Schwab Drops Service Fees, Raises Outlook

Emboldened by its highest profits since the dot-com boom, Charles Schwab Corp. is dropping its remaining account service fees in the latest step back to the stock brokerage’s low-cost heritage.

The decision to drop the service fees, announced Thursday and effective Oct. 1, affects about 650,000 account holders with household balances below $25,000.

Shares of San Francisco-based Schwab fell 18 cents to $14.32, but the price is up nearly 20% year to date.

Separately, Schwab also projected that its earnings for the current quarter will range between $195 million and $205 million, the second-highest three-month profit in the company’s history. The anticipated results translate into 15 cents or 16 cents a share, above the mean estimate of 14 cents among analysts surveyed by Thomson Financial.

Hoping to accelerate its recent momentum, Schwab plans to spend about $30 million on a new national advertising campaign. The marketing expense, coupled with the elimination of the service fees, will trim 2 cents a share from Schwab’s fourth-quarter earnings.

Relinquishing the account service fees will cost Schwab about $40 million annually, a sacrifice that the company believes it can afford after shedding more than $300 million in annual expenses since mid-2004.

The service fees typically ranged from $120 to $180 annually per account. Some customers still may be charged if they don’t keep at least $2,500 in brokerage accounts or a minimum of $2,000 in retirement accounts.

Besides dropping the service fees, Schwab also is abandoning a $3 handling fee for stock trades.

The latest fee cuts continue a trend established since founder Charles Schwab returned as the company’s chief executive last year in a bid to end years of declining revenue as some of its rivals lured away customers.