|Fees: 0% Charges no management fees
|5000 Min. Account Size
The Charles Schwab bank and brokerage firm was established in 1971. To keep up with the advancements in financial technology, they are now offering a robo advisor service they call Schwab Intelligent Portfolios.
With over $10 billion of assets under management, Schwab Intelligent Portfolios have the backing of one of the largest banks in the United States. The economies of scale provided by such a large organisation means that they are able to offer robo advisor services for no fees, no matter what size account. The only fees clients pay is the management expense ratios charged by the exchange traded funds in the portfolios. Since the portfolios use Schwab ETFs, they make money on those funds as opposed to from investors directly.
Before getting into more detail about the Schwab Intelligent Portfolios, here is a summary of their robo advisor services:
Since Schwab Intelligent Portfolios do not charge any fees to receive their robo advisor services, they do require a minimum investment amount that is higher than some of their competitors like Vanguard Personal Advisor or Betterment.
To allow them to provide the robo advisor service at no cost, they require a minimum investment of $5,000.
Asset allocation forms the basis of the Schwab Intelligent Portfolios investment philosophy. By providing a framework for deploying capital over a mix of asset classes, asset allocation allows Schwab to diversify the portfolio’s holdings and help reduce risk and loss of capital.
Rather than invest in one type of assets, Schwab builds portfolios by combining multiple assets together to both improve returns and cut risk. Take the following example from their white paper about their investment process:
An investment of $100 in 1971 in just the S&P 500 returned 10.42%, while an investment in an annually rebalanced 50/50 portfolio of gold and the S&P 500 returned slightly more, but with much less risk. The impact is slightly more wealth for the investor, without the huge ups and downs.
Schwab takes this a step further by providing a number of asset classes to build portfolios from. Depending on the investor’s risk profile and requirements, Schwab Intelligent Portfolios can choose from a number of different asset types. Here is a snapshot of those assets their portfolios can be made up of:
The Schwab Intelligent Portfolios can be used with a wide variety of account types including regular taxable accounts, living trust accounts, as well as various retirement accounts. Depending on the needs of the client, multiple accounts can be opened and the Schwab Intelligent Portfolios used for each one of these account types.
The list of account types available through Schwab is:
• 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
There are no additional fees – including advisory fees, account service fees, or commissions charged by Schwab. Schwab Intelligent Portfolios make their money from the ETFs they use to build the portfolios for clients. Schwab has their own exchange traded funds and used them exclusively for each intelligent portfolio.
Each ETF has an operating expense ratio, or OER, that is a percentage paid to the Schwab ETF. The actual OER depends on the exact portfolio that each client receives since each portfolio can include a different mix of stock, bond, real estate, and/or commodity ETFs. However, the website does provide an example of the OERs that Schwab Intelligent Portfolios will receive depending on the investor profile of the portfolio:
In this example, the expense ratio received ranges from 0.07% to 0.22%. There are no funds withdrawn from an investor’s account to cover these fees; they are taken directly from the ETF.
Opening a Schwab Intelligent Portfolio account is either done online or by calling a Schwab customer service advisor who will be able to walk clients through the process of signing up. The online process is easier and starts with a questionnaire that determines what the account is for:
Once all the questions are answered, potential clients are shown what their asset allocation will look like:
From there, other details about the investor are gathered and the investment process is complete. The next step is to fund the account and Schwab Intelligent Portfolios does the rest: builds the portfolio and takes care of the ongoing management including rebalancing and looking for tax efficient opportunities to enhance returns.
Schwab Intelligent Portfolios definitely has a very solid robo advisor product, and with the super low cost it is an excellent option for U.S. investors looking for professional level portfolio management.