Schwab hybrid robo sees early success with subscription pricing

Backend Benchmarking's latest Robo Report also had positive news for robos offering SRI portfolios

Aug 19, 2019 @ 4:41 pm

By Ryan W. Neal

Charles Schwab is seeing positive early results on the new subscription pricing model for its Intelligent Portfolios Premium digital advice product.

According to Backend Benchmarking's latest report on robo-advisers, Schwab's hybrid model, which combines automated investing with unlimited guidance and financial planning from a human certified financial planner, attracted $1 billion in the second quarter of 2019. Thirty-seven percent of that came from clients who were new to the firm.

In March, Schwab announced that it was changing the pricing on its hybrid robo from a 28-basis-point fee on assets under management to a flat $30 monthly fee (as well as a $300 upfront fee for new customers). Schwab still offers a free version of the product, Schwab Intelligent Portfolios, that provides limited guidance from human advisers.

[Recommended video: Joe Duran calls Schwab's move one of the most important this year]

"We've seen many new clients sign up who knew they needed help with financial planning but hadn't found an advisory model that fit them — either because they prefer a more digital approach, are cost-conscious, or find traditional planning services overly complex," Cynthia Loh, vice president of digital advice and innovation at Charles Schwab, said in a statement. "These investors were managing their investments on their own but not necessarily by choice, so we're excited to give them a new way to get the help they need."

Many advisers saw Schwab's move as a new threat to their business model, while others predicted more industry powerhouses would soon follow suit.

While no other firms have adopted a subscription mode, the influx of assets to Schwab Intelligent Portfolios Premium shows the product is resonating with retail investors.

Merrill Lynch, which added human advisers to its Guided Investing robo in June, reportedly is considering a subscription model. Merrill did not respond to a request for comment.

The report also had positive data about robo-advisers offering socially responsible investing. The Morgan Stanley SRI and Wealthsimple SRI equity portfolios were leaders in year-to-date performance, outpacing non-SRI counterparts by 2%. Over a one-year period, the SRI strategies earned first and second place, respectively, among the equity-only portfolios Backend tracked.

TIAA SRI also performed well, beating its comparable non-SRI portfolio by 1.6% over the prior year.

"This trend of SRI portfolios outperforming comparable non-SRI portfolios was seen in a majority of the equity portions of our SRI portfolios," Ken Shapiro, president of Backend Benchmarking, wrote in the report.

[More: The best robo-advisers for different investors]

In its overall rankings, Backend awarded the title of Best Overall Robo to Fidelity Go for the second consecutive time, citing its portfolio performance, low costs and strong digital planning platform.

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