The nation's largest online financial advice providers are shrugging off news that Charles Schwab & Co. will be launching its own free online advice platform, even as market analysts wonder if the move could spell trouble for the young companies.
Several so-called robo-advisers said the entrance of a big player like Schwab shows the strength of the budding industry, and some pointed out the benefits of their own platforms.
Jon Stein, chief executive of
Betterment, which has $935 million in client assets, said the entrance of Schwab is another indicator there's heavy demand for automated investment services.
“The attention big players are paying to the space shows they understand it's a huge opportunity and they don't want to miss out on a chunk of it,” he said.
New entrants like Schwab will draw more interest to
Betterment's services, and consumers will see the advantages of
Betterment's smarter technology — such as built-in tax-harvesting and behavioral finance strategies — to help them make better investing decisions, Mr. Stein said.
But William Trout, a senior analyst with Celent's wealth management unit, said Schwab's new product will add pressure to existing online advice providers.
“Schwab's decision to offer direct-to-consumer
portfolio management services via algorithm for free is a troubling sign for an industry already offering door-buster fees,” he said. “We may be seeing the acceleration of a race to the bottom in terms of pricing, with the end result being 'curtains' or at least
consolidation for many of today's crop of automated advisers.”
Grant Easterbrook, a Corporate Insight analyst, said he doesn't think the largest online advice start-ups will be immediately challenged by Schwab's free service because the fees
Betterment and others charge “are already pretty low.”
WiseBanyan also offers no-fee accounts, but this concept is not yet commonplace, he said.
“Investment portfolios are certainly getting commoditized, but it's going to take a lot of time and a lot more than
Charles Schwab to make no-fee ubiquitous,” Mr. Easterbrook said.
Schwab's announcement earlier this week comes shortly after several other providers and custodians announced strategies in the space.
Fidelity Investments is
collaborating with Betterment to refer client assets to its online advice platform.
And Tom Nally, president of TD Ameritrade Institutional, said his firm would be
providing access to some robo-advisers through its trading platform. He said the firm opted against developing its own robo-adviser because it did not want to confine advisers to one choice.
Bill Harris, chief executive of Personal Capital, which has $870 million in assets, said in a statement that the move by Schwab into this space is not a threat to its business.
“We offer something different,” he said. “We combine technology as well as professional advisers to help households with complex financial lives manage their wealth.”
Personal Capital announced Wednesday it's received another $50 million in funding, led by
private equity firm Corsair Capital.
Wealthfront, which has $1.5 billion in assets under management, announced Tuesday it had raised $64 million in a new round of financing.
In a blog yesterday,
Wealthfront's chief executive Adam Nash said the industry “has woken up.”
He wrote: “Soon, the large incumbents will roll out their own automated services. In fact, thanks to
Wealthfront's success, we now believe almost every investor will be using some form of automated investment service in the next five to 10 years.”
He said the customers of Charles Schwab, Fidelity and Merrill Lynch “deserve the benefits of automated services, too.”
He also pointed out that it took Schwab six years to get to $1 billion in assets, and it's only taken
Wealthfront two and a half years to attain that level.
Schwab said its new Schwab Intelligent Portfolios
will launch next quarter and aims to make low-cost web-based advice even cheaper. It will be free for investors who have at least $5,000 to invest.
Sophie Schmitt, a senior analyst with Aite Group, said Schwab will have its own challenges with its Intelligent Portfolios, which seems to be targeted at younger investors — a relatively new demographic for Schwab.
“The other challenge they have is positioning this offer alongside their more expensive managed-account solutions,” she said. “The other firms don't have to differentiate their offers from the many legacy ones.”
Mason Braswell contributed to this story.
