Florida FINRA Arbitration Panel Finds Charles Schwab & Co., Inc. Responsible For Robo-Advisor Error
On June 23rd, 2022 a FINRA arbitration panel in Palm Beach County, Florida awarded a claimant $79,249.93 in compensatory damages (Case Number: 20-02414). The respondent in the case was Charles Schwab & Co., Inc. (CRD#: 5393/SEC#: 801-29938,8-16514), the national broker-dealer and investment advisory firm with a main office in San Francisco, California. Here, our Miami unsuitable investments lawyer offers a more detailed overview of the decision from the arbitration panel.
FINRA Arbitration Award: $79,249.93 in Compensatory Damages
An investor filed a FINRA arbitration claim against Charles Schwab & Co., Inc. in August of 2020. In the initial Statement of Claim filed by the investor, a number of different causes of action are raised. Notably, the dispute centered around an alleged “transfer execution error” that involved a robo advisor managed portfolio. The investor’s funds ($500,000) were purportedly not “dollar-cost-averaged” as instructed. Here are some key details to know about this FINRA arbitration claim:
- Dollar Cost Averaging: Dollar cost averaging is a common investment strategy that is especially popular among most conservative and otherwise risk-averse investors. The core principle of dollar cost averaging is that a fixed dollar amount will be invested on a regular basis—regardless of the specific share price at the time. By definition, the execution of this strategy will result in a greater number of shares being purchased at a relatively lower price. When share prices rise, a dollar cost averaging strategy will result in fewer shares purchased.
- Robo Advisor Managed Account: Robo advisor managed portfolios are becoming more common. This dispute involved a robo advisor called Schwab Intelligent Portfolios (SIP). A robo advisor is effectively a set of automated and algorithmically-driven investment tools that helps to manage an investor’s portfolio. There are still humans involved in the process and the broker-dealer is still responsible for complying with securities law and FINRA regulations.
Upon review of the matter, the Florida-based FINRA arbitration panel determined that the robo advisor (Schwab Intelligent Portfolios) failed to properly execute the dollar cost averaging strategy selected by the investor. The human error made by an unnamed party was cited as a factor in the failure. As a consequence of the improper failure to follow the dollar cost averaging strategy, the investor was put in a financially disadvantageous position. The FINRA arbitration panel awarded the investor $79,249.93 in compensatory damages based on losses sustained related to the matter. The respondent was also found liable for interest and certain filing fees.
Speak to a FINRA Arbitration Lawyer for Investors in South Florida
At Carlson & Associates, P.A., we are devoted to protecting the rights of investors. If you sustained losses due to an error or misconduct by a financial advisor or broker-dealer, we are available to help. Give us a call now to set up a completely confidential review of your case. Our law firm provides legal representation to investors in South Florida and throughout the wider region.
Sources:
finra.org/sites/default/files/aao_documents/20-02414.pdf
brokercheck.finra.org/firm/summary/5393
