Class Action: Charles Schwab Intelligent Portfolio

Last Updated: September 17, 2021

CHARLES SCHWAB INTELLIGENT INVESTORS: If you are a Charles Schwab Intelligent Portfolio customer, you may be entitled to compensation. Complete the form below to receive information about the class action lawsuit against Charles Schwab.

Charles Schwab Investment Advisory, Inc (CSIA) has recently found themselves the subject of a class action complaint. The complaint pertains to CSIA’s intelligent portfolio management services (IP) or “robo investing.”

Holders of intelligent portfolios don’t have to worry about day-to-day or week-to-week trades. Instead, they fill out a questionnaire outlining things like their financial goals and risk tolerance. An investment firm then manages the portfolio using a complex set of algorithms. The benefit for consumers is that they don’t have to agonize over learning the ins and outs of investing to reap its benefits.

You May Have Lost Money Due to CSIA’s Internal Policies

Since beginning the investment program in 2015, CSIA is now one of the largest IP providers in the nation. It markets itself as a consumer-friendly option with the lowest fees in the industry. Recently, however, CSIA has found its robo investing program under scrutiny.

A class action complaint filed in the US District Court of Northern California alleges that CSIA violated its fiduciary obligations to its IP clients. In turn, the clients lost money and suffered real damages.

If you held a Schwab Intelligent Portfolio (SIP) at any time during the last four years, you may have a claim for damages through the recently filed class action complaint. The team at Sonn Law Group can help you assess your claim, join the class action lawsuit, or file an individual suit against CSIA.

Origins of the Class Action Complaint

The origin of the allegations against CSIA is a Securities and Exchange Commision (SEC) compliance investigation. According to a public report filed by the SEC, the company paid the SEC a $200 million fee in 2021 concerning “historic disclosures related to the SIP digital advisory solution.”

After reviewing the complaint, others investigated CSIA’s policies and disclosures and came to a conclusion: CSIA systematically violated its fiduciary duty to its clients. As a result of CSIA’s misdeeds, its clients missed out on a total of more than $500 million in growth since 2015.

So What Did SCIA Do?

Most of the time, investment firms that offer smart portfolios make their money on specific fees. Those fees are usually calculated using a percentage of the total account value. Investment firms also make their money on commissions and advisory fees.

CSIA sells its SIP products with the promise that, unlike other firms, CSIA charges no fees or commissions and generally offer its services at a discount rate. While this is true, Schwab made its money another way. The devil, as is often the case, is in the details.

CSIA’s Cash Sweep Income Stream

Instead of making its money through fees and commissions, CSIA makes money off of its SIPs by using something called a cash sweep. A cash sweep refers to a process whereby an investment firm takes investor cash (money not invested in any other investment product) and moves it into an account that accrues interest. CSIA made its profits by sweeping its clients’ cash into Schwab Bank accounts which CSIA profits from.

The return to individual investors on cash sweeps is typically below 2%, so they aren’t exactly a lucrative investment. The problem is, CSIA required its customers to enroll in these cash sweep programs at a rate between 6% and 30% of their portfolios’ value. Those mandatory rates artificially inflated the value of the cash in Schwab Bank accounts, which artificially enhanced the conglomerate’s profits.

How This Violates CSIA’s Fiduciary Duties

One of a fiduciary’s primary obligations is to avoid any conflicts of interest between their personal interests and their clients’ interests. The cash sweep requirements at SCIA constitute a clear conflict of interest because SCIA profited at the expense of its clients.

The stock market has grown at an unprecedented rate during the last four years. In the last four years, the S&P 500 average rate of growth was 14.5% per year. The S&P 500’s all time growth rate averages out at about 10%.

Compare that to a typical cash sweep account rate of 2% (at most), and you can see how the two interests conflict. Even worse, CSIA made no effort to disclose this potential conflict of interest. Even without the recent surge in economic growth, the S&P 500’s average rate of growth is five times greater than the return you can get from a cash sweep account.

You can see how CSIA’s IP clients lost out on $500 million in profit over the last four years. All thanks to the mandatory overconcentration of cash sweeps.

Who Can Join in the Class Action?

According to the complaint, the class consists of “All ‘Intelligent Portfolios’ account holders during the four years preceding the filing of this Complaint and continuing until the date of trial.” That means that if you held any sort of “Intelligent Portfolio” through CSIA between 2017 and now, you may have an opportunity to recover damages from CSIA.

Discuss Your Options for Damage Recovery with an Investment Fraud Professional

If you think you might have a claim against CSIA over its IP policies and practices, come talk to the financial fraud professionals down at Sonn Law Group. We can help you assess your claim, calculate damages, and either file an individual lawsuit or join the class action lawsuit.

The bottom line is this: CSIA promised one thing (“no fees”), and delivered another (circuitously hidden fees). As a result, its customers lost out on valuable financial opportunities. That’s wrong, and we want to help make things right. Consultations are always free, so give us a call and get started with Sonn Law Group today.