Schwab Robo-Advisor Review – Everything You Need to Know
Digital robo-advisors are popping up everywhere, from independent shops such as Wealthfront, Betterment, and Personal Capital 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 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, Schwab Intelligent Portfolios Premium. Uncover the details, advantages and disadvantages of the new Intelligent Schwab.
In fact, I like the Schwab Robo-Advisor so much that I invested my business Simple IRA in the Intelligent portfolios! As a former portfolio manager and university finance professor you can be assured that the Schwab Intelligent Advisory Review is accurate and non-biased.
Charles Schwab Intelligent Portfolios – Features at a Glance
|Overview||Automated investment management robo-advisor with basic service and premium.|
|Minimum Investment Amount||$5,000 for Intelligent Portfolios. $25,000 for Schwab Intelligent Portfolios Premium.|
|Fee Structure||Zero management fees for Intelligent Portfolios. $30 per month for Schwab Intelligent Portfolios Premium plus $300 set up fee.|
|Top Features||Certified Financial Planners for all Premium Customers. Branch access for all customers. 53 ETFs across 20 asset classes.|
|Free Services||Zero management fees for all basic Intelligent Portfolio customers.|
|Contact & Investing Advice||24/7 live phone support, branch access, online live chat, and email.|
|Investment Funds||53 low fee stock and bond ETFs representing 20 asset classes.|
|Accounts Available||Individual, joint, and more types of investment accounts. Roth, traditional, SEP, Simple & rollover IRAs. Trusts.|
|Promotions||Not available at this time.|
Schwab Intelligent Portfolios – The Original Robo-Advisor
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 $41 billion in assets under management (AUM) as of June 30, 2019 and earned a second place to Vanguard’s $115 billion AUM, in the competitive robo-advisor field.
The Schwab Intelligent Portfolios, basic service 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.
Plus, Schwab Intelligent investing allows you to change your asset mix easily.
Bonus; 5 Lowest Fee Robo-Advisors >>>
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 M1 Finance’s $100 minimum, also with zero management fees.
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.
Schwab Intelligent Portfolios Premium – 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 Portfolios Premium.
And here’s where Schwab is disrupting the fee model for financial advice.
Schwab intelligent Portfolios Premium fee is based on a subscription model. After a $300 set up fee, the cost is $30 per month, regardless of the size of your portfolio.
The minimum investment amount is $25,000.
Here’s what you get for the Schwab robo-advisor premium subscription:
- Diversified portfolio of low cost investments, apportioned to account for your age, goals and risk tolerance.
- Daily portfolio monitoring and automatic rebalancing when needed.
- Tax-loss harvesting
- 24/7 support from professionals
- Unlimited individual guidance from a Certified Financial Planner professional
- A complete financial plan
- Interactive online planning tools
The Schwab Intelligent Portfolios Premium 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 Portfolios Premium client receives financial planning including a comprehensive financial plan.
“A comprehensive financial plan is like having a roadmap to help with your financial goals. It takes into account all aspects of your financial life—income, expenses, investments, college savings, retirement planning, and more.” ~Schwab website
The Schwab Intelligent Portfolios Premium clients can talk to an advisor whenever questions arise.
The on-boarding process for the Schwab Intelligent Portfolios Premium 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.
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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 Portfolios Premium 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 Portfolios Premium
The account types for both Schwab Intelligent Portfolios and Schwab Intelligent Portfolio Premium 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
Investment Funds for Both the Schwab Intelligent Portfolios
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||HDEF-xTrackersMSCI EAFE High Dividend Yield Equity ETF||VYMI-Vanguard International High Dividend Yield|
|Master Limited Partnerships||MLPA–Global X MLP||ZMLP–Direxion Zacks MLP High Income|
|US Treasuries||SCHR–Schwab Intermediate-Term U.S. Treasury||IEI-iShares 3-7 Year Treasury Bond|
|US Investment Grade Corporate Bonds||SPIB-SPDR Portfolio Intermediate Term Corporate Bond||VCIT–Vanguard Intermediate-Term Corporate Bond|
|US Securitized Bonds||VMBS–Vanguard Mortgage-Backed Securities||MBB-iShares MBS|
|US Inflation Protected Bonds||SCHP–Schwab U.S. TIPS||IPE-SPDR Bloomberg Barclays TIPS|
|US Corporate High Yield Bonds||HYLB-X trackers USD High Yield Corporate Bond||USHY-iShares Broad USD High Yield Corp Bond|
|International Developed Country Bonds||IAGG-iShares Core International Aggregate Bond||BNDX-Vanguard Total International Bond|
|International Emerging Markets Bonds||EBND-SPDR Bloomberg Barclays Emerging Markets Local Bond||EMLC-VanEck Vectors JP Morgan EM Local Currency Bond|
|Preferred Securities||PFFD-Global X US Preferred||PSK-SPDR Wells Fargo 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||VTEB-Vanguard Tax-Exempt Bond||TFI-SPDR Nuveen Bloomberg Barclays 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.
Schwab Intelligent Portfolios Fees
Investment managent fees come from two distinct sources:
- The individual investment fund management fee or ETF expense ratio. Every exchange traded or mutual fund charges a management fee. This money goes directly to the fund manager. The fund management expense ratios range from .06% to .65% of AUM. While the average total portfolio expense ratio is roughly .13% of AUM.
- Portfololio managment fees are charged by Schwab, to manage your Schwab robo-advisor.
As mentioned earlier in the Schwwab Intelligent Portfolios review, the basic Schwab robo-advisor does not charge account management fees. The only charges you will pay are those management expesnse fees levied by the fund companies. This is the robo-advisor I use for my Simple IRA.
The Schwab Intelligent Portfolios Premium fees are levied with a subscription model. This is better and less expensive, the larger your portfolio.
The Schwab Intelligent Portfolios Premium fees are:
- $300 one-time set up fee
- $30 per month management fee
Your investment management fees vary based upon the size of your portfolio.
|Account Balance||$360 per Year Fee as a Percent of Total Assets (charged $30/month)|
If your assets are below $50,000, the fee is high relative to Betterment and Ellevest, who charge .40% or .50% respectively, for their premium services with financial advisor access. Once your assets reach $100, the Schwab robo-advisor subscription charge is very economical, when compared with both typical financial advisors and other robo-advisors.
Visit the Robo-Advisor Selection Wizard, take a quick quiz, and find out which robo-advisor is the right one for you.
Schwab Intelligent Investing Returns
It’s just common sense that you’re investing to make money. It would seem to follow that choosing a robo-advisor with the highest returns makes sense. But, there’s more to investment returns than one year returns.
Schwab and most robo-advisors, with the exception of a few actively managed robo-advisors and those that focus on downside protection, design their portfolios to match the returns of investment markets. The reason is because countless studies show that only a small percent of actively managed investment strategies outperform a passive index fund investing approach.
You can expect Schwab Intelligent Investing returns to closely follow the returns of the underlying funds. Which means if large cap stocks return 20% in 2019 and bonds return 2% then the proportion of your money invested in those assets will earn comparable returns.
It’s important to compare your investment returns not with the S&P 500, but with the comparable indexes, that are represented in your portfolio.
Here’s an example of the Schwab Intelligent Investing returns of my IRA, which I opened on October 1, 2019.
Tax Loss Harvesting
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.
How Do Schwab’s Robo-Advisors Make Money?
Schwab’s Intelligent Portfolio Premium subscription 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.
Schwab Intelligent Portfolios Customization
Schwab’s customization features are a handy option for investors that want more control over their robo-advisory investments.
Investors can have Schwab replace up to three ETFs with another of the firm’s choosing.
You can also set up as many as 10 distinct Schwab robo-advisory accounts, as long as there’s a minimum of $5,000 invested in each account. Although, personally, I’m not sure why you’d want that many accounts, if you’re comparing distinct asset allocation strategies, it might make sense.
Schwab’s Intelligent Portfolios Goal Tracker
Schwab has a handy goal tracker which gives you an idea of how long it will take to meet certain pre-determined goals.
You set up the goal and then add monthly or one-time contributions and the dashboard gives you an estimate, given your current investment portfolio, of how long before you’ll reach your goal.
Like many competitors, Schwab uses Monte Carlo simulations to calculate theprobability of meeting your goal. If you’re not quite on track, Schwab will make suggestions to help you improve the likelihood of reaching your target.
The tool can also monitor withdrawal rates, for investors in the later stages of life.
Here’s an impage of my simple “Wealth Building” goal. I have yet to customize it further, as this account is a very small percent of my total assets.
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 monthly subscription management expense ratio fee for the human-assisted Intelligent Portfolios Premium is reasonable for larger portfolios, greater than $100,000.
The investment minimums are affordable for many investors, 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 and outlines the management fees for each fund.
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.
If your Schwab Intelligent Portfolios Premium account is smaller, the $30 per month subscription fee equates to a higher percentage of assets under management. For instance, with an account of $25,000, the $30 per month is equivalent to a hefty 1.44% AUM fee.
If tax-loss harvesting is important to you and you lack, $50,000, then this isn’t the best option.
Schwab Intelligent Portfolios Review Takeaway
Personally, I would consider investing in either platform of Intelligent Portfolios. 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 for Schwab Intelligent Portfolios. And for quick questions, there’s the 24/7 phone consultation and multiple branches. For all access financial advisors, the Intelligent Portfolios Premium is a low-fee alternative to a typical financial advisor.
Featured image credit: Photo by Markus Spiske on Unsplash
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