The Bottom Line: Intelligent Portfolios is unique in charging no management fee, but the advisor's portfolios tend to hold a larger cash allocation than other robo-advisors.
Schwab Intelligent Portfolios
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Pros & Cons
No management fee
Wide ETF selection
$5,000 account minimum
High cash allocation: minimum of 6% cash in all portfolios
Tax-loss harvesting only available on $50,000 or more
Compare to Other Robo-Advisors
Charles Schwab has the investing space covered. At one end of the spectrum is Schwab's online brokerage for the DIY investor. At the other end, its two-tiered robo-advisor business: Schwab Intelligent Portfolios, which requires a $5,000 minimum investment and charges no advisory fee, and Schwab Intelligent Portfolios Premium, which offers unlimited access to certified financial planners for a $25,000 minimum balance and $30 monthly fee. The premium offering also charges a $300 one-time planning fee.
Schwab Intelligent Portfolios is best for:
Access to certified financial planners.
High account balances.
Where Schwab Intelligent Portfolios shines
Free management: Schwab's base service, Schwab Intelligent Portfolios, charges no management fees, commissions or account fees. This is rare among robo-advisors, who make the bulk of their money from management fees. However, it isn't exactly a case of charity — customers still pay the expense ratios on the investments used in their portfolios, and many of those are Schwab funds. But even factoring those in, Schwab Intelligent Portfolios is a value.
Based on the initial portfolio allocations recommended for investors (factoring in risk tolerance and goals), Schwab reports that 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%.
The "aggressive" portfolio is slightly more expensive than with many other robo-advisors, but Schwab Intelligent Portfolios compares favorably when considering the overall fee picture.
Flat fee for Schwab Intelligent Portfolios Premium: The aforementioned free management goes away if you opt for Schwab Intelligent Portfolios Premium, the company's hybrid advisor that offers the portfolio options outlined above alongside unlimited one-on-one access to certified financial planners. That service costs $30 a month (billed as $90 quarterly) and requires a balance of $25,000 or more. It also charges a one-time $300 planning fee.
Most robo-advisors — and human financial advisors — charge an annual fee calculated as a percentage of assets under management. To compare costs, it's important to look at how much Schwab's flat fee costs as a percentage of your balance. Like most flat fees, Schwab's pricing is ideal for investors with higher balances, which seem to be the target of the service.
Here's the percentage of assets under management you'll pay for Schwab Intelligent Portfolios Premium at sample portfolio balances:
$30/month as a percentage of assets per year
For context, compare these numbers to the 0.30% charged by Vanguard Personal Advisor Services, the 0.40% fee for Betterment Premium — Betterment's hybrid offering that also offers unlimited phone access to financial planners — and the 0.89% charged by Personal Capital.
As you can see, investors who deposit Schwab Intelligent Portfolios Premium's minimum of $25,000 will get burned, while those who exceed $125,000 will enjoy very competitive costs when compared to other services. It gets almost unheard-of cheap as account balances climb into the high six figures.
That flat fee also comes with a lot of value in the form of access to certified financial planners. A lot of people will happily dole out financial advice, but quality matters — these advisors have specialized training and must abide by a code of ethics. Clients who opt into the premium service also receive a written financial plan, and get access to interactive planning tools where they can update assumptions and change their plans.
Investment scope: Schwab handily delivers on the diversification promise. It draws from 53 exchange-traded funds, or ETFs, which enables it to offer exposure to over 20 asset classes.
Schwab Intelligent Portfolios supports both taxable and retirement accounts, which sets it apart from others. Customers may also roll over a 401(k) or IRA to the robo-advisor.
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. Investors can tweak the allocation in Schwab's recommended model by picking as many as 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 feature lets you punt it from your portfolio, in favor of another from the list.
Customers can have as many as 10 different types of Intelligent Portfolios accounts (so long as there's $5,000 in all accounts combined), customizing each with a different goal and strategies.
Goal tracking: Speaking of goals, 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
One-time planning fee for premium service: Schwab is the only online advisor we review that charges an upfront fee when opening a Schwab Intelligent Portfolios Premium account, which it calls a "one-time planning fee." It's a steep $300, and should be factored in when you compare the cost of services.
Revisiting the table above, that extra $300 nearly doubles the cost of Schwab's premium service for the first year:
$30/month + $300 as a percentage of assets in first year
Note that this fee is only applied to premium accounts; it does not apply to basic Schwab Intelligent Portfolios accounts.
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 from 6% to 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 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. What's more, the annual percentage yield Schwab currently pays on cash allocations is lower than you would get in a savings (or money market account) at many banks or credit unions.
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 who opt into the feature and have 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?
Schwab Intelligent Portfolios has all the characteristics of an ideal robo-advisor: The company has a strong reputation, it has some of the lowest-cost ETFs on the market (its own) and offers all this with an ongoing $0 management fee. Investors who have $25,000 or more and want access to certified financial planners can upgrade to Schwab Intelligent Portfolios Premium for $30 a month and a one-time $300 planning fee.
We’re not fans of the high cash allocation, especially for younger investors, and the one-time planning fee for premium is tough to swallow. We'd also like to see tax-loss harvesting made available for any customers with taxable accounts. But Schwab is a solid choice for savers taking their first foray into robo-advisor managed accounts. Low-balance investors may want to stick with the basic service, then consider premium when their balance tops $125,000.