Charles Schwab was fined for failure to disclose certain conflicts of interest. Investment News reports:
The SEC is paying close attention to advisers’ disclosures and potential conflicts of interest, and Schwab isn’t the only firm that has faced recent changes. San Diego-based Madison Avenue Securities was fined $800,000 earlier in June for failing to disclose or not adequately conflicts associated with compensation the firm received from certain advisory client investments.
“This certainly won’t be the last enforcement action for the year involving disclosures and conflicts,” said Max Schatzow, co-founder of RIA Lawyers.
Regulators are paying special attention to robo-advisers, and the settlement with Schwab is “absolutely massive,” he added.
“If you need to inflict pain on a registrant of [Schwab’s] size, the penalty has to move the needle,” Schatzow said.
On Twitter, XY Planning Network co-founder Michael Kitces estimated that the $187 million was equivalent to 100% of revenue on $75 billion of assets under management at the robo-adviser.
“This is really a huge fine for Schwab,” Kitces said. “If their profit margin is 20%, that fine is equal to 100% of profits on $375B of robo-AUM.”
A Northern California District Court judge last week dismissed a class-action lawsuit from Intelligent Portfolios clients alleging the over-allocation of cash in their portfolios cost investors as much as $500 million in missed market gains. District Court Judge Phyllis Hamilton decided the court was unable to hear the complain under the Securities Litigation Uniform Standards Act.
A spokesperson for Schwab called the lawsuit a “meritless complaint.”
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