Report: Schwab’s Cash Strategy Costs Itself and Investors Millions

Posted on August 25th, 2021 at 2:18 PM
Report: Schwab’s Cash Strategy Costs Itself and Investors Millions

From the Desk of Jim Eccleston at Eccleston Law:

According to the latest Robo Report by Backend Benchmarking, Charles Schwab’s high cash allocation in its robo advice feature, Intelligent Portfolios, may end up costing million for investors and the firm itself. Schwab Intelligent Portfolios, which is the firms automated investment allocation platform, has “carried around a 10% cash allocation” since its inception in 2015, according to the Backend Benchmarking report. The report alleges that “high cash allocations” have cost investors nearly $1.13 billion in earning in comparison with a fixed income portfolio. The report further concludes that including a 30-basis point management fee on that allocation would have enabled investors to collect an additional $531 million in earnings and increased Schwab’s revenue by nearly $369 million. 

Other reviews from Investopedia, Betterment and The New York Times, have criticized Schwab Intelligent Portfolios due to the high allocation towards cash. “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”, the report explained. Further, Backend Benchmarking determined that Schwab earned $185 million in revenue from cash allocated out of Intelligent Portfolios. However, if Intelligent Portfolios had rather opted to invest that portion in a fixed income allocation, Schwab would have earned $554 million over a six-year duration from its 30-basis point fee, according to the report. In response to a recent Securities and Exchange Commission (SEC) investigation, Schwab set aside $200 million and announced that the investigation was related to the firm’s robo platform. 

Tags: eccleston, eccleston law, charles schwab, loss

Return to Archive

TESTIMONIALS

Previous
Next

I just wanted to say thanks again for preparing and executing my case in such a professional manner. It was a pleasure to watch two professionals take such pride in their work, as well as becoming personally in tune with your client (Me). I would personally recommend you and your firm to anyone.

John O.

LATEST NEWS AND ARTICLES

September 26, 2023
Looming Real Estate Crisis Poses Risk to U.S. Banking Sector

With the current downturn in the commercial real estate market, trillions of dollars in loans and investments pose a looming threat to both the banking industry and potentially the broader economy.

September 25, 2023
Legal Challenges Over 'Money-for-Nothing' Payments Gain Momentum

Apollo Global Management and Carlyle Group, two major private equity firms, now face investor lawsuits regarding payments made to insiders without apparent justification.

September 22, 2023
State Regulators Maintain Opposition to FINRA's Remote Supervision Pilot Program

The North American Securities Administrators Association (NASAA) and the Public Investor Advocate Bar Association (PIABA) has consistently opposed the Financial Industry Regulatory Authority's (FINRA) proposal for a voluntary three-year pilot program for remote inspections.