What You Need to Know
- Three investors allege Schwab violated its fiduciary duties by overconcentrating Intelligent Portfolios accounts in cash.
- That allegedly caused the plaintiffs and other Schwab clients to lose hundreds of millions of dollars.
- Schwab disclosed in July it took a $200 million regulatory charge related to a SEC probe of the robo-advisor platform.
Charles Schwab was hit with a class-action complaint by three investors who alleged the firm violated its fiduciary duties by “wrongfully overconcentrating” clients’ Schwab Intelligent Portfolios robo-advisor accounts in cash positions that ended up costing them hundreds of millions of dollars.
The complaint, filed Friday in U.S. District Court for the Northern District of California by Lauren Marie Barbiero, Kimberly Jo Lopez and William Kenneth Lopez, alleged that Charles Schwab Investment Advisory, the subsidiary that manages the firm’s robo-advisor program, kept the plaintiffs’ and other clients’ SIP accounts “overconcentrated in cash positions.”
By doing that, Schwab “could maximize its cash sweeps income — and this caused plaintiffs and the proposed class more than half a billion dollars in damages,” the complaint alleged.
Schwab declined to comment on the complaint on Tuesday, noting it does not comment on active litigation.
The plaintiffs and other Schwab clients enrolled in the SIP program “paid hundreds of millions of dollars in unwarranted and unfair cash sweeps to Schwab and collectively missed out on over $500 million in portfolio growth since the inception” of the robo-advisor program, according to the complaint.
The plaintiffs are seeking a preliminary and permanent order of injunctive relief that will enjoin Schwab from “pursuing the acts and practices” in the complaint.
They are also seeking: the “imposition of a constructive trust and an Order granting restitution, disgorgement of ill-gotten profits, and such other equitable relief as the Court deems just and proper”; actual damages; “reasonable” attorneys’ fees, other legal costs; and additional relief “as the Court may deem necessary or appropriate,” according to the complaint.
Cash Sweep Controversy
Schwab disclosed in July that it took a $200 million regulatory charge related to a Securities and Exchange Commission probe of its robo-advisor platform, representing $0.10 per share, in the second quarter.