Schwab takes a minority stake in Wealth.com to scale estate planning for its mass-affluent retail clients

Estate planning can entail different things when going up and down the spectrum of assets and net worth. For high-net-worth and ultra-high-net-worth clients, estate plans often intertwine the twin goals of distributing assets the way that the client wants to and minimizing Federal and/or state estate taxes, which often entails complex trust-based plans to not only remove assets from the client's taxable estate but also set rules for when and how assets can be distributed to various beneficiaries – many of which can get rather complicated when the client wants to avoid having their entire estate distributed to their beneficiaries at once.

Going lower on the net worth spectrum, there's still a need for estate planning, but the degree of complexity needed for "mass affluent" and lower net-worth clients' estate plans is usually less than it is for HNW and UHNW clients. For many of those cases, the client's estate doesn't reach the level that exceeds their state's estate tax threshold (which ranges from $1 million to over $13 million in states that have estate taxes), much less the Federal estate tax threshold (which currently sits at $13.99 million per individual), which removes estate tax minimization as an estate planning consideration. However, those clients do still need to have some estate documents to, at a minimum, ensure that their assets pass according to their wishes and not via state intestacy laws, and sometimes to achieve other goals like designating a guardian for minor children, providing a health care directive to appoint an agent to make medical decisions on the client's behalf if they become incapacitated, or provide for beneficiaries who are disabled.

For the more complex needs of HNW and UHNW clients, estate planning is still often a high-touch service, with financial advisors and estate attorneys often working in tandem to ensure that the client's documents are properly drafted to align with their goals. However, when the client 'only' needs a simple will and health care directive, or a revocable trust to avoid probate, hiring an attorney to draft the documents can feel like overkill, and can often be cost-prohibitive enough to keep the client from taking action to get the estate documents that they need.

In recent years, as the ranks of mass-affluent have grown following a long bull market in U.S. equities, a number of technology startups have arisen to serve the needs of those clients who need estate planning documents, but who don't necessarily need to go to the trouble and expense of hiring an attorney to draft them. Services like Trust & Will, Wealth.com, Vanilla, and EncorEstate Plans have all come about with the goal of helping financial advisors scale the process of providing estate documents to their clients, backed by tens of millions of dollars in venture capital betting that advisors will see estate document preparation as an attractive value-add and flock to implement it for their clients.

In that context, it's notable that Charles Schwab has announced a deal to take a minority stake in Wealth.com, with the explicit goal of building out Schwab's own trust and estate planning services for its retail clients. Specifically, Schwab's intention appears to be to give retail clients the ability to create their own self-directed estate documents, powered by Wealth.com's technology.

The deal has the possibility to rankle some advisors who see Schwab's planned offering as further evidence of Schwab's retail brokerage arm competing against the many advisors who use its RIA custody arm for the same clients. "Mass-affluent" is a segment of clients targeted by many financial advisors, and estate planning is an example of a type of service offered by financial advisors that may convince a retail brokerage client to switch over once their financial complexity reaches the level where they don't want to handle it on their own anymore, and so when a retail brokerage starts offering estate planning services to its mass-affluent customers, that gives them one less reason and pushes out the timeline to when they might want to hire an advisor. And although there's little evidence of Schwab actively trying to break clients away from RIAs on its brokerage platform, there is at least some evidence that retail brokerages like Schwab are eating into independent RIAs' organic growth rates as they seek to offer more of the same services to retail investors that advisors offer to their clients.

But the question is whether or not estate document preparation really provides enough of a value-add to draw clients to Schwab who might have otherwise hired an advisor. The value of estate document preparation has long been a question as it relates to how financial advisors themselves use platforms like Wealth.com – because while all clients clearly need estate documents at some point, the reality is that they usually only need to be updated once every 10-15 years, meaning that at most only 5%-10% of an advisor's clients might actually make use of the service in any given year, making it hard to justify paying for a tool that will only be used for a small segment of the advisor's clients at any time. The fact that Wealth.com has signed on to offer estate document preparation for Schwab's retail clients (as Vanilla similarly did for Vanguard last year) may indeed reflect that it has struggled to gain widespread adoption among independent advisors, who don't see the value added as justifying the cost of another technology tool – and by that logic, Schwab's intention to deploy Wealth.com for its own retail clients doesn't really entail a significant threat to financial advisors, given that advisors themselves largely have opted not to offer that service themselves.

Still, Schwab's investment in Wealth.com is an indicator that there really must be a large number of mass-affluent investors on the Schwab retail platform, to the extent that Schwab is investing significantly in technology to offer them estate planning services at scale in the hopes of keeping them on the platform. The question for advisors is how many of those clients are DIY customers who aren't likely to ever hire a financial advisor, and how many could be convinced to switch over once their finances hit a certain level of complexity – and whether using a tool like Wealth.com to provide estate documents would even make sense at this point as a value add to convince those clients to sign up, given that they'll be able to use it themselves on Schwab's platform anyway?

Ben Henry-Moreland is a Senior Financial Planning Nerd at Kitces.com, where he specializes in writing and speaking on financial planning topics including tax, practice management, and technology. He also co-authors the monthly Kitces #AdvisorTech column. Drawing from his experience as a financial planner and a solo advisory firm owner, Ben is passionate about fulfilling the site’s mission of making financial advicers better and more successful. 

Michael Kitces is the Chief Financial Planning Nerd at Kitces.com, dedicated to advancing knowledge in financial planning and helping to make financial advisors better and more successful. In addition, he is the Head of Planning Strategy at Focus Partners Wealth, the co-founder of the XY Planning Network, AdvicePay, New Planner Recruiting, fpPathfinder, and FA BeanCounters, the former Practitioner Editor of the Journal of Financial Planning, the host of the Financial Advisor Success podcast, and the publisher of the popular financial planning industry blog Nerd’s Eye View.