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News >  Business

Schwab drops account service fees, raises outlook

Associated Press

SAN FRANCISCO — Emboldened by its highest profits since the dot-com boom, Charles Schwab Corp. is dropping its remaining account service fees in the latest step back to the stock brokerage’s low-cost heritage.

The decision to drop the service fees, announced Thursday and effective Oct. 1, affects about 650,000 accountholders with household balances below $25,000.

Separately, Schwab also projected its earnings for the current quarter will range between $195 million and $205 million, the second highest three-month profit in the San Francisco-based company’s history. The anticipated results translate into 15 cents or 16 cents per share, above the mean estimate of 14 cents among analysts surveyed by Thomson Financial.

Hoping to accelerate its recent momentum, Schwab plans to spend about $30 million on a new national advertising campaign. The marketing expense, coupled with the elimination of the service fees, will trim 2 cents per share from Schwab’s fourth-quarter earnings.

Investors appeared to focus more on the fourth-quarter downside than the third-quarter upside. Schwab’s shares fell 15 cents to $14.35 during Thursday’s afternoon trading on the New York Stock Exchange.

Relinquishing the account service fees will cost Schwab about $40 million annually, a sacrifice that the company believes it can afford after shedding more than $300 million in annual expenses since mid-2004.

“We sort of lost our way by imposing fees to pay for an overhead structure that, quite frankly, was too high,” Christopher Dodds, Schwab’s chief financial officer, said during a Thursday interview. “Now that we have eliminated the high overhead, we are giving back some of that (savings) to our clients.”

The service fees typically ranged from $120 to $180 annually per account. Some customers still may be charged if they don’t keep at least $2,500 in brokerage accounts or a minimum of $2,000 in retirement accounts.

Besides dropping the service fees, Schwab also is abandoning a $3 handling fee for stock trades.

The latest fee cuts continue a trend established since founder Charles Schwab returned as the company’s chief executive officer 14 months ago. Some of its less expensive rivals, including E-Trade Financial Corp. and Ameritrade Holding Corp., lured away customers.

Besides cutting costs, Schwab has focused on lowering fees in a return to the discount philosophy that he pioneered 30 years ago. His predecessor, David Pottruck, had been boosting fees as he added more advisory services and other perquisites that alienated many of Schwab’s frugal customers.

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