Is your Broker/Advisor telling the TRUTH?
Charles Schwab agreed to pay $187 million to settle an SEC investigation into alleged hidden fees charged by the firm’s robo-advisor, Schwab Intelligent Portfolios, according to an agency announcement on Monday.
“Robo-advisor” is shorthand for a digital investment service that uses algorithms to judge how to allocate individuals’ money among asset classes such as stocks, bonds and cash.
From March 2015 through November 2018, Schwab DIDN’T DISCLOSE TO CLIENTS that its robo-advisor allocated funds “in a manner that their own internal analyses showed would be less profitable for their clients under most market conditions,” the SEC claimed. CNBC 06-22
LPL markets to Advisors with the statement “ The FUTURE IS FIDUCIARY “ SOUNDS GOOD SO FAR RIGHT? Then we read: “LPL Targeted in Latest Suit Over ‘Paltry’ Rates on Cash Sweeps”
The complaint, which seeks class action certification, alleges that since 2016, LPL “has been engaged in a multiyear process to reposition the cash holdings in its customers’ brokerage accounts into cash ‘investment’ vehicles that generate substantial revenue for LPL while at the same time providing little to no benefit to Defendant’s customers,” according to the lawsuit, which was filed in federal court in San Diego on Wednesday.
Its cash sweep programs are designed to ensure that LPL “will always receive the vast majority of the interest earned by its customers’ cash holdings,” and that the firm’s customers will always receive “only a small fraction” of the interest that could be generated if their cash was placed in “any other bank savings account,” according to the complaint.
LPL additionally “glosses over” the availability of higher yield alternatives for cash management outside of the cash sweep programs such as money market funds, which offer similar levels of liquidity and principal protection to bank deposits. One securities analyst on Friday said that higher interest rates on clients’ cash held in advisory accounts may cost LPL Financial Holdings Inc. as much as $380 million, shaving off $3.80 per share on the company’s earnings in the future.
The analyst, Jeff Schmitt of William Blair Equity Research, wrote the note about LPL in the wake of the company being sued by a client on Wednesday in federal court in San Diego, with the claim alleging that LPL’s cash sweep program allows the company to unjustly enrich itself, which potentially constitutes a breach of fiduciary duty.
Interestingly, Wells Fargo, which disclosed in October that it faced an Securities and Exchange Commission review, on Friday reported that it would lose $350 million in revenue this year as it raised rates on cash in managed accounts. Similarly, Morgan Stanley and Bank of America reported this week that interest rate payments were on the rise at their wealth management divisions. At least Wells was proactive, for what it’s worth.
DO YOU GET THE PICTURE? WALL STREET IS AROUND TO SELL YOU THINGS AND TAKE YOUR MONEY!
YOUR RESULTS DO NOT MATTER THEM AT ALL!