Charles Schwab is launching a new service that combines digital advice with a team of professional investment advisors.
Schwab Intelligent Advisory provides emerging or mass affluent investors with a financial plan created via a self-directed online tool and a fully automated portfolio. If investors need guidance or expertise, they have access to a team of human professionals armed with Certified Financial Planner designations.
It’s the latest in a growing trend of robo-hybrid services that places Schwab in direct competition with offerings like Vanguard’s Personal Advisor Services and Personal Capital. With a $25,000 minimum investment, Intelligent Advisory is designed for investors who require more guidance than is available on its retail robo advisor, Schwab Intelligent Portfolios, but don’t have a complex financial situation to justify paying the fees for a dedicated financial advisor.
Investors use a self-guided online tool to create a financial plan tailored to their financial situation and goals, followed by a conversation with a human consultant. The team of human advisors will be available over the phone or videoconference to answer questions or provide advice, and annual check-ins can be scheduled virtually. The portfolios will be handled by the Intelligent Portfolios robo.
Schwab expects to launch the service in the first half of 2017.
“Schwab Intelligent Advisory fully leverages what technology and people can deliver in tandem, focusing on serving clients based on their unique needs while delivering the kind of value they know they can expect from Schwab,” Neesha Hathi, executive vice president of Schwab Investor Services, said in a statement. “This is a modern approach to financial planning and wealth management that mirrors what today’s consumers have come to expect in other aspects of their lives; how they invest should be no exception.”
Advisory fees come in at 28 basis points with a $900 quarterly fee maximum, far less than the average human advisor.
Tim Welsh, the president and founder of consulting firm Nexus Strategy, said Intelligent Advisory could anger registered investment advisors who custody at Schwab.
“[Intelligent Advisory is] yet another competitive Schwab retail offer,” Welsh said. “Also, they are setting the bar for what planning and investing advice will cost – 30 bps. Again, it will infuriate advisors who are [charging] three times that.”
Eric Roberge, a fee-only RIA who uses a monthly retainer to serve young professionals, agrees that it’s a threat to his business even though he doesn’t custody assets with Schwab.
“Just one more thing I will have to explain to prospective clients who have heard of it,” Roberge said. “For those advisors at Schwab, I definitely think there is a conflict of interest between them and their custodian and they should see this as a threat to next generation clients.”
Others see the services like Intelligent Advisory as natural evolution for the industry. Rob Foregger, the co-founder of digital advice firm NextCapital, called it a winning model and proof that the future of the industry is human advisors utilizing digital tools. Saying they don’t want the most modern wealth management experience is like saying they don’t want the latest iPhone. Foregger dismissed concerns that this would be a threat to its RIA custody business, saying multiple sides of the business can leverage the technology.
“Competition is rampant and common place in the investment management industry, and has been for many decades. I don't think this will impact anything, and most other major custodians have or will have similar capabilities in their direct and advisor custody channels,” Foregger said. “The robo vs. human has been and continues to be a false debate. In the future, every financial advisor will utilize a modern digital wealth management platform, irrespective of whether the client is a mass market, mass affluent or high net-worth client.”
Aaron Pottichen, an advisor with CLS investments, said on Twitter that advisors need to better demonstrate their value in order to remain competitive.
“I think these robo services will slowly start to weed out the bad FAs,” he said. “A good sales pitch won’t cut it anymore.”
But advisors like Roberge doubt that these robo-hybrid models can foster the same kind of long-lasting, trusted relationships that people have with a person. He noted how his clients are investing outside of retirement and want advice on with using their money right now.
“When all is said and done, it still is a customer service center,” Roberge said. “And, just like most customer service centers, the employees will come and go.”