Schwab raises long-short minimum to $10M; halts portfolio-margin

Charles Schwab raised the minimum investment for certain tax-aware long-short separately managed accounts from $1 million to $10 million and said it will not enroll new clients or accept new funds in portfolio-margin accounts. The changes were disclosed in a note to clients and take effect Sept. 16. They apply only to new accounts; existing clients will keep their current terms.

The higher minimum targets specific long-short strategies that seek to lower clients’ tax bills by pairing long equity positions with short positions or other instruments that can generate losses to offset capital gains. Many versions of these strategies use portfolio-margin accounts, which allow greater leverage and require different risk controls than standard margin accounts.

Schwab cited rapid growth of these strategies as the reason for tightening access. The client note warned that the current pace of growth “could limit our ability to support the full range of capabilities you and your clients rely upon from us.” In an emailed statement, the firm added that it regularly reviews platform requirements to ensure it can serve advisers and their clients across the capabilities they rely on and reiterated that the changes affect only new accounts.

The brokerage has limited access to these accounts before, making this at least the third set of restrictions. Competitors have taken similar steps: one large rival paused onboarding new clients for comparable tax-aware strategies while it assesses the factors driving growth.

Tax-aware long-short programs typically generate tax losses by shorting securities or using derivatives to offset gains, and they often depend on the risk and leverage profiles that portfolio-margin accounts provide. Schwab’s decision to stop new enrollments and inflows into portfolio-margin accounts removes a common structure used in these implementations.

Other asset managers and advisors continue to offer tax-minimizing products, and advisers report ongoing demand among affluent clients. Schwab said current account holders using the affected strategies will remain under their existing arrangements and will not be impacted by the new requirements.