Wealthfront CEO Claims Schwab is Fooling Investors Over “Free” Automated Investment Platform

Adam Nash, the CEO of Wealthfront, claims that Charles Schwab & Co. (SCHW) is deceiving investors by claiming that Intelligent Portfolios, its automated investing platform, is free. Nash, whose company competes with Schwab’s new service, contends that the platform will cost consumers thousands of dollars in opportunity expenses involving expensive “smart beta” exchange-traded funds and high cash allocations. These costs, he argues, are concealed in disclosure documents.

Intelligent Portfolios lets consumers manage, rebalance, and oversee their portfolios through the Internet. The program allows investors to evaluate their goals and risk tolerances using specific questions. Investors must have at least $5,000 and they would get recommendations based on their responses.

Algorithms are supposed to help clients build and maintain their portfolios in low cost ETFs with asset classes of up to 20. Intelligent Portfolios joins Wealthfront and Betterment in the robo-field for automated investing.

Nash, however, called Schwab out on his blog, referring to the firm as the new “Merrill Lynch.” As one example of why the competitor’s robo program isn’t free, he pointed to Schwab’s SEC filing, which said that every investment strategy will have a sweep allocation in which 6-30% of the value of an account will be kept in cash and consumers cannot use this for investments or get rid of it.

Schwab has responded with its own blog post, accusing the Wealthfront CEO’s post of being misleading. The firm argued that the cash Nash points to is an investment and should not be considered a source of revenue for the company.

With its new robo-advisor service, Schwab is touting that there are no advisory or accounts service fees as well as no commissions. It says it will instead collect fees on fourteen of the ETFs that it manages and are part of the Intelligence Portfolios’ program, as well as from eight other ETFs, which are run by other fund groups that pay Schwab for services. And while the firm has admitted to possibilities for conflicts of interest, it says that it has acted to minimize these.

Robo-Advisors This type of online wealth management service gives portfolio advice that is automated and algorithm-based and doesn’t involve human financial planners. Robo-advisers work with the same software that traditional advisors do but only provide portfolio management and not wealth management. This service is typically low-cost, requiring low account minimums. They are proving to be a draw for younger investors, who are used to doing a lot on the Internet.

Excessive Fees
Excessive and hidden fees paid to broker-dealers and investment advisers can cost investors, who may not be factoring these figures in when determining whether or not they are making a profit or sustaining losses. Any fees that are charged must be made known to an investor.

If you believe that you have sustained financial losses that you shouldn’t have, you may want to speak with an experienced investment adviser fraud law firm right away. At Shepherd Smith Edwards and Kantas, LTD LLP, we have helped thousands of investors recoup their money.


Read Nash’s blog post, Medium.com
Schwab raises eyebrows, new issues with robo-investment tool, SFGate, Kathleen Pender, March 9, 2015

Schwab to launch adviser robo in Q2; consumer version unveiled today, Investment News, March 9, 2015

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