Charles Schwab (SCHW) to Take on Robo-Advice Startups
Charles Schwab Corp. (SCHW), the online discount broker, may have a lot of new competition from robo-advice startups, but the company isn’t losing sleep, gearing up to take them on doing what it does best: slashing costs.
That was the message from Charles Schwab Chief Executive Walt Bettinger, who laid out the company’s plans to push back new competition during a conference hosted by The Economist in New York City. The executive said the company will reduce its fees and use its brand name and financial might to keep the startup competition at bay. “While attractive, robo advisors may not be as innovative as some believe,” said Bettinger, as quoted in Robo Advice News, which covered the conference. “We will leverage our scale, which makes our moat wider and wider, and less attractive for some firms to try and disrupt us.” (Interested in trading? Read Investopedia's broker reviews.)
Robo-advisors put customers through a series of questions and then, relying on algorithms, figures out where to invest the money based on the customer's time frame and risk tolerance. While Schwab, Vanguard and others are big players in the market, there are a lot of new startups circling. According to a Morgan Stanley research note this summer covered by Business Insider, the Wall Street firm predicted the robo-advice market could hit $13 trillion by 2025. At the end of 2016, the size of the market was $100 billion, according to Morgan Stanley.
Competing on Price
While startups are emerging to shake up the financial services industry, Schwab is seen as a leader in the robo-advisory market. In 2015, the San Francisco-based broker launched its Intelligent Portfolios robo-advisory platform. At the end of last year, the business had $12.3 billion in assets, according to the San Francisco Chronicle. In March, it added more human advice to the service rolling out Schwab Intelligent Advisory in which 30 certified financial planners hold meetings via phone or video to aid customers in their investments. Charles Schwab's reviews for the services have been positive since the launches.
What sets Schwab apart from other robo-advisory services and underscores its fierce competitiveness is the pricing for the Intelligent Portfolios service. Unlike some of its rivals, it is completely free. It also poached key players in the industry—namely Cynthia Loh, previously at Betterment—to build its digital wealth management unit, reported Robo Advisor News. Betterment is one of the better-known startups in the marketplace. Schwab is confident it can keep it and others away and it may be right about that. Morgan Stanley said in its report this past summer that most robo-advisors will either merge with other startups, be bought out by the big brokers or be relegated to the sidelines. What’s more, Morgan Stanley predicted Vanguard and Schwab will control the majority of the market, not the startups.