Schwab launches adviser-facing robo service

Institutional Intelligent Portfolios compels advisers to keep at least 4% cash allocation, offers platform for 10 bps

Jun 23, 2015 @ 2:00 pm

By Alessandra Malito

Charles Schwab & Co. launched a second version of its automated investment service on Tuesday, this time a robo platform for advisers to implement within their own practices.

It's been less than four months since the custodian debuted Schwab Intelligent Portfolios, the online investment platform targeting retail investors. The adviser-facing version, called Institutional Intelligent Portfolios, offers a customizable platform for advisers to create portfolios for their clients using more than 450 exchange-traded funds across 28 asset classes.

Advisers with less than $100 million in assets under management with the custodian outside of the Institutional Intelligent Portfolios program will be charged 10 basis points to use the platform, while those that manage more than $100 million will be able to use the platform for free. Investors will not be charged account-service fees, trading commissions or custody fees.

"This will change how things are done," said Bernie Clark, executive vice president of Schwab Advisor Services. "We built [Institutional Intelligent Portfolios] on top of what we built for individual clients and increased functionality.

"Advisers are irreplaceable in the equation because of their planning and advice," he added.

With Institutional Intelligent Portfolios, advisers will have the ability to access technology-enabled investment strategies for their clients, he said.

The retail version of Schwab's robo has gained traction in the industry since its March launch. Within a month of that debut, it accumulated half a billion dollars in assets under management and as of Tuesday was managing about $2.9 billion.

Mr. Clark said the institutional robo-adviser platform will elicit interest from across the industry, including from advisers wanting to manage assets for their high-net-worth clients' family members and friends as well.

The platform will be customizable for advisers, who can use it to create their own investment strategies and add their own logos to the interface.

Advisers will have to adhere to a 4% cash allocation requirement, however. It's less than retail Intelligent Portfolios customers must allocate to cash — which ranges from 6% at a minimum to a maximum of 30% cash — that caused a stir in March, when the free consumer version of the robo-adviser came out. Competitors such as Wealthfront and advisers argued that forcing investors to hold so much cash was a sneaky way to make money off of consumers that carried a missed-opportunity cost. Schwab stood by its requirement, saying cash was and always has been a good stabilizer.

The competition is still critical of the custodian's robo endeavors. That said, other robo-advisers are hoping that a rising tide lifts all boats. Schwab's marketing muscle is sure to raise the profile of automated investment services.

"Much like their initial launch had on our retail product, I'm confident that their entrance into the RIA [registered investment adviser] market will further accelerate the growth of our institutional product," said Nick Gavronsky, the head of product at Betterment Institutional, in an email.

The number of digital offerings for advisers is quickly growing, giving advisers far more options than ever before.

"It's a trend you'll see momentum behind," said Matt Fronczke, an analyst and engagement manager at kasina.

"The core business model is to service consumers rather than advise, so you are seeing these robo services being provided as tools to more efficiently implement but also deliver services," he said.


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