Schwab Intelligent Portfolios Investigation

Schwab Intelligent Portfolios Investigation

Broker-dealer Charles Schwab introduced Schwab Intelligent Portfolios in 2015. The “robo-advisor” service was supposed to “help build and manage” the client’s portfolio in Schwab Intelligent Portfolios, a service with no fees. According to Investment News, Schwab “earns revenue through charging for its underlying exchange-traded funds and on interest collected on holding clients’ assets in cash.”

However, Backend Benchmarking‘s recently released “Robo Report” reveals that since the service was launched, Schwab Intelligent Portfolios’ clients “earned $531 million less than if Schwab had charged a 0.30% fee and invested the cash into the same fixed income assets that are held in the portfolio.” Thus, Schwab Intelligent Portfolios’ clients had unreasonably large cash positions that caused them to miss out on the historic stock market gains. To make matters worse, Schwab capitalized on the very same cash positions that it put its clients in.

If you invested through the Schwab Intelligent Portfolio at anytime since the service was launched in 2015, you may be entitled to recover your unrealized investment gains or your investment losses. Contact Peiffer Wolf today by filling out a Contact Form on our website or by calling 504-523-2434 to schedule a FREE Case Evaluation.

Since the launch of Schwab Intelligent Portfolios, many investors have been drawn to the service because of its no-fees promise: “Pay no advisory fee and no commissions.” In July 2021, the service became the target of an investigation of the Securities and Exchange Commission (SEC) and Schwab revealed that it expected “to book a charge of at least $200 million in the second quarter relating to a Securities and Exchange Commission investigation of its robo-advisory business” (MarketWatch).

Little over a month later, Backend Benchmarking’s 2nd Quarter 2021 Robo Report was released, and it included a special report called “The Unseen Cost of Free Advice at Schwab.” Some of the special report’s highlights were:

“Schwab’s high cash allocations in Intelligent Portfolios cost investors $1.13 billion in total earnings when compared with potential returns if Schwab invested the cash in the fixed income portion of its portfolio.”
“For the 6-year trailing period ending June 30th, 2021, we estimate that clients with SIP earned a total of $531 million less than if Schwab had simply charged a 0.30% management fee and invested the cash into the same fixed income assets that are held in the portfolio.”
“Clients would have been significantly better off had Schwab charged a straightforward and transparent management fee instead of deciding to earn revenue through high cash allocations.”

As pointed out by WealthManagement.com, “Other reviews of Schwab Intelligent Portfolios, including Investopedia, Betterment and even The New York Times, have also observed and criticized the high allocation toward cash favored by Schwab. In a 2015 blog post looking at Schwab’s cash allocation, Dan Egan, VP of behavioral finance and investing at Betterment, called the investing decision by its competitor ‘a conflict of interest’ that ‘should raise eyebrows.’”

If you invested through the Schwab Intelligent Portfolio at anytime since the service was launched in 2015, you may be entitled to recover your unrealized gains and your investment losses. Contact Peiffer Wolf today by filling out a Contact Form on our website or by calling 504-523-2434 to schedule a FREE Case Evaluation.

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