WASHINGTON (dpa-AFX) - Charles Schwab (SCHW) has agreed to pay $187 million to settle SEC charges that its subsidiaries misled clients about absence of hidden fees.
According to SEC, three of the firm's investment adviser subsidiaries did not disclose that they were allocating client funds in a manner that their own internal analyses showed would be less profitable for their clients under most market conditions.
Schwab's mandated disclosures for its robo-adviser product, Schwab Intelligent Portfolios, stated that the amount of cash in the robo-adviser portfolios was determined through a 'disciplined portfolio construction methodology,' and that the robo-adviser would seek 'optimal return[s].'
However, actually, Schwab's own data showed that under most market conditions, the cash in the portfolios would cause clients to make less money even while taking on the same amount of risk. Schwab advertised the robo-adviser as having neither advisory nor hidden fees, but didn't tell clients about this cash drag on their investment.
Schwab will pay $186.5 million to resolve the matter, which will be deposited into a Fair Fund account for distribution to affected investors. Schwab will also retain an Independent Compliance Consultant to review CS&Co.'s and CSIA's current supervisory, compliance, and other policies and procedures concerning CS&Co.'s and CSIA's SIP-related disclosures, advertising, and marketing communications with clients or potential clients.
'Schwab has resolved a matter with the SEC regarding certain historic disclosures and advertising related to Schwab Intelligent Portfolios between 2015-2018, and we are pleased to put this behind us. The SEC Order acknowledges that Schwab addressed these matters years ago,' the company announced in a statement.
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