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Schwab Sharpens Focus, Gains Strength

The firm fortifies its investment team and risk management culture but sticks to its core knitting, warranting a Parent rating upgrade.

Over the past several years, Charles Schwab Investment Management (CSIM) has strengthened its executive management, investment team, and risk management capabilities. These changes, coupled with the firm's disciplined focus on low-cost portfolio building blocks and strong execution under new leadership, are behind Morningstar's decision to upgrade Schwab's Parent Pillar rating to Positive from Neutral.

These positive changes emerged in response to a dark chapter in the firm's history when one of its ultrashort bond funds, Schwab YieldPlus, fell sharply during the financial crisis. Schwab paid a $119 million fine to the SEC to settle claims that it made misleading statements about the fund and its risks, including the maturity of its holdings, and paid $235 million to settle a class action lawsuit with investors in that fund. In response, the firm hired a new CEO, Marie Chandoha in 2010, who brought in new management and made significant changes to strengthen the organization.