Vernon • Healy, in partnership with a team of lawyers, represents clients throughout the United States who invested in the Schwab YieldPlus Fund as a result of the advice they received from the Charles Schwab brokers assigned to their accounts. However, Charles Schwab also offers two programs to investors who are interested in obtaining and paying for more comprehensive advice with respect to managing their investment portfolios. Did those Charles Schwab customers receive the same advice about their Schwab YieldPlus investments?
The Schwab Private Client program assigns a Charles Schwab Financial Consultant to the client who works with a Portfolio Consultant to provide “customized guidance that reflects your unique situation and goals” and make “. . . fact-based recommendations . . .” to the client, according to the Charles Schwab website (March 30, 2009). This service is available for an annual asset-based fee starting at 0.75% for equities and 0.50% for fixed-income investments.
Charles Schwab also offers a “Schwab Managed Portfolios” program to its clients. Charles Schwab investment professionals design a diversified asset portfolio consisting of Schwab and/or non-Schwab mutual funds. After the portfolio has been designed, the portfolio managers monitor the performance of the portfolio, replacing low-rated funds, and engaging in asset class rebalancing as needed. According to the Charles Schwab website, portfolio managers rely upon recommendations from the Schwab Center for Financial Research in designing and restructuring the client’s managed portfolio. Charles Schwab clients presently pay fees that range from 0.25% to 0.50% of the non-cash assets in the portfolio.
The stunning collapse of the Schwab YieldPlus ultrashort bond fund from June 2007 Net Asset Value (“NAV”) – $9.67 per share on June 29, 2007, through April 30, 2009 (NAV – $4.65, down 51.9% – has been discussed at great length by financial journalists, attorneys and investors on internet posts. When the fund started to experience huge redemptions in August 2007, it was forced to sell illiquid asset-backed and mortgage-backed securities at distressed prices. These sales prompted more and more redemptions and distressed sales of illiquid securities throughout the remainder of 2007 and in 2008. The total assets managed by the Schwab YieldPlus fund has plummeted from $13.491 billion on July 31, 2007, to $159 million as of March 31, 2009 (down 98.8%).
The steepest decline in the Schwab YieldPlus Fund’s NAV took place from January 31, 2008, through April 1, 2008. This decrease coincides with the time period that the portfolio managers of the Schwab Retirement Income Fund and four of the Schwab Target Funds were selling a total of almost 3 million Schwab YieldPlus Fund shares from these funds’ respective portfolios.
On January 31, 2008, the Schwab YieldPlus Fund NAV closed at $8.93 per share (a decline of a little less than 10% from the Summer 2007 price). On April 1, 2008, Charles Schwab posted the following notice on its website: “Several Schwab Funds have redeemed shares of the Schwab YieldPlus Fund. On April 1, 2008, the Schwab Retirement Income Fund redeemed its last remaining shares, resulting in Schwab Funds no longer holding the Schwab YieldPlus Fund.” The Schwab YieldPlus Fund closed at $6.80 per share on that day, down (-27.82%) from the fund’s June 29, 2007 NAV of $9.67 and down (-21.84%) from January 31, 2008, the date that the Schwab Retirement Income Fund and the four other Schwab Funds collectively held almost 3 million shares of the fund.
Members of our team have spoken to over 100 Schwab YieldPlus Fund investors who sustained significant losses in the fund. Based on those interviews, we know that Charles Schwab financial consultants and fixed income specialists were widely soliciting and recommending the fund to Charles Schwab customers. We also know that Charles Schwab was aggressively marketing the fund to all of its customers on its website, in press releases, and in its investor newsletters. It is statistically improbable that not a single Charles Schwab Private Client or Schwab Managed Portfolio client would have contacted our team unless these clients were advised to sell their shares in the fund insufficient time to incur more modest losses relative to those who were not advised.
Schwab YieldPlus Fund investors’ losses accelerated very quickly in March of 2008, immediately prior to Charles Schwab’s April 1, 2008 announcement that the Schwab Retirement Income Fund and other Schwab proprietary funds had sold all of their Schwab YieldPlus Fund shares. We have spoken to one investor whose Charles Schwab financial consultant told him on or about March 12, 2008, that substantial numbers of Charles Schwab Private Clients had owned the Schwab YieldPlus Fund and that Charles Schwab had already started advising these particular clients to sell the fund.
We are continuing to investigate the issue of when Charles Schwab advised its Schwab Private Advice clients to sell the Schwab YieldPlus Fund and when portfolio managers managing the Schwab Managed Portfolio clients’ accounts sold their clients out of the fund. As part of our continuing investigation, we would like to hear from Schwab Private Client or Schwab Managed Portfolio Program participants to discuss their experiences with the Schwab YieldPlus Fund. In addition, is our belief that Schwab Private Clients and Schwab Managed Portfolio clients may have valid Schwab YieldPlus Fund claims worth pursuing.
If you are a Schwab Private Client or a Schwab Managed Portfolio Program participant, please contact Vernon • Healy.