Charles Schwab to combine robo-advice and financial advisers in new hybrid model

Financial giant targeting mass affluent clients with inexpensive planning services

Dec 13, 2016 @ 12:52 pm

By Liz Skinner

Charles Schwab & Co. plans to target mass affluent investors with a hybrid robo model that combines advice from financial advisers with online advice.

With a $25,000 minimum, Schwab Intelligent Advisory will provide clients a customized financial plan and ongoing live advice from certified financial planners, as well as an automated portfolio at a low cost, the company said in an announcement Tuesday. It is scheduled to be offered in the first half of 2017.

“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,” said Neesha Hathi, executive vice president of Schwab Investor Services. “How they invest should be no exception.”

(More: Robos to make banks a bigger competitor in advice market)

The new unit puts the San Francisco-based custodian more in competition with Vanguard Group's Personal Advisor Services, which offers live advice along with a digital investment platform. It has $47 billion in assets, compared with Schwab's robo adviser for retail investors, which has about $10.2 billion.

The move also places Schwab more directly in competition with financial advisory firms to which it provides custodial services.

“To some firms this will create a threat,” said Mark Johannessen, managing director at Sullivan Bruyette Speros & Blayney. “But thinking about the consumer, the ability to get sound fiduciary advice down at that level, is awesome.” His firm has a $1 million investment minimum, or $10,000 minimum annual fee, for new clients.

He did question how comprehensive the planning services will be and not having someone dedicated to actively working to implement and monitor a financial plan.

“I also hope it has the flexibility to adjust with client goals,” he said.

(More: Do human advisers make clients happier than robos?)

The new offering also competes with Schwab's Institutional Intelligent Portfolios, the digital advice platform that the company sells to advisers to use with clients.

“Many of those RIAs launched SIIP specifically for investors who did not meet the firm's minimums, and now Schwab Intelligent Advisory targets those same prospective customers in the market," said financial technology expert Bill Winterberg. “RIAs should be concerned about this conflict.”

Schwab's advisers, or planning consultants as it is calling them, will guide clients on financial goals, savings, retirement planning, college savings, long-term care planning and budgeting. They will be available via phone or videoconference. The firm expects clients to have an annual check-in, but more regular check-ins can be scheduled online, the company said.

Service help will be available 24/7 via phone, chat and email, according to the Schwab release.

“The planning consultants having earned a CFP designation will lend a lot of legitimacy, though the quality of service only time and customer experiences will tell,” said Davis Janowski, a senior analyst for digital wealth management at Forrester Research.

Clients will pay 0.28% on their assets, up to $900 a quarter, Schwab said. There will be no trading commissions or account service fees. The weighted average operating expense ratio for the exchange-traded-fund portfolios are between 0.08% ( for the most conservative portfolios) and 0.24%.

(More: Standout features of 10 robos aimed at advisory firms)

Other customer-focused features include a dashboard that's available via mobile device or desktop, that will show progress towards goals, and investment performance, and recurring automatic account funding, and funding via mobile check deposit.

Mr. Janowski said if the new business is a threat to financial advisers, “it is a threat of their own making and explains the genesis of the truly automated startups in the first place.”

“Too many large firms ignore the underserved,” he said.

Schwab agrees.

“There's a real need to make financial planning and advice more accessible,” Ms. Hathi said. “Schwab Intelligent Advisory democratizes the process by making it easier and more affordable to build and maintain a plan, stay invested and access professional guidance along the way.”

Mr. Janowski said Schwab's $25,000 minimum, which is half of what Vanguard requires, is still too high for many new investors who he believes will end up at startup automated advice firms that have much lower minimums.

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