Charles Schwab launches robo-advisor with human element

Mar 16th, 2017 | By | Category: ETF and Index News

Charles Schwab has launched an online wealth management service that combines automated investment planning technology with access to human advisors. Schwab Intelligent Advisory provides clients with a financial and investment plan comprised of a portfolio built exclusively with exchange-traded funds and managed by computer algorithms, as well as unlimited access to a human advisor via phone or video call.

Schwab launches hybrid human-robo ETF investment advice service

Schwab has offered the robo-only investment management service, Schwab Intelligent Portfolios, since 2015.

“Schwab Intelligent Advisory fully leverages what technology and people can deliver in tandem, focusing on serving clients based on their unique needs while delivering the kind of value they know they can expect from Schwab,” said Neesha Hathi, executive vice president with Schwab Investor Services. “This is a modern approach to financial planning and wealth management that mirrors what today’s consumers have come to expect in other aspects of their lives; how they invest should be no exception.”

The service will have a minimum investment of $25,000, five times higher than Schwab’s pure robo-advice service, and is aimed at emerging or mass affluent investors who have relatively simple financial situations and want to keep costs low.

Users of the service will complete a self-guided online planning tool focused on their specific financial situation and goals including both Schwab and non-Schwab accounts, followed by a one-to-one conversation with a credentialed Planning Consultant to review the plan, prioritise goals, and discuss investment choices.

Based on their financial plan, clients will be invested in a fully-automated, diversified portfolio using Schwab’s robo-advisor service.  The portfolios are comprised of low-cost ETFs from Schwab and third-party providers including Vanguard, iShares and PowerShares which are selected based on quantitative criteria such as size, bid-ask spread, tracking consistency, and operating expense ratio. Investors will have access to up 20 globally diversified asset classes in each portfolio including equities, fixed income, real estate, commodities, and an FDIC-insured cash allocation to manage volatility and risk. The portfolios also use a combination of fundamentally weighted and market cap-weighted ETFs, giving investors an additional layer of diversification.

Advisory fees under Schwab Intelligent Advisory are 0.28% of a client’s managed assets with a $900 quarterly fee maximum, making it one of the lowest cost advisory solutions available. The service will charge no trading commissions or account service fees.

Investors will still need to pay the fees on the underlying ETFs in their portfolio but Schwab maintains the ETFs eligible for portfolio inclusion are based on the lowest fees in the industry once they meet size, spread and tracking consistency criteria. The weighted average operating expense ratio for the portfolios currently range from 0.08% for a conservative portfolio, 0.19% for a moderate portfolio, and 0.24% for an aggressive portfolio.

“There’s an entire population of self-directed investors who aren’t self-directed by choice – they simply haven’t found an advisory model that works for them yet,” said Hathi. “The barrier might be lack of trust and transparency, cost, complexity or general inertia, but there’s a real need to make financial planning and advice more accessible. Schwab Intelligent Advisory democratises the process by making it easier and more affordable to build and maintain a plan, stay invested, and access professional guidance along the way.”

Schwab will continue to offer its automated investing service Schwab Intelligent Portfolios as a separate service for investors who already have a financial plan in place or have straightforward goals and want purely software-driven, automated, discretionary portfolio management without an advisory fee charged.

The launch comes less than two months after Betterment, one of the first and largest robo-advisors, said it would offer two similar hybrid plans, marking a surprising shift towards human advisors.

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