000 (depending on the MM and the strategy) to as little as 1.05% to 0.25% on assets over $2 million.
- Schwab Advisor Network® ("SAN"). Through SAN, Schwab refers individual investors to independent investment advisors, who provide a wide range of financial planning and wealth management services. Clients do not pay Schwab a fee for the service. However, SAN advisors pay a quarterly fee (the "Participation Fee") to Schwab to participate in the service, and Schwab receives additional compensation from trading activity in Schwab accounts managed by the SAN advisor. The Participation Fee has a sliding scale that starts at 0.25% of the assets attributable to the referral made by Schwab.
- Schwab Private Client ("SPC"). SPC is a fee-based program that combines ongoing non-discretionary investment advice with trade execution, asset custody, and other brokerage services. The provision of non-discretionary investment advice within SPC, including but not limited to, recommendations about how to allocate assets and whether to buy, sell, or hold particular securities in accounts enrolled in SPC, is delivered exclusively by Schwab Private Client Investment Advisory, Inc. ("SPCIA"), an affiliate of Schwab and a registered investment advisor.
Schwab's fee ranges from 0.80% to 0.30%, depending on the level of client assets enrolled in SPC. In addition to the SPC fee and Schwab's standard commissions, charges, and fees, Schwab and its affiliates (with the exception of SPCIA) earn money or receive benefits in other ways when executing or effecting recommendations that you may choose to implement as a result of advice you receive in SPC. The compensation and benefits are described above in the sections titled "Equities and Option Trade Execution," "Mutual Funds," "Exchange-Traded Funds," "Fixed Income Securities," and "Annuities."