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Legal & Compliance
 

Investment Advice in Retirement Accounts

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Overview and Introduction

Since Charles Schwab founded our firm, we have been focused on serving and protecting the interests of our clients. We know that you expect great value and a great experience you can trust. And at no time are these expectations more important than when planning for your retirement.

In this document, and in related documents we link or refer to that are also available on our website, we explain what you—as a Retirement Investor—can expect from Schwab when providing you with investment advice under Department of Labor ("DOL") rules. When you ask us for advice about the investments in your Retirement Account, Schwab and our representatives will act as fiduciaries and give you investment advice that is in your best interest. We tell you how Schwab earns money when you follow our advice, and we give you other information which we believe will help you make the best decisions about investing for your future.

We want you to be confident that the advice you receive from Schwab reflects your investment needs and goals. In that spirit, we encourage you to review this information carefully, get engaged in your retirement planning, and speak to your representative about your questions. We've also included a glossary at the end of this document for definitions of capitalized terms, some of which come from the DOL's regulations.

What Is Investment Advice?

Everything you read here applies to the one-on-one "investment advice" recommendations our representatives give to Retirement Investors who ask for investment help. This includes situations where a Schwab representative recommends:

  • A portfolio management service in which you pay a fee for ongoing investment advice.
  • You buy, sell, or hold a security or invest using a particular strategy.
  • You roll over funds from an employer-sponsored retirement plan such as a 401(k) into an IRA or transfer an IRA from another firm to Schwab.

All of these situations involve investment advice that is specific to you as a Retirement Investor and to your individual situation.

We also help clients with a variety of financial needs that are beyond the scope of this document. For example, this Notice is not meant to apply to advice that you may receive after enrolling in one of Schwab's portfolio management services (described below), which are covered by their own investment advisory agreements and disclosures.

Providing Advice as a Fiduciary and Meeting Impartial Conduct Standards

When a Schwab representative gives you investment advice, we and the Schwab representative will act as fiduciaries under ERISA, the Internal Revenue Code, or both (as applicable), and follow the Impartial Conduct Standards described in this section with respect to the investment advice recommendation.

Our fiduciary obligation applies to the recommendations we make in response to your requests. If you want professional assistance with monitoring the investments in your Retirement Account, you should consider one of our portfolio management services that provides this type of ongoing support.

  • When making recommendations, Schwab and our representatives will only give you investment advice (as defined above) in your best interest. This means that we act as a fiduciary under ERISA and the Internal Revenue Code.
  • The compensation Schwab and our representatives receive when you follow our investment advice recommendation will be reasonable.
  • We measure this by reviewing the value of our services and comparing market prices for similar services. When a Retirement Investor asks us questions about our investment advice, our answers will be straightforward and accurate.

Recommendable Products and Services

Schwab offers a full range of investment products and portfolio management services to help you meet your financial goals. As a Schwab client, you have access to thousands of investment products which are managed by third parties. In some cases, Schwab receives compensation (Third-Party Payments) for providing services relating to those products. You also have access to Schwab's own high-quality, proprietary investment products for which we are compensated as well. More information about the Third-Party Payments and Proprietary Products is provided in the next section (Material Conflicts of Interest).

The investment advice Schwab representatives give reflects the availability of products and services at Schwab as well as the advice policies and guidelines Schwab requires its representatives to follow. The result of these "limitations" (a term the Department of Labor uses) is that best interest advice may result in the recommendation of a Schwab proprietary investment or service or other investment that generates Third-Party Payments to Schwab.

To learn more about Schwab's approach and limitations to investment advice by type of investment product, as applicable to retirement and non-retirement accounts, please read How We Make Investment Recommendations at schwab.com/compensation.

Material Conflicts of Interest

Schwab earns money on your Retirement Account through investment products and portfolio management services. If a Schwab representative recommends one type of product or service over another, there is a Material Conflict of Interest due to the varying amounts of revenue Schwab earns on different products and services. Because of that, it's important to understand how Schwab is compensated when you follow our investment advice. Our goal in this document is not to provide an exhaustive list of fees and compensation associated with every product and service available at Schwab. Rather, we want to give you a sense of how Schwab makes money and a general understanding of our Material Conflicts of Interest.

How Schwab Compensates Representatives Who Provide Investment Advice

Some, but not all, of our representatives provide investment advice. Although Schwab as a company may earn more or less revenue depending on the investment product or portfolio management service a Schwab representative recommends, we have designed their compensation to be neutral when they give investment advice. Compensation differences are based on the time, complexity, and expertise necessary to understand, recommend, and provide ongoing service to a client for different categories of investment products and portfolio management services. While compensation for representatives is based on those different factors, they do earn more for recommending certain portfolio management services over others and earn less for recommending individual investment products like mutual funds, ETFs, stocks, and bonds. Although the revenue the firm earns varies among mutual funds, ETFs, stocks, and bonds, our representatives are paid on overall assets in a client's account no matter how they are invested. They are not paid on commission. This means they are paid the same no matter whether a client decides to buy an affiliated ETF, a third-party mutual fund, or an individual stock or a bond.

For more details, read our Investment Professional Compensation Disclosure Brochure at schwab.com/compensationdisclosure.

How Schwab Earns Money

Schwab receives third-party payments, and Schwab or its Affiliates may earn varying degrees of compensation, from proprietary investment products or portfolio management services that our representatives recommend. Generally, Schwab makes more money when a client enrolls in a portfolio management service, due to the ongoing asset management fee, or when a client holds high cash balances—as opposed to holding individual securities in their accounts.

The amount you pay and the compensation Schwab receives are the same whether you direct your account on your own or ask Schwab for investment advice. Schwab imposes charges and fees for various transactions and activities. A complete list of Schwab's charges and fees is contained in the applicable Charles Schwab Pricing Guide. For the Charles Schwab Pricing Guide for Individual Investors, please visit schwab.com/pricing. For the Charles Schwab Pricing Guide for Retirement Plan Accounts, please visit schwab.com/PCRA. You may also call us at 800-435-4000 to request a hard copy. Schwab and its Affiliates also earn money or receive benefits in other ways when you follow our advice. In some cases, compensation is paid to Schwab by a third party, and these fees ultimately may be paid by you as a shareholder or investor.

The fees charged by Schwab and the compensation earned by Schwab create the potential for a Material Conflict of Interest. This is because Schwab makes more on some products and services than others.

Therefore Schwab may make more, or less, depending on which product or service a Schwab representative recommends to you.

To learn more about how the compensation Schwab earns and our potential conflicts of interest, please read Schwab Compensation at schwab.com/compensation.

Glossary of Terms

For purposes of this Notice, capitalized terms have the meanings shown below:

  • "Individual Retirement Account" means any account or annuity described in section 4975(e)(1)(B) through (F) of the Internal Revenue Code of 1986, as amended (the "Code").
  • "Material Conflict of Interest" means Schwab has a financial interest in an investment advice recommendation that a reasonable person would conclude could affect the exercise of our best judgment as a fiduciary.
  • "Plan" means any employee benefit plan described in section 3(3) of ERISA and any plan described in section 4975(e)(1)(A) of the Code.
  • "Retail Fiduciary" means a fiduciary of an IRA or Plan (as defined above) that is not described in 29 CFR 2510.3—21(c)(1)(i).
  • "Retirement Account" means an IRA or Plan (as defined above) and may include such Schwab account types as Traditional IRAs, Roth IRAs, Roth Conversion IRAs, Rollover IRAs, Inherited IRAs, Custodial IRAs, SEP-IRAs, SIMPLE IRAs, and Education Savings Accounts and Qualified Retirement Plan (QRP), Keogh, Company Retirement Account (CRA), Pension Trust, Individual 401(k) and 403(b)(7) accounts, and Schwab Personal Choice Retirement Account® (PCRA).
  • "Retirement Investor" means: (1) a participant or beneficiary of a Plan subject to Title I of ERISA or described in section 4975(e)(1)(A) of the Code, with authority to direct the investment of assets in his or her Plan account or take distributions; (2) the beneficial owner of an IRA acting on behalf of the IRA; or (3) a Retail Fiduciary with respect to a Plan subject to Title I of ERISA or described in section 4975(e)(1)(A) of the Code or an IRA. The terms "you" and "your" in this Notice refer to a Retirement Investor.
  • "Third-Party Payments" include sales charges when not paid directly by the Retirement Account; gross dealer concessions; revenue sharing payments; 12b–1 fees; distribution, solicitation, or referral fees; volume-based fees; fees for seminars and educational programs; and any other compensation, consideration, or financial benefit provided to Schwab or an Affiliate or Related Entity by a third party as a result of following Schwab's investment advice.
  • "We," "us," "our," and "Schwab" mean Charles Schwab & Co., Inc.

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