Why Schwab's New Pricing Plan Is a Big Deal
Mark Tibergien, Michael Kitces and others weigh in on how the new subscription model could affect advisors.
With its announcement of a new flat-fee subscription pricing model for a premium digital advisory service, Schwab once again stands out as an innovator and disruptor in the retail investment space, one that others may follow.
“Schwab Introduced discount brokerage when there were fixed commission rates in mid-’70s, then shifted discount platform to serve retail-based RIAs and now is going direct to consumer another way to capture clients,” says Mark Tibergien, CEO of Pershing Advisor Solutions.
(Related: Schwab Rolls Out Subscription-Based Financial Advice)
Under its new pricing model, Schwab Intelligent Portfolios Premium — formerly known as Schwab Intelligent Advisory — will charge a flat $30 monthly fee after a one-time $300 fee instead of 0.28% of assets, starting April 1. (Current account holders won’t have to pay the $300.) The account minimum remains the same, at $25,000, as do the investments, which are a mixture of 53 ETFs from Schwab and other asset managers, and subscribers will receive a comprehensive financial plan with a customized roadmap and unlimited one-to-one guidance from a CFP professional.
The change “is important because Schwab is a significant retail brand,” says Tibergien, noting that the firm also has the capital to advertise and market the repriced service.
“It’s a very big deal as thus far the adopters of monthly subscription fees have been advisory firms and hybrid broker-dealer enterprises themselves,” says Michael Kitces, industry commentator and co-founder of the XY Planning network, which instituted subscription pricing five years ago. “Schwab is implementing this in a more direct-to-consumer offering.”
The new pricing model will benefit so-called “mass affluent” investors with more than $125,000 in assets but cost more for those investors with fewer assets, although they can migrate to the Schwab Intelligent Portfolios robo platform, which offers limited financial guidance and requires a minimum of $5,000.
The model will be “competitive especially for higher asset clients that are looking for less than a full-service solution at a much lower price,” says David Goldstone, research analyst at Backend Benchmarking, which publishes The Robo Report.
Goldstone says Schwab’s new subscription-priced model could attract “higher dollar clients” that have been fully or partially self-directed in their investments, who are the typical users of robo-advisors, rather than those clients already paying for full-service advisor.
But, says Tibergien, there is a question about whether the new Schwab subscription pricing model cannibalizes the other side of Schwab’s business, with full-service advisors, or disrupts full-service advisors who use its platform — both charging fees based on AUM.
Promotions about Schwab’s new way of pricing will force consumers to ask question about what they’re paying for, said Tibergien, and that will “force advisors to be sharp about how to position themselves in a market when dealing with a behemoth.” But he adds, “it’s not as if there weren’t enough money to go around.”
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