In a client letter sent this week and obtained by Bloomberg, Schwab said some long-short separately managed accounts will now require at least $10 million to fund, up from $1 million. The firm also told clients it will stop taking on new portfolio margin accounts and will no longer accept fresh money into existing ones. Those accounts use higher leverage. The shift takes effect Sept. 16 and applies only to new accounts, with current clients continuing under their existing terms.
In an email, a Schwab spokesperson wrote, "We regularly review our platform requirements to ensure we can effectively serve advisers and their clients across the full range of capabilities they rely on." "These changes apply only to new accounts - current clients will continue with no impact to existing terms. We remain committed to helping advisors meet client needs through a broad range of tax-aware investment solutions."
This is the latest clampdown on a fast-growing tax play. Over the past three years, wealthier investors have crowded into tax-aware long-short setups that pair long and short positions and aim to realize losses that can offset capital gains. Schwab and Fidelity were the main avenues for these complex trades, but both have recently pulled back as growth surged to unusual levels.
Schwab has already tightened eligibility and added borrowing and other limits twice before, while Fidelity went further by indefinitely pausing new-client onboarding. Inside Schwab, there were worries that the appeal of wiping out taxes was enticing investors who did not fully understand the strategy's workings, according to prior Bloomberg reporting. "The current pace of growth of these strategies could limit our ability to support the full range of capabilities you and your clients rely upon from us," the firm said in the letter.
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Fidelity has said it is taking time to assess what is fueling the demand. Interest remains strong, though, and other managers, including some outside the traditional mold, are still promoting tax-minimizing products.
Thinking about opening a new tax-aware long-short account at Schwab? You will need $10 million to fund some of those SMAs. If you are already in, your terms stay the same because the changes only hit new accounts.
And if you were eyeing portfolio margin for extra flexibility, new enrollments and additional funding will be off the table once the policy kicks in on Sept. 16. The common thread here is breakneck growth, so expect access and features to keep evolving as providers recalibrate.