Broker Check

Financial Industry Uncertainty

| March 15, 2023

We wanted to take this opportunity to address concerns that we have heard regarding the stability of the financial industry and, in particular, Charles Schwab - the custodian for many of our client's accounts.

First, while we believe there are significant challenges in the financial industry, Charles Schwab is a very strong financial institution. Not only do our clients hold accounts at Schwab, our firm's advisors, their family, our staff and our own 401(k) plan are all held at Schwab. We are confident in the financial and operational measures Schwab has put in place to protect all of us as account holders.

The current uncertainty began last week with the recent failure of 2 regional banks - Silicon Valley Bank and Signature Bank. It is important to understand why these banks failed to understand why Schwab, and other broker-dealers like them, are materially different.

With banks like Silicon Valley Bank, when deposits are removed quickly, the bank is required to back-fill those deposits with it's own capital. In Silicon Valley's case, that meant selling long-term bonds it purchased years ago and significant losses due to the now-much-higher interest rates. This instability caused customers to begin removing significant amounts of deposits. Ultimately, the bank did not have enough of its own capital to replace the deposits that had been withdrawn. That's when the FDIC took over.

Many financial institutions operate in different parts of the financial industry, which can be very complex and carry very different risks. We believe this caused the markets to broadly sell off all financial companies until it was better understood which companies were exposed to which risks. Many of those financial company stocks are increasing in value over the last 2 days once company specific context was made available.

A broker-dealer like Charles Schwab is fundamentally different than a depository bank. Brokerage client's assets are never comingled with the company's assets. Charles Schwab is one of the largest custodians of client brokerage accounts in the world at almost $7.5 trillion of client assets. Schwab increased its asset base by $41 billion in February 2023 alone, its second best February on record, after the best January on record and is on pace to average an additional $2.0 billion in new assets per day month to date for March of 2023. 

Charles Schwab does have a banking arm. And it's noteworthy that 80% of Schwab Bank's deposits are covered under the FDIC insurance limits, compared to 20% or less of deposits at Silicon Valley Bank. In addition to the approximately $90 billion of cash on hand in the bank, Schwab also has access to an additional $80 billion of capital through the Federal Home Loan Bank. This $80 billion is greater than amount of uninsured deposits held at Schwab Bank. 

Lastly, Schwab is required to carry SIPC insurance (similar to FDIC) on customer brokerage accounts. Schwab also carries supplemental SIPC coverage through Lloyds of London such that Schwab customers are insured up to $150 million per customer and $1.15 million in cash deposits per customer in Schwab brokerage accounts.

We understand that uncertain times like this in the financial industry cause investors a great deal of worry. One of our most valuable roles as your fiduciary advisor is to help filter and frame market news in a way that's meaningful to your family and your investments. We want you to know that we believe Schwab is in a strong financial position. While no financial institution is too big to fail, we believe Schwab is both financially and operationally capable of weathering this storm. All of this information as well as additional context is available in the links below.

Our firm and investment committee are actively monitoring the situation and will communicate any changes that you should be aware of. Should you have any specific questions or concerns, we would welcome the opportunity to speak with you and discuss your concerns. Please feel free to call us at 405-696-7140 or email us:

Andrew E. Oster, MBA, CFP, AIF
President & CCO

Richard DiAngelo, AIF
Vice Presidentff

Mara Scott
Director of Client Service