• mark61504

SEC hits Schwab robo-adviser with $187 million dollar fine

Sometimes independence isn't all it is cracked up to be. As fees become a greater focal point of consumers, vendors have tried to lower or eliminate the most obvious fees. Many transaction fees that used to be charged to investors with retail brokerage accounts have gone the way of the Dodo. As online advisors have continually tried to compete with one another, one advisor seemingly changed their allocation to more profitable investments that generated revenue.


From March 2015 through November 2018, portfolios managed by Schwab's automated investing technology, Intelligent Portfolios, held between 6% to 29.4% of client assets in cash. Schwab profited from the cash drag by sweeping money to its affiliate bank, loaning it out and keeping the difference between the interest earned and what it paid out to robo-adviser clients.


As fee disclosure has compressed margins for many asset managers, investment advisors and recordkeepers, Plan Sponsors need to be wary of additional revenue drivers offered by their recordkeeper. Benchmarking the value that these services bring to the table for employees and comparing them to comparable "off platform" services can be a useful place to start. While this occurred in the retail space, it can be informative when determining the many ways that an "independent" recordkeeper or adviser can alter their recommendations with their bottom line in mind, not yours!

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