Schwab Statement on Settlement with SEC Related to 2015-2018 Disclosures for Schwab Intelligent Portfolios®
June 13, 2022
The Charles Schwab Corporation today announced it has reached a settlement with the U.S. Securities and Exchange Commission to resolve an investigation into historical disclosures related to the Schwab Intelligent Portfolios (SIP) advisory solution. The company issued the following statement:
“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.
“In entering the settlement, Schwab neither admits nor denies the allegations in the SEC’s Order. We believe resolving the matter in this way is in the best interests of our clients, company, and stockholders as it allows us to remain focused on helping our clients invest for the future. As always, we are committed to earning our clients’ trust every day and work diligently to maintain the highest standards for professional conduct throughout our organization.
“SIP is a key component of our advisory lineup and an important way to help clients invest for the future in a diversified way. SIP was designed to provide clients competitive returns across different market environments, and the ability to help weather volatility or challenging market conditions over time. The service recommends a diversified portfolio based on a client’s goals, time horizon and risk profile, and keeps the allocation consistent through automated rebalancing as markets fluctuate to help a client stay focused on their longer-term financial goals. We are proud to have built a product that allows investors to elect not to pay an advisory fee in return for allowing us to hold a portion of the proceeds in cash, and we do not hide the fact that our firm generates revenue for the services we provide. We believe that cash is a key component of any sound investment strategy through different market cycles.
“Schwab has been democratizing investing for almost half a century, and SIP is a direct reflection of this focus. With its innovative approach and focus on clients’ individual needs, SIP has transformed the investment advisory space, making it possible for more investors to access the benefits of professional money management in a simpler manner. Since the debut of SIP in 2015, it has delivered strong performance aligned with each portfolio’s risk profile and asset allocation. Hundreds of thousands of Americans have benefited from SIP’s automated, diversified portfolios, which deliver value, sophistication, tailored solutions and 24/7 support.”
The settlement with the SEC involves Schwab Wealth Investment Advisory, Inc., Charles Schwab Investment Advisory, Inc. and Charles Schwab & Co., Inc. Under the terms of the settlement, 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.
As previously disclosed in a Form 8-K filing dated July 1, 2021, Schwab’s second quarter 2021 financial results included a liability and related non-deductible charge of $200 million in connection with the settlement.