Schwab Wealth Advisory™ Account Agreement
Effective June 30, 2022
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1. The Program and Your Enrollment
Schwab Wealth Advisory (“SWA”) (formerly known as Schwab Private Client [“SPC”]) is a fee-based program for accounts you elect to enroll in SWA. These accounts are maintained with Charles Schwab & Co., Inc. (“Schwab” or “we”) in Schwab’s capacity as a broker-dealer and custodian of your account assets (“brokerage accounts”). The SWA program includes the provision of periodic non-discretionary investment advice on the enrolled brokerage accounts based on your overall financial picture developed through analysis and discussion of various wealth management topics. This Agreement supplements your brokerage account agreement(s) with Schwab, which together govern Schwab’s contractual relationship with you.
Beginning January 1, 2012, the provision of non-discretionary investment advice within SWA, including but not limited to recommendations about how to allocate assets and whether to buy, sell or hold particular securities in accounts enrolled in SWA, will be delivered exclusively by Schwab Wealth Advisory, Inc. (“SWAI”), an affiliate of Schwab and a Registered Investment Adviser.
As of January 1, 2012, Schwab will act solely as the sponsor of SWA and as a broker-dealer and custodian with respect to assets and transactions in the accounts enrolled in SWA. SWAI will act as an investment adviser within SWA pursuant to an agreement with Schwab. Applicable provisions of this Agreement will inure to the benefit of SWAI as well as Schwab.
As described in more detail in the SWAI Disclosure Brochure, SWAI intends to rely on exemptions to the prohibited transaction restrictions of the Employee Retirement Income Security Act (“ERISA”) and the Internal Revenue Code (“IRC”) set forth in Sections 408(b)(14) and 408(g) of ERISA and Sections 4975(d)(17) and 4975(f)(8) of the IRC, and the regulations thereunder, in order to provide investment advice to individual retirement accounts (“IRAs,” as defined in 29 C.F.R. 2550.408g-1(c)(4), which, for example, includes Simplified Employee Pension IRAs and SIMPLE retirement accounts, which are referred to collectively in this Agreement as “Retirement Accounts”) enrolled in SWA. By enrolling your Retirement Account in SWA, you will have expressly authorized the advice arrangement described in the SWAI Disclosure Brochure. If you maintain a previously enrolled Retirement Account in SWA as of January 1, 2012, you will have an opportunity to talk with a representative of SWAI or Schwab and to expressly authorize the investment advice arrangement described in the SWAI Disclosure Brochure. If you elect to maintain your Retirement Account in SWA thereafter, you will be considered to have given such express authorization.
There is a fee (the “SWA Fee”) that applies to accounts that you, and other members of your household, can enroll in SWA as part of a single portfolio (“Portfolio”). A Portfolio is a group of accounts whose assets are considered together for advice-giving and fee-calculation purposes. New accounts opened after your SWA enrollment will not be enrolled in SWA automatically. Call Schwab or, beginning January 1, 2012, SWAI if you would like to enroll a new account. Schwab reserves the right, in its sole discretion, to decline or terminate enrollment of any account. Please see the SWA Disclosure Brochure for details about the services included in SWA. The SWA Fee covers both investment advice and any commissions or fees on any transactions in the accounts of your Portfolio that are SWA Trades (as defined in the SWA Disclosure Brochure).
If there are other account holders who have enrolled accounts with yours in SWA as part of a Portfolio, you agree that Schwab may disclose information about your accounts to them for enrollment, billing, reporting and advice-giving purposes. If you do not want your account data used for such purposes, you agree to notify Schwab.
A. Portfolio Reviews. As explained in the SWA Disclosure Brochure, Schwab will make portfolio reviews available to you periodically while you are enrolled in SWA. After January 1, 2012, your portfolio reviews will be prepared and delivered by SWAI. The buy and sell recommendations resulting from the portfolio reviews will only be for holdings in your Portfolio.
B. Transaction Services. At your request, Schwab will process and handle your orders to buy or sell securities in the accounts of your Portfolio. The SWA Fee does not cover any commissions or fees on any transactions in the accounts of your Portfolio other than your SWA Trades. You will be required to pay Schwab’s applicable commissions or other charges and fees on transactions in: (i) Non-Billable Assets (see Section 3.B below); and/or (ii) certain Billable Assets (see Section 3.A below), such as certain unit investment trusts (“UITs”) and certain mutual fund shares.
C. Financial Planning. At Schwab’s discretion, some clients might be offered a financial plan, such as Schwab Plan Comprehensive, Schwab Personal Financial Plan™, or a Schwab Equity Compensation Consultation, all of which are provided at a point in time and do not include ongoing advice. These services rely on the information you provide about your circumstances and do not include legal or tax advice. Exercising and/or selling equity compensation may create additional tax consequences. Schwab has no discretionary authority or responsibility with respect to your brokerage accounts discussed as part of the financial planning analysis. You should carefully consider all relevant factors before deciding how or whether to implement recommendations contained in your financial planning analysis and are not obligated to use Schwab to implement your plan.
D. Mutual Fund Share Class Exchanges. Schwab will periodically review your SWA accounts to identify mutual fund shares that can be eligible for a tax-free exchange with a lower-cost share class of the same fund. Your agreement to enroll in the SWA program is your consent and standing instruction to Schwab to periodically conduct tax-free exchanges of eligible fund shares in your SWA accounts without contacting you in advance in each instance. The share-class exchange transactions will be reflected on your trade confirmations and account statements. Identification of eligible shares and execution of tax-free exchanges will take place on a reasonable efforts basis and is subject to eligibility criteria established by fund companies, including asset thresholds, account type and other criteria set in those companies’ sole discretion from time to time. Not all mutual funds offer lower-cost share classes of the same fund, and not all mutual funds offer tax-free exchanges. Some types of accounts, such as those enrolled in an Automatic Investment Plan, are not eligible for the tax-free exchange process.
E. Compensation of Schwab Representatives. Schwab representatives receive incentive compensation based in part on recommending that their clients enroll in SWA. For more information on how Schwab employees, Schwab independent contractors, and employees of Schwab independent contractors are paid, please see the SWA Disclosure Brochure. SWAI representatives’ compensation will not vary depending on what securities they recommend that you buy or sell.
2. SWA Fee: Percentage Rate, Minimum and Maximum
You agree to pay Schwab, in arrears, the quarterly SWA Fee that applies to accounts enrolled in SWA as a Portfolio. The SWA Fee will be calculated either as a percentage of enrolled “Billable Assets” (defined below in Section 3.A) or according to a “Quarterly Minimum,” whichever is greater. The Quarterly Minimum is defined as the lesser of: (a) $1,000; or (b) a cap described below in Section 2.A (the “Quarterly Maximum”). SWA Quarterly Fees will be billed on the last business day of the quarter.
The SWA Fee is separate from any fee you might pay for Schwab Managed Account Services™ (“MAS”) or Schwab Managed Portfolios™ (“SMP”). Accounts enrolled in MAS and SMP are not subject to the SWA Fee, but certain MAS and SMP accounts can be grouped together with SWA accounts for purposes of meeting the Quarterly Minimum and calculating the Quarterly Maximum.
The compensation received by SWAI from Schwab (or by SWAI representatives from SWAI) for investment advisory services provided in SWA will not vary depending on the percentage of Billable Assets in a particular Asset Category or the types of individual securities comprising either Asset Category—either at the Portfolio level or in aggregate across all SWA accounts.
A. Calculation of the Rates. An annual percentage rate (the “APR”) will be applied to enrolled Billable Assets. The Billable Asset levels, Asset Categories and corresponding APRs are as follows:
Schwab has several fee schedules for SWA, as shown below: the “2014 Fee Schedule,” which went into effect on January 1, 2014, and applies to accounts enrolled from that date onward, and the “Standard Fee Schedule,” which applies to accounts enrolled beginning October 1, 2018. Existing SWA accounts subject to the 2014 Fee Schedule were moved to the Standard Fee Schedule starting October 1, 2018.
2014 Fee Schedule (went into effect on January 1, 2014)
2014 Fee Schedule (went into effect on January 1, 2014)
- Billable Assets per Asset Category
Asset Category: Equities, Funds That Trade on an Exchange (i.e., ETFs), Unit Investment Trusts (UITs), Billable Fund Shares (Except Fixed Income Open-Ended Funds and Alternative Assets)Annual Percentage Rate
Asset Category: Fixed Income Investments (Including Billable Open-Ended Fund Shares of Fixed Income Funds, But Not Including Fixed Income ETFs) Annual Percentage Rate
Billable Assets per Asset CategoryAmounts up to $500,000>Asset Category:Equities, Funds That Trade on an Exchange (i.e., ETFs), Unit Investment Trusts (UITs), Billable Fund Shares (Except Fixed Income Open-Ended Funds and Alternative Assets)Annual Percentage Rate0.90%>Asset Category: Fixed Income Investments (Including Billable Open-Ended Fund Shares of Fixed Income Funds, But Not Including Fixed Income ETFs)Annual Percentage Rate0.70%>
Billable Assets per Asset CategoryNext $500,000 (more than $500K up to $1M)>Asset Category:Equities, Funds That Trade on an Exchange (i.e., ETFs), Unit Investment Trusts (UITs), Billable Fund Shares (Except Fixed Income Open-Ended Funds and Alternative Assets)Annual Percentage Rate0.85%>Asset Category: Fixed Income Investments (Including Billable Open-Ended Fund Shares of Fixed Income Funds, But Not Including Fixed Income ETFs)Annual Percentage Rate0.65%>
Billable Assets per Asset CategoryNext $1 million (more than $1M up to $2M)>Asset Category:Equities, Funds That Trade on an Exchange (i.e., ETFs), Unit Investment Trusts (UITs), Billable Fund Shares (Except Fixed Income Open-Ended Funds and Alternative Assets)Annual Percentage Rate0.80%>Asset Category: Fixed Income Investments (Including Billable Open-Ended Fund Shares of Fixed Income Funds, But Not Including Fixed Income ETFs)Annual Percentage Rate0.60%>
Billable Assets per Asset CategoryNext $3 million (more than $2M up to $5M)>Asset Category:Equities, Funds That Trade on an Exchange (i.e., ETFs), Unit Investment Trusts (UITs), Billable Fund Shares (Except Fixed Income Open-Ended Funds and Alternative Assets)Annual Percentage Rate0.75%>Asset Category: Fixed Income Investments (Including Billable Open-Ended Fund Shares of Fixed Income Funds, But Not Including Fixed Income ETFs)Annual Percentage Rate0.55%>
Billable Assets per Asset CategoryNext $5 million (more than $5M up to $10M)>Asset Category:Equities, Funds That Trade on an Exchange (i.e., ETFs), Unit Investment Trusts (UITs), Billable Fund Shares (Except Fixed Income Open-Ended Funds and Alternative Assets)Annual Percentage Rate0.45%>Asset Category: Fixed Income Investments (Including Billable Open-Ended Fund Shares of Fixed Income Funds, But Not Including Fixed Income ETFs)Annual Percentage Rate0.30%>
Billable Assets per Asset CategoryAssets over $10 million>Asset Category:Equities, Funds That Trade on an Exchange (i.e., ETFs), Unit Investment Trusts (UITs), Billable Fund Shares (Except Fixed Income Open-Ended Funds and Alternative Assets)Annual Percentage Rate0.30%>Asset Category: Fixed Income Investments (Including Billable Open-Ended Fund Shares of Fixed Income Funds, But Not Including Fixed Income ETFs)Annual Percentage Rate0.15%>
Standard Fee Schedule (effective October 1, 2018)
Billable Assets are segregated by Asset Category. For example, a client who enrolled on or after January 1, 2014, with $2 million in equities and $375,000 in fixed income investments would be subject to: (1) 0.70% APR on all $375,000 in fixed income investments; (2) 0.90% APR on $500,000 in equities; (3) 0.85% APR on $500,000 in equities; and (4) 0.80% APR on $1,000,000 in equities.
Standard Fee Schedule (effective October 1, 2018)
- Billable Assets
- Annual Percentage Rate
Billable AssetsAmounts up to $1 million>Annual Percentage Rate0.80%>
Billable AssetsNext $1 million (more than $1M up to $2M)>Annual Percentage Rate0.75%>
Billable AssetsNext $3 million (more than $2M up to $5M>Annual Percentage Rate0.70%>
Billable AssetsAssets over $5 million>Annual Percentage Rate0.30%>
Fee Schedule for Accounts Enrolled Before January 1, 2014, or Otherwise Subject to Lower Price Conditions
Schwab has another fee schedule that applies generally to accounts enrolled in SWA before January 1, 2014 (“Grandfathered Fee Schedule”). The Grandfathered Fee Schedule also applies to any accounts you enroll on or after January 1, 2014, if certain conditions are met as described below. Specifically, if you or someone in your household (generally, a person with the same last name living at the same address) (1) opened an SWA account before January 1, 2014, and (2) has continuously maintained at least one SWA account since the time of that initial SWA enrollment (thus meeting “Lower Price Conditions”), the Grandfathered Fee Schedule will apply to new SWA accounts that you enroll on or after January 1, 2014.
Please see the Schwab Wealth Advisory™ Disclosure Brochure for the fee schedule applicable to accounts enrolled before January 1, 2014, or otherwise subject to Lower Price Conditions. If you believe that your SWA account qualifies for, but is not receiving, Grandfathered Fee Schedule pricing, you agree to notify us immediately. SWA accounts subject to the Grandfathered Fee Schedule will stay on that schedule even after the Standard Fee Schedule goes into effect.
For Portfolios subject to the Quarterly Minimum, an APR of 1.60% will be applied to determine the Quarterly Maximum. On a daily basis, the total value of the enrolled Billable Assets will be multiplied by the daily pro rata portion (i.e., 1/365, or 1/366 in a leap year) of the APR (each a “Daily Total Amount”). For the last business day of the quarter and any subsequent non-business days, the Daily Total Amount is assumed to be equal to the Daily Total Amount for the second-to-last business day of the quarter. The Daily Total Amounts for each quarter are added together to make the “Quarterly Total Amount.” If the Quarterly Total Amount (plus any MAS or SMP fees for accounts grouped together with the accounts in your Portfolio for purposes of meeting the Quarterly Minimum and calculating the Quarterly Maximum) is greater than the Quarterly Minimum, you will pay the Quarterly Total Amount for that quarter; otherwise, you will pay the Quarterly Minimum.
The SWA Fee does not apply to money market fund shares, which are not Billable Assets for the purpose of calculating the SWA Fee. If you terminate your enrollment in SWA before the completion of two quarterly billing cycles, Schwab retains the right, in its sole discretion, to charge up to $2,000 (the equivalent of two Quarterly Minimums) for services rendered to that point. If, after those two quarterly billing cycles, you terminate your enrollment in SWA before the completion of any subsequent quarterly billing cycle, Schwab shall charge you the sum of Daily Total Amounts up until termination. From time to time, Schwab can, at its sole discretion, elect to reduce or change the applicable SWA Fee for particular clients or groups of clients as a result of individual negotiations or promotional offers.
B. Allocation of SWA Fee. Unless you or another account holder in your Portfolio has designated a single billing account, the SWA Fee will be allocated among the accounts of your Portfolio in proportion to their percentage of the Portfolio’s Billable Assets. For example, if you have two accounts enrolled in SWA, containing, respectively, two-thirds and one-third of the Billable Assets, and the Quarterly Total Amount for a particular quarter comes to $1,200, then $800 of the SWA Fee will be charged to one account and $400 will be charged to the other. You agree that if a single billing account has been designated, then that account will pay the SWA Fee for other enrolled accounts, including accounts in which you have no ownership interest. If a single billing account is closed or otherwise becomes ineligible for billing, Schwab will revert to the proportional allocation method described above. If a single billing account has been designated, certain accounts from a single Portfolio may nonetheless be excluded from the single-billing arrangement, in which case excluded accounts will each pay their proportional share of the SWA Fee, and the remainder will be debited to the single billing account. Some types of accounts may not serve as single billing accounts due to legal requirements or other restrictions. Fiduciaries and all other account holders are obligated to notify Schwab if the SWA Fee, or any portion of the SWA Fee, should not be debited to an established single billing account. Contact Schwab if you wish to make other arrangements for the SWA Fee payment.
C. Payment of SWA Fee. Unless Schwab notifies you in writing otherwise, the SWA Fee will be debited directly from the accounts of your Portfolio or the single billing account. You authorize Schwab to liquidate money market fund shares and other assets held in any enrolled account, and to take any other actions authorized by the brokerage account agreement(s), to the extent necessary to pay the SWA Fee and other applicable fees and charges not covered by the SWA Fee. To the extent that any account lacks sufficient funds to pay the SWA Fee, or other fees and charges not covered by the SWA Fee, you also authorize Schwab, to the extent permitted by law and your brokerage account agreement(s), to debit those fees and charges to other Schwab accounts in which you have an interest, including unenrolled accounts. Schwab may immediately terminate your enrollment in SWA in the event you fail to timely pay any fee (including the SWA Fee), commission, charge or other amount you owe Schwab related to your accounts. If you believe that there are any discrepancies between the SWA fees actually charged and the SWA fees calculated under the applicable fee schedule, you agree to notify SWAI.
D. Valuing Billable Assets. For the purpose of calculating the SWA Fee, Schwab will determine the value of the enrolled Billable Assets in a manner that Schwab believes, in good faith and at its sole discretion, reflects their fair market value. Schwab may use and rely upon prices obtained from third-party vendors. While Schwab believes these sources to be reliable, you agree that Schwab’s valuation of enrolled Billable Assets is not to be considered a guarantee of the value of those assets. The actual prices at which securities are bought and sold may be different from those used for purposes of calculating the SWA Fee.
E. Accounts with Preexisting Permanent Account Service Fee Waivers. Accounts with preexisting fee waivers, including certain IRAs opened prior to April 1, 2000, are not subject to account service fees. Such accounts are not exempt from the SWA Fee, however; any such account enrolled in SWA will be subject to its share of the SWA Fee. If you prefer not to have an account with a preexisting fee waiver billed for its share of the SWA Fee, you may designate another account to pay the entire SWA Fee, as described in Section 2.B above. The preexisting account service fee waiver will continue to apply if you later unenroll that account from SWA.
3. Billable and Non-Billable Assets
The SWA Fee will be calculated by looking at all assets in your Portfolio except cash balances, money market fund shares, mutual fund shares upon which a sales charge has been or will be paid to Schwab and other Non-Billable Assets described in Section 3.B below. Specifically, the SWA Fee will be calculated by looking at the Billable Assets described immediately below.
A. Billable Assets. Billable Assets consist of the following:
- Equities, including, but not limited to, common stock, preferred securities (including convertible preferred stock before conversion), restricted stock, master (publicly traded) limited partnership shares or units, American Depositary Receipts, foreign ordinary shares and any rights or warrants on equities;
- Funds that trade on an exchange, including, but not limited to, exchange-traded funds and any closed-end funds;
- Unit Investment Trusts;
- Billable Fund Shares consisting of all mutual fund shares except money market fund shares or other “Non-Billable Fund Shares” described in Section 3.B below. Billable Fund Shares include, but are not limited to, shares of Schwab-affiliated mutual funds, shares of no-load mutual funds, shares of mutual funds on which Schwab charges a transaction fee and any mutual fund shares upon which a sales charge has been paid to another broker-dealer or a financial services firm other than Schwab;
- Fixed Income Investments, including fixed income securities, such as U.S. Treasury and federal agency securities, securities of government-sponsored enterprises (“GSEs”), corporate bonds and medium-term notes, zero-coupon bonds, commercial paper, municipal bonds, bank certificates of deposit (“CDs”), asset-backed securities (including collateralized mortgage obligations), convertible debt securities, fixed income market-linked investments that are tied to currency, fixed income or equity indices (such as equity-linked CDs, TIERS and ELKS);
- Alternative Assets (including, but not limited to, non-publicly traded limited partnership and limited liability company interests, private company common stock, shares of exchange funds, shares of hedge funds and funds of funds, shares of private equity funds and funds of funds, shares of managed futures funds, interests in real estate funds and other non-publicly traded investments that Schwab, in its sole discretion, determines) for which Schwab receives a valuation at least quarterly and that you purchased: (i) through Schwab without a sales charge paid to Schwab; or (ii) through another broker-dealer or a financial services firm other than Schwab whether or not a sales charge was paid to such broker-dealer or other financial services firm. Please see Sections 3.B and 5.D below for information on certain Alternative Assets that are Non-Billable Assets and other important information about Alternative Assets, respectively;
- Assets Purchased on Margin or through other extensions of credit by Schwab or its affiliates will be considered for purposes of calculating the SWA Fee. The SWA Fee will not, however, be charged on debit balances in your accounts or on proceeds from “short sales” (meaning securities that you sell that you have borrowed but do not own). Please see the account agreement(s) for information relating to interest charges on any debit balances in your accounts.
B. Non-Billable Assets. The SWA Fee is not charged on Non-Billable Assets in your Portfolio. Non-Billable Assets include, but are not limited to:
- Cash Balances, consisting of money that is awaiting investment, which can include money earning interest through Schwab One®Interest or Bank Sweep and that is in your account as a result of a liquidation of securities or a dividend payment;
- Non-Billable Fund Shares, consisting of any money market fund shares, mutual fund shares upon which a sales charge has been or will be paid to Schwab and any other mutual fund shares that Schwab, in its sole discretion, determines will not be subject to the SWA Fee;
- Alternative Assets you purchased through Schwab with a sales load paid to Schwab and/or for which Schwab receives a valuation less frequently than quarterly; and
- Other Investments, including, but not limited to, options, insurance, annuities, and direct investments in commodities and commodity futures.
4. Mutual Fund Shares
A. The SWA Fee Applies to Billable Fund Shares. Billable Assets include Billable Fund Shares. You would not pay the SWA Fee if you were to purchase these fund shares in an account not enrolled in SWA.
B. Dividend Reinvestment/Automatic Investment Program. The SWA Fee applies to Billable Fund Shares acquired upon dividend reinvestment (even if those dividends were paid on Billable Fund Shares not then subject to the SWA Fee) and through an automatic investment program.
5. Client Authority and Responsibilities
A. Fiduciary Accounts. If you are a fiduciary enrolling an applicable account in SWA, you acknowledge a duty to use SWA for the benefit of the beneficiaries of any Trust, UTMA or UGMA, or other fiduciary account and not for yourself personally.
B. Retirement Accounts and IRAs. If you are a fiduciary enrolling an IRA or other retirement account, you understand and agree that you have a fiduciary responsibility to act in the best interest of the retirement account or IRA and to use account assets exclusively in the interests of participants and beneficiaries (in their capacity as participants and beneficiaries and not personally). You represent that you have made an independent determination that SWA is suitable and appropriate for the account and that the SWA Fee and other fees and expenses are reasonable for the available services. You understand that you are also acting as a fiduciary in making decisions to enroll a retirement account or IRA with other accounts. You understand and agree that any decision that you make regarding how to pay for SWA must include consideration of the benefits to each of the retirement accounts or IRAs, and must not negatively impact any of the retirement accounts or IRAs. You acknowledge that you, and not Schwab or SWAI, are responsible for those decisions. You agree to hold Schwab and SWAI harmless from any loss, claim, penalty, tax, expense or other liability arising from your instructions to Schwab or SWAI to enroll any retirement account or IRA or from your instruction to Schwab to bill you for SWA by a particular method.
As part of SWA, Schwab or, beginning January 1, 2012, SWAI may recommend that you buy or sell shares of mutual funds underwritten and/or managed by Schwab or SWAI and certain of its affiliated companies (“Affiliated Funds”). Schwab, SWAI and these affiliated companies (together, the “Affiliates”) are subsidiaries of The Charles Schwab Corporation. The Affiliated Funds and certain of the Affiliates (though not SWAI) have entered into agreements under which those Affiliates provide certain services to the Affiliated Funds. For example, Schwab provides investment advisory, transfer agent and shareholder services to certain of the Affiliated Funds. Details about the roles played by and the relationships between the Affiliates, including any sales commission received by the principal underwriter and any charges, fees, discounts or penalties imposed in connection with any Affiliated Fund, can be found in the prospectus or program agreement for each such fund. If you are a fiduciary enrolling a retirement account in SWA, you acknowledge and agree that you, and not Schwab, are responsible for the decision to buy or sell shares of Affiliated Funds. For more information about Affiliated Funds, see the SWA Disclosure Brochure.
C. Tax Considerations. Your payment of the SWA Fee may result in different tax consequences from those resulting from the payment of brokerage commissions or other transaction-based charges or from the payment of separate fees for individual services. You acknowledge and agree that you alone are responsible for any tax implications and/or tax obligations resulting from your enrollment in SWA.
D. Alternative Assets. You understand and agree that: (i) non-publicly traded Alternative Assets generally lack a liquid market and that the value of such securities may be difficult to ascertain; (ii) any estimated value reflected on your account statement or other communication from Schwab is for informational purposes only and may be significantly different from the actual market value or the liquidation value of such Alternative Assets; and (iii) except as explicitly provided in this Agreement or in the Alternative Investment Custody Addendum (the “Addendum”) to the brokerage account agreement(s), Schwab has no responsibility for determining the value of the Alternative Assets. Please see the Addendum for more information relating to, among other things, the valuation of Alternative Assets.
6. Amendment, Modification and Termination
A. Amendment. Schwab may, in its sole discretion and at any time, modify, discontinue or terminate SWA or any feature within SWA, change the calculation or rate of the SWA Fee, or otherwise amend the terms governing SWA upon prior advance written notice to you. Once you are sent such notice, you will have an opportunity, prior to the effective date of any amendment, to terminate your enrollment. Termination of your enrollment in SWA will not affect your obligations, including, but not limited to, your payment of the SWA Fee due before such termination is effective, nor will termination of enrollment, by itself, close your accounts or terminate the account agreement(s). Any amendment will be effective on the date specified by Schwab and/or as otherwise required by law. If you do not terminate your enrollment prior to the effective date of an amendment, you will be deemed to have agreed to such amendment. Immediately upon termination of enrollment, your eligibility to receive the services and benefits within SWA will cease.
B. Changing or Terminating SWA Enrollment. If you would like to change or terminate your enrollment in SWA, please call your service team or write to us at: Charles Schwab & Co., Inc., Attn: Schwab Wealth Advisory™ Service Team, P.O. Box 628291, Orlando, FL 32862.
You agree that Schwab may, but is not obligated to, accept and rely upon your oral authorization, whether given to Schwab or SWAI, to unenroll from SWA. Other holders of accounts enrolled in your Portfolio are required to provide their own authorizations to unenroll. Please be aware that if you are enrolled in SWA and holders of other accounts in your Portfolio elect to change or terminate their enrollment, the proportional share of the SWA Fee borne by your accounts can increase and/or the remaining enrolled accounts may no longer be appropriate for SWA. If you change to a different service, or you or Schwab terminates your enrollment in SWA, your brokerage accounts will continue to be maintained and governed by the brokerage account agreement(s) as well as any new applicable terms of service. Schwab will process a service change request or termination request as soon as practicable. Changing to a new service will not affect your obligations, including, but not limited to, your obligation to pay any SWA Fee due to Schwab.
7. Schwab’s and SWAI’s Role in Schwab Wealth Advisory™
A. Non-Discretionary Program. You acknowledge, and we mutually agree, that Schwab’s investment advisory role and, beginning January 1, 2012, SWAI’s investment advisory role are limited as described in this Agreement, in the SWA Disclosure Brochure, and in the SWAI Disclosure Brochure. Other than as specifically set forth in this Agreement, neither Schwab, SWAI nor any of their respective representatives, whether employees, independent contractors, or employees of independent contractors, will exercise investment discretion or control of any kind over your accounts. Nor will Schwab, SWAI or any of their respective representatives, whether employees, independent contractors, or employees of independent contractors, supervise your accounts. The investment advisory obligations that Schwab and, beginning January 1, 2012, SWAI have under this Agreement extend only to the advice functions as described in the SWA Disclosure Brochure and SWAI Disclosure Brochure. You are responsible for monitoring your accounts and determining when and if to buy, hold or sell securities. You may rely on information and advice that you obtain independently from Schwab, and all trading decisions are your own. You may place trades in your SWA accounts without consulting a Schwab or SWAI representative.
Schwab and SWAI do not provide any representation or warranty as to the performance of your accounts. Securities investments are subject to various market, currency, economic, political and business risks, and the investment decisions you make may not always be profitable.
By providing information, analysis or advice, Schwab and SWAI do not assume any obligation to monitor your accounts or to stop or change any trades that you place or direct in your accounts. You understand that your use of margin, cash management, banking, bill pay, credit card or other features relating to your enrolled brokerage accounts does not obligate Schwab to monitor or supervise your use of those features or to give you advice relating to those activities.
B. Schwab Is Not an ERISA Investment Manager. Neither Schwab nor, beginning January 1, 2012, SWAI is an “investment manager” within the meaning of the Employee Retirement Income Security Act (“ERISA”) with respect to any IRA or other retirement account that you have elected to enroll in SWA. Although from time to time, Schwab or, beginning January 1, 2012, SWAI will make investment recommendations for your Portfolio, you are free to disregard those recommendations. You understand that you may place trade orders and invest on your own, choosing to follow Schwab’s or SWAI’s advice, your own views or any other advice or information you may receive.
8. Other Important Provisions
A. Trading. Schwab will not charge you a mark-up, mark-down or commission when it acts as agent to execute fixed income transactions in your SWA account.
B. Cash Sweep. You agree to the following cash sweep feature that is part of the SWA program. Accounts enrolled in SWA can have their uninvested cash, or “free credit balances,” automatically swept into the Schwab Government Money Fund™ (SWGXX), a money market fund that generally may pay a higher yield than certain other cash sweep options such as Schwab One® Interest and Bank Sweep. More information about the Money Fund Sweep feature and these other cash sweep options may be found in your brokerage account agreement(s) and in the Cash Features Disclosure Statement available at www.schwab.com/public/ schwab/nn/agreements/cash_features_disclosure_statement.html.
If your accounts currently have a different sweep feature, you authorize and direct Schwab to establish or change your cash sweep feature to the Schwab Government Money Fund generally within one week of enrollment of the account(s), unless you instruct us not to do so. If your enrollment in SWA is terminated at any time for any reason and if, at that time, you are not otherwise eligible for the Schwab Government Money Fund as your cash sweep feature, Schwab may without further notice or consent redeem your shares in the fund and invest or deposit the proceeds in a replacement cash sweep feature for which you are eligible. Please see the SWA Disclosure Brochure for more information. If you have Schwab brokerage accounts pledged as collateral for the Pledged Asset Line®(“PAL”) offered by Charles Schwab Bank, SSB or Charles Schwab Premier Bank, SSB (collectively, the “Affiliated Banks”), please refer to the “Pledged Accounts” section for additional information.
C. Assignment. Schwab may not assign this Agreement without your consent. You agree that any transaction that does not result in a change to the actual control or management of Schwab will not constitute an assignment of this Agreement. Nothing in this Agreement should be construed as requiring any person to waive their rights or to waive compliance with any provision of the Investment Advisers Act of 1940 and the rules under that statute.
The fact that SWAI will become the provider of investment advice to SWA accounts beginning January 1, 2012, does not constitute an “Assignment” of this Agreement as defined in Section 202(a)(1) of the Investment Advisers Act of 1940.
D. Limitation of Liability. You agree that neither Schwab nor SWAI will be liable for (i) any loss suffered as a result of any recommendation or other action taken or omitted in good faith and in accordance with Schwab’s or SWAI’s role as limited and described in this Agreement or the SWA Disclosure Brochure or SWAI Disclosure Brochure, (ii) any loss arising from your decisions about whether or how to implement Schwab’s or SWAI’s recommendations, (iii) any act or failure to act by any independent third party, or (iv) any failure to achieve any investment performance target or goal. You agree to indemnify and hold harmless Schwab, SWAI and their affiliates, directors, officers, shareholders, employees, independent contractors (and their employees) and agents for any loss, liability, cost, damage or expense, including reasonable attorneys’ fees and costs, that does not directly result from Schwab’s or SWAI’s willful misfeasance, bad faith, gross negligence or reckless disregard of its duties under this Agreement.
E. Non-Waiver of Certain Rights. You understand that certain provisions of this Agreement, including, but not limited to, this section, may serve to limit the potential liability of Schwab and SWAI, and you have had the opportunity to consult with Schwab as well as your other professional advisors or legal counsel as to the effect of these provisions. You further understand that certain federal and state securities laws including, but not limited to, the Investment Advisers Act of 1940 and the rules under that statute, may impose liability or allow for legal remedies even where Schwab has acted in good faith and that the rights under those laws may be non-waivable. Nothing in this Agreement shall, in any way, constitute a waiver or limitation by you of any rights which may not be so limited or waived in accordance with applicable law.
F. Relationship to Brokerage Account Agreements and Arbitration. This Agreement is a supplement to your Schwab brokerage account agreements, which apply to the SWA program, including the contract terms relating to governing law and dispute resolution. To the extent consistent with applicable law, you agree that the arbitration provision in your Schwab brokerage account agreements applies to any dispute pertaining to the SWA program.
If any provision of this Agreement conflicts with any provision of your account agreement(s), this Agreement will control with respect to any account enrolled in SWA. Otherwise, unless indicated in this Agreement, your and Schwab’s respective rights and obligations under your brokerage account agreement(s) remain the same.
G. Pledged Accounts. This section of the SWA Agreement includes additional terms and conditions that govern the provision of investment advisory services under the SWA program to the assets held in pledged accounts, pledged asset accounts, or PAASBs (collectively referred to herein as “Pledged Account[s]”) that are custodied at Schwab and pledged as collateral for the PAL to one of the Affiliated Banks. Each of the Affiliated Banks is an affiliate of SWAI.
You understand and agree to have SWAI provide investment advice to you on the specified Pledged Accounts pursuant to the terms of this SWA Agreement. You understand that Pledged Accounts are brokerage accounts maintained by Schwab, that the PAL is a loan product offered by the Affiliated Banks, and that SWAI is an affiliate of Schwab and the Affiliated Banks but does not sponsor or control the terms of the PAL.
You acknowledge and agree that the Affiliated Banks, Schwab, and SWAI will share such information about you, the PAL, and the Pledged Accounts as may be required to provide services under this SWA Agreement. This may include but is not limited to the following: information in order to (i) evaluate the eligibility or appropriateness of any such Pledged Accounts for enrollment in SWA, and (ii) provide investment advice on any Pledged Accounts enrolled in SWA.
If there are other account holders who have enrolled accounts in SWA in the same Portfolio in which you have enrolled the specified Pledged Accounts, you agree that Schwab may disclose information about your enrolled Pledged Accounts and associated PAL to such persons for enrollment, billing, reporting, and advice-giving purposes.
Notwithstanding any provisions to the contrary in this SWA Agreement, the SWA Disclosure Brochure, and the SWAI Disclosure Brochure, the assets in your Pledged Accounts are eligible for enrollment in SWA, and unless otherwise specified, the provisions of this SWA Agreement apply with full force to any investment advice received through SWA on your Pledged Accounts. Specifically, the fee provisions of this SWA Agreement and SWA Disclosure Brochure apply to the assets in your Pledged Accounts. You agree that any assets in the Pledged Accounts (including assets that are deemed by the Affiliated Banks to be ineligible for purposes of meeting any PAL requirements) are subject to SWA fees as specified in the fee schedule in this SWA Agreement and the SWA Disclosure Brochure. You understand that any SWA fees that are deducted from your Pledged Accounts may reduce the eligible collateral in your Pledged Accounts, which may result in a payment or collateral demand, collateral default or maintenance event, as applicable, based on the terms of your PAL loan documents.
You understand that in addition to the terms of this SWA Agreement, the Pledged Accounts will be subject to the limitations and requirements applicable to Pledged Accounts pursuant to the PAL loan documents or the Pledged Account agreements. Specifically, you understand that: Pledged Accounts are cash accounts that are not eligible for margin and are not eligible for option trading. Pledged Accounts do not have check-writing, debit card, or bill pay privileges or other payment features. A Pledged Account’s settlement terms are cash in advance. A Pledged Account’s assets may not be withdrawn without the consent of the Affiliated Banks. The Affiliated Banks establish requirements as to the type, value, and concentration of assets that are required to be maintained in the Pledged Accounts as collateral for the PAL, and may change these requirements at their sole discretion. The Affiliated Banks establish collateral eligibility criteria and may change these criteria at their sole discretion.
You acknowledge and understand the risks of pledging securities as collateral for the PAL, including, but not limited to, the risks related to a payment or collateral demand, collateral defaults, or maintenance events, as applicable, based on the terms of your PAL loan documents and Pledged Account agreements and applications. Some of the key risks are as follows:
- If your PAL loan documents include a PAL agreement with a demand feature, the line of credit is an uncommitted revolving line of credit that is due and payable immediately upon demand by the Affiliated Banks. The Affiliated Banks may, in their sole discretion, demand payment of all or any part of the PAL obligations at any time. At any time, including if the loan value of collateral in the Pledged Accounts is insufficient to satisfy the minimum loan value of collateral or to support the outstanding loans, the Affiliated Banks may demand immediate payment of all or any portion of the outstanding obligations or may require that additional cash or securities be added to the Pledged Accounts. If the demand is not addressed, the pledged securities may be liquidated without further notice to the client or an extension of time.
- If (i) your PAL loan documents include a promissory note with a stated maturity date, (ii) the value of eligible collateral in the Pledged Accounts falls below the collateral requirements, and (iii) the Affiliated Banks determine that an adverse effect upon the value of or their interest in the pledged collateral is imminent or that any other default has occurred under the loan documents, then the Affiliated Banks may take one or more of the following actions, as applicable, based on the terms of your loan documents: (a) declare all or a portion of the PAL obligations immediately due and payable; (b) reduce the PAL amount; (c) sell securities in the Pledged Accounts; or (d) require that you deposit additional eligible collateral into the Pledged Accounts. Should the Affiliated Banks decide to force a sale of securities in the Pledged Accounts, you are not entitled to choose which securities in the Pledged Accounts will be liquidated or sold.
- Pledged Accounts also secure any obligations owed to Schwab.
- You are not entitled to an extension of time to respond to a payment or collateral demand, collateral default or maintenance event, as applicable based on the terms of your loan documents.
- You may incur adverse tax consequences if your securities are sold or liquidated in connection with the pledge of securities as loan collateral
- Pledged Accounts may not be eligible to participate in certain cash sweep features, including the Schwab Cash Reserves™ fund.
You are responsible for notifying your SWAI representative of any unique limitations or requirements related to your Pledged Accounts. By providing information, analysis, or advice on Pledged Accounts, you acknowledge and agree that SWAI does not assume any obligation to monitor your accounts or to stop or change any trades that you place or direct in your accounts. You understand that your use of a PAL loan related to your Pledged Accounts enrolled in SWA does not obligate SWAI to monitor or supervise your use of the PAL product or to provide you with advice relating to those activities.
You understand that you, and not SWAI, are solely responsible for evaluating the appropriateness and suitability of the PAL loan and the Pledged Accounts for your needs, for complying with the terms of your PAL loan documents and Pledged Account agreements, and for monitoring your Pledged Accounts and ensuring that the requirements of the PAL loan documents and Pledged Account agreements are satisfied, including any collateral requirements for the PAL as specified by the Affiliated Banks. You, and not SWAI, are responsible for monitoring the value of eligible collateral in your Pledged Accounts on a regular basis. SWAI representatives are not required to notify you in the event of a payment or collateral demand, collateral default or a maintenance event, as applicable based on the terms of your loan documents.
You are responsible for notifying your SWA representative of any changes to your Pledged Accounts, your PAL, or the provisions related to them, which may affect the Pledged Accounts’ eligibility for SWA enrollment. These changes include but are not limited to:
- Any amendments to the standard terms of the PAL account listed in the Schwab Wealth Advisory™ Enrollment Authorization form
- Any change to the PAL or Pledged Account(s) referenced above
SWAI representatives’ compensation will not vary depending on what securities they recommend that you buy or sell in the Pledged Accounts.
The SWA Disclosure Brochure, which you have acknowledged receiving and reading herein, contains additional details about compensation to SWAI and SWAI representatives in connection with SWA.
You understand that Schwab reserves the right, in its sole discretion and for any reason, to terminate SWA enrollment of any Pledged Account, including on the basis that the eligibility criteria are no longer satisfied, and that such termination does not impact your obligations under the PAL loan.