Investors can choose from many brokerage accounts if they want to buy stocks and funds, but few of those options can compare with Fidelity and Charles Schwab.
Fidelity has been in business for more than 75 years and has $5.8 trillion in assets under management ($15.1 trillion in assets under administration) as of late February. The company also employs more than 77,000 associates who help more than 50 million customers in 11 countries.
Schwab boasts $10.3 trillion in client assets and is approaching 37 million active brokerage accounts. The financial firm also has more than 400 branches and more than 32,000 employees.
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Both companies specialize in low-cost exchange-traded funds, or ETFs, and index funds that are among the best in the industry. You’ll be working with a solid company regardless of which one you pick, but there are a few differences to know before choosing one of these investment stalwarts.
Weighing these factors can help you make the right decision for your finances:
— Account and investment options.
— Order types.
— Performance and cost.
— Management options.
— Functionality and tools.
— Overall appeal.
Account and Investment Options
Both brokerage firms have no trading fees and give you plenty of options. Investors can choose from a wide range of stocks and funds, and they can even buy fractional shares of their favorite companies.
Fidelity and Schwab both offer access to thousands of no-load, no-transaction-fee mutual funds and ETFs with low minimum investments. You can accumulate shares in many of these funds with as little as $1. Charles Schwab partners with T. Rowe Price to showcase additional actively managed mutual funds to expand your pool of choices. Both firms offer options and charge a 65-cent fee for each contract you trade.
However, each platform offers some investment opportunities that you won’t find on the other. Fidelity is the brokerage firm for you if you want to trade cryptocurrencies, while Schwab is the right choice if you want to trade futures or forex. Although Schwab can give you access to crypto-related ETFs, coin trusts and company stocks, it does not offer spot trading of cryptocurrencies.
Schwab is the only brokerage firm of the two that offers futures, but that’s not the only reason traders may want to consider Schwab over Fidelity. Misty Garza, vice president and financial advisor at Bogart Wealth, explains Schwab’s advantage here: “Schwab has a customizable trading platform called thinkorswim for those active traders who want robust tools and customization of complex strategies and techniques.”
There isn’t much of a difference for long-term investors. Fidelity and Schwab offer several retirement plans, such as traditional and Roth IRAs, individual 401(k) plans, SEP IRAs and rollover IRAs. Also, both let you buy bonds, insurance and annuities.
Order Types
Fidelity and Schwab both let customers make the same types of orders. Market orders offer immediate transactions, while investors have to wait for assets to reach specified price points before limit orders go through. Both brokerage firms also offer the four conditional orders: contingent, one-triggers-the-other (OTO), one-cancels-the-other (OCO) and one-triggers-a-one-cancels-the-other (OTOCO).
[Read: 7 High-Return, Low-Risk Investments for Retirees]
Performance and Cost
Fidelity and Schwab offer plenty of mutual funds and ETFs that have delivered respectable long-term returns. Some of their funds have outperformed benchmarks like the S&P 500 and Nasdaq Composite over several years.
However, both brokerage firms also let investors choose from funds that have high yields and less volatility than the broader stock market. Most investors will have no issue with finding Fidelity and Schwab funds that align with their risk tolerance and long-term financial goals.
A history of steady performance indicates less volatility than a fund that has significant performance swings over the course of several years. Comparing a fund to an appropriate index can help you gauge if the fund is performing well or falling below expectations. Investors should also review each fund’s fees, historical performance and asset allocation to gauge how they may perform in the future.
Management Options
Fidelity and Schwab investors can choose from active, passive and robo advisor management options. There aren’t many differences between each brokerage firm’s active and passive management, but the robo advisors have some nuanced differences, as you’ll see below.
Active Management
Investors who buy shares of actively managed funds can expect higher fees regardless of which brokerage firm they use. Fidelity and Schwab offer many actively managed funds, but Schwab has an expanded offering due to its partnership with T. Rowe Price. Schwab receives compensation for promoting T. Rowe Price’s funds.
While actively managed funds aim to outperform benchmarks, it’s easier said than done. Most actively managed funds end up underperforming the benchmark, and the higher fees don’t help. Elevated expense ratios mean you keep less of the profits, and some actively managed funds have expense ratios that exceed 1%.
Passive Management
Passively managed funds have lower expense ratios because they copy popular indexes instead of trying to do something completely new. Rather than try to outperform the S&P 500, some funds mimic the index and go through semiannual portfolio rebalances.
Fidelity and Schwab both offer these funds, and you can find expense ratios below 0.1%. If you want a simpler approach to investing with lower fees, passively managed funds may be right for you.
“Passive management is good for those who want to be able to have a hands-off approach to their investments,” Garza says. “Passive management is typically geared toward index investing and offers low-cost investment options.”
A passive approach makes it easier for more investors to enter the market and generate a return on their capital. You don’t have to monitor individual stocks, analyze valuation metrics or pore over earnings reports. The learning curve is more generous for passive investors who prefer to put their capital into a fund that mirrors a benchmark, then set it and forget it.
Robo Advisors
Robo advisors allow you to make algorithm-based investments. This technology lets you set rules that align with your risk tolerance, portfolio strategy and other parameters. Then, the robo advisor executes trades on your behalf.
These robo advisors allow investors to be more active in the stock market without spending as much time staying on top of price fluctuations. However, it’s still good to monitor your robo advisor to ensure the rules you established still match up with your long-term financial goals.
Robert Johnson, professor of finance at Creighton University’s Heider College of Business, shared some key insights to consider before using a robo advisor: “The convenience of robo advisors is attractive to many, as they are available 24/7,” he says. “The cost of robo advisors is considerably less than that of human advisors. The biggest drawback of robo advisors is that they are largely a one-size-fits-all solution. In other words, if two individuals are of the same age and indicate that they have the same risk tolerances, robo advisors will provide similar solutions. But, we are all different, we have different other asset holdings and customized solutions are necessary.”
Fidelity and Schwab both offer robo advisors. However, it’s easier to get started with Fidelity Go since the firm does not have a minimum investment requirement to open an account. You must have at least $5,000 to open a robo advisor account with Schwab Intelligent Portfolios. Schwab does not have an advisory fee for its robo advisor, though, which is a key advantage.
Fidelity has no advisory fees for balances of less than $25,000. A 0.35% advisory fee applies each year if your portfolio is $25,000 or more. The extra fee includes unlimited one-on-one coaching calls with Fidelity advisors. Schwab offers 24-hour customer service, but it also offers a Premium option for accounts of $25,000 or more that gives you access to one-on-one guidance from a certified financial planner for a one-time planning fee of $300 and a monthly fee of $30 after that.
Functionality and Tools
Beginners and advanced investors can turn to Fidelity and Schwab for an array of useful tools and resources. Thinkorswim gives Schwab an edge for traders over Fidelity’s competitive Active Trading Pro. Both platforms offer advanced stock screeners and trading tools that can help you discover enticing investment opportunities. Both also offer extended-hours trading, and Schwab recently expanded its 24-hour trading capabilities to include hundreds of additional funds.
Overall Appeal
Fidelity and Schwab are both excellent choices, as these investment firms offer thousands of funds representing many different strategies. Each company offers 24/7 live support with financial professionals. There are some differences, such as Fidelity being better for crypto traders and Schwab being more optimal for futures traders. Fidelity’s robo advisor is better for investors who are getting started, but Schwab may be more affordable if you have a higher balance.
Passive investors can pick either firm, but if you want to take a more active, trading-based approach, Schwab’s thinkorswim platform is hard to beat. Overall, both brokerage platforms are reliable choices for investors.
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Fidelity vs. Schwab: Which Is the Right Choice for You? originally appeared on usnews.com
Update 03/17/25: This story was published at an earlier date and has been updated with new information.
