Schwab Statement on Settlement With SEC Related to 2015-2018 Disclosures for Schwab Intelligent Portfolios®

Rhea-AI Summary

The Charles Schwab Corporation has reached a $186.5 million settlement with the SEC regarding historical disclosures related to its Schwab Intelligent Portfolios (SIP) from 2015-2018. Although Schwab neither admits nor denies the allegations, this settlement aims to resolve the investigation and allows the company to focus on client services. The settlement involves Schwab Wealth Investment Advisory and Charles Schwab Investment Advisory, and funds will be distributed to affected investors. Since its launch, SIP has provided automated, diversified portfolios to hundreds of thousands of clients.

Positive

• Settlement allows Schwab to focus on serving clients and may enhance trust with investors.
• SIP has delivered strong performance since its launch, reflecting positive client outcomes.

Negative

• Schwab must pay $186.5 million, impacting financial results.
• The settlement acknowledges prior issues regarding disclosures, which could affect reputational standing.

WESTLAKE, Texas--(BUSINESS WIRE)-- 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.

About Charles Schwab

The Charles Schwab Corporation (NYSE: SCHW) is a leading provider of financial services, with 33.8 million active brokerage accounts, 2.3 million corporate retirement plan participants, 1.7 million banking accounts, and approximately $7.28 trillion in client assets. Through its operating subsidiaries, the company provides a full range of wealth management, securities brokerage, banking, asset management, custody, and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiaries, Charles Schwab & Co., Inc., TD Ameritrade, Inc., and TD Ameritrade Clearing, Inc., (members SIPC, www.sipc.org), and their affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; referrals to independent, fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through Schwab Advisor Services. Its primary banking subsidiary, Charles Schwab Bank, SSB (member FDIC and an Equal Housing Lender), provides banking and lending services and products.

TD Ameritrade, Inc. and TD Ameritrade Clearing, Inc. are separate but affiliated companies and subsidiaries of TD Ameritrade Holding Corporation. TD Ameritrade Holding Corporation is a wholly owned subsidiary of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank.

More information is available at www.aboutschwab.com.

Disclosures:

We encourage you to read the Schwab Intelligent Portfolios Solutions™ disclosure brochures for important information, pricing, and disclosures. Before you enroll, it's important you understand any and all costs, including the role of cash and the way Schwab earns income from the cash allocation in your portfolio, which results in lower overall portfolio performance under certain market conditions, for example when other riskier assets outperform cash, and how Schwab and its affiliates work together.​

Schwab Intelligent Portfolios® and Schwab Intelligent Portfolios Premium™ are made available through Charles Schwab & Co. Inc. ("Schwab"), a dually registered investment advisor and broker dealer. Portfolio management services are provided by Charles Schwab Investment Advisory, Inc. ("CSIA"). Schwab and CSIA are subsidiaries of The Charles Schwab Corporation.

The cash allocation in Schwab Intelligent Portfolios Solutions™ will be accomplished through enrollment in the Schwab Intelligent Portfolios Sweep Program (Sweep Program), a program sponsored by Charles Schwab & Co, Inc. By enrolling in Schwab Intelligent Portfolios Solutions, clients consent to having the free credit balances in their Schwab Intelligent Portfolios Solutions brokerage accounts swept to FDIC-insured Deposit Accounts at Charles Schwab Bank through the Sweep Program. Funds deposited at Charles Schwab Bank are insured, in aggregate, up to $250,000 per depositor, for each account ownership category, by the Federal Deposit Insurance Corporation (FDIC). Charles Schwab Bank is affiliated with Charles Schwab & Co., Inc. and Charles Schwab Investment Advisory, Inc. Diversification does not ensure a profit and does not protect against losses in a declining market.

View source version on businesswire.com: https://www.businesswire.com/news/home/20220610005609/en/

MEDIA:

Alison Wertheim

Charles Schwab

alison.wertheim@schwab.com

INVESTORS/ANALYSTS:

Jeff Edwards

Charles Schwab

jeff.edwards@schwab.com

Source: The Charles Schwab Corporation

FAQ

What was the settlement amount that Schwab agreed to pay to the SEC?

Schwab agreed to pay $186.5 million to settle the SEC investigation.

What years did the SEC's investigation into Schwab's disclosures cover?

The SEC's investigation covered disclosures related to Schwab Intelligent Portfolios from 2015 to 2018.

How will the settlement funds be used?

The settlement funds will be deposited into a Fair Fund account for distribution to affected investors.

What is Schwab Intelligent Portfolios?

Schwab Intelligent Portfolios is an advisory solution that provides clients with automated, diversified portfolios based on individual goals and risk profiles.

What company is involved in the SEC settlement along with Schwab?

The settlement involves Schwab Wealth Investment Advisory, Inc. and Charles Schwab Investment Advisory, Inc.