Investment Advisors Angered by Schwab Leaving Larger YieldPlus Investors in the Lurch

Since news hit the street that Schwab is turning its back on its YieldPlus bond fund investors who have large losses, investment advisors have begun to vocalize their anger with San Francisco-based Schwab.

A story in InvestmentNews that broke this week quotes a number of investment advisors who said they’ll think hard next time before placing clients in a Schwab fund.

Richard Schroeder, an executive with Amherst, N.Y.-based Schroeder Braxton & Vogt Inc., told InvestmentNews that he doesn’t think Schwab is handling the situation properly.

“We’re just not comfortable with their fund management arm,” Mr. Schroeder told InvestmentNews. “We don’t give second chances.”

Bloomberg reported earlier this month that Schwab is offering decent settlements to YieldPlus investors with smaller losses, but is offering less than 20 cents on the dollar to investors whose losses top $50,000. 

Schwab billed its YieldPlus Fund as a safe alternative to cash, but that safety was a charade: Kimon Daifotis, the YieldPlus Fund portfolio manager, put increasing portions of the fund’s assets into higher-yielding, but higher risk asset-backed and mortgage-backed securities. That strategy put the fund at risk for a huge failure, which began last summer when the subprime lending credit crisis rocked Wall Street.

Schwab’s YieldPlus Fund (SWYSXSWYPX) had assets of $13.5 billion on July 31, 2007, but the fund went into a spectacular free fall that saw assets dwindle to just $1.5 billion as of April 1, 2008. 

Vernon Litigation Group and the Thomas F. Shine law firms are reaching out to investment advisors to help them get the best results possible for their investor clients. Vernon Litigation Group and Thomas F. Shine were the first to file an investor claim naming Daifotis as an individual defendant.

Investors who’ve lost more than $50,000 should consider opting out of the many class-action lawsuits that have been filed and instead consider pursuing an individual arbitration claim with FINRA, the Financial Industry Regulatory Authority.

Additional Reading:

Investment Advisors or investors can Contact Vernon Litigation Group at (239) 319-4434.

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