Charles Schwab expects charge of at least $ 200 million in second quarter as SEC investigates robotics consulting business
The shares of Charles Schwab Corp. fell 1.7% on Friday, after the brokerage and wealth management firm said it planned to record a charge of at least $ 200 million in the second quarter regarding a Securities and Exchange Commission investigation on its robotics consulting activity.
In a regulatory file, Schwab SCHW,
stated, without providing further details, that the investigation was the result of a compliance review and largely concerned the digital consulting business of Schwab Intelligent Portfolios. The fees may be higher, depending on the outcome of the investigation. Robo Advisors provide automated, software-based portfolio management services and have become popular with savers and investors in recent years.
“The company has cooperated with SEC staff in connection with the investigation and is evaluating its options,” the file said. A spokesperson for Schwab declined to comment beyond the filing.
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The Schwab Intelligent Portfolios division served nearly $ 64 billion in client assets as of March 31, up 51% from the previous year. Schwab also offers a Schwab Intelligent Portfolios Premium product, which includes unlimited advice from a certified financial planner for a monthly fee, and an Institutional Intelligent Portfolios product used by registered investment advisers.
The SEC settled its first robotic advisor cases in December 2018, indicting two advisers, Wealthfront Advisers LLC and Hedgeable Inc., for making false statements about investment products and publishing misleading advertising messages.
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Wealthfront has made false statements about a tax loss collection strategy offered to clients and has also inappropriately retweeted testimonials from banned clients, paid bloggers for client referrals without the required disclosure and documentation, and has failed to maintain a reasonably designed compliance program to prevent violations of securities laws, the SEC complaint says.
Hedgeable Inc., a robot advisor who managed around $ 81 million in client assets at the time, made a series of misleading statements about the performance of its investments from 2016 to April 2017, when it posted misleading comparisons the return on investments of Hedgeable clients with those of two competing robo-advisers on its website and social networks.
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Neither company admitted or denied the allegations. Wealthfront was fined $ 250,000 and Hedgeable was fined $ 80,000.
Schwab stock has gained 36% so far in 2021, while the S&P 500 SPX,