Charles Schwab has agreed to pay $187m to settle an investigation by the Securities Exchange Commission into hidden fees charged by the firm’s robo-advisor.
According to CNBC, SEC claimed that Schwab didn’t disclose that its advisor – Schwab Intelligent Portfolios – allocated funds in a manner that their own internal analyses showed would be less profitable for their clients under most market conditions.
As part of the settlement, Charles Schwab & Co, Schwab Investment Advisory and Schwab Wealth Investment Advisory agreed to pay $135m civil penalty and a further $52m in disgorgement and interest to affected clients.
Schwab neither admitted nor denied the allegations. The firm said, “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. As always, we are committed to earning our clients’ trust every day and work diligently to maintain the highest standards for professional conduct throughout our organisation.”
Schwab advertised that clients’ cash allocations were determined by strict portfolio methodology that sought optimal returns. However, the firm’s data showed that the cash allocations would lead clients to make less money for the same amount of risk in most circumstances.
According to the SEC, the firm profited by sweeping cash to an affiliate bank, loaning the money and pocketing the difference between the loan interest it received and the cash interest it paid to robo-advisor clients.
Gurbir Grewal – director of the SEC’s enforcement divison – said, “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.”
Information Commissioner’s Office (ICO) recently fined ClearView AI over £7.5m for using images of people collected from the web and social media to create a facial recognition database.
Copyright © 2022 RegTech Analyst
Copyright © 2018 RegTech Analyst
