Close Close
Sign In
Newsletters
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards
Podcast Center Video Center Webcasts Resource Center Events
About ThinkAdvisor Contact Us Advertise With Us Asset & Logo Licensing Sitemap Terms of Service Privacy Policy Copyright © 2024 ALM Global, LLC. All Rights Reserved.
ThinkAdvisor

Industry Spotlight > RIAs

Schwab Taking $200 Million Charge for SEC Robo-Advisor Probe

By Brian Chappatta and Ben Bain

X
Your article was successfully shared with the contacts you provided.

Charles Schwab Corp. said it will take a $200 million charge in the second quarter related to a U.S. Securities and Exchange Commission probe of its robo-advisor platform.

The compliance inquiry relates to past disclosures around the firm’s Schwab Intelligent Portfolios product, according to a regulatory filing Friday. The company said it’s been cooperating with the SEC and its ultimate liability may differ from the amount it’s earmarking now.

The SEC filed its first enforcement actions against robo-advisors in December 2018, accusing Wealthfront Advisers LLC and another firm of making false statements about investment products and publishing misleading advertisements.

Wealthfront, which had more than $11 billion in client assets under management at the time, agreed to pay a $250,000 penalty without admitting or denying the findings.

Robo-advisors, which typically select low-cost exchange-traded funds for investors based on their risk tolerance and automatically rebalance the portfolios, have become increasingly popular across Wall Street, with Goldman Sachs Group Inc. rolling out such a product earlier this year.

On its website, Schwab predicts assets managed by robo-advisors will grow to $460 billion next year, from $47.3 billion in 2015.

While the SEC has signaled it’s more focused on cases against robo advisors, it’s brought relatively few cases.

In one last month, the agency said it settled claims against a Canadian robo-advisor, Emperor Investments Inc., after the firm agreed to pay $25,000 over allegations it posted misleading performance data on its website.

The SEC didn’t immediately respond to an email about the Schwab case sent to its press office outside of normal business hours.

Shares of the company, which have gained 36% this year, fell 1.7% to $72.34 at 9:44 a.m. in New York.

SEC Guidance

Schwab said it had $64 billion in client assets in its robo-advisor product at the end of March. The firm has more than $7 trillion in client assets across 32 million active brokerage accounts.

Under U.S. securities rules, firms that offer advice to clients digitally through algorithms are required to make the same kind of disclosures as those whose representatives make suggestions to clients over the phone or in person.

The agency put out guidance in February 2017 that detailed how its rules apply to the fast-growing industry, reminding firms to be careful not to mislead clients and ensure their disclosures are accurate and internal compliance programs are effective.

SEC Chair Gary Gensler, who took over the regulator in April, has signaled that he wants the agency to hold robo-advisors to the same standards as other investment firms.

“Technology is always changing the face of finance,” Gensler said last month during City & Financial Global’s London City Week event. “But our core principles stay the same: protecting investors, facilitating capital formation for individuals and companies and maintaining fair, orderly and efficient markets between them.”

(Photographer: Christopher Dilts/Bloomberg)

Copyright 2021 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.