Schwab Intelligent Portfolios Review 2017

Advisors, Investing

Schwab

Charles Schwab was one of the first major online brokerage companies to introduce a robo-advisor. In the past year, competitors have been on its heels with a series of similar offerings. But Schwab Intelligent Portfolios has managed to remain a leader of the pack, largely due to its commitment to charge no account management fees.

Schwab Intelligent Portfolios has over $10 billion in assets under management. It earns money primarily from the exchange-traded funds used in its managed portfolios — both its own funds and revenue from third-party funds — which carry expense ratios paid by investors. The robo-advisor is a solid choice for investors who can meet its $5,000 account minimum and don’t mind a portfolio that has a fairly high allocation toward cash.


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Quick Facts

  • Management fee: $0
  • Account minimum: $5,000
Get started on its secure site

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Management Fee
0.25%
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Account Minimum
$0
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Promotion
Up to 1 year
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of free management with a qualifying deposit
Management Fee
0.25%
0.25%
Account Minimum
$500
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Promotion
$15,000
$15,000
amount of assets managed with no fee
Management Fee
0.40%
0.40%
Account Minimum
$0
$0
Promotion
$50
$50
cash bonus with deposit of at least $1,000 in first 30 days

Schwab Intelligent Portfolios is best for:

  • Beginner investors.
  • IRA investors.
  • Investors who want to trade a wide range of asset classes and exchange traded funds.
  • Investors who don’t want to pay additional advisory fees, commissions or account service fees.
  • Those who prefer an established, well-known company.

Schwab Intelligent Portfolios at a glance

Overall

Account management feeNo management fee
Investment expense ratiosWeighted average ranges:
  • 0.07% for a conservative portfolio.
  • 0.16% for a moderate portfolio.
  • 0.21% for aggressive.
PortfolioBuilt from up to 53 ETFs covering up to 20 asset classes, but heavy cash drag.
Account minimum$5,000
Account fees (annual, transfer, closing)$0
Accounts supported
  • Traditional, Roth and rollover IRAs.
  • Individual and joint non-retirement accounts.
  • Custodial accounts and trusts.
Tax strategyFree on accounts with a $50,000 minimum balance
Automatic rebalancingYes
Customer supportPhone and live chat support 24/7

Where Schwab Intelligent Portfolios shines

Free management: Schwab charges no management fees, commissions or account fees on Intelligent Portfolios accounts. Customers will pay expense ratios on the investments used — many of which are Schwab funds, so this isn’t exactly a case of charity. But even factoring those in, the service is a value. Based on the initial portfolio allocations recommended for investors, Schwab reports that the weighted average expenses at the individual portfolio levels are:

  • Conservative portfolio: 0.07%.
  • Moderate-risk portfolio: 0.16%.
  • Aggressive portfolio: 0.21%.

Even the most expensive aggressive portfolio compares favorably with offerings at other robo-advisors that charge a management fee in addition to investment expenses.

Investment scope: Schwab Intelligent Portfolios’ robust lineup of 53 ETFs covering 20 asset classes befits a financial services veteran. The array of what’s available — stocks, bonds, emerging markets, real estate investment trusts and commodities — outshines the startup competition. Betterment, for example, offers 12 asset classes and Wealthfront has 11. That wide variety enables a high level of diversification in Schwab’s portfolios.

Ability to customize: Like other automatic advisory services, Schwab cooks up a customized portfolio based on the answers to questions that get at an investor’s goals, time horizon and risk profile. But instead of having to accept Schwab’s model portfolio as is, investors can tweak the allocation by picking up to three ETFs to remove and replace with an alternative investment of Schwab’s choosing. For example, if you don’t like the foreign-market ETF chosen for your portfolio, Schwab’s diss-this-ETF feature (our name for it, not theirs) lets you punt it from your portfolio.

Goal tracking: Saving for a far-off, high-dollar goal requires discipline and patience. While progress can be slow, it’s nice to be able to track it. Schwab Intelligent Portfolios’ Goal Tracker feature provides a daily snapshot of how your portfolio is tracking against a savings or income goal.

Goal Tracker uses sophisticated Monte Carlo simulations, which calculate multiple random return scenarios. It then reports if, at your current rate of savings and returns, you are:

  • On target, which Schwab defines as having a better than 50% chance of reaching your savings goal.
  • At risk, between a 25% and 50% chance of reaching your goal.
  • Off target, less than a 25% chance of hitting your goal.

It then suggests adjustments that could improve your likelihood of long-term success, such as increasing monthly contributions, making a one-time contribution or adjusting your risk profile.

Scwab Goal Tracker

Goal Tracker is a particularly valuable monitoring tool for investors who are past the wealth building stage and are — or will soon be — drawing income from their investments, something that has huge short- and long-term lifestyle consequences.

Goal Tracker monitors how your withdrawal targets are affecting future income-stream projections so you can make quick adjustments to have a better chance of achieving a happily-ever-after retirement.

Where Schwab Intelligent Portfolios falls short

Large cash position in portfolios: The biggest criticism of Schwab Intelligent Portfolios’ strategy is that it allocates a good percentage of money to cash — a minimum of 6% all the way up to 29.4% of total portfolio holdings. That cash is swept into a deposit account and earns interest based on the nationwide average money market rates for accounts at the $10,000 level published on RateWatch.

This bent toward cash can lead to portfolio asset allocations that are overly conservative for some investors. In Schwab’s own examples of allocation for a 30-year-old aggressive investor saving for retirement, the cash position it recommends is 6.9%.

There are two issues with this:

  • When cash sits idle without the chance of being put to work in the market, it creates a “cash drag.” Overall portfolio returns get dragged down by the single-digit return of money sitting in cash. Schwab disagrees, and outlines the reasoning behind its cash allocation in an October 2016 blog post, which is worth a read.
  • Schwab makes money off your cash. The money is held in an FDIC-insured Charles Schwab Bank account. Schwab uses it to generate revenue based on the spread — the difference between the interest you earn in the account and what Schwab can earn by lending it out or investing it elsewhere.

Sitting on do-nothing cash may be good for investors who aren’t disciplined about deploying their cash reserves, especially when the market is in a down cycle. But those who have other plans for their cash and who are paying for a completely invested portfolio service may be turned off by this unavoidable cash allocation.

Limited tax-loss strategy: Tax-loss harvesting is one of the selling points of having a robo-advisor manage your portfolio. It’s a complicated task of selling, and one that most investors would gladly cede to someone with more experience. However, Schwab Intelligent Portfolios does tax-loss harvesting only for clients with a minimum of $50,000 in their taxable account. This requirement takes an attractive feature off the table for many customers, who can get tax-loss harvesting at several other robo-advisors.

Is Schwab Intelligent Portfolios right for you?

At first look, Schwab Intelligent Portfolios seems in line with many other robo-advisors, but the company’s size and experience give it a leg up. If you’re looking for an online advisor to manage your investment accounts, Schwab’s investment selection, level of customization and free management are winners.

Schwab Intelligent Portfolios is not without its downsides. We’re not fans of the high cash allocation and high account minimum for tax-loss harvesting. But it’s well worth a look for investors who feel most comfortable having a trusted big brand manage their money.

Dayana Yochim is a staff writer at NerdWallet, a personal finance website. Email: dyochim@nerdwallet.com. Twitter: @dayanayochim.

Updated Jan. 3, 2017.