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May 1st Marks 30th Anniversary of Brokerage Commission
Deregulation
Birth of 'Discount Brokerage'
SAN FRANCISCO, April 28 /PRNewswire-FirstCall/ -- The Securities Acts
Amendments of 1975 ushered in the most comprehensive securities legislation in
decades. A key change included in the amendment was ending fixed trade
commissions, a practice that had been in place for over 183 years. On May 1,
1975 negotiated trade commissions became law, a day known within the brokerage
industry as "May Day."
1975 was an important fork in the road for financial services firms. In the
face of deregulation, many brokerages took the occasion to leave alone or even
raise commissions for smaller individual clients, while reducing commissions
for large institutional clients. For many individual investor clients of those
firms, trade commissions stayed at their high levels for years to come.
Charles Schwab & Co., Inc. and a handful of other start-ups seized the
opportunity to pursue a new kind of brokerage that provided lower cost
transactional services, ushering in the birth of what came to be known as
"discount brokerage."
"We probably didn't know it at the time, but May 1st 1975 was a watershed
moment for individual investors and for the markets," said Charles R. Schwab,
Founder and CEO of The Charles Schwab Corporation. "With the sudden arrival of
negotiated stock trades that were less than half the cost they had been, a
major barrier to investing went away for the average American."
According to Schwab: "It took some time, but a radical transformation took
place and a flood of new investors -- most of them independent-minded investors
-- began entering the markets and changing the landscape forever. The impact
can't be overstated. In 1975 there were approximately $1.75 trillion of
investable assets held by individuals, with less than 45 percent of it invested
in securities. Trading was fixed-price, done through highly paid
intermediaries, and very expensive. Today that number has grown tenfold to $17
trillion, with 73 percent of it invested in securities and over half of the
adult U.S. population now holding equities in some form."
The discount brokerage category itself evolved, to the point that today many of
the distinctions between them and old-line full commission brokerages have
disappeared. At Schwab, for example, in addition to low priced trades, clients
have access to personal service and investment help, portfolio guidance and
stock recommendations, thousands of mutual funds at their disposal, as well as
referrals to special expertise such as independent investment advisors, wealth
managers, and trust services. Clients also get the same level of value and
service in banking, mortgages, and credit card through Charles Schwab Bank.
"The power that the competitive marketplace unleashed is simply remarkable, and
hasn't stopped," said Mr. Schwab. "For example, on May 1st, 1975, the
discounted broker assisted trade at Schwab was $70 compared to hundreds of
dollars at Wall Street firms. Today a client with household assets of $50,000
or more at Schwab pays just $12.95 per online equity trade, up to 1000 shares.
In 1975 only 2 percent of the nation's investable assets were held in mutual
funds, today it is nearly a quarter. Back then, 55 percent of investable assets
were held in bank deposits, today only 2 percent. In 1975 there were virtually
no assets in IRAs, today there are over $3 trillion, with 40 percent of the
adult population having an IRA. The number of registered investment advisors
has skyrocketed from just a few thousand to near 14,000 in 2003."
"These last thirty years have been marked by constant innovation and
improvement of services for individual investors," said Mr. Schwab. "The
choice today isn't either or -- either low cost or high quality investment
service. Today, investors can get both. It is exciting to consider what the
next 30 years will bring."
About Charles Schwab
The Charles Schwab Corporation (NYSE / Nasdaq: SCH), through its operating
subsidiaries, provides securities brokerage and financial services to
individual investors and the independent investment advisors who work with
them. With over 7 million individual investor accounts and more than $1
trillion in client assets, The Charles Schwab Corporation is one of the
nation's largest financial services firms. Its subsidiary Charles Schwab & Co.,
Inc. (member SIPC) provides a complete range of investment services and
products, including an extensive selection of mutual funds; financial planning
and investment advice; retirement plans; referrals to independent fee-based
investment advisors; and custodial, operational and trading support for
independent fee-based investment advisors. Its subsidiary Charles Schwab Bank,
N.A. (member FDIC and Equal Housing Lender) provides deposit and lending
services and products. The corporation's other operating subsidiaries include
U.S. Trust Corporation (member FDIC) and CyberTrader(R), Inc. (member SIPC).
These companies' Web sites can be reached at http://www.schwab.com/,
http://www.schwabbank.com/, http://www.ustrust.com/, and
http://www.cybertrader.com/. (0005-7375)
DATASOURCE: Charles Schwab
CONTACT: Glen Mathison of Charles Schwab, +1-415-636-5448, or
Web site: http://www.schwab.com/