Robo-Advisors Rip Schwab’s New Robo-Advisory Over Fees, Cash

“There’s no right or wrong answer to how much cash an investor should hold as an investment; it is a strategic decision,” the firm said in a blog response to Nash. “But given our analysis of historical returns, coupled with an understanding of the importance of risk management for the majority of investors today, we’re confident in an approach that includes cash.”

As for fees, Wealthfront’s clients with at least $10,000 in assets pay 25 basis points a year and underlying ETF operating expense ratios.  “That’s less money going to work towards their future, a true drag on performance. The advisory fees charged by Wealthfront are ‘sunk costs’ for investors. By contrast, Schwab Intelligent Portfolios charges no advisory fees – an investor pays only the operating expense ratios on the underlying ETFs,” Schwab explained.

Rough Robo-Land

Schwab is hosting calls for its advisors regarding its robo-offering this month and plans to roll out a version for advisors to share with their clients in the second quarter.

While there seems to be a good amount of investor interest – Schwab says it has received calls from about 28,000 prospects – a lot of questions remain for advisors, investors and the industry.

According to Hedgeable’s Hampton this debate is beneficial. “More than anything, it signals that the customer is winning,” he said in his blog.

Fees should continue to come down, transparency should keep increasing, and innovation is likely to proliferate — and “all of this is a win for the customer,” Hampton noted.

Bernie Clark, head of Schwab Advisor Services, painted a similarly upbeat view of the issues in an email to advisors this week: “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,” he said.

With industry giant Vanguard poised to expand its pilot program, which combines automated investing and human-based advice for a charge of 0.30%, later this year, Schwab is under tremendous pressure to give investors advice that is both inexpensive and valuable.

As Michael Kitces, director of research for Pinnacle Advisory Group, observed recently, “It will be interesting to see if any other large platform can find a way to compete with the [Vanguard] price point, including advisors themselves.”

— Check out Schwab’s Robo-Giant Unleashed: Could It Help Advisors Gain Clients? on ThinkAdvisor.