On November 25, 2019, Charles Schwab announced a buyout of TD Ameritrade’s online brokerage. The transaction itself is expected to close in the second half of 2020, and in the meantime, the two firms will operate autonomously. Schwab expects the merger of its platforms and services to take place within three years of the close of the deal.
Charles Schwab launched its Intelligent Portfolios offering in 2015 and made a splash with its zero-fee advisory service with a minimum investment of $5,000. Earlier this year, the firm launched a premium service that allows its customers unlimited access to one-on-one guidance from a certified financial planner who can produce a personalized action plan for a setup fee of $300 plus a monthly fee of $30. The minimum investment for the premium service is $25,000. This review and our rating focus on the standard offering, but we will cover some of the attributes of the premium product as well.
Schwab’s service sets up a portfolio chosen from 53 exchange traded funds (ETFs) across 20 asset classes, including commodities. Few of the other robo-advisories offer access to a commodity ETF. Part of your portfolio, usually 8% to 10%, remains in cash, which is one of the ways Schwab earns money while charging no management fee. The company’s other sources of revenue are management fees earned on the Schwab ETFs held in the portfolio and the market centers executing ETF trade orders.
The standard account gives you access to investing professionals, although not a dedicated planner. Your portfolio is monitored daily and rebalanced as needed to account for any drift from the ideal asset allocation. Schwab’s offering is solid, although there isn’t the level of goal planning help you would receive at some of the other services, such as Wealthfront, unless you sign up for the premium account.
No management fees
The platform includes a very easy-to-use website and app
A standard accountholder can switch to the premium level once the account minimum has been attained
Schwab’s education offerings and library of resources are available to Intelligent Portfolio clients
The portfolio is not revealed until the account is funded, and it is not customizable
The platform requires higher-than-average cash balances
Portfolio contents focus on Schwab-managed ETFs, which do generate fees for Schwab
Little goal-planning help available
Aside from this Charles Schwab Intelligent Portfolios robo-advisor review, we've also reviewed Charles Schwab's traditional brokerage services.
Opening an account takes you first to a text-heavy page that contains a lot of disclaimers. Most other advisory services save the fine print until you’re further into the process and a bit more committed. You’re taken through a short questionnaire that asks about how much you’d like to deposit initially and your attitude toward risk. If you’re already a Schwab customer, you can easily move cash from one of your accounts into the new advisory service.
You can open standard taxable accounts as well as individual retirement accounts (IRAs). You can also open trust accounts and accounts for minors. Few of the robo-advisories allow clients to open a uniform gift to minors accounts (UGMA), so Schwab has an advantage here for parents or guardians looking to make a financial gift to their children while also ensuring it is prudently invested.
After you complete the questionnaire, you’re shown your potential asset allocation, but not the actual ETFs that will comprise your portfolio. Moreover, there are no customization options beyond adjusting your risk measure. Schwab recommends retaking the questionnaire on an annual basis to ensure your portfolio matches your goals, risk tolerance, and investment time horizon.
One issue with a platform asking you to put a lot of trust in the portfolio it composes is that there aren’t a lot of goal-setting tools available besides a limited college expense lookup. However, once you’ve defined your own goal, the what-if analysis capabilities let you stress test the plan by changing your retirement age or monthly savings. You can also look at the potential impact of changes in market returns. The dashboard built into the website and mobile app gives you a quick look at your performance to date.
There are additional goal-setting capabilities for the premium product, including unlimited access to financial planners. It would be nice to see a more robust set of options for all accounts that goes beyond the basics. The analysis capabilities and tools suggest that the logic is already there to allow interested clients to provide more detail and get a better-targeted portfolio.
Charles Schwab Intelligent Portfolios offers some interesting account services. Tax-loss harvesting is available for clients with more than $50,000 in their Intelligent Portfolios account, and they must enroll in the service to enable it. The tax-loss harvesting is done by the algorithm in conjunction with the regular portfolio rebalancing. Basically the program identifies securities to sell at a loss and replace with similar securities that fit the same portfolio requirement. The program is designed to conform to the wash-sales rules.
Schwab clients can also have a cash management account, which offers checking and debit cards. It is worth noting that there is no margin available, and you cannot borrow against your portfolio. The interest paid on cash is 0.7%. If you’d like to trade individual stocks or ETFs, you can open a separate brokerage account.
Charles Schwab Intelligent Portfolios are made up of ETFs, the majority of which are managed by Schwab. Schwab does not offer a socially responsible portfolio option or any other customization beyond matching a portfolio to your risk tolerance and stated goals. The interesting thing about Intelligent Portfolios is that the asset classes reach beyond stocks and bonds and into real estate investment trusts, high yield corporate bonds and precious metals. The inclusion of these riskier asset classes actually improves the true market diversification of the Intelligent Portfolios.
As mentioned in account services, the Intelligent Portfolios are rebalanced by an algorithm that takes tax implications into account. A portfolio rebalance is triggered whenever the asset allocation drifts from its defined allocation. This could happen at any time depending on deposits, withdrawals and market activity. Accounts are monitored daily for drift.
All of the features found on the desktop are enabled on the mobile device. The layout uses tiles on a mobile phone, and the tablet version appears very similar to the desktop site. The visuals are obvious and polished, making it easy for investors to do a quick check-in with their money and the performance with a minimum of searching.
Once you’re past that first text-heavy page, the workflow is smooth, and the steps to follow are logically organized. There are visualizations to help summarize your portfolio and clear, clean menus to move you through any actions you wish to take.
There is online chat available and you can make an appointment to talk to a financial advisor at any time for a quick one-on-one. Clients of the premium product have additional access to financial advisors. Technical support is available 24/7.
Education & Security
As expected from an established player, Schwab has robust resources and security. Intelligent Portfolio customers can take advantage of the wide variety of content available, which includes videos, online articles, podcasts (Choiceology and Financial Decoder), OnInvesting magazine, live webcasts and special events, market updates, and the Investing Insights blog. Users can log into mobile apps with a fingerprint or face ID, and the website uses high security.
Commissions & Fees
Fees are, of course, one area where Charles Schwab Intelligent Portfolio shines.
- Monthly cost to manage a $5,000 portfolio: $0 (Premium not available)
- Monthly cost to manage a $25,000 portfolio: $0 (Premium $30/month plus $300 setup)
- Monthly cost to manage a $100,000 portfolio: $0 (Premium $30/month plus $300 setup)
Obviously Schwab is able to eliminate fees because there will be some in the ETFs they offer. However, like all ETF fees, these are relatively minor and Schwab's ETFs hold up well to the rest of the industry. Some will argue that this is a less transparent way of charging fees, but it is definitely a clear differentiator for Schwab regardless.
Is Schwab Intelligent Portfolios a Good Fit for You?
If you’re extremely cost-conscious and allergic to paying management fees, the free all-digital advisory service offered using the standard plan is a solid offering. Also, if you’re already a Schwab client, getting started is extremely simple. Essentially Schwab is offering a portfolio that you can invest in and forget about for most of the year. They will take care of the reallocation, the tax maneuvering and everything else.
Of course, they also set the portfolio for you and your influence is limited to the survey. That said, if you want a fully customizable portfolio with the option to add your chosen stocks, then you will probably need to look outside the robo-advisories and be prepared to pony up for more fees.
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