Will Schwab’s New Hybrid Platform Steal Clients From Schwab RIAs?

It's possible that the new offering could lure advisor clients away, argues one recruiter, while another disagrees

Charles Schwab unveiled its anticipated hybrid advisory service, Schwab Intelligent Advisory, on Tuesday.

Investors seeking both human and digital advice can sign up for the service, which charges an annual fee of 0.28% to manage at least $25,000 of assets (including a quarterly maximum fee of $900). For the fee, investors will receive a specific financial plan, ongoing advice and input from veteran planning consultants, as well as an automated portfolio.

The rollout comes six weeks after robo-advisor Betterment launched its own hybrid offerings.

“Robo-advisors are now upping their game by providing access to financial advisors in addition to their firm’s automated investment offerings. That [hybrid offering] is a potent combination and a competitive challenge for advisors,” said executive recruiter Mark Elzweig, in an interview.

Others see it as a direct threat – and even a conflict of interest.

“If this new platform is touting [Schwab's] own CFPs, then this program has huge potential for conflict of interest with the independent RIAs networked with Schwab,” said recruiter Jon Henschen, in an interview.

The firm says its new hybrid offering relies on Planning Consultants, who are Schwab employees "based in our service centers dedicated to Schwab Intelligent Advisory," according to a spokesperson.

“Schwab has sent advertisements to independent RIAs' clients in the past which caused a big backlash, so that could now likely recur if clients of independent RIAs are being notified of the new Schwab Intelligent Advisory,” Henschen explained.

The firm, though, says it has no plans to contact advisors’ clients about the new hybrid rollout.

To the recruiter, however, Schwab’s latest move is essentially sending the message: “Leave your advisor and use our advisor, and we’ll be substantially cheaper,” Henschen said.

“Programs like this will only add to the price compression on advisory business in our industry,” the recruiter added.

The firm, naturally, disagrees and argues that the service is not aimed at typical RIA clients.

"Schwab Intelligent Advisory is designed for an investor who is digital-first, wants to maintain control of their investing and receive more episodic advice, and does not have a highly complex financial situation – a different type of investor than what most independent advisory firms serve today," it said in a statement.

Not An Either/Or

For his part, Elzweig isn’t convinced the situation is as grave as Henschen sees it.

Though the caliber of advisors that Schwab hires for the hybrid offering and the performance of its portfolio models will likely determine the hybrid offering’s ultimate success, “Many sophisticated investors with complex needs will still prefer a relationship with a more entrepreneurial full-service advisor who isn’t wed to implementing a corporate program,” Elzweig explained.

“A relationship with a full-service advisor is likely to be more personal and more long term,” he said.

This is similar to how Schwab sees the situation. "RIAs are an important part of the overall spectrum of advisory services we make available across Schwab and are likely the best solution for investors with more complex, specialized or broad needs who prefer an ongoing relationship-driven advice model," the firm said.

In its February update, Schwab says investors held close to $1.25 trillion in Advisor Services accounts, excluding assets held in some retirement accounts. Schwab’s total client assets stand at $2.9 trillion as of Feb. 28.

“Schwab Intelligent Advisory provides a modern approach to financial planning and wealth management that delivers on what today’s consumers expect: a personalized experience that leverages technology to make the process easier – all at a great value,” said Terri Kallsen, head of Schwab Investor Services, in a statement.

According to Schwab, a majority of 1,000 clients surveyed in December said they prefer an investing platform with both technology and a financial professional “instead of relying purely on one or the other.”

More than 70% stated that cost is “extremely” or “very” important to them when it comes to getting financial advice.

Crowded Field

On Jan. 31, Betterment introduced three hybrid options for investors using its retail and RIA platforms: Betterment Plus, which has an account minimum of $100,000 and has a fee of 0.40%; Betterment Premium, with a $250,000 minimum and a 0.50% fee; and Dedicated Advisor, which lets advisors establish their own pricing through a direct relationship with investors.

The robo firm has about $7.5 billion in assets as of March 1.

Vanguard’s Personal Advisor Services, its hybrid offering, has a $50,000 minimum with fees starting at 0.30%; as of early 2017, the platform had some $47 billion of client assets.

Schwab Intelligent Portfolios, the firm’s fully automated offering that has a $5,000 minimum, accumulated over $12 billion in assets as of early 2017. Meanwhile, Merrill Edge, the wirehouse’s robo channel, had amassed about $145 billion.

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