Schwab Robo-Advisor Users Blame Investment Giant for $500 Million Investment Loss in New Class Action Lawsuit

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Charles Schwab Intelligent Portfolios Class Action Lawsuit Overview:

• Who: Three investors filed a class action lawsuit against Charles Schwab Investment Advisory Inc.
• Why: The plaintiffs claim Schwab violates fiduciary duty by over concentrating investments in cash, which benefits Schwab’s profits.
• Where: The class action lawsuit was filed in California federal court.

Three investors filed a class action lawsuit against Charles Schwab for breach of fiduciary duty, among other things, by prioritizing its own monetary gains over Schwab Intelligent Portfolios customers’ investment returns resulting in a supposed loss of over $500 million. 

The complaint claims Schwab purposely places an “imprudent and excessive” amount of customers’ money into cash allocations, such as savings accounts, so as to maximize its own profit since part of its Intelligent Portfolio management includes earning a margin of interest earned on those cash accounts. Schwab claims to charge customers no fees for the use of its robo-advisor, but has made “at least hundreds of millions of dollars” from this system, according to the class action complaint. 

Lead plaintiffs in the case are Lauren Marie Barbiero, Kimberly Jo Lopez, and William Kenneth Lopez, all of whom have or have had a Schwab Intelligent Portfolio account with overconcentration of cash. The class includes all Intelligent Portfolios account holders during the four years preceding Sept. 10, 2021 and continuing until the date of trial. 

The counts brought against Schwab include breach of fiduciary duty, negligent misrepresentation, unfair business practices, breach of contract, and unjust enrichment.

In New Class Action, Plaintiffs Claim Schwab Intelligent Portfolios Designed to Benefit Schwab, Not Investors

Plaintiffs complain Schwab’s exorbitant cash allocations lost them, and the Class, millions of dollars compared to the returns they would have gained had Schwab rightfully allocated their funds into more competitive investments. 

Barbiero’s cash allocation reached 11 percent, despite the long-term investment horizon indicated for the account, according to court documents. Kimberly Jo Lopez’s cash allocation reached up to 25 percent, and William Kenneth Lopez’s reached up to 20 percent. Further, plaintiffs’ funds were stashed in cash during a profitable time in the stock market, according to the complaint. 

Schwab asserts its so-called Sweep Allocation will range from 6 percent to 30 percent, a feature that clients cannot eliminate, per Schwab disclosures to the Securities and Exchange Commission (SEC). 

Even Schwab acknowledges in its 2015 disclosure brochure for Intelligent Portfolios that its Sweep Allocation creates a “potential conflict of interest” that can “affect both the risk profile and performance of a portfolio.” 

The class action lawsuit seeks the prevention of Schwab continuing these practices, the return of ill-gotten profits, attorneys’ fees, costs of suit, and pre- and post-judgment interest. 

Have you ever used Charles Schwab’s Intelligent Portfolios for investing? What was your experience like? Tell us about it in the comments section below!

The plaintiffs are represented by John T. Jasnoch, Garrett Wotkyns, and Tanya Korkhov of Scott+Scott Attorneys at Law LLP and Joseph C. Peiffer, Daniel J. Carr, Kevin P. Conway, and Jamie L. Falgout of Peiffer Wolf Carr Kane & Conway LLP.

The Charles Schwab Intelligent Portfolios Class Action Lawsuit is Barbiero, et al. v. Charles Schwab Investment Advisory Inc., Case No. 3:21-cv-07034-LB, in the U.S. District Court for the Northern District of California.

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