Investment News on Schwab Cash
Investment News claims, "Schwab's $200 million charge points toward conflicts with cash spreads." The article speculates, "They say there's no such thing as a free lunch, but Charles Schwab & Co. could have customers believing otherwise. The discount brokerage's Intelligent Portfolios platform has long advertised itself as having no advisory fees or commissions, but a $200 million charge announced this month relating to an investigation by the Securities and Exchange Commission highlights the subtle ways free investment platforms charge for services. While the robo-adviser doesn't technically have an advisory fee, it does earn revenue through charging for its underlying exchange-traded funds and on interest collected on holding clients' assets in cash. The cash spread, as it's called, is the difference between what Schwab earns in interest and what it actually pays clients. The practice is explained here under its potential conflict-of-interest disclosures." The piece comments, "Currently, the company pays 0.01% on cash -- meaning almost any other online savings account will offer a higher yield -- and allocates between 6% and 22.5% of cash assets in Schwab managed cash accounts. When interest rates were higher in 2016, cash in client accounts earned 0.08% at a time when some savings accounts were offering 1% or more, according to an analysis by Bloomberg.... It's unclear for now why Schwab is under investigation by the SEC, but industry observers have pointed to cash spreads as a likely culprit. '[Is the SEC charge] a comeuppance for Schwab, after years of marketing its 'free' no-advisory fee robo, where clients were then placed into Schwab ETFs and Schwab cash?' asked Michael Kitces, in a tweet this month. 'Ironically, it's hard to imagine what else it could be that adds up to a $200 million adjustment for Schwab. That's a huge write down.'"
