Schwab Reveals Intelligent Portfolios For Advisors
Two weeks after it launched Schwab Intelligent Portfolios, becoming the first custodian to launch an automated portfolio allocation service for retail investors, Schwab is making the technology the backbone of an account management tool for registered investment advisors.
Called Institutional Intelligent Portfolios, the so-called “robo-advisor” platform allows RIAs custodied with Schwab to open and fund new client accounts and create portfolios allocated across 200 ETFs and 28 asset classes under four broad investment strategies: Taxable accounts, IRAs, municipal bonds and income-based portfolios. Tax-loss harvesting strategies are also available for portfolios on the platform over
Advisors can customize the portfolios, and the software automatically rebalances the accounts and imports performance data into a client-facing web portal and mobile app, which RIA firms can brand with their firm’s name, logo and contact information.
Like other robo-advisors, Schwab said automating the investment side lets advisors focus on client engagement, financial planning and firm growth while meeting the growing demand for online access to portfolios.
“Automated investment management is a transformative topic in our industry today,” said Schwab Intelligent Portfolio's executive vice president
Institutional Intelligent Portfolios integrates with Schwab Advisor Center, the website that provides custody, trading and support services, to work with advisors’ existing workflow. Schwab Advisor Services’ executive vice president
“We see this as being so fundamentally core to our platform going forward, we wanted to build with no compromises,” Clark said. “[We wanted to] build in a way that was holistic to our client base, both retail and advisors, [and] leverages the capabilities of our firm most effectively. I think you’re seeing that leverage across the offer, the capabilities, the flexibility and the pricing.”
Advisors will pay 10 basis points for accounts with less than
Accounts can be as small as
The Cash Debate
Schwab makes its money from the Schwab ETF fees, third-party ETFs that are allowed onto the platform, and revenue from the market centers were ETF trade orders are routed.
Schwab will also require advisors keep a 4 percent minimum cash allocation in the portfolio, where Schwab can make money off the spread between their return on the cash and the interest paid to the client. The cash requirement was the focus of some criticism of the retail version of Intelligent Portfolios (where the minimum requirement is 7 percent cash for the most risk-tolerant investor) and will likely be the most contentious part of the advisor-facing platform.
“It’s pretty plain and simple: Cash is not a good investment,” Egan said. “After taxes, inflation, and its current expected return (zero), you are actually losing money when you hold cash in your investment portfolio over the long term. In other words, cash is a drag on your returns.”
Clark defended the cash allocation feature as a defense mechanism that provides a portfolio with stability during volatile markets. He added that cash is necessary for liquidity in rebalancing, provides portfolios with safety and security, and that the firm’s two decades’ worth of experience and
“Automated investment management is here to stay and our goal is to ensure that our advisors are prepared to participate in this potential growth opportunity on their terms in the most seamless way possible,” Clark said in a statement. “We have been working closely with advisor groups over the part year to shape our offer so that it meets RIA’s needs.”
Institutional Intelligent Portfolios expects to launch sometime in the second quarter, but Clark said he expects it will have a gradual adoption rate as advisors take time to communicate the program with their clients and consider how to integrate the platform into their business model.
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