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I'll be interested to see what happens to Schwab on this lawsuit and what the SEC does (and I don't have any idea what will or should happen). But, in a general sense, I don't have any problem with the concept of the customer giving Schwab a cash loan and then the customer gets a 'free' Robo advisor. There has to be payment somewhere and I wonder if the allocation to Schwab ETFs alone makes Schwab enough money (my guess is no).
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Ridiculous. Doesn’t the program disclose that some of the allocation goes to cash and how cash is held ? If the market crashed, would same customers be suing because not enough was in cash ?
Know what you are buying or don’t buy it.
Know what you are buying or don’t buy it.
In hindsight, all our returns could have been better.bondsr4me wrote: ↑Tue Sep 14, 2021 8:04 am Looks as tho some Schwab Intelligent Portfolio customers are unhappy about the cash sweep in the program.
https://www.investmentnews.com/schwab-h ... ign=buffer
Hope the link works.
Analysis shows Schwab likely earned $185 million based on estimates of what Schwab Bank could do with the cash.
It also shows that they could have earned $554 million if they had charged a 0.30% management fee. This means Schwab could have earned more by charging a 0.30% management fee.
There is also an estimate of how much clients could have earned if Schwab had not used the cash allocation and instead just invested it in their fixed income allocation. The result of that would have been taking more risk and having higher volatility, but had they taken more risk and charged the 0.30% management fee then clients could have earned $531 million more.
That said, I don't think we are through this economic cycle and claiming clients could have earned more in a particular environment just seems like judgement in hindsight. Going forward, the Robo report cited in many of the articles on the lawsuit acknowledges that Schwab's bond portfolio is better positions for rising rate environments and have done well in the recent inflation. Overall, tracking all robot on the market shows Schwab has the best 5-year trailing returns for fixed income (but not all robots have been around for 5 years).
So again, Schwab could have earned more by charging a 0.30% management fee, but doing so would result in a portfolio less well positioned to deal with inflation.
Also, Schwab's equity selections have a "substantial" value tilt which has year-to-date done better than the market.
In general, I think and have always thought the Schwab portfolio to be positioned for inflation more than others. I think some are simply unhappy with that positioning. With all the alarm on Bogleheads today about positioning a Porfolio for inflation, it does seem appropriate that Schwab had done so in advance even at their own expense.
See The Robo Report second quarter 2021
Last edited by typical.investor on Tue Sep 14, 2021 5:59 pm, edited 1 time in total.
Schwab could not have been more clear about the cash drag.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama
Exactly, extensive footnotes and disclosures. They even bragged about how much profit they were making from it in their 10-K filing to the SEC a few years ago. They self reported it to the SEC through their 10-K. Of course that was when interest rates were higher and more opportunity for arbitrage so maybe not so much excitement now.
I have a Schwab taxable account, and I am happy not to be part of the class action. I don't always like everything Schwab does, but I will give them credit for always being transparent. If some class of investors think they were hoodwinked by Schwab, then they must be investing blindly.
+1UpperNwGuy wrote: ↑Tue Sep 14, 2021 7:37 pm I have a Schwab taxable account, and I am happy not to be part of the class action. I don't always like everything Schwab does, but I will give them credit for always being transparent. If some class of investors think they were hoodwinked by Schwab, then they must be investing blindly.
Agree. That was my first thought also.