Charles Schwab quite literally offers it all. At one end of the spectrum is Schwab’s brokerage arm for the DIY investor. At the other is its advisory service that combines automated portfolio management with unlimited access to certified financial planners (for a $25,000 minimum balance). Between those two bookends is Schwab Intelligent Portfolios, offering automated investing management and personal finance guidance (with financial advisors rather than CFPs) at a lower $5,000 minimum balance requirement.
Notable in all of Schwab’s automated offerings is the firm’s $0 account management fee, compared to what most of the competition charges: 0.25% of assets under management or higher. This is in large part what earned Schwab Intelligent Portfolios a spot on NerdWallet’s 2018 Best Robo-Advisors list. But in exchange for free management, investors must be comfortable with a portfolio that has a fairly high allocation in cash, which means a chunk of a customer’s account remains uninvested at all times.
Comparable online financial advisors
Schwab Intelligent Portfolios is best for:
- Beginner investors
- IRA investors
- Free management
- Low account fees
Schwab Intelligent Portfolios at a glance
|Advisory fee||$0 management fee|
|Investment expense ratios||Weighted average ranges:
|Account fees (annual, transfer, closing)||$0|
|Portfolio mix||ETFs covering 20 asset classes|
|Tax strategy||Free on accounts with a $50,000 minimum balance|
|Customer support options||Phone 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. This isn’t exactly a case of charity, since customers still pay the expense ratios on the investments used and many of those are Schwab funds. But even factoring those in, the service is a value.
Based on the initial portfolio allocations recommended for investors, Schwab reports that as of October 2017 the weighted average operating expense ratios at the individual portfolio levels are:
- Conservative portfolio: 0.06%
- Moderate-risk portfolio: 0.15%
- Aggressive portfolio: 0.20%
Even the most expensive “aggressive” portfolio compares favorably with the management fee at other robo-advisors — which at those providers is charged in addition to the fees from those expense ratios.
Investment scope: Schwab handily delivers on the diversification promise. It draws from 53 ETFs which enables it to offer exposure to more than 20 asset classes.
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.
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 nearly 30% of total portfolio holdings, the latter of which makes sense for those at the conservative end of the risk spectrum. According to Schwab, most Intelligent Portfolios clients hold between 6% and 10% in cash. But even that may even be too cash-heavy for some investors.
For a 30-year-old aggressive investor saving for retirement, the cash position Schwab recommends is 6.9%. The recommended allocation is 10.5% cash allocation for a 40-year-old father with 3-year-old twins and an above-average tolerance for market fluctuations.
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 desire 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 loser investments in a taxable account to offset taxes on any gains. It’s particularly valuable for investors in the higher income tax brackets. The service is only available to clients with a minimum of $50,000 in their taxable account. Keep that in mind if it’s a must-have feature on your wish list.
Is Schwab Intelligent Portfolios right for you?
Charles Schwab’s company size and experience give its Intelligent Portfolios service a leg up on many other robo-advisors. One big plus is the firm’s access to some of the lowest-cost ETFs on the market — its own. That and the ongoing $0 management fee proposition ensure that investors keep more of their money in their own pockets. That makes a pretty powerful long-term wealth-building selling point.
We’re not fans of the high cash allocation, especially for younger investors. And we’d like to see tax-loss harvesting made available for any customers with taxable accounts. But for savers taking their first foray into robo-advisor managed accounts, Schwab is a solid choice.
Updated Jan. 11, 2018.