Schwab on the Hunt for Long-Short Strategies Director

How about we draw straws and the longest and the shortest both win?

Charles Schwab has recently been on the search for a director to lead the firm’s long-short separately managed account initiative, someone responsible for building a team focused specifically on long-short SMAs and creating companywide coordination for the business, according to a job posting. Schwab did not respond to questions, including if the position has been filled.

The move speaks to a broader push into the strategies, which are gaining traction as wealthy investors look for ways to diversify concentrated stock positions without triggering massive tax bills.

The Long and Short of It All

Though still a small portion of its business, long-short strategies are an area that performed exceptionally well in the second quarter for Schwab and helped drive overall company revenue 21% higher year over year.

Schwab is not alone in its push. The strategies are gaining greater attention for multiple reasons. Some advisors and clients are seeking new avenues for alpha. Others are looking for diversification that isn’t fixed income. Plus, companies like SpaceX, and soon, Anthropic and OpenAI, are delivering mega-IPOs, turning on-paper millionaires into actual millionaires in need of tax-loss harvesting tools:

• Neuberger Berman added long-short tax managed strategies to its Custom Direct Indexing platform in June.
• WisdomTree launched the WisdomTree Efficient Long/Short US Equity Fund (WTLS), an ETF that combines broad S&P 500 exposure with a long-short equity overlay, in January.
• Invesco has also been building up its long-short SMA capabilities.

Despite Schwab’s push into the products, it did recently introduce limitations to the strategies. In April, the firm began capping long-short SMAs at 30% of an advisor’s total assets held at Schwab, alongside new leverage caps and account minimums. Fidelity made similar moves at the end of last year, indefinitely blocking RIAs from opening and funding new accounts.

Not Right for Every Client. Advisors working with high-net-worth clients and employees of huge companies that just went public are recognizing the benefits of long-short SMAs. “The standard wirehouse model of a hyper-diversified ETF basket just gets you the market average and all the mediocrity that comes with it,” said Erik Kratz, CIO at Arena Private Wealth. “Advisors have to justify their fees more than they used to, and long-short is one of the tools that actually does that, instead of leaning entirely on financial planning.” However, he also notes just how complex they are. “This requires real ongoing management, not a model you set and forget,” he told Advisor Upside.

Alex Caswell, founder of Wealth Script Advisors, said roughly 20% of his clients use the strategies since he works exclusively with tech professionals. He added that advisors really need to understand active management before allocating to long-short strategies. “For those who exclusively believe in passive investing, they need to have confidence that this strategy can add value to them rather than deteriorate returns,” he said.