The Wall Street Journal featured a page 1 story yesterday entitled, "How Schwab Ate Wall Street." It says, "Mr. Bettinger recounts how Mr. Schwab continually found new ways to defy conventional wisdom about fees. In 2005, the company was about to offer its first checking accounts. Mr. Bettinger, who had climbed the ranks to president after selling his Ohio record-keeping company to Schwab in 1995, was armed with an 80-page presentation laying out pricing scenarios for clients withdrawing from ATMs. Mr. Schwab interrupted on slide three, asking what clients would prefer. The answer: free withdrawals from anyone's ATM. 'It was a pure eureka moment,' Mr. Bettinger said. 'Who cares what the competition does? Long term, it's the best decision.' Three years later, when bailouts were sweeping Wall Street and Mr. Bettinger became CEO, he [launched] a fee-free credit card in 2008 that paid clients 2% cash back—generous at the time. The idea was to encourage more clients to open bank accounts and transfer money from traditional banks." The piece continues, "Schwab's other businesses fed the bank: As its lowered and eliminated fees attracted new funds, it parked some of the funds in its bank and earned interest by investing or lending the funds out. So while it earned less off brokering and products by lowering costs on trading and fees, those cost reductions helped steer new money to the bank, where Schwab could earn growing returns on it.... Schwab's bank made more than half the company's overall revenue of $10.13 billion in 2018, up from 29% of revenue in 2009." The Journal adds, "Schwab turns clients like Mr. Post into more-profitable customers in part by putting them in funds run by its $400 billion investment-management arm. Some have small annual fees that add up to billions a year. And Schwab says in regulatory disclosures it may require robo clients to keep up to 30% of the account in cash. Doing so, Schwab earns money from interest and lending the funds to others. Jon Stein, founder and CEO of robo-advising pioneer Betterment LLC, said these moves undermine Schwab's sales proposition. 'Free advice is a sham,' he said. When the relatively high cash allocation and sweep of funds into low-yielding bank accounts are taken into account, 'they are charging way more than we are.' Betterment charges 0.25% annually on assets." "Cash plays an important role in a diversified portfolio," said Schwab spokeswoman Alison Wertheim. The service was designed to help investors get advice, she said, and "many investors understand and are comfortable with this approach."

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