Charles Schwab faces class action complaint over robo-adviser cash-sweep practices

A group of investors have brought a class-action complaint against brokerage Charles Schwab. They claim the company violated fiduciary and consumer-protection responsibilities through its Schwab Intelligent Portfolios’ cash sweep program.

Why should we care?
Schwab is not alone in enabling robo-adviser products to “sweep” money from client accounts. The investors allege that Schwab over-allocated customers’ portfolios to cash, boosting the retail brokerage’s income while costing investors hundreds of millions in possible gains. Investors “collectively missed out on over $500 million in portfolio growth,” according to the complaint filed with U.S. District Court in Northern California, which amounts to a violation of fiduciary duty, breach of contract, and violation of state laws. Schwab charges no advisory fees or commissions, and generates revenue from net interest margin on cash sweeps into Charles Schwab Bank, according to the complaint. In July, Schwab revealed that its cash sweep program was being probed by the Securities and Exchange Commission over disclosure matters. The company took a $200 million charge in the second quarter relating to the investigation.