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Schwab Transformed

No longer just a discount broker, Schwab unveils new services and a stock-rating system.

Charles Schwab has completed its transformation from discount broker to full-service financial advisor. In May, the San Francisco-based brokerage rolled out two new fee-based advisory services and its own stock-rating system.

Schwab Private Client and Schwab Advisor Network, both fee-based offerings, target affluent investors ($500,000 or more in investable assets) who seek advice. The Private Client is oriented toward clients who want advice but want to stay involved. With the Advisor Network, Schwab recommends one of more than 300 approved independent advisory firms; it is designed for clients who wish to delegate their financial plans.

Schwab Equity Ratings, which assigns an A, B, C, D or F ranking to more than 3,000 U.S. stocks based on a number of measures, is a prominent element of both services and will be available to all clients in early fall. The process was developed by Chicago Investment Analytics, which Schwab acquired in 2000. Adapted for Schwab's clients, the firm believes it provides rankings free from the investment banking conflicts faced by other firms on the Street.

According to a company spokesman, the rating process is more systematic and quantitative than other ranking systems. The ratings examine fundamentals, valuation, momentum, risk and a total of 24 other factors falling under those categories.

A-rated stocks are expected to outperform the market over the next 12 months, while F-rated stocks are expected to underperform. Its ranking methodology gives the top 10 percent an A rating, the next 20 percent a B, the next 40 percent a C, the next 20 percent a D, and the bottom 10 percent an F. “You have a much more balanced collection of buys and sells,” says the spokesman.

“We're going to have to do some research and figure out what their screening criteria are,” says one rep, “but it seems the ratings will be more quantitatively based and could be a good research tool to make recommendations on individual stocks.”

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