Putting the fee in free Episode 10

Episode Summary

Charles Schwab, Ally and others have come under fire recently for their use of cash sweeps in their free robo-platforms. The practice of holding significant portions of client portfolios in cash so that the firms can collect revenue on the interest in lieu of charging a fee is not illegal, but the ethics are blurry. The large cash positions deprive clients of potential gains from the market, and many clients don’t understand the mechanisms. David Goldstone from Backend Benchmarking and Laura Varas from Hearts & Wallets join Sean to break it down.

Episode Notes

In this episode, you’ll hear: 

• What are cash sweeps?
• Comparison of these portfolios with “regular” portfolios — how many millions did Schwab investors lose?
• What does it mean for robo-advisers writ large?
• What is the proper role of cash in a portfolio — how does it compare to Schwab’s methodology?
• The effect of inflation.
• What else is going on in the world of robo-advisers.
• A discussion on fees — the femur surgery metaphor.
• No free lunch.

Related Article:  How much does Schwab’s cash sweep really cost clients?

Related Article:  Schwab hit with class-action complaint over cash sweeps

Guest Bios: 

Laura Varas is founder and CEO at Hearts & Wallets, where she applies her experiences in participating in markets worldwide to create stronger connections between financial solutions and consumer needs. Laura is a thought leader who combines an in-depth knowledge of financial services with a proven ability to predict future trends. 

Laura bridges the investing and marketing worlds with over 25 years of experience in retail finance, consumer packaged goods and strategy consulting. Prior to founding Hearts & Wallets, she held senior positions at Fidelity and Citibank, with earlier roles at Colgate-Palmolive, Grey Advertising and Mercer Management Consulting strategy practice.

David Goldstone is the manager of research and analytics for Backend Benchmarking and The Robo Report™. He started his finance career in Shanghai working with the chief China analyst for Oppenheimer & Co. While living in China, he opened the office for DealFlow Media in Shanghai and organized their second international conference, where U.S. institutional investors were introduced to over 100 Chinese companies. Prior to joining Backend Benchmarking, David worked at First National Bank as a lender and financial advisor. In his role at Backend Benchmarking, he has established himself as a subject matter expert in the digital advice industry and has been quoted in WSJ, Barron’s and Money, among other publications. David graduated from Colorado College and is a CFA charterholder.