OFF TOPIC WSJ article on Schwab cites breaches of fiduciary responsibilities etc. As a non-US resident, one of Schwab's "international investors", I have have horror stories about Schwab. Does anyone know of a company in the US available to non-US residents web-based or otherwise. I know of Andrew Peck. Any others. Thanks.
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February 24, 1998
Mutual Funds
Schwab's Series of Misfires
Puts Firm on the Defensive
By ANITA RAGHAVAN
Staff Reporter of THE WALL STREET JOURNAL
Charles Schwab, through its pioneering mutual-fund "supermarket," has made buying a Janus or Strong fund as easy as picking up coffee at the real supermarket.
The success of the concept is one reason the nation's biggest discount brokerage firm has grown so rapidly. But now that Schwab has experienced a handful of technological glitches in the past year, some longtime Schwab clients wonder if the San Francisco firm is growing too fast. Schwab officials say they don't think so.
James J. McDevitt runs Chilmark Financial Advisors in Mendham, N.J., and uses Schwab for his clients. He said he recently discovered that some of his Schwab client accounts were frozen seven months after they were opened because Schwab was "missing the paperwork." Mr. McDevitt said the operational glitches "raise the question of whether the growth of business is outstripping their ability to deliver."
Last summer, two computer-related outages left thousands of Schwab clients in the dark about the status of their mutual-fund and securities trades. And in a new problem, last month as many as 3,000 Schwab clients in the Chicago area received jumbled account statements, some listing holdings of other people's accounts.
These problems have happened as Schwab's client assets have more than tripled, to $353.7 billion at year-end 1997 from $95.8 billion at the end of 1993. Client accounts also have exploded, to 4.8 million at year-end 1997 from 2.5 million at the end of 1993.
But Timothy F. McCarthy, president and chief operating officer of Schwab's brokerage unit, said there is no sign that this torrid pace of growth is too much to handle. In the McDevitt case, for instance, Schwab "caught this, saw the paperwork was missing and contacted the client. That's not a sign of a firm that is growing out of control" or suffering from growing pains, Mr. McCarthy said.
He said a number of achievements at Schwab suggest the firm is poised to handle its heavy workload. For instance, he notes that on Feb. 5, customer interactions via Schwab's on-line trading system surpassed the previous one-day record of 1.2 million, set on Oct. 28, the day after the 554.26-point, or 7.18%, Asia-related plunge in the stock market.
Still, the glitches are hard to ignore. Potentially more dangerous than last summer's outages was the problem last month that resulted in between 2,000 and 3,000 Schwab clients in the Chicago area receiving account statements with missing or erroneous information. Brooke Gilmour, a Chicago investor and Schwab client, received an account statement that accurately stated the value of her account but provided holdings of another client's account.
"It was obviously someone else's account," she said. "The total value of the account was mine, but all of the stocks they listed were not mine."
In some cases, the erroneous information included confidential data on other Schwab client accounts. One investor, for instance, found that her individual retirement account statement had portions of another Schwab client's portfolio printed on the back, including details of some of the holdings and even the account number.
(Another Schwab client said that last fall he received details of someone else's half-million-dollar portfolio with name, address and telephone and account numbers.)
Schwab attributed the recent snafu to a "software glitch" that affected the printing of roughly 6,000 account statements in the Chicago area. Mr. McCarthy noted that the account-statements glitch and last summer's outages were the result of problems at outside software vendors.
In a form letter mailed to investors on Feb. 13, Stephen Cass, Schwab vice president of production services, acknowledged that some investors may have received account statements with "missing or erroneous data on one side." Mr. Cass offered to open new accounts for Schwab clients or provide them with new account passwords, in addition to supplying them with fresh statements.
Such remedies don't assuage the concerns of privacy experts like Dave Banisar, staff counsel at the nonprofit Electronic Privacy Information Center, in Washington. "The fact is, companies have a fiduciary duty to protect that information," he said. Besides jeopardizing the confidentiality of an account, Mr. Banisar said, such client information could result in "possible future theft of identity," enabling someone to get confidential, and potentially more harmful, data such as a Social Security number of another individual.
A Schwab spokeswoman acknowledged that confidential information like the type it provides on client accounts could be used to perpetrate fraud, though the chances are slim. "The issue is: If you have all that information, could someone potentially do something fraudulent? That rarely happens," said Tracey Gordon, a spokeswoman for Schwab.
Ms. Gordon said that "if anything fraudulent happens in the account, the customer is fully protected, and we will ensure that the full weight of the law is borne down on anyone trying to defraud the company or our customers." In a sign of Schwab's concern about the issue of client security, Ms. Gordon said, the firm recently hired Jim Freeman, the former head of the Federal Bureau of Investigation in San Francisco, to oversee its security system.
Meanwhile, Mr. McCarthy said the challenge Schwab faces isn't increased customer volume. Rather, he said, Schwab must find ways to deal with existing customers who demand more information and want to execute more transactions at one time.
"The challenge is with the new ways customers want to do business," he said.
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Victor |
