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Schwab (SCHW) Settles Charges Related to Robo-Adviser Clients
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The Charles Schwab Corporation (SCHW - Free Report) has agreed to pay $187 million to settle with the U.S. Securities and Exchange Commission (“SEC”) charges that the brokerage firm deceived clients in relation to fees in its robo-adviser program, Schwab Intelligent Portfolios (SIP). Per the settlement, the amount will be deposited into a fair fund account and distributed to the affected investors.
The SEC accused SCHW’s three investment adviser subsidiaries — Schwab Wealth Investment Advisory, Inc., Charles Schwab Investment Advisory, Inc. and Charles Schwab & Co., Inc. — of not disclosing the less profitable fund allocations and, hence, misleading robo-adviser clients.
Between March 2015 and November 2018, Schwab flaunted that its robo-adviser was seeking “optimal returns” for investors. However, in reality, its own data proved that under most market conditions, the cash in the portfolios would cause clients to make less money, even while taking the same amount of risk.
Per the SEC’s claims, Schwab publicized its robo-adviser as having neither advisory nor hidden fees but did not inform clients about the cash drag on their investment.
The broker, through cash allocations in its robo-adviser portfolios, made money by sweeping the cash to its affiliate bank, loaning it out and then keeping the difference between the interest earned on loans and paid to clients.
The SEC’s enforcement chief, Gurbir Grewal, said, “Schwab claimed that the amount of cash in its robo-adviser portfolios was decided by sophisticated economic algorithms meant to optimize its clients’ returns when in reality it was decided by how much money the company wanted to make. Schwab’s conduct was egregious and today’s action sends a clear message to advisers that they need to be transparent with clients about hidden fees and how such fees affect clients’ returns.”
A spokesperson for Schwab said, “In entering the settlement, Schwab neither admits nor denies the allegations in the SEC’s order. We believe resolving the matter in this way is in the best interests of our clients, company and stockholders as it allows us to remain focused on helping our clients invest for the future.”
Notably, in its Form 8-K filing dated Jul 1, 2021, Schwab disclosed that its second-quarter 2021 results included a liability and related non-deductible charge of $200 million in connection with this settlement.
Over the past year, shares of Schwab have lost 16.9% compared with a decline of 22.9% recorded by the industry.
The consensus estimate for S&T Bancorp’s current-year earnings has been revised 13.7% upward over the past 60 days. Over the past year, STBA’s share price has declined 19%.
Evercore’s current-year earnings estimates have been revised 2.1% upward over the past 60 days. EVR’s shares have lost 31.4 % over the past year.
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Schwab (SCHW) Settles Charges Related to Robo-Adviser Clients
The Charles Schwab Corporation (SCHW - Free Report) has agreed to pay $187 million to settle with the U.S. Securities and Exchange Commission (“SEC”) charges that the brokerage firm deceived clients in relation to fees in its robo-adviser program, Schwab Intelligent Portfolios (SIP). Per the settlement, the amount will be deposited into a fair fund account and distributed to the affected investors.
The SEC accused SCHW’s three investment adviser subsidiaries — Schwab Wealth Investment Advisory, Inc., Charles Schwab Investment Advisory, Inc. and Charles Schwab & Co., Inc. — of not disclosing the less profitable fund allocations and, hence, misleading robo-adviser clients.
Between March 2015 and November 2018, Schwab flaunted that its robo-adviser was seeking “optimal returns” for investors. However, in reality, its own data proved that under most market conditions, the cash in the portfolios would cause clients to make less money, even while taking the same amount of risk.
Per the SEC’s claims, Schwab publicized its robo-adviser as having neither advisory nor hidden fees but did not inform clients about the cash drag on their investment.
The broker, through cash allocations in its robo-adviser portfolios, made money by sweeping the cash to its affiliate bank, loaning it out and then keeping the difference between the interest earned on loans and paid to clients.
The SEC’s enforcement chief, Gurbir Grewal, said, “Schwab claimed that the amount of cash in its robo-adviser portfolios was decided by sophisticated economic algorithms meant to optimize its clients’ returns when in reality it was decided by how much money the company wanted to make. Schwab’s conduct was egregious and today’s action sends a clear message to advisers that they need to be transparent with clients about hidden fees and how such fees affect clients’ returns.”
A spokesperson for Schwab said, “In entering the settlement, Schwab neither admits nor denies the allegations in the SEC’s order. We believe resolving the matter in this way is in the best interests of our clients, company and stockholders as it allows us to remain focused on helping our clients invest for the future.”
Notably, in its Form 8-K filing dated Jul 1, 2021, Schwab disclosed that its second-quarter 2021 results included a liability and related non-deductible charge of $200 million in connection with this settlement.
Over the past year, shares of Schwab have lost 16.9% compared with a decline of 22.9% recorded by the industry.
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Currently, Schwab carries a Zacks Rank #3 (Hold).
A couple of better-ranked stocks from the finance space are S&T Bancorp, Inc. (STBA - Free Report) and Evercore Inc. (EVR - Free Report) . Both STBA and EVR currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The consensus estimate for S&T Bancorp’s current-year earnings has been revised 13.7% upward over the past 60 days. Over the past year, STBA’s share price has declined 19%.
Evercore’s current-year earnings estimates have been revised 2.1% upward over the past 60 days. EVR’s shares have lost 31.4 % over the past year.