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Schwab’s Robo-Giant Unleashed: Could It Help Advisors Gain Clients?

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Charles Schwab launched Monday the retail version of Schwab Intelligent Portfolios (SIP), the highly anticipated retail client version of its made-from-scratch digital advice, or robo-advisor, offering.

Available now at, SIP is a paperless platform available to clients with as little as $5,000, who can create an ETF-only portfolio using 54 ETFs representing 27 asset classes from 11 fund families — including 14 Schwab ETFs — that were a result of an objective, rigorous screening by Schwab, the company said, along with an FDIC-insured account for the cash portion of a portfolio.

Accounts with a minimum of $50,000 also have access to automated tax-loss harvesting; all will have access to automated portfolio monitoring and account rebalancing.

The platform is free to investors and features a user-friendly interface and behavioral finance sensitivity to help set up an individual’s portfolio. Before building that portfolio, the tool walks users through a 14-question “Investor Profile Questionnaire,” or IPQ, designed to capture “factual information to assess investors’ risk capacity,” along with “investors’ behavioral attitude toward risk,” which goes into creating a user’s “risk willingness score.” Finally, users are asked questions about their age and investment product preferences, which help determine “the appropriate set of portfolios.” 

The ETFs were chosen by Charles Schwab Investment Advisory (CSIA), and the process uses a CSIA algorithm to pick specific ETFs in a portfolio. CSIA will have discretion over the assets in SIP, and the choices include Schwab-branded ETFs and funds from third parties including Vanguard, iShares and PowerShares using quantitative criteria offering low risk (no leveraged, actively managed or single-country ETFs), adequate size for liquidity, narrow bid-ask spread (no spread more than 25-30 basis points), high consistency tracking to its index and a low operating expense ratio (OER).

During the onboarding process, users are given the option to chat in real time, to contact a Schwab branch or to call a Schwab call center staffed with specially trained personnel. 

Mark Riepe, president of CSIA, said the ETFs would include both market-cap based ETFs and smart beta products that will allow users more “personalization” of their portfolios: “investors want portfolios to reflect” who they are, he said.

As for the cash portion of the portfolio, Riepe said, “I think of cash as just another asset class” which adds diversification — “it has the lowest correlation with every other asset class” — as well as inflation protection: “when inflation picks up up, yield will rise on cash.” Finally, “from a philosophical standpoint, we think a cash cushion is important to help investors stick with an investing plan,” he said.

In announcing the launch during an online press conference, Schwab Executive Vice President Naureen Hassan, who heads the Schwab Intelligent Portfolios project, said that Schwab had received 28,000 inquiries since it first announced it was developing SIP last October. Of those inquiries, Hassan said, only half were from existing Schwab customers; and of that group, 50% reported having more than $250,000 in assets.

“This is not just for younger people getting started,” Hassan said during the conference, but instead “Schwab Intelligent Portfolios is for a wide range of investors — including those who’ve accumulated some wealth,” and who are attracted by a digital advice offering that is “easier, more accessible and more transparent, with an established company.”

In an interview following the press conference, Hassan said that the advisor version of Intelligent Portfolios–Institutional Intelligent Portfolios–was in development and on track to be released in the second quarter of 2015. As for the retail version, Hassan said that when new users sign up, the final question will be “Do you want to talk to a financial professional?” Calls from those who do want to talk to a person will be directed to a team “that’s skilled enough to vector clients to the right” solution, Hassan said.

“If they have more sophisticated needs,” Hassan said, the team “will follow our standard” referral protocol, to either a branch or to a Schwab-custodying independent RIA.

Referring to those 28,000 inquiries received since SIP was first announced, “half of those calls are prospects,” Hassan said, and thus “SIP could be a foot in the door” for clients who may want advisors.

As for’s design, Eliel Johnson, VP and head of user experience for Schwab, said the site was built with a mobile experience in mind, though it can be used by owners of desktop machines as well. Users can fund their accounts using mobile check deposits via smartphones’ cameras, and additional funding can be made automatically on a recurring basis. 

Alerting Advisors to Launch

Knowing of the importance of the robo-advisor issue to advisors, Schwab Institutional’s Bernie Clark sent an email to advisors who custody at Schwab on Monday. In speaking of the advisor version of SIP, Clark wrote that “I believe Institutional Intelligent Portfolios can play a valuable role in serving more clients in a scalable way, while complementing the invaluable wealth management services and client experience you already provide. Whether your interest is in serving your clients’ children, those with fewer assets not yet ready for full service wealth management, or even your existing clients, this offer will make it easy and cost effective to provide a technology-based solution, while enabling you to focus more time and resources on value-add services.”

In the interview, Hassan said there will be two SIP models for advisors who custody at Schwab to choose from, if they wish. One will come at no charge to advisors using the standard 54 ETFs in the retail version, but white-labeled with the advisor’s name and chosen colors, while a second would allow the advisor more customization and flexibility, including an advisor console allowing the advisor to offer additional ETFs they choose. Hassan said that Schwab found last year in ints annual Investment Advisor outlook that 56% of advisors saw a digital advice product like Institutional Intelligent Portfolios as a “supplement” to their business model, and pointed out that according to an investor education report from the Financial Industry Regulatory Authority, only 30% of Americans have sought financial advice over the last five years.

“Inertia, trouble with opening accounts and cost are roadblocks” for those investors, Hassan said on the conference call.

However, she said “investors are far more likely to succeed if they are getting help, and Schwab Intelligent Portfolios is an easy-to-use, low-cost, and high-quality offering designed to get advice and money management to more people, whether they have $5,000 or $500,000.” 

Schwab said SIP will not charge “any advisory fees, commissions or account services fees.” Responding directly to a report from InvestmentNews that challenged the ‘free’ nature of SIP, Hassan said Schwab would gain revenue via Schwab Bank’s spread on the cash portion of the SIP portfolio, and from ETF providers on the platform. There are no other embedded costs to the investor, Hassan said. In fact, she said “to keep the costs low, we’re choosing the lowest-cost ETF in each asset class.”

In conjunction with the launch, Charles Schwab will begin running a national advertising campaign that Hassan said would “be broad,” reflecting the expected interest in SIP, including outdoor (billboards), online, print and television advertisements featuring “’Blue,’” the personality behind the algorithm that builds and manages the portfolios.”

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