Schwab’s Intelligent Portfolios: Our Take

March 26, 2015

Automated investing platforms, or so-called robo-advisors, have received a lot of attention in the media recently. With their streamlined portfolios of exchange-traded funds (ETFs), computer generated models, slick end-user interfaces, and lower fees, many see them as the answer for the next generation of investors.

Recently, Charles Schwab had announced that they were joining the herd with a new offering for retail clients called Schwab Intelligent Portfolios. Similar to others, the software creates a “customized” portfolio from a set of ETFs after the client answers a short 12-step questionnaire. Although marketed as being “free,” investors will pay small annual fees (expense ratios) for each ETF within their portfolio, and must keep a percentage of their portfolio in cash (6-30% depending on the portfolio). Other than that, there are no other account servicing, trading commissions or custody fees.

We at Summit Place love embracing any new technology that is helpful to our industry and clients. We think this new offering will be incredibly helpful in making investing easier to understand, and more accessible for some investors. However, we also believe that there is no computerized substitute for a thoughtful professional advisor. We know from experience that talking with an investor is the only true way to fully determine their comfort and knowledge of the markets.  On paper a younger person may have a long time horizon and the ability to accept a very risky portfolio. However, a personal conversation is the only way you truly uncover their comfort level with market volatility and more complex investments.

This week Schwab announced that they will be opening up this new technology for the advisors in their network, of which Summit Place is a member. Unique to this version will be the advisor’s ability to create truly customized portfolios for each client from their selection of over 200 ETFs in 48 asset classes. It will also allow us to quickly rebalance the portfolio, adjust it as needs arise, and eliminate trade commission fees. Potentially, for some clients this service could be a great marriage of the technology we love, with the personal approach that we hold most dear.

The service will be released to advisors this summer. We look forward to reviewing it, kicking the tires, and seeing if it makes sense for some of our clients.

-Pearce Wegener