Schwab’s Statement Delivery Policy and Accountholder Verification Process are Definitely Unique.

John Robinson |

Sometimes doing things differently from industry peers may be viewed as a hallmark of forward-thinking leadership and an avante-garde corporate culture.  Other times, differentiation from peers can make the firm’s leadership seem downright wacky and out of touch.  In this article, I will share two of Schwab’s unique policies and procedures and let you be the judge as to where you think the company falls on this spectrum.


  1. Knowledge-Based Authentication (KBA) and LexisNexis

Financial Planning Hawaii clients who reach out to Schwab for online or phone support must go through certain steps to verify their identity.  It is no secret that online fraud is rampant, and protecting clients' financial assets and personal data should be a top priority at every firm.  Virtually all financial institutions apply some form of multi-factor authentication before offering access assistance or transaction processing.

To its credit, Schwab takes data security extremely seriously.  Schwab takes the verification process to an entirely different level by using a combination of SMS (text) and “knowledge-based authentication” (KBA).  In theory, quizzing clients about details of their financial history that are arcane enough that only the client would know the answers, seems like a reasonable screening methodology.

In practice, however, it is a relatively frequent occurrence that the KBA questions generated stump the true clients and prevent them from accessing their accounts.  I touched on KBA briefly In my tongue-in-cheek November blog post, “Client Verification with Schwab – So Secure even you can’t log in!” While some percentage of failed responses may be attributed to fading memories of details such as ancient car makes/models or street numbers from addresses 20-30 years ago, often the failed responses result from flaws in the underlying data from which the questions are pulled.  In fact, that is a common complaint about LexisNexis, the global information gathering and data brokerage  that Schwab has enlisted at its third-party risk management solution -

READ:  When LexisNexis Makes a Mistake, You Pay For  It (Newsweek)

Aside from LexisNexis’ reputation for sloppy, inaccurate data collection, there is more than a hint of irony in Schwab’s decision to hire this company to help protect its account holders’ personal data.  First, LexisNexis has suffered at least one major security breach that included consumers password information and other extremely sensitive personal data –

READ:  LexisNexis breach reveals “secret questions” (USA Today)

Second, and perhaps more disturbing, is the fact that LexisNexis is currently the defendant in at least two ongoing class action lawsuits alleging that the company violated the Fair Credit Reporting Act by illegally obtaining private consumer data and then selling extremely detailed reports of consumers' identities and behaviors.  Prior to these cases, LexisNexis paid$13.5 million for Fair Credit Reporting Class action Settlement in 2014.

READ: LexisNexis illegally collected and sold people’s personal data, lawsuit alleges. (CBS News)

As an added “cherry on top” of Schwab’s misguided KBA process, Schwab also prohibits account holders’ financial advisors from participating in calls to Schwab Customer support because of the sensitive nature of the data in the questions generated by LexisNexis’ software.  Of course, we financial advisors already have access to the client’s accounts as well as their detailed banking instructions, social security numbers, birth dates, etc., and our purpose for being on the calls is to help our clients get the same viewing access to their Schwab accounts that we already have.


  1. Statement Delivery, Consolidation, and Bundling

First, a bit of good news (I think) – Schwab recently announced that its Investment Advisor Services account holders (i.e., FPH clients) can expect to see new and improved monthly statements in the near future.  Some FPH clients have expressed difficulty reading and understanding their current Schwab statements and voiced their opinion that the TD Statements were superior.  Although I am cautiously optimistic, as I have learned through our first six months on the Schwab platform, one man’s “improvements” may be another man’s nightmare. As a case in point, as a precursor to the rollout of the new statements, Schwab has elected to eliminate consolidated statements that summarize the information from multiple account statements delivered in the same envelope. 

The bigger and decidedly “less good” news, however, is that Schwab is dramatically revamping its statement bundling protocols.  Specifically, under the new policy, only accounts with the same tax ID number and same mailing address may be bundled.  This means that spouses cannot have their statements bundled together! “Yes,” you read that correctly, and “No,” I am not making this up.  I have never heard of any other asset custodian/investment firm that does not permit spouses to receive statements in a single envelope. 

According to Schwab’s operations, this segregation is due to privacy concerns and the fact that husbands and wives may manage their accounts separately.  While this may be true for some couples, that concern was previously addressed by having both spouses sign the bundling authorization form.  Under the new policy, bundling is verboten even if both spouses sign the bundling authorization form.

To illustrate how the new policy may work in practice, if a client household consists of a husband and wife with a joint account, IRAs for each, two UTMA accounts for their minor children, and two corporate accounts for a total of seven accounts, the couple will still receive six separate envelopes in the mail if they elect to have statements bundled.  Each spouse will receive a copy of their joint account bundled with their respective IRA statements and individual statements will be sent for the four UTMA and corporate accounts (six separate envelopes).  My understanding is that the absence of bundling will generate eight (!)  statement envelopes, as each spouse will receive a joint account statement.

Equally perplexing is Schwab’s policy on third-party statement delivery.  We have many clients who have requested duplicate statements be sent to their CPAs or the third-party administrators (TPAs) for their pension and self-dircted 401(k) profit sharing accounts. Virtually all CPAs and TPAs want statements delivered electronically.  Schwab, in its infinite wisdom, insists on paper delivery for all third-party statements. 

When I pressed for an explanation of its perplexing policies, I was told that the reason is that Schwab is concerned about client privacy and security. Huh???  Each month, I receive 10 envelopes in the mail from Schwab.  I would hate to have Schwab’s postage bill.


Proud to be Unique

As you can see from these two policy examples, Schwab dances to its own drummer - albeit a drummer who seems to have sampled some magic mushrooms. I have experience working on many different investment platforms – A.G. Edwards, Smith Barney/Citigroup, Wachovia, Wells Fargo, NFS, TD Ameritrade, and now Schwab. Every firm has its own corporate culture that has been shaped by its evolutionary history and corporate leadership. Bernie Clark is the head of Schwab’s investment advisory services platform.  On the very first business day following Schwab’s integration of TD Ameritrade last fall Clark and his team sent out press releases referring to the integration as a “snoozefest” and “declaring victory” over the integration process.  Meanwhile, Schwab’s customer support lines were overwhelmed with calls from advisers whose integration experience was far from a “snoozefest.”

A month later, at a Schwab hosted advisory conference, Clark and his leadership team were walking back their celebratory comments and acknowledged that the experience did not go smoothly for a limited group of advisors (a prominent industry thought leader reported that thousands of advisors had been adversely impacted). In preaching to his flock, Clark scolded his audience for sharing their negative experiences with the media and even instructed a reporter not to spin his comments the wrong way.

READ:  Bernie Clark chides TD Ameritrade RIAs during Schwab IMPACT (RIABiz)

I have no idea if Schwab’s culture is a reflection of Bernie Clark or if Bernie Clark is a reflection of Schwab’s culture.  Either way, Schwab definitely dares to be different.  As I stated at the outset, I leave it to the reader to decide where Schwab’s leadership falls on the “different spectrum.”


What About Switching to Another Custodial Platform?

For my part, I have been candid in sharing the challenges and stress that Schwab’s integration has caused for Financial Planning Hawaii and our clients.  Obviously, I am not a fan of the firm’s culture.  As for Schwab’s investment trading and custody platform, I rate it a solid B-/C+.  It is functional but lacking some capabilities we previously enjoyed without bringing much in the way of new value-added services.  TD’s platform and customer support offered a much better client experience.  All of this of course begs the question of whether we should switch to a different platform.

Before Schwab acquired TD Ameritrade the investment advisory platform space was dominated by three players – Schwab, Fidelity, and TD Ameritrade.  In allowing the acquisition to go through, the Federal Trade Commission eliminated an important competitive alternative and effectively granted Schwab and Fidelity a duopoly.   While there are a number of up-and-coming custodial platforms with wonderful technology that are rushing in to fill the void, I worry that these platforms may not offer the same access to the brokered CD and bond markets that Fidelity and Schwab provide.

However, the #1 reason I am reluctant to dump Schwab is that the process of transferring to another custodian is stressful and disruptive for our clients is enormously labor intensive and stressful for me and the entire FPH Team.  Instead, I hope to establish another custodial alternative sometime this year to as an ad hoc alternative to any clients who are unhappy enough with Schwab to endure the disruption.