Schwab Fined $144,000 Over ETF Advice

Charles Schwab & Co. was ordered to pay $144,000 to a client who said he lost money after receiving bad advice from an advisor who, according to published reports, recommended he invest in an exchange-traded fund that holds short-term oil futures. 

The Financial Industry Regulatory Authority earlier this month awarded the sum to investor Dominic Ismert, who had sought $550,000, according to a statement. A FINRA panel of arbitrators meeting in Kansas City, Missouri, didn’t name the Schwab advisor, provide Ismert’s address or state the reasons for the award.  

Ismert invested in the United States Oil Fund (USO), according to Investmentnews.com. The fund description on ETF.com says USO “holds predominantly short-term NYMEX futures contracts on WTI crude oil.”  

Ismert, described in the article as a small business owner in the Kansas City area, owned the fund from March until June 2020. The fund lost about two-thirds of its value in that period: It dropped to $28.27 on June 29 from $79.36 on March 2, the first trading day of the month. 

FINRA, which seeks to ensure ethical behavior by registered broker-dealers, is stepping up its oversight of so-called complex products and options as those items multiply. The group, under Securities and Exchange Commission supervision, has published guidance for advisors out of concerns for investors putting money into products they don’t fully understand.  

Ismert complained that the Schwab advisor “gave flawed investment recommendations, and his investment strategy was subjected to unnecessary concentrations of risk, a factor not disclosed to him at the time of the recommendations.”  

Ismert’s lawyer, Jason Haselkorn, said that Ismert wished to make a long-term investment in oil, leading the advisor’s recommendation, according to a Barron’s article reprinted on BlackBullmarkets.com. The investment lost about $500,000, he said. 

Haselkorn told Investmentnews.com that the Schwab advisor made an “off the cuff” recommendation. He said that while the award was only about one-quarter of what they had sought, his client was happy with the outcome. 

Charles Schwab spokespeople didn’t respond to an email seeking comment. 

Contact Ron Day at [email protected] or follow him on Twitter at @RonDayETF