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Investment brokers: Vanguard vs fidelity vs Schwab
Having worked at Vanguard, Fidelity, and Schwab, I’m often asked which firm I recommend from a client’s perspective.
Vanguard, Fidelity, and Schwab are three of the largest investment companies in the United States, each offering a range of investment products such as mutual funds and exchange-traded funds (ETFs). When choosing between Vanguard, Fidelity, and Schwab for your brokerage account, it's important to consider your individual needs and preferences. Vanguard is known for its low-cost index funds and ETFs, while Fidelity also offers a robust trading platform and actively managed funds. Schwab still caters to active traders, offering options trading and a robust trading platform. Fidelity and Schwab each offer the ability for clients to trade individual stocks, as well as mutual funds and ETFs. Vanguard, Fidelity, and Schwab allow clients to trade Vanguard funds via a brokerage account, with Fidelity and Schwab also offering Vanguard funds via a brokerage.
When comparing Vanguard vs Fidelity vs Schwab, it's important to consider the different features and services offered by each broker. For example, Vanguard and Fidelity both offer IRAs, but Fidelity also offers fractional share trading and a robo-advisor service. On the other hand, Schwab offers a wide range of investment options, including actively managed funds and options trading. Fidelity and Charles Schwab are both known for offering low-fee investment products, such as mutual funds and ETFs, making them popular choices for many investors.
In this article, I wanted to share my own experience working at these firms, and point out the subtle differences between these 3 giants.
VANGUARD
Starting with Vanguard. Vanguard holds a special place in my heart as it’s where I began my career fresh out of college. Vanguard is often credited with popularizing index investing and is recognized for offering some of the lowest expense ratios in the industry. The founder, John Bogle, structured Vanguard as a company owned by the mutual funds it creates, which consequently makes you an owner of Vanguard when you invest in their mutual funds. This unique structure makes their funds and services low cost across the board.
Vanguard’s commitment to lowering costs is admirable. For this reason, they have a cult-like following. But in my humble opinion, they are so focused on using their profits to lower fees on its products and services that they neglect to invest enough into making the client experience as good as Fidelity or Schwab.
There’s no options for annuities, life insurance, or LTC insurance, which means their employees aren’t able to advise on them. Vanguard’s website and technology lags behind Fidelity and Schwab.
They don’t have branches like Fidelity and Schwab do. What needs to be done in branches? Having a physical branch makes depositing checks, completing paperwork, getting notarization, and in-person relationship with your representative much easier.
Some firms believe if you take care of your employees, they’ll take care of your clients. Well, in my opinion, Vanguard doesn’t fully buy into this, as the compensation is typically at the bottom end compared to other firms. Vanguard crewmembers are paid strictly on salary, which is great for you because they have no commissions on product sales, but the flip side of a salary-only compensation structure is that it encourages, in my opinion, a culture of complacency.
Who would I recommend to use Vanguard?
Vanguard is a great option for investors looking to build a diversified portfolio with ETFs and Vanguard funds. I would recommend Vanguard to those who prefer a hands-on approach to investing and are comfortable managing their own brokerage account. For those who prefer to work with a financial advisor or utilize a robo-advisor service, Fidelity or Charles Schwab may be better options. Both Fidelity and Schwab offer a wide range of investment products such as mutual funds and exchange-traded funds, as well as individual stocks and options trading. While Fidelity and Schwab each have their strengths, Vanguard stands out for its low-fee investment products and fractional share offerings.
For cost-conscious investors, Vanguard’s funds and services are low cost across the board. However, Fidelity receives honorable mention in the cost conversation specifically for index fund investors, as they are the first and only firm that offers zero-cost index funds for domestic and international stocks.
But Vanguard is by far, the lowest cost option to get a managed account with a dedicated CFP. I would recommend Vanguard to people with between $500K-$1M who want the lowest-cost advice. You’ll get an assigned CFP who will create a financial plan for you and manage your money for only 0.3%. For more than $1M, Schwab and Fidelity have far more options if you’re willing to pay about 1% for a more full service experience. .
FIDELITY
Next is Fidelity. I worked at Fidelity for 4 years. Fidelity is actually my favorite platform out of the 3. I loved Fidelity’s website; very intuitive, so many great resources for learning, news, calculators, planning software. Fidelity’s customer service is top notch. Whether you’re at the branch or calling the 800 number, chances are you’ll talk to some guy one knowledgeable, efficient, and dedicated to their job. Their features like Billpay, agent authorization, and automatic withdrawal options are fantastic.
They’ve got low cost, and no cost options, specifically to undercut Vanguard, but they’ve got high cost funds in there too. Local branches and a dedicated FC if you have $250K there. They’ve also got a program to refer vetted RIAs if you’re looking for a family office. Fidelity is privately owned by the Johnson family, as opposed to being owned by the funds at Vanguard and owned by shareholders at Schwab. They are the biggest 401K player in the industry.
I worked in a Fidelity branch was very different than working at Vanguard where it’s a huge office space super campus with thousands of colleagues. As an FC, I worked with about 400 households in my book, I received a salary along with bonuses tied to inflows of assets, managed money sales, and annuity sales. I didn’t actually manage any money, but I did financial plans for free in order to try and enroll my clients into managed money or annuities if it made sense.
If you work with an FC at Fidelity, it’s good to know that they are working with a lot of clients, so they are very busy. They want you to stay at Fidelity, they want you to consolidate at Fidelity, they want you to enroll in managed money, and if your retired and essential expenses aren’t covered by guaranteed sources of income, they’ll probably recommend an annuity.
Who would I recommend Fidelity to?
Fidelity is the most well-rounded, so I recommend Fidelity most often. Their ease of business, website, customer service, and cost is what sets them apart.
The only word of caution is that their managed account is expensive and relatively cookie-cutter, so if you’re looking for investment management, I would look elsewhere.
I would recommend Fidelity or Schwab for validation seekers, or those that are most comfortable doing things on their own, don’t want to pay for advice, but like to meet with someone and have them look over their shoulder.
SCHWAB
Finally we have Schwab. Schwab and Fidelity are like Coke and Pepsi; they are remarkably similar. Like Fidelity, they’ve got a great website, low cost and high cost options, local branches with dedicated FC for $1M. After acquiring TD, they own Think or Swim, which is arguably the best trading platform on the market. As a bank, they offer mortgages and other lines of credit backed by their investment accounts.
They are the only one of the Big 3 with a local office in Hawaii. I worked in the downtown Honolulu branch. My minimum was $1M. The compensation structure was very similar to Fidelity, except that since Schwab had a banking side, I could receive bonuses tied to opening mortgages and lines of credit.
If you work with an FC at Schwab, it’s good to know that they definitely want you to stay at Schwab, they want you to consolidate at Schwab, they want you to enroll in managed money, but they weren’t as enthusiastic about annuities. They are also very busy and work with a lot of clients.
I only worked there briefly before deciding to launch my firm, but I enjoyed my time there. My biggest gripe with Schwab is the absence of an automatic sweep program into the highest yielding money markets. It doesn’t make any sense.
My other criticism is that corporate layoffs seemed pretty ruthless. On my last day they unceremoniously laid off an advisor who had been with Schwab for 30+ years. I know that was upsetting for a lot of her clients.
Who would I recommend Schwab to?
I would recommend Schwab for most of the same reasons I’d recommend Fidelity. Both firms have great ease of business, website, customer service, and cost.
I’d recommend Schwab for self-directed traders for their trading platform and real estate investors for their lending capabilities. Finally, for Hawaii residents, Schwab is the only firm that has a local office here.
Vanguard, Fidelity, and Schwab: Which investment platform is the best for financial advisors and self-directed portfolios?
As with many things, it depends. Each of the Big 3 brokerage firms brings its own set of strengths and weaknesses to the table.
Vanguard shines with its commitment to low costs and index investing, making it an excellent choice for cost-conscious investors seeking managed accounts. Fidelity impresses with its user-friendly website, robust customer service, and diverse range of offerings, making it a top recommendation for those who value convenience and support.
Meanwhile, Schwab mirrors Fidelity in many aspects, with added perks such as a powerful trading platform and unique lending capabilities, particularly attractive to self-directed traders and real estate investors.
Ultimately, the choice between these giants depends on individual preferences, financial goals, and the level of service desired. Whether one opts for Vanguard's affordability, Fidelity's versatility, or Schwab's comprehensive offerings, each provides a reputable platform to navigate the complexities of the financial markets and pursue long-term investment success.
