In March 2017, Charles Schwab added a new investment service to its range of offerings. Schwab Intelligent Advisory is a hybrid service, combining Schwab Intelligent Portfolios (a robo-advisor) with personalized advice from a Certified Financial Planner professional. This Schwab Intelligent Advisory review below sheds some light on the critical differences between the two options.
Schwab Intelligent Portfolio
The Schwab Intelligent Portfolio is a robo-advisor that uses cutting-edge technology to build, monitor and rebalance a diversified portfolio automatically. To get started, you’ll answer a short online questionnaire (consisting of eleven questions) to determine your financial goals, preferred time horizon and risk tolerance.
Your recommended portfolio will be based on your answers to those questions. Each Individual is made up of several low-cost professionally selected ETFs, which are chosen with your savings or investment goal in mind. You can get started investing with a minimum amount of $5,000.
The account types supported are individual, joint and custodial brokerage accounts, retirement accounts (e.g., Roth IRA and Traditional IRA) and Revocable Living Trust accounts (Single Trustee and Two Trustees).
The stand-out feature of Schwab Intelligent Portfolios is its lack of advisory fee or commissions. You’d just pay the operating expenses on the ETFs in their portfolio, as you would if you were investing yourself without the technology.
Schwab Intelligent Advisory
Schwab Intelligent Advisory is a hybrid advisory service which combines the automated Intelligent Portfolios, with unlimited guidance from a Certified Financial Planner. With this service, you can schedule a video or phone consultation with one of Schwab’s Planning Consultants to receive personalized recommendations for your portfolio and an action plan to help you work towards your financial goals.
To be eligible for the Schwab Intelligent Advisory service, you’ll need to invest a minimum of $25,000, so this service is aimed at intermediate investors who have already built some wealth. You can hold assets across multiple accounts (the minimum for each one is $5,000).
As you’ll be getting professional advice with this service, there is an advisory fee which is 0.28% of your account’s assets (excluding cash). Additionally, larger portfolios of more than $1.4 million will receive a fee cap, with a limit of $900 in fees per quarter.
The Schwab Intelligent Advisory service also features an interactive, online planning tool, where you can link together your financial accounts to get a handle on whether you’re on track to meet your goals.
One point to note with the Schwab Intelligent Portfolios is that a percentage of it (between 6% and 29%) will be held in cash as opposed to being invested. The exact amount depends on your risk tolerance. According to Stockbrokers.com, the average Intelligent Portfolio account contains 8-10% cash, whereas several of Schwab’s competitors limit cash to 1-2%.
Some investors are concerned about the high cash allocation requirement that goes with an Intelligent Portfolio, believing it to be a drag on returns. However, Charles Schwab stresses that the role of cash is important in a diversified portfolio.
An investment product that rivals Schwab Intelligent Advisory is Vanguard Personal Advisor Services. With Vanguard, you’ll partner with an advisor who will help you develop a personalized financial plan to meet your goals, whether that’s saving for retirement, your kids’ college fund, or buying a home, etc. Once you’re happy with the financial plan, your Vanguard advisor will set up your portfolio based on low-cost stock and bond investments.
You can check how your portfolio is performing online and see whether you’re on track to meet your financial goals. You’ll receive a progress report every quarter, and on a regular basis, your portfolio will be rebalanced to ensure that it represents the right level of risk for you.
The main differences between the two services are:
- Fees – The Schwab Intelligent Advisory service is slightly cheaper than Vanguard Personal Advisor Services – the latter charges 0.30% on assets below $5 million.
- Minimum investment amount – you’ll need $50,000 to get started with Vanguard Personal Advisor Services – that’s $25K more than what’s required with Schwab.
- Portfolio mix – a portfolio with Vanguard’s service is comprised generally of low-cost Vanguard Funds (index funds and sometimes actively managed funds). An Intelligent Portfolio is based on low-cost
How do these two services fare when it comes to online reviews?
Individual customer reviews online are scarce, but Schwab Intelligent Advisory scores 4 / 5 on Nerdwallet, and Schwab Intelligent Portfolios scores 4.5 / 5 overall on Stockbrokers.com to give you an idea of what investing experts think.
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If you can invest at least $25,000 and would appreciate the technology of a robo-advisor but with access to personalized investment advice, then Schwab Intelligent Advisory may be a good option for you. If you can manage without the advice, it may be worth checking out Schwab Intelligent Portfolios instead, as you won’t have to pay an advisory fee.
Before you proceed, be sure to check out more information about the cash allocation in the Schwab Intelligent Portfolio and take some time to research other robo-advisors too. As a starting point, read our Betterment App Review and our article on WiseBanyon vs. Betterment.