Wealthfront actually made the same argument.
http://www.investmentnews.com/article/20150309/FREE/150309913/wealthfront-ceo-accuses-schwab-of-deceiving-investors-with-free-new"He cites the company's SEC filing, which stated that each investment strategy will include a sweep allocation. In this sweep program, the filing states that 6% to 30% of an account's value will be held in cash and cannot be eliminated or used by consumers for investments."
Many fee only planners don't charge you a AUM fee for any 'cash' you hold, because they aren't really managing it. Its cash. What schwab is doing is putting larger portions of your portfolio in cash, and then making money off the net interest spread. According to the article Schwab will keep at LEAST 6% in cash, but as much as 30% and you can't change it. Seems like a bit much to me since most 'rational' long term investors keep 0% in cash(within retirement accounts) until they are within a few years of needing it.
What really concerns me about this is...
https://intelligent.schwab.com/public/intelligent/insights/whitepapers/role-of-cash-in-asset-allocation.htmlSchwab is basically arguing for keeping more money in cash in retirement accounts. Funny how they suddenly think cash should be a major asset class when they are making money on the cash position. I wonder what Schwab was recommending as the cash % of a portfolio a few years ago?
Just for reference, their long term TR funds only have 3% in cash.