updated 8:34 PM CET, Nov 20, 2019

Charles Schwab telling clients in UK, Europe their accounts must move or be transferred by year’s end

(Updated 11/07/2019) Charles Schwab Corp., the San Francisco-based, NYSE-listed financial services giant that is understood to have a significant client base of Americans resident outside of the U.S., has been contacting clients in Europe to inform them that they must take certain actions with respect to their accounts before the end of the year. 

Schwab clients in Italy and France who don't custody their accounts through a U.S.-based adviser are being told they must “transfer your assets to another financial services firm as soon as possible” or close or sell their positions, while the rest may remain with Schwab if they are comfortable with the fact that their accounts will move to Charles Schwab & Co Inc., the firm's U.S. operation.  

The company said the reason had to do with a “change [in] its business model…mostly due to the UK’s decision to leave the EU”.

The company services its European clients out of its London offices, (pictured above, near St. Paul’s Cathedral in London’s financial district), which will remain open, a company spokesperson said on Friday.

Once the UK leaves the European Union, the ability of UK-based financial services companies to operate freely across the bloc’s borders, under the EU’s “passporting” regime, is expected to end, which is why hundreds of UK firms have already relocated staff and/or business operations to such EU cities as Dublin, Frankfurt and Luxembourg.

“Clients in the UK will have no change in service, if they want to stay with Schwab,” Schwab spokesperson Glen Mathison said.

“It gets a little more complicated with certain European countries, where there may be instances where we will not be able to serve our current account-holders via our U.S. broker-dealer.”

Mathison stressed that Charles Schwab & Co. Inc., the U.S. parent company, was already well used to looking after clients overseas, with “a U.S.-based Global Services team that’s available to [clients] on the phone, via the website and online”.

The deadline for Charles Schwab clients in Europe to take some action with respect to their accounts is Dec. 31.

‘You will need to
transfer your assets’

In its emailed correspondence to one Italian client, sent on Nov. 1 and headlined “Charles Schwab UK is no longer able to do business in your country. You will need to transfer your assets”, Schwab began by saying, “Charles Schwab UK Ltd will change its business model, and will no longer be able to do business in your country.

“This change is mostly due to the UK’s decision to leave the EU.”

After acknowledging the disruption this news could cause its account-holders, and reassuring them that they would “still be able to access” their accounts throughout the process, the correspondence added: “As soon as possible, you will need to transfer your assets to another financial services firm…

“Alternatively, you may close or sell your positions held at Charles Schwab UK and make a full cash withdrawal.

“We will waive or refund any Schwab transfer or wire fees incurred up to 31st December 2019 for entire account transfers and/or wire withdrawals only.

“We will also offer you every assistance throughout this process.”

The correspondence is signed by Charles Schwab UK Ltd managing director Richard Flynn, and gives a London phone number for customers with questions to contact its “Global Services team”.

Charles Schwab doesn’t disclose how many clients it has in Europe. Its only other overseas outpost besides London, going forward, is one in Hong Kong.

Series of changes

The news of the changes to its European business comes at a time when Schwab – like many other financial services companies at present  – is having to adjust to major changes in the markets in which it operates, alongside new and burdensome-to-comply-with regulations.

As reported here in August, the company announced that after Sept. 19, Schwab clients resident in the EU would no longer be able to purchase U.S.-registered exchange-traded funds (ETFs) and exchange traded notes, as it adopted to new EU regulations known as the Markets in Financial Instruments Directive (MiFID II).

Also in August, it was revealed that the company was closing its Sydney office, which it had opened in 2017, although – as in the UK and potentially certain other countries in Europe as well – it said it planned to continue to service its clients there remotely, through its U.S. operations.

Media reports at the time noted that Schwab had actually been present in Australia prior to 2017 but had left the market in 2000, in response to market conditions.

In September, Schwab announced it would close its Singapore office as well, which it had also opened in 2017, by the end of the year; but unlike Australia, it said it planned to cease operations there completely.

The company said this was because the company would soon cease to be licensed to do business in Singapore, with the result that for existing clients there, as in certain European jurisdictions once the UK is no longer part of the EU, “moving to an account with the U.S. [arm of Schwab] is not an option”.

The Singapore office had been set up with the aim of helping Singaporean and Asian investors to access the U.S. investment market.

In closing it, company officials cited a new corporate policy of concentrating those areas of its business that were generating the best returns, a strategy numerous other financial institutions have adopted recently, in response to an increasingly competitive global marketplace.

‘Eliminating commissions
for stocks, ETFs and options’

Perhaps Charles Schwab’s biggest recent announcement came on Oct. 1, when it said it would eliminate all commissions on its online trades, a move that The Wall Street Journal noted had “rattled” its rivals in the brokerage business, at a time when investors have come to believe that fees for financial services “should be low or even non-existent”.

Schwab said it was “eliminating commissions for stocks, ETFs and options listed on U.S. or Canadian exchanges, across all mobile and web trading channels” in order to “[remove] the final barrier to making investing accessible to everyone”.

The start date for the new pricing regime was Oct. 7, 2019, to coincide with the release of company founder “Chuck” Schwab’s book, Invested, the company said in an announcement.

Schwab’s rivals in the U.S. brokerage space, such as E-Trade and TD Ameritrade, immediately reacted to the Schwab move by dropping their commission fees as well. Days earlier, U.S.-based rival Interactive Brokers announced it was launching a new commission-free service it called IBKR Lite to permit commission-free trading of U.S. exchange-listed stocks and ETFs.

The WSJ noted that what it called a “race to zero” taking place in the discount brokerage market dominated by Schwab was happening alongside an identical trend taking place “in other areas of finance, like asset management, where Vanguard Group and Fidelity Investments recently eliminated fees for many funds offered on their platforms, and financial advice, which some digital advisers are offering free of management fees”.

The relevance of the price-cutting battle taking place in the U.S. for Schwab’s overseas business – particularly those with American citizenship – is that looking after American clients who live outside of the U.S. has become prohibitively expensive for financial services institutions because of such U.S. laws as the Foreign Account Tax Compliance Act (FATCA), which obliges non-U.S. financial institutions to report to the IRS in some detail about their American clients, and their holdings.

As this and other publications have been reporting, this is why many banks and other financial services institutions have stopped accepting American expats as clients, or avoid them where possible.

The difficulties American citizens have been having in obtaining banking services in the wake of FATCA’s coming into force in 2014 became so severe and widespread, in fact, that in 2016, the American Citizens Abroad arranged for the U.S. State Department’s Federal Credit Union to offer a range of bank accounts and bank services for ordinary U.S. expats, the way it does to government employees stationed abroad.

This option that remains available today, and may be accessed through the ACA’s website.

Founded in 1971

Charles Schwab was founded in 1971 by Charles R. Schwab, who retired as chief executive in 2008 but who remains chairman, and the company’s largest shareholder.

Today his namesake company (NYSE: SCHW) has more than 360 offices across the U.S., and 12.1 million active brokerage accounts, 1.7 million corporate retirement plan participants, 1.4 million banking accounts, and US$3.77trn in client assets as of Sept. 30.

Reaction to news 

Among the first American expat wealth specialists to learn of Charles Schwab's plan to leave those European markets it will no longer be able to service, post-Brexit, from London was Keith Poniewaz, director of International Advisory Services for Madison, Wisconsin-based Walkner Condon Financial Advisors, which has clients across Europe, some of whom are also Schwab clients.

In his opinion, Schwab "was never truly an international brokerage", Poniewaz said, and is only now "belatedly realizing the headaches that individual Americans have had to work around regarding the complexities of compliance in multiple jurisdictions".

He added: "Investors should look to custody their assets with a truly global brokerage, such as Interactive Brokers, which does a great deal of work with investors around the world." 

Editor's note: This story was updated on Nov. 7 to specify the two countries in Europe – Italy and France – in which Charles Schwab clients won't have the option of remaining with Schwab after the end of the year through it's U.S. business, and who therefore must make plans to move their accounts to another brokerage firm or close them, and also to add the fact that those whose accounts are custodied by a U.S.-based investment adviser will not be obliged to move them.