The competition between Schwab and Fidelity’s digital advisor platforms is also playing out in the digital advisory market. The two financial giants are among a limited number of firms that have operated robo-advisor platforms for several years, but their performance is far different.
According to the third-quarter 2020 Robo Report, Schwab Intelligent Portfolios was the worst performing robo-advisor for taxable accounts during the three and four years ended Sept. 30.
The performance metrics are based on a 60/40 stock/bond taxable portfolio that Backend Benchmarking, publisher of The Robo Report, has funded, usually at the minimum required asset level.
Schwab Intelligent Portfolios’ balanced portfolio returned 3.21% on an annualized basis over the three years ended Sept. 30 and 5.33% annualized over the four years ended Sept. 30. Fidelity Go, in contrast, returned 6.34% and 7.60% annualized, respectively, over the same time periods.
Schwab’s underperformance was due to an equity asset allocation that tilts toward value with an outsize weighting of small-caps plus a roughly 10% allocation to cash, according to The Robo Report. Fidelity Go’s stock portfolio, in contrast, tilts toward large-caps and its cash allocation is minimal. Its four-year performance topped all other equity portfolios tracked by The Robo Report.
On the fixed income side, however, Schwab was on top for performance while Fidelity was near the bottom. Schwab’s bond portfolio returned 4.24% on an annualized basis over the four years ended Sept. 30 due to significant allocations to mid-duration Treasury inflation-protected securities combined with emerging market bonds, high-yield corporates and munis, according to The Robo Report.
Fidelity Go’s bond portfolio placed next to last over the four-year period, gaining just 2.6%. Its entire fixed income portfolio for taxable accounts consisted of two municipal bond funds, according to The Robo Report. Its fixed income allocation for IRAs, however, was more broad-based and Treasury-focused and significantly outperformed its taxable bond portfolio counterpart.
Aside from their differences in performance, both Schwab and Fidelity introduced free financial planning tools in the third quarter — tools that can work in concert with their digital advisor accounts or as standalone offerings.
Schwab Plan helps investors build a personalized financial plan via a short questionnaire that incorporates information about desired retirement age and goals, Social Security expectations, risk profile, asset allocation and income. Fidelity Spire is a free mobile app designed to help young adults achieve their financial goals.
(Related: Schwab Launches Free Financial Planning Tool)
“By increasing access to goal planning, these companies are creating a natural funnel from a free service to their trading or managed account platforms,” according to the Robo Report.
Looking more broadly at the performance of digital advisors, Titan Invest, a relative newcomer, led performance for the total return of taxable portfolios year to date and for the year ended Sept. 30. Wealthsimple’s socially responsible investment portfolio and SigFig placed second and third, respectively, for both periods.
Titan Invest has an all-equity portfolio that holds individual stocks and uses an active strategy and year-to-date through Sept. 30 returned 24.6%, boosted by large holdings of large-cap growth stocks including big tech such as Amazon, Microsoft, Netflix and Apple.
Wealthsimple’s SRI portfolio is one of four SRI portfolios that outperformed its standard portfolio counterpart over the past two years among the six such portfolios that The Robo Report tracks. The others were Betterment, Morgan Stanley and TIAA.
Longer term, SigFig led total portfolio performance over the three- and four-year trailing periods ended Sept. 30, followed by Axos Invest in second place for both periods, TIAA in third place over three years and Fidelity Go in third place over four years. SigFig returned 7.24% and 8.18% on an annualized basis over the three and four years, respectively, ended Sept. 30.
According to The Robo Report, SigFig owes its success to a focus on large-cap U.S. stocks along with U.S. Treasurys and investment-grade corporate bonds, and low cost — no advisory fee for the first $10,000. Its fee is 0.25% annually for the balance above that.
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