Charles Schwab May Not Go Bust… But Some of Its Investors Might
It’s entirely possible that David Grusch saw a few aliens.
But they most likely climbed out of a whiskey bottle, not a flying saucer.
Grusch is the “UFO whistleblower” who made headlines last year with his claims that the U.S. government is hiding alien spaceships. Apparently, he also has a serious substance abuse problem… as investigative journalist Ken Klippenstein recently discovered using a Freedom of Information Act (“FOIA”) request to access Grusch’s police records.
Perhaps the truth about the little green men is more likely to be found “in rehab” than “out there.”
We wouldn’t know this – or any of thousands of other formerly hidden bits of info, both serious and not-so-serious – if not for a quiet, bespectacled U.S. Congressman named John E. Moss.
Moss was the architect of FOIA – which took him 10 years to coax through Congress, under the disapproving glare of several presidents. Under FOIA (passed into law in 1966), U.S. citizens can request – and receive – a wide variety of previously unreleased government documents at state and federal levels. It’s often described as the law that keeps Americans “in the know” about their government, and – as long as you know what to ask for – you can use FOIA to find out quite a lot.
During his 25-year tenure in public office, John Moss managed to tick off his colleagues on both sides of the political aisle. (President Lyndon B. Johnson, who grudgingly signed FOIA into law, complained that the act was likely to “screw the Johnson administration.”) In defiance of his doubters, Moss was fanatically committed to transparency… and to supporting the interests of the average American citizen.
Moss didn’t stop with FOIA. He spearheaded the Consumer Product Safety Act of 1972, which regulated the contents of household products so people could be sure they weren’t handling harmful ingredients. And he was responsible for the Magnuson-Moss Warranty Act of 1975, a piece of legislation that made it much tougher for car dealers to sell lemons.
And – perhaps most impressively – in 1975, he opened up the stock market for retail investors. (Without Moss, we here at Porter & Co. would likely have a very different business model today.)
Prior to that year, securities traded at fixed commission rates – and the commissions were so high that the average Joe typically couldn’t afford to participate. Most stock market traders, back then, were deep-pocketed tycoons and institutions. (You’ll recall that something very similar happened once upon a time in the airline industry.)
But Moss’s groundbreaking Securities Act Amendments of 1975 abolished these high fixed rates and opened them up to competition, which in turn, made it much easier for normal folks to invest in stocks.
Moss’s legislation effectively deregulated the stock market – a watershed moment for trading and investing worldwide.
And it was that moment when the Charles Schwab Corporation (SCHW), the first “regular-people” broker, got its start.
San Francisco-based Charles (“Chuck”) Schwab had been in the traditional brokerage business for a few years. But, following the passage of the Securities Act, Schwab realized he could now slash his fees, market aggressively to retail investors, and become the nation’s go-to “discount broker.”
Schwab charged half of what regular brokers did, made the decision to stay open 24/7 – and soon his phones were ringing off the hook, to the detriment of his competitors.
It was a winning strategy. Today Schwab is the U.S.’s largest publicly traded brokerage company, holding over $9 trillion in client assets. (Our publisher and CEO, Kim Iskyan, has fond memories of opening his first trading account there many years ago.)
But while Schwab is still best known as a discount broker, its business has changed quite a bit since those early days in the 1970s.
The Discount Broker That Isn’t
Today, Schwab offers a number of additional financial services, including asset management and retail banking services like checking and savings accounts and home mortgages.
As you can see below, Schwab’s banking services business now generates almost 50% of its total annual revenue. Meanwhile its traditional brokerage segment – which over the decades became a highly competitive business, to the point where today most brokerages, including Schwab, don’t even charge commissions for basic equity trades – accounts for less than 20%.
In other words, Schwab is more a bank than a brokerage firm today. And that could ultimately spell trouble for its shareholders in the years ahead.
