Independent Investment Advisor office of Airgead Clann, LLC announces FINRA arbitration against Charles Schwab & Co.(SCHW) for breach of the investment advisor contract it held with Schwab, and the investigation of potential claims by other independent investment advisors similarly situated.
In an effort to attract successful financial advisors, and their clients, Charles Schwab & Co. Inc. states on the website that they have a network of 7,000 independent advisors under their "Schwab Advisor Services" division. Quoting directly from the Schwab web site, advisors will "gain freedom and control as an RIA backed by Schwab Advisor Services," and "You put your clients at the center of your business, and we put investment advisors at the center of ours." What is not revealed in the website advertising is the arbitrary manner in which Schwab may terminate the agreement with an Independent advisor should they choose to. The Charles Schwab Institutional Investment Manager Service Agreement states that either party, Schwab or the Independent Advisor, may terminate the contract without cause at any time.
In practice, a Schwab initiated termination, without any prior warning, occurs with a phone call from Schwab's corporate counsel who informs the investment advisor that Schwab has chosen to terminate the Investment Manager Service Agreement immediately and that all clients of the Advisor will be mailed a notification letter that day. The decision is final, not subject to discussion, or appeal, and no reason will be given to the advisor or the advisor's clients.
Airgead Clann, LLC obtained dozens of letters written by Schwab to investors all of which begin as follows: "We are writing to inform you that effective (date); we are terminating the Investment Manager Service Agreement between Airgead Clann, LLC and Charles Schwab & Co. Effective with this termination, Schwab will no longer honor any authorizations held by Airgead Clann, LLC and its principals, employees and agents." No reason is stated in the letter for the action taken. The letter is identical in all respects, only the names and account numbers are changed.
Airgead Clann interviewed many investors who were informed of the termination in the manner described above. Not one investor, even after inquiring, was provided an explanation. These investors expressed concern, fear and anger. The impact on them is devastating. This one letter immediately destroys the trust between the investor client and the advisor, which takes many years to build. Many investors contact the advisor in confusion, uncertainty and panic, such as a 90 year old man who said, "I believe I am entitled to a reason." If the investor calls the 800 number on the letter, Schwab telephone customer service personnel can only speculate.
Airgead Clann, LLC has an open FINRA arbitration (case # 12-00049) against Schwab regarding this damaging policy. Airgead discovered that Schwab has a history of terminating advisors arbitrarily, without notice or cause to do so. Airgead is therefore currently compiling a list of other advisors similarly situated.
We contacted Charles Schwab & Co to comment for this article and they declined.