Will Schwab launch a robo for employer 401(k)s?
Responding to Vanguard’s digital-only robo advisor pilot, Schwab is examining how its automated advice platform could work in the 401(k) plan space.
Tailoring the platform to fit the employer benefits space is “something under consideration,” says Andrew Salesky, head of advisor technology at Schwab.
“There are some advantages of Schwab Intelligent Portfolios potentially being within that format,” Salesky says. “Vanguard and Fidelity are significant in the corporate plan space.”
Currently, the custodian offers three digital platforms: two retail customer offerings under the Schwab Intelligent Portfolios banner, and Institutional Intelligent Portfolios for advisors.
“It's a good use case,” says Salesky. “Definitely.”
Custodian-developed automated advice platforms are a good fit for the employer benefits space, says Joel Bruckenstein, founder of the Technology Tools for Today conference.
“This can be made available to 401(k) participants,” Bruckenstein says. “Some of them have large balances, but there is a lack of asset allocation knowledge so this can be a good thing. Also, you get some participants at each end of the spectrum … some overtrade, some never do. This is a way to keep all of them on track.”
Vanguard Digital Advisor will be priced at 15 basis points, it will have a $3,000 account minimum and it will allocate client assets almost entirely in Vanguard funds. The platform’s investment strategy is based on the same “glide-path and asset allocation” that serves Vanguard’s Target Retirement single mutual fund, according to SEC filings.
Analysts have been quick to forecast the entry of new digital platforms in the corporate retirement plan market, an area that paper-driven incumbents have primarily dominated.
"As verticals like Vanguard and Schwab flex their tech muscle and go after the advisor market more aggressively, these small fry are going to get crunched," says Will Trout, senior analyst at Celent.
The exception has been Edelman Financial Engines, formerly known as Financial Engines before a $3 billion sale to Edelman Financial. Considered the original robo advisor by the industry, Financial Engines launched in 1996 and gathered more than $13 billion in IRA and taxable-account assets, and $156 billion in 401(k) accounts.
Still, this week, Moody’s cited e news of Vanguard’s robo plans as a negative credit outlook for Edelman Financial Engines.
A spokesman for Edelman Financial Engines declined to comment.
Other advisory firms are making their own entries into the space, too. Recently, Creative Planning, an RIA with $42 billion in AUM, acquired a low-fee 401(k) provider.
Vanguard Personal Advisor, a hybrid platform that quickly surged to over $100 billion in assets, is still the largest digital platform AUM in the market to date.
Schwab’s digital advice assets stand at $41 billion, Salesky notes, making it “the second-leading provider.”
“All this interest in digital advice is good for the category, it helps validate that there’s a strong value proposition, not just for clients, but hopefully for providers as well,” Salesky says.