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

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