Fidelity and Schwab Just Backed Away From a Tax Strategy “Too Good to Be True.” The Wealthy Responded by Shoveling In More Money
Charles Schwab (SCHW) and Fidelity restricted access to tax-aware long-short accounts, citing growth and risk concerns. Schwab imposed new limits and raised minimums, while Fidelity halted new clients and increased fees. The strategy, used by wealthy clients, generates tax losses to offset gains. Schwab's revenue from this business reached $70 million in Q2. Some clients added more funds despite restrictions. Goldman Sachs (GS) and BNY Pershing are now offering custody for these accounts.
How this was made
The 30-second read
Why it matters
Schwab's policy change and Fidelity's shutdown to new clients represent the first public disclosure of major custodial tightening for this strategy.
Market read
The announcement may redirect high‑net‑worth client flows and affect revenue expectations for Schwab's wealth‑management division.
What to watch
Potential regulatory scrutiny may further tighten the market, creating barriers to entry for new competitors.
Background
Tax‑aware long‑short SMA accounts are a growing niche used by ultra‑wealthy investors to generate tax losses while maintaining long exposure.
Ticker impact
Charles Schwab announced new limits on tax-aware long‑short SMA accounts, curbing book size, raising minimums and imposing margin constraints.
Potential short‑term downside pressure on SCHW as clients reassess the product.
Revenue from the strategy was modest ($70 M) and represents ~1% of Schwab's Q2 revenue; the policy change signals reduced growth prospects.
Market effects
Wealth‑management firms may see a shift of high‑net‑worth clients toward competitors like Goldman Sachs and BNY Pershing.
U.S. brokerage sector could experience modest reallocation of assets among large custodians.
Limited to U.S. brokerage industry; no immediate global macro effect.
Counterpoint
The restrictions could improve the long‑short SMA's risk profile, attracting more risk‑averse investors and stabilizing margins.
Key entities
- BrokerageCharles Schwab
U.S. brokerage implementing new limits on tax‑aware SMA accounts.
- BrokerageFidelity
Closed new client access to the same strategy earlier.
- BrokerageGoldman Sachs
Entered the market to offer similar services.
