Schwab Intelligent Portfolios: Free Automated ETF Portfolio Manager

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(Update 10/28: Schwab has indeed announced their free robo-advisory platform called Schwab Intelligent Portfolios, although it won’t actually start opening new accounts until Q1 2015 and not much new was leaked besides confirming that they will not charge any advisory fees, trading fees, or account fees. You’ll need $5,000 minimum to open, $50k minimum for tax-loss harvesting. Media coverage at Reuters, NYT.)

Original post below:

Speaking of robo-advisors, Reuters reports that discount brokerage Schwab is “weeks away” from announcing their own automated online portfolio management service similar to what is provided by Betterment, Wealthfront, and FutureAdvisor. This is big news because:

  • Schwab is a well-recognized name brand in the financial industry and has their own army of affiliated financial advisors.
  • This service will reportedly be free with no advisory fees, just the cost of underlying ETFs.
  • Schwab has their own set of in-house index ETFs with very low fees. Their Core US Index ETF (SCHB) has an annual expense ratio of 0.04%. Their Core International Index ETF (SCHF) charges 0.08%. Their Core US Bond Index ETF (SCHZ) charges 0.06%, and US REIT Index ETF (SCHH) charges 0.07%. (full list)

Theoretically, this could mean you could get a managed ETF portfolio with automatic rebalancing for safely under 0.10% annually or 10 basis points, all-in. If that happens, that would certainly shake up the industry and perhaps light a fire under Vanguard to do something similar. Hopefully they don’t force you to own some of their more expensive niche ETFs. Vanguard Target Retirement Funds offer a diversified portfolio of index funds and internal rebalancing, but the average cost is 0.17% annually.

If the article is correct, it may be worth waiting to see what Schwab has to offer before opening a “robo-advisor” account elsewhere.

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  1. I got a call from Schwab about this earlier this week. I filled out one of their surveys with a ton of feedback, much around the lack of an automated asset allocation product. They told me to expect something by the end of the year.

    I’m hopeful, but it’s very likely Schwab will screw this up… They currently don’t even recognize REITs as an asset class in any of their cookie cutter asset allocations. I’m also a little worried that with the “management” being free that may mean the underlying funds won’t be the low cost index ETFs which are the reason I joined up with Schwab.

    My wish list:

    1. The ability to create your own asset allocation for each account. (Not cookie cutter, “Schwab defined” targets)

    2. A choice of which asset classes to include. (e.g. REITs, Emerging market bonds, micro-caps, commodities, timber, etc.) Not everyone wants corporate bonds for example. David Swensen of Yale fame advises against them in his asset allocation model.

    3. The ability to dump money into an account and have it automatically rebalance to targets among the various funds.

    4. Automatic rebalancing when things get out of whack.

    5. The ability to have different asset allocation models for taxable vs. tax exempt. (e.g. Your TIPS and REITS should primarily be in tax exempt accounts.)

    6. Tax Loss harvesting would be nice. (Though as you pointed out in an earlier article, not as beneficial as they make it out to be.)

    I doubt they’ll have Tax-Loss harvesting as they would need to buy a similar investment product (from a competitor). While the end investor doesn’t really care if they own the Vanguard Total Market Index or the Schwab Broad Market Index, Schwab would never sell out of there product to put you in Vanguard to save you taxes…

    I’m also hesitant to think Schwab will make this at all user friendly. Their website is one of the most cumbersome I’ve used. It is very illogical. I can only hope they bought someone who knows how to create a user experience and that it is a separate site.

    All that said, was planning to move everything to Wealthfront or Betterment before the end of the year. I’ll wait and see now.

  2. What about Etrade’s Online Portfolio Advisor, has anyone used this or rated it? It appears to offer similar features and functions as these other robo-investment services. They will offer a target asset allocation, you can adjust to your liking and then re-adjust on your own terms. I like the idea of reminding myself to do this every quarter or twice a year. Their “managed portfolio” version is a little steep, .90% for the first $100K. A big concern for anyone should be how do they provide tax statements and will that be big paper headache and tax bill each year.

  3. I wish Schwab did something in the line of “Acorns”, not sure if you guys heard about it. It can get pretty expensive with acorns, $1 a month, 1% of cash balance. But it has the “Keep the change” idea.. Let me know what you guys think.

  4. This is quite the interesting subject and is something I was planning to write about on the blog as well– this new emerging trend of “Robo Investing”. I think is great that financial services companies are recognizing where technology is taking us and companies like Wells Fargo are jumping on the van wagon.

    While I feel that this seriously the future of investing (hasn’t almost every industry been significantly shaken up thanks to technology?!) I am still one of those people that thinks the “human touch” still needs to be involved— specially because we are talking about money management and any ‘technical glitch’ can have harmful effects.

    As much as computers and advancements in technology are awesome we cannot leave it up to them, can we? But I wouldn’t be surprised if they day comes where computers become so smart that the fear of glitches may be virtually non-existent. Not sure how long that will take though or whether it will be in our lifetime (probably?).

    Great post. Thanks for sharing.

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