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October 29, 2014 at 11:14 AM
There is an air of “wait and see” surrounding Charles Schwab’s recent announcement that it would launch a no-fee automated investment advisor service.
During a discussion on Tuesday titled “What is Trending with Digital Advice — Friend or Foe?” at the Pershing Discover 2014 conference in New York — one day after Schwab’s big announcement — thoughts and concerns were no doubt raised by speakers Grant Easterbrook, an analyst for Corporate Insight, and Rich Bingham, director in Pershing’s Global Strategy, Marketing and Communications group.
When asked how Schwab’s new offering will do, Easterbrook said he was taking a “wait-and-see approach.”
“Whenever a big corporation does something like this, we have to wait and see if they’ll actually provide in 4-5 months with a low-cost managed account …” he said. “We’ll see what happens with that.”
Calling to mind recent memories of BloombergBlack or LPL’s NestWise, Easterbrook noted these were “two very hyped initiatives that kind of fell flat before they got off the ground.”
On Monday, Charles Schwab (SCHW) officially announced its no-fee automated investment advisor service, Schwab Intelligent Portfolios, for retail investors set for release in the first quarter of 2015, with a version for RIAs to come “shortly thereafter.”
“If it does go off the ground, I think a lot of people tend to interpret Schwab in this space as sort of a zero-sum game, where it means they’re going to run all those start-ups out of business,” Easterbrook said. “I don’t necessarily view it that way. The pie here of investment knowledge is so large there can’t be a zero-sum game.”
While Easterbrook doesn’t seebig firms getting into the automated advice game as the “end of the world” for robo-advising startups, it may prove to be a challenge full-service brokers.
“I view it as more of a challenge to the full-service brokers of the world. It’s not just startups who are lowering costs and increasing transparency but some of the major hybrid competitors are,” Easterbrook added, “that’s a pretty serious challenge to them.”
While the minimum investment level is set for $5,000, lower than the investment minimums of many RIAs, Bingham also worries that it could still mean competition for advisors.
“[Schwab was] positioning that its a service for low-balance accounts, the kind of accounts that traditional advisors don’t want in the first place,” Bingham said. “They also said it would be a tool for advisors, to cultivate the accounts that they don’t necessarily want to turn away to the point where they become more profitable accounts. That said, it doesn’t mean that they’re not going to be competing with them directly in that space.”
