The Charles Schwab Corp. notified its registered investment advisor clients this week of new restrictions on long-short separately managed accounts, a strategy that has surged in popularity. According to a Bloomberg report, the proportion of an RIA’s assets custodied at Schwab that can be allocated to long-short SMAs may now not exceed 30%.
Schwab, the dominant custodian for RIAs with over $5 trillion in advisor-held assets, is tightening its guidelines after Fidelity Investments, another major RIA custodian, recently stopped opening new long-short SMA accounts. The moves come as tax-aware strategies, which seek to harvest losses for tax benefits, have become more prevalent among advisors.
Long-short strategies have existed for decades but were traditionally offered through mutual funds or exchange-traded funds. In an SMA structure, the advisor directly owns the underlying securities, allowing for greater customization and tax-loss harvesting. The strategy aims to generate capital losses by taking both long positions—betting on stock price increases—and short positions, betting on declines.
Leverage is a central feature of these accounts, enabling clients to amplify loss harvesting. However, that leverage also increases balance-sheet risk for custodians, which may be seeking to reduce exposure amid market volatility. Schwab’s cap appears designed to limit that risk while still supporting the product category.
“We are committed to Long/Short SMAs on Schwab's platform,” the firm said in a statement to InvestmentNews. “The changes we have recently shared with our participating RIA clients are designed to ensure Long/Short SMAs on Schwab's platform grow responsibly over the long term. Schwab has the scale, the balance sheet, and the expertise to support this offer and will continue to meet the needs of RIAs and their clients.”
The new limit applies to all RIAs using Schwab’s custody services, though the firm did not specify a deadline for compliance. Advisors who exceed the 30% threshold may need to rebalance or shift assets to other custodians.
This development follows broader industry scrutiny of short-selling strategies. In a separate case, Citron Research founder Andrew Left faces a criminal trial over an alleged $16 million short-selling scheme, highlighting regulatory attention on the practice.
For RIAs, the cap may prompt a reassessment of portfolio construction and tax-loss harvesting approaches. Some advisors may turn to alternative vehicles, such as long-short mutual funds or ETFs, which do not face the same custodian-imposed limits. Others may explore direct indexing strategies that offer tax efficiency without the leverage and shorting complexity.
Schwab’s move also aligns with its broader product evolution. The firm recently launched spot bitcoin and Ethereum trading for retail clients, signaling a push into digital assets while managing risk across its platform.
As custodians tighten policies, RIAs will need to weigh the benefits of long-short SMAs against the new constraints. The 30% cap may slow adoption but is unlikely to eliminate demand for strategies that can generate losses in a rising market.
