Schwab Intelligent Portfolios Review – Robo-Advisor With or Without Human Guidance
Schwab Robo-Advisor Review – Everything You Need to Know
Digital robo-advisors are popping up everywhere, from independent shops such as Wealthfront, Betterment, Personal Capital and WiseBanyan to those wedded to an existing firm such as Vanguard and Fidelity. The original robo-advisor originated as a low-fee, professionally managed investment portfolio made up of exchange-traded funds (ETFs) and is morphing into a more hybrid, robo – human advisor model. Many solely automated investment portfolios are adding access to human advisors and Schwab’s Intelligent Advisory joins Betterment as the newest to jump on that trend.
Here’s the latest about the legacy Schwab Intelligent Portfolios and the new CFP® assisted Advisory service. Uncover the details, advantages and disadvantages.
Schwab Intelligent Portfolios – The Original Robo-Advisor
Created just two years ago, Schwab rocked the robo-advisory industry with two differentiating features; zero management fees and a cash asset allocation category. Since that time, Schwab’s robo-advisor amassed $12.3 billion in assets under management (AUM) as of December 2016, and earned a second place to Vanguard’s $52 billion AUM, in the competitive robo-advisor field.
The Schwab Intelligent Portfolios all robo-advisor offering has a lot going for it. In a nutshell, the free automated investment service begins with a few initial questions, to determine your risk tolerance levels. Schwab drives its portfolio make up by your goals and risk comfort. Using your responses to the questionnaires, the platform recommends a diversified investment portfolio, in accord with your preferred risk level.
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Conservative investors portfolios hold more cash and bond ETFs while those younger and more comfortable with risk will hold a greater percent of stock funds in their account.
The Schwab Intelligent Portfolio requires a $5,000 account minimum. If the entrance minimum is too steep for you, consider Wisebanyan’s zero minimum, zero fee robo-advisor.
As is customary, the portfolio regularly rebalances the funds back to your original asset allocation. Additionally, Schwab professionally monitors the asset allocation to make certain that it is both in line with your investor profile and that the funds remain in accord with the stringent Schwab screening process.
Taxable accounts valued at more than $50,000 are eligible for the tax-loss harvesting service. This means, “If a taxable security has lost value since you purchased it, you can sell it at a loss, and use the loss to offset your capital gains, and up to $3,000 of ordinary income a year, for federal income tax purposes”, according to Schwab’s FAQ.
Schwab Intelligent Advisory – The Robo-Advisor + Human CFP®
Similar to Betterment and Personal Capital, Schwab recently added the new human advisor-assisted version of their robo-advisor; Schwab Intelligent Advisory. For a reasonable 0.28% AUM fee and a minimum of $25,000 assets, you gain access to a financial advisor in addition to the automated investment manager. For larger portfolios, over $1.285 million there’s a $900 per quarter maximum charge.
The Schwab Intelligent Advisory has 30 dedicated certified financial planners (CFP®) across the country who counsel clients by phone or video chat. Each salaried employee claims an average of 10 years of experience and uses the same planning software. This creates consistency across the platform.
The Schwab Intelligent Advisory clients can talk to an advisor whenever questions arise.
The onboarding process for the Schwab Intelligent Advisory is more complex than for the Schwab Intelligent Portfolios. You complete a detailed online questionnaire that includes information on your current assets and financial goals. The document queries future plans such as retirement college funding and major purchases.
From the questionnaire responses, you get a detailed digital plan and portfolio that can be discussed with the financial advisor. You can view your plan to uncover your progress and amend it online at will.
You can discuss your goals and questions with the advisor, including when to take Social Security, whether to rent or buy a home and more. Further, you can add assets to your digital dashboard that are not under Schwab management, for a more holistic view of your financial picture.
How Do the Schwab Intelligent Advisory CFPs® Differ From the Branch-Based Financial Consultants?
All 30 Planning Consultants in The Schwab Intelligent Advisory are CFPs®.
Schwab has 325 or more branches across the country with 1,100 financial consultants. Of the branch based advisors, 800 are CFPs®.
Although branch-based Schwab financial consultants can answer basic questions about Intelligent Portfolios, such as how it works, the questionnaire etc. they don’t “advise” on the portfolios because the Intelligent Portfolios are centrally managed by a distinct team.
So, don’t drive over to a branch and expect to get full on financial planning from a financial representative.
Available Accounts for Schwab Intelligent Portfolios and Schwab Intelligent Advisory
The account types for both Schwab Intelligent Portfolios and Schwab Intelligent Advisory include:
- Brokerage: Individual, Joint Tenant with Rights of Survivorship, Tenants in Common, Community Property, Custodial
- Revocable Living Trust: Single Trustee, Two Trustees
- Retirement: Roth IRA, Traditional IRA, Rollover IRA
Schwab’s Investment Funds for Both the Intelligent Portfolio and the Intelligent Advisory Platforms
Both Schwab robo-advisor platforms invest your money in exchange-traded funds from a pool of 53 choices, representing 20 asset classes. Of that group, approximately 60% of the ETFs are Schwab’s while other funds are managed by Vanguard, iShares and PowerShares, according to a recent press release. The funds represent a wide range of asset classes including real estate and precious metals in addition to the various stock and bond funds.
|Category||Primary ETF||Secondary ETF|
|US Large Company||SCHX–Schwab U.S. Large-Cap||VOO–Vanguard S&P 500|
|US Large Company–Fundamental||FNDX–Schwab Fundamental U.S. Large Company||PRF–PowerShares FTSE RAFI US 1000|
|US Small Company||SCHA–Schwab U.S. Small-Cap||VB–Vanguard Small-Cap|
|US Small Company–Fundamental||FNDA–Schwab Fundamental U.S. Small Company||PRFZ–PowerShares FTSE RAFI US 1500 Small-Mid|
|International Developed Large Company||SCHF–Schwab International Equity||VEA–Vanguard FTSE Developed Markets|
|International Developed Large Company -Fundamental||FNDF–Schwab Fundamental International Large Company||PXF–PowerShares FTSE RAFI Developed Markets ex-U.S|
|International Developed–Small Company||SCHC–Schwab International Small-Cap Equity||VSS–Vanguard FTSE All-World ex-US Small Cap|
|International Developed Small Company–Fundamental||FNDC–Schwab Fundamental International Small Company||PXF–PowerShares FTSE RAFI Developed Markets ex-U.S|
|International Emerging Markets||SCHE–Schwab Emerging Markets Equity||IEMG–iShares Core MSCI Emerging Markets|
|International Emerging Markets–Fundamental||FNDE–Schwab Fundamental Emerging Markets Large Company||PXH–PowerShares FTSE RAFI Emerging Markets|
|US Exchange-Traded REITS||SCHH–Schwab U. S. REIT||VNQ–Vanguard REIT|
|International Exchange-Traded REITS||VNQI–Vanguard Global ex-U.S. Real Estate||IFGL–iShares International Developed Real Estate|
|US High Dividend||SCHD–Schwab US Dividend Equity||VYM–Vanguard High Dividend Yield|
|International High Dividend||DWX–SPDR S&P International Dividend||IQDF–FlexShares International Quality Dividend|
|Master Limited Partnerships||MLPA–Global X MLP||ZMLP–Direxion Zacks MLP High Income|
|US Treasuries||SCHR–Schwab Intermediate-Term U.S. Treasury||VGIT–Vanguard Intermediate-Term Government Bond|
|US Investment Grade Corporate Bonds||ITR–SPDR Barclays Intermediate Term Corporate Bond||VCIT–Vanguard Intermediate-Term Corporate Bond|
|US Securitized Bonds||VMBS–Vanguard Mortgage-Backed Securities||MBG–SPDR Barclays Mortgage Backed Bond|
|US Inflation Protected Bonds||SCHP–Schwab U.S. TIPS||STIP–iShares 0-5 Year TIPS Bond|
|US Corporate High Yield Bonds||SHYG–iShares 0-5 Year High Yield Corporate Bond||JNK–SPDR Barclays High Yield Bond|
|International Developed Country Bonds||BNDX–Vanguard Total International Bond||IGOV–iShares International Treasury Bond|
|International Emerging Markets Bonds||EMLC–VanEck Vectors Emerging Markets Local Currency Bond||VWOB–Vanguard Emerging Markets Government Bond|
|Preferred Securities||PSK–SPDR Wells Fargo Preferred Stock||PFF–iShares U.S. Preferred Stock|
|Bank Loans||BKLN–PowerShares Senior Loan||N/A|
|Investment Grade Municipal Bonds||VTEB–Vanguard Tax-Exempt Bond||TFI–SPDR Nuveen Barclays Municipal Bond|
|Investment Grade California Municipal Bonds||PWZ–PowerShares California AMT-Free Muni Bond||CMF–iShares California AMT-Free Muni Bond|
|Gold and Other Precious Metals||IAU–iShares Gold Trust||GLTR–ETFS Physical Precious Metal Basket Shares|
Each individual investor’s portfolio might contain up to 20 asset classes, as represented by an individual ETF.
When investing in any mutual or exchange-traded fund, you pay a fund management fee. This is apart from the percent that you pay to the Advisory robo for your overall portfolio management. The 53 individual fund fee’s range from 0.03% to 0.65% of assets. Schwab explains that the weighted average that customers pay is 0.07% for conservative holdings, moderate and aggressive portfolios are 0.16% and 0.21% respectively.
Tax loss harvesting for Intelligent Advisory portfolios requires a minimum $50,000 account balance.
The Cash Asset Class
Every investment portfolio has from 6% to 29% in the cash asset class, depending upon your asset allocation. More conservative investors would hold greater amounts of cash than more aggressive portfolios. Michael Cianfrocca of Schwab explained that very few clients will hold the maximum amount of cash.
Schwab explains three benefits of the cash position:
- Provides stability
- Offers downside protection and cushions negative returns when stock and bond funds go south
- Adds additional diversification
Additionally, the cash will earn interest at a rate in line with the national average money market interest rate.
How Do Schwab’s Robo-Advisors Make Money?
Schwab’s Intelligent Advisory’s 0.28% management fee predominantly goes to fund their cadre of salaried Certified Financial Planners®.
Both robo-advisors also make money from two additional sources:
- Schwab earns revenue from a small management fee for the Schwab ETFs and revenue on some 3rd party ETFs.
- The cash portion of your account is held in the Schwab bank, thus they profit from the access to your money, such as for lending and more.
Pros and Cons of the Schwab Robo-Advisors
You can’t beat the fees. Zero management fees for the Intelligent Portfolios is tough to beat, despite a small cash allocation. The 0.28% management fee for the human-assisted Intelligent Advisory is reasonable. The cap at $900 per quarter is an enticement for larger portfolios as well.
The investment minimums are reasonable, with $5,000 for the Intelligent and $25,000 for the Advisory.
Diversification options are great with a selection of 53 funds across a wide range of asset classes.
Schwab judiciously selects ETFs with low average fund management fees. Schwab’s white paper explains how the funds are chosen.
The Schwab brand ensures that the firm will be in business for the long term.
Some investors consider the cash allocation a negative, especially in the current low-interest rate environment as that money is not earning you much of a return. Many robo-advisors lack a cash allocation. Personally, I like a cash allocation for the reasons that Schwab describes and don’t find it bothersome that they’ll garner a small benefit from holding the money in their bank.
With branches scattered across the country, it’s unusual that most Intelligent Advisory clients will need to talk via phone or video chat with their advisor and don’t have an in-person option.
Schwab Intelligent Portfolios Review Takeaway
Personally, I would consider investing in either platform. Schwab rightly holds a solid place in the low fee, high-quality investment arena. I like the diversity of funds and asset classes. If you don’t need to speak with an advisor, then it’s tough to beat the zero management fee Schwab Intelligent Portfolio. For moderate oversight, the Intelligent Advisory is a low-fee alternative to a typical financial advisor.
April 13, 2017