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Schwab Unleashes RIA Robo-Beast

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Schwab Advisor Services announced Tuesday that its Schwab Institutional Intelligent Portfolios (IIP) platform is now available for advisors who custody with Schwab. The platform will include twice the number of exchange-traded funds as originally announced: “more than 450 ETFs” across 28 asset classes, including, Schwab said, “all major fund families at their discretion.”

In a statement, Schwab said that the 450 ETFs represent more than 80% of the total ETF assets currently held by advisors’ clients at Schwab. For those with more than $100 million custodied at Schwab, the platform is free; RIAs with less than $100 million custodied outside the IIP program will pay a 10 basis-point fee on the account balances on the platform. The minimum balance to participate on the platform will be $5,000. Except for the underlying expense ratios on each ETF, and the 10 basis-point fee where applicable, there will be no additional charges to advisors or their clients to participate.

In an interview, Bernie Clark, head of Schwab Advisor Services (SAS) and a Charles Schwab executive vice president, said IIP is “part of the solution” for advisors to both grow their practices and reach the members of what Schwab calls “Generation Now,” Gen Xers and millennials. That generation is “more technology-savvy” and members want do “more of their own homework” when it comes to investing. Therefore, Clark says IIP is a “24/7 entry point” to that generation, but one that is “attached to a deep relationship” with advisors who “can guide them.”

The institutional platform helps advisors serve clients whose assets are lower than most RIAs’ minimums, while also providing “more scale in their businesses,” Clark said. When IIP was first announced, some observers voiced concern with the 4% minimum cash holding required in each portfolio, but Clark said that Schwab “hadn’t heard any real pushback” from advisors and reiterated that the “historical norms” of most RIAs who custody at Schwab is to keep 7% to 8% cash in client portfolios.

The portfolios in IIP are “being structured by the advisor,” he said, and Schwab decided to make available a “broader array” of ETFs at launch “starting with 450 that will change and grow,” and with “their branding on it, so it will be coming from them.”

When asked if Schwab has any specific goals for RIA adoption of the platform, Clark suggested that each firm may well take unique approaches to including IIP for existing and new clients. “If you see the opportunity to use it, great; if you don’t, that’s great, too. It’s only meant to extend your reach.”

He cited one example of an East Coast family office that plans to “wrap an educational module” around IIP “for the next generation” of clients, in the process creating “almost a new business around” the existing firm, allowing it to serve those clients in a more efficient way.

In addition, Clark said that “one of the biggest differentiators” of IIP is that Schwab “took a platform that we began building for individual investors” but added “full integration” with SAS’ existing billing and reporting systems. Plus, he said, end clients are “getting the safety and security of Charles Schwab as custodian; we custody in exactly the same way” as Schwab does for clients of its existing RIAs.

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