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Investing Blog Roundup: Schwab to Pay $187 Million for Misleading Robo-Advisor Clients

Several years ago when Schwab first announced their “Intelligent Portfolios” robo-advisor platform, there was a ton of press coverage, for one major reason: there were no fees other than the fees of the funds.

But once Schwab actually made the program available and people could see the portfolios created, there was one question that struck me as well as many other people: why’s there so much cash? Even for a retirement account for a young investor requesting an “aggressive growth” allocation, there was still a significant allocation to cash.

Here’s how the SEC explains what was going on:

Schwab’s own data showed that under most market conditions, the cash in the portfolios would cause clients to make less money even while taking on the same amount of risk. Schwab advertised the robo-adviser as having neither advisory nor hidden fees, but didn’t tell clients about this cash drag on their investment.

Schwab made money from the cash allocations in the robo-adviser portfolios by sweeping the cash to its affiliate bank, loaning it out, and then keeping the difference between the interest it earned on the loans and what it paid in interest to the robo-adviser clients.

So now Schwab has to pay $187 million back to clients who were harmed.

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Investing Blog Roundup: Help Wanted

Update: Thank you, everybody! Several people came through, and both projects are now proceeding.

I’m currently seeking assistance with two projects. If you think you could help with either of the following, please get in touch. (And please let me know how you would like to be compensated for such work — hourly rate, etc.)

First, I could use the assistance of an attorney with expertise in probate and related topics, who could serve as technical editor for a book I’m writing. The book is about the next financial steps to take after the death of your spouse and will include a brief section on acting as executor/administrator of the estate.

Second, I could use the assistance of a software developer who can help with speeding up the calculation time for the Open Social Security calculator. The upgrade to Angular 13 dramatically increased the time it takes to run the calculation. (I haven’t deployed the update in question yet, for that reason. The latest version on GitHub does reflect the upgrade to Angular 13 though.) I have to imagine that there’s an array of opportunities for improvement, given that I’m not really a software developer but rather somebody who just took an “I’ll figure it out as I go” approach to building the whole thing.

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Investing Blog Roundup: Revised Publishing Schedule

Quick admin note: for the last few years, the publishing schedule on this blog has been an admittedly strange week-on/week-off system, with an article on Monday and a roundup on Friday during the “on” weeks and nothing being published during the “off” weeks. Starting today, it will be a more intuitive schedule: publishing every Monday, alternating between articles and roundups. (In other words, the roundups are being moved from Fridays of the “on” weeks to Mondays of what were previously “off” weeks.)

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Investing Blog Roundup: Jack Bogle, Rabble-Rouser

When you think of the words punk or rabble-rouser, you probably don’t think of a man in his late eighties, wearing a navy blazer and khakis. But as Eric Balchunas writes, that’s exactly what Vanguard founder Jack Bogle was.

He turned an industry on its head, and he spoke his mind in a way that few people really do. As Balchunas notes, “His TV hits on business networks were mostly about the futility of trying to pick stocks or time the market. He’d give a speech at an ETF conference about why ETFs were awful, or trash active management at a conference for fund managers.”

“He built an entire genre of investing by trying to eliminate everything that gets in the way of investors getting a fair share of returns, including management fees, brokers, turnover, trading costs, market timing, and human emotion.”

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Investing Blog Roundup: 2022 Bogleheads Conference Tickets Available

I’m happy to report that after a two-year hiatus, the Bogleheads Conference will be happening again this fall. It will be October 12-14, at the Oak Brook Hills Resort, in Westmont Illinois (15 miles from O’Hare Airport).

Attendees will get to hear from Burton Malkiel, Michelle Singletary, Bill Bernstein, Jason Zweig, Christine Benz, Jim Dahle, Rick Ferri, Chris Mamula, Allan Roth, Jon Luskin, and Mike Piper.

You can find more information (and get your tickets) at the link below. (And if you’re interested, do go ahead and get tickets, because Bogleheads events always sell out.)

There’s also an ongoing Bogleheads forum thread about the conference here, with some additional information or if you have questions:

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Investing Blog Roundup: Preparing Family for Their Inheritance

A lot of people who read this blog are “super savers” — saving a high percentage of their income through most of their careers. One thing that eventually happens for many super savers is that they reach a point where they realize they have not only saved Enough, they have saved More Than Enough. Their desired standard of living in retirement is well secured, and it’s very likely that a major part of the portfolio is eventually going to be left to loved ones and/or charity.

That realization raises a whole list of new considerations. Some of those are financial (e.g., how much can I afford to give away to charity during my lifetime?), and some are non-financial, such as those discussed in the following article from David Foster:

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My new Social Security calculator (beta): Open Social Security