Schwab Intelligent Portfolios is the robo-advisor product offered by brokerage giant Charles Schwab. It offers taxable accounts, IRAs, Roth IRAs, and trusts. Unlike many other robo-advisors, this is a supplementary offering to an existing brokerage business.
There is an upside to this setup when it comes to security and institutional knowledge, but the downside is that it’s a little harder to pick out the robo-advisor data from the larger corporate SEC filings. For instance, data for the wrap fee program sponsor for Schwab Intelligent Portfolios, Schwab Wealth Investment Advisory, Inc., shows $5.4 billion and 55,500 accounts, for an average account size of about $97,300. However, the total investment pool for the company that manages the portfolios, Charles Schwab Investment Advisory Inc., is much larger than $5.4 billion.
Fees and investing
While Schwab Intelligent Portfolios has a high minimum of $5,000, they do have something only a couple of robo-advisors offer: no account management or advisory fees. So where does Schwab make money? Two words: expense ratios. When you invest in a mutual fund or an exchange traded fund (ETF), there is a cost associated with the management of the fund. This cost is on top of any advisor fee. Whether you’re paying a human advisor 1.5%, or a robo-advisor 0.5% to invest in funds on your behalf, there is an expense ratio on the funds on top of that. With Schwab, you’re only paying the expense ratio on the fund.
Another source of income for Schwab is derived from cash reserves. Investment plans often call for a portion of your assets to be held in cash. At Schwab, the cash is held in a deposit account, where it earns interest while Schwab puts your money to work as any traditional bank would, by lending or investing it. While cash provides liquidity to a portfolio, it can be a drag on overall earnings due to low returns.
The first thing you do is select a goal for your account from options including retirement, major expenses, building wealth, generating income, a one-time expense, or an emergency fund. What follows is a short set of questions about your knowledge of and experience with investing, and your reactions to certain situations involving risk and investing confidence.
There’s an allocation chart that you can see change as you answer questions during signup. After you complete the questionnaire, you can change the suggested allocation by adjusting up or down one notch on the risk scale. If you want to make larger changes, you can restart the questions. You can also exclude up to three ETFs from the portfolio after you complete sign-up.
To complete sign-up you’ll have to provide detailed contact, employment, and income information as well as verify that you are a U.S. citizen by providing a Social Security number.
What you get
You get a mix of Exchange Traded Funds (ETFs) across 21 asset classes, and a cash allocation. ETFs are a broad holding of stocks or bonds, traded on a market. Robo-advisors mostly offer ETFs due to their low expense ratios, and their ability to passively track the market, instead of trying to “beat” the market with investments like more actively managed funds. Many robo-advisors invest in passive ETFs because of the low expense ratios. Unlike mutual funds, ETFs trade just like a common stock on an exchange does.
Schwab selects from 53 different ETFs to make up your portfolio. The ETFs selected can change over time as the market shifts, but will always come from this selection of 53. The cash allocation runs a bit high compared to other robo-advisors, and is a source of criticism in reviews about the service. Schwab defends the use of a sizable cash allocation for its liquidity and stability, and to lower risk.
Accounts are monitored daily and are automatically rebalanced to keep on goal. Tax loss harvesting is offered on accounts over $50,000. They offer phone and live chat support at any time.
Schwab Intelligent Portfolios offers a large range of investments, with 53 ETFs and 21 asset classes. It has a large cash allocation which is justified as downside protection, but which some investors may see as unrealized investment potential. The $5,000 minimum may present a high barrier to entry for new investors, but the attraction of a zero percent account management fee might be worth the investment.
Schwab is a large, established brokerage with plenty of financial experience. Intelligent Portfolios offers a broad selection of investments with plenty of customization options. It’s a big name, low-cost option for investors looking for a robo-advisor.