Schwab to Unleash No-Fee Robo-Giant

“We’ve seen strong growth in our traditional advisory solutions as more investors have sought out professional investment advice, and we believe there will always be people who prefer a relationship-centered model,” said Bettinger. “Schwab Intelligent Portfolios will make investing accessible to a broader group of investors who are less comfortable with a traditional approach to advice and prefer the power of technology to enhance and simplify their lives.”

Robo Rivals

Last week, TD Ameritrade Institutional (AMTD) President Tom Nally said the firm would take an open-architecture approach to automated investing. Its plan is to give advisors access to companies that build digital-advice offerings (such as SigFig, Financial Engines, Edelman Online, Trizic and FutureAdvisor). Advisors also can turn to robo-providers who already custody with TD (such as Jemstep, Upside and NestEgg Wealth).

TD’s iRebal software is “really the engine” that allows its RIAs to provide the same kind of auto-rebalancing and tax loss harvesting that robo-advisors, or digital advice providers, do, Nally added. (TD works with about 4,000 RIAs.)

In mid-October, Betterment struck a deal with Fidelity Investments to introduce robo-advisory services to some 3,000 independent advisors who custody assets at Fidelity.

According to Betterment CEO Jon Stein, 25 advisory firms have been beta testers of the Betterment Institutional platform, and an additional “800 to 1,000 firms” have expressed interest in adopting it.

Schwab’s announcement reverberated through the crowd at Pershing’s Discover conference for broker-dealers in New York on Monday.

In the Q&A portion of a general-session panel focusing on industry trends, the first question from the audience was about the implications of Schwab’s digital-advice offering.

Mark Tibergien, CEO of Pershing Advisor Solutions, warned that “we’re becoming a little over-agitated” about robo-advisors. “Fidelity, TD Ameritrade and Schwab have been in the do-it-yourself space for decades,” he said. 

With the anticipated launch of Schwab Intelligent Portfolios, experts note, the biggest players in the advice industry are showing not when but how they intend to combine financial-planning advice created by a person and portfolios made by a computer-generated algorithm.

The best solutions in the long run, says Michael Kitces, director of research for Pinnacle Advisory Group, “are likely to be a combination of both: the part-human and part-computer ‘cyborg’; solution that allows technology to do what it does best, and for humans to do what they do best, all in pursuit of bringing down the cost and widening the accessibility of financial planning for consumers.”

— Related on ThinkAdvisor:

• 21 Best & Worst Robo-Advisors for Client Transparency
• Robo-Advisors and Online Financial Advice: The Difference
• TD Ameritrade Goes Its Own Way on Robo-Advisors, With a Twist