Schwab Intelligent Portfolios Premium Feature Review: $30 a Month For Unlimited CFP Access

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Schwab has revamped their Intelligent Portfolios “robo-advisor” service, renaming the upper tier to Schwab Intelligent Portfolios Premium and adding an in-depth financial plan and unlimited advice from a Certified Financial Planner for an additional upfront fee of $300 plus an ongoing $30 a month. Bloomberg compares this to a Netflix subscription:

Current users won’t have to pay the $300 fee, and they’ll be transitioned to the new pricing model as early as Thursday, but only once they have enough assets to make it more cost-efficient for them, at around the $125,000 level. The free version of the service, Schwab Intelligent Portfolios, which automatically builds and rebalances exchange-traded fund portfolios as well as offering more limited guidance, will continue charging no advisory fee.

Feature comparison. The base Intelligent Portfolios product including the following features:

  • Design and choose an appropriate asset allocation.
  • Construct and maintain (rebalance) portfolio using ETFs.
  • Tax-loss harvesting.
  • No advisory fee*.
  • No commissions.
  • $5,000 minimum balance.

* You might see this referred to as a “free” (as it is by Bloomberg above) in that it charges no advisory fee on top of the underlying fees of the portfolio components. I’ll argue below that is it not really “free”.

Schwab Intelligent Portfolios Premium adds the following:

  • Unlimited 1:1 guidance from a Certified Financial Planner (CFP).
  • Personalized Action Plan and portfolio review with a CFP® professional.
  • One-time $300 initial planning fee and $30/month for unlimited guidance.
  • $25,000 minimum balance.

I agree that is a big shift in the portfolio management industry. A major player now offers unlimited access to a CFP for a flat fee of $30/month. CFP access is becoming a commodity. If you pay $15 a month for Netflix and $50 a month for unlimited cell phone data, why not pony up $30 a month for unlimited financial advice? I have pointed out previously that an overlooked feature of Blooom 401k advisory services was that they include unlimited CFP access in their $10/month fee.

I really like the idea of paying a flat fee instead of an asset-based fee for financial advice. I think this move from a big name like Schwab will attract some large portfolios from DIY investors. If you had a $500,000 portfolio, this would only be 0.07% of assets annually. I really hope Vanguard comes out with a flat-fee pricing option while still keeping their ability to work with your existing portfolio. Most robo-advisors, including Schwab Intelligent Portfolios, make you sell out of all your current positions and rebuy using their model portfolios. I have a lot of capital gains already such that selling would cause tax issues.

Schwab Intelligent Portfolios still has the same “catch” in their fine print, however. Every Schwab Intelligent Portfolios client is forced to hold a cash position of about 8% of the total portfolio in cash. More importantly, you also don’t have a choice in how they define “cash”. Here’s the fine print:

The portfolios include a cash allocation to a deposit account at Schwab Bank. Our affiliated bank earns income on the deposits, and earns more the larger the cash allocation is. The lower the interest rate Schwab Bank pays on the cash, the lower the yield. Some cash alternatives outside of Schwab Intelligent Portfolios Solutions pay a higher yield.

My primary concern is NOT that holding 8% cash is bad. It’s that the Schwab cash component that they force you to use is bad. As of 3/31/19, Schwab cash pays only 0.70% APY while the Vanguard Prime Money Market fund earns 2.46% SEC yield and a one-month Treasury Bill has a 2.43% yield. This gap may narrow or widen in the future.

If you assume a 1.50% drag on a 8% cash allocation, that’s the equivalent paying a 0.12% fee because you are losing that much in potential interest. As you grow older and/or become more conservative, the cash allocation grows as well. It is a guaranteed profit source for Schwab, and thus a guaranteed loss for you (not free!). This loss is not “cash drag”. If you wanted to argue that the return on cash is worse than a bond fund, “cash drag” would be an additional cost on top of this issue.

This is the equivalent of them making you hold an S&P 500 ETF with a 1.50% expense ratio instead of an equally-available S&P 500 ETF with an 0.03% expense ratio. People would be up in arms about that, so why not put up a fuss about this? The net fee may be still be a reasonable size, but this is not the type of behavior I am looking for in a service that I am supposed to entrust with my life savings. Just be upfront and charge me a fee. If Schwab replaces their cash component with a competitive money market fund or a simple allocation to Treasury Bills (make your own ETF, Schwab!) then I would get much more excited about this product.

Bottom line. Schwab is adding the ability to get unlimited human advice from a Certified Financial Planner (CFP) for $300 upfront + a flat $30 a month. I think this is a bold move that will affect the overall industry, but I still have concerns about their overall robo-advisor product that includes a low-interest cash component.

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    My concern is what is the experience & proven competency level of the CFP’s. I suspect it will be populated by “new” CFP’s as most experienced staff have found more financially rewarding areas to pursue.
    The old adage “you get what you pay for” may aply.
    Please comment.

    • That is probably a valid concern, but the question is what kind of service are you looking for? What kind of questions are you likely to ask? Are you looking for someone to talk to you all the time, learn your kids names and see at social events? Someone to design and manage a complex tax shelter? A good stockpicker? Or are you just wanting someone to have an overview of your portfolio and to get some feedback to specific questions? Someone to make sure your decisions are reasonable and provide additional guidance and direction? The purpose of a CFP is to provide a baseline standard of financial knowledge. I think such a service is an important niche that shouldn’t cost thousands of dollars per year.

      • Great response Jonathan. An “older” won’t have some sort of magical investment ideas that a “newer” CFP will.

        • To be clear, I’m sure that not all financial planners have the exact same knowledge level or interpersonal skills. At the same time, I think that the CFP designation has been working hard to create a common baseline level of knowledge that can guide the average investor through many common situations for a reasonable fee. Instead “you get what you pay for” (which is often not the case in the financial industry!), I would rephrase it was “What exactly do you want? Are you paying a reasonable fee for that?”

          For what I want, I think that paying 1% of my assets is too much. (1% would be $5,000 per year on a $500,000 portfolio, $10,000 per year on $1 million portfolio, and $20,000 per year on a $2 million portfolio.) A flat fee is much more preferable.

      • BRENT RUFENACHT says

        Thanks for the valid comments

  2. John Sanders says

    In addition to the cash spread that Schwab will make money on, they are also certainly going to require use of Schwab ETFs. They will be cashing in on the expense ratio of those too. Hard to call someone a fiduciary if they are mandated to use proprietary funds.

  3. The problem I have with these programs is that they provide no real world examples of the results. Would you buy a mutual fund without any idea of what it’s return is? The company doesn’t tell you, independent reviewers can’t tell you. It’s bad investing.

  4. Other than helping me figure out an allocation in the robo/SIP account, what will the advisor really be doing? I guess they’d help me figure out when to go more or less aggressive/conservative, but once you have the allocation set, the whole purpose of roboadvisors is to manage the assets by rebalancing at a algorithm-controlled threshold. And I really do have the cash drag. Schwab has SWVXX, their Value Advantage Money Fund that mid last year was paying 2.3%. Of course, it’s a lot less now, but still. I asked them why they can’t deploy that as their cash holding asset and the response I got was “because it’s a mutual fund and we’d have to sell shares and wait until the next day to trade.” That was about the most lame thing they could’ve said. Disclaimer: I have $250K in a taxable SIP account and have been pleased with the performance, other than the cash aspect.

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