© 2019 SourceMedia. All rights reserved.

Schwab Rolls Out Robo Offering for RIAs

Charles Schwab’s highly anticipated robo offering for RIAs is finally good to go.

The automated investment management platform, branded Institutional Intelligent Portfolios, allows advisors to choose from more than 450 exchange-traded funds across 28 asset classes and requires a minimum allocation of 4% in cash. It will cost 10 basis points for advisors who have less than $100 million in assets under management under custody with Schwab, but advisors who have more than that under custody won’t be charged a fee.

Schwab will make some money on the yield spread in the cash allocation, but the biggest benefit  for  the custody giant, which works with about 7,000 firms and has more than $1 trillion in assets, will be “helping advisors grow and retaining assets they might otherwise lose,” says Bernie Clark, executive vice president and head of Schwab Advisor Services.

“This platform will help RIAs grow more quickly, and we hope to get a proportional share of those assets,” he says.

That rationale makes sense, Celent senior digital analyst Will Trout says.

The new offering allows Schwab advisors to “reach underserved clients such as millennials and [catch] the post-retirement baby boomer wave,” he says. “Indeed, automated service is also a way for advisors to rationalize their high-cost sales structure and reach clients who are either too young to have accrued much assets and those entering the de-accumulation phase.”


The generational shift after baby boomers means that advisors will eventually run two businesses, according to Clark: a traditional model and one for clients under 45.

“The goals will be similar for both groups, but the tactics to achieve them will be different,” he says.

Advisors will be able to customize Institutional Intelligent Portfolios, setting each portfolio’s asset allocation and selecting their ETFs. Clients fill out an initial questionnaire indicating their investing goals and risk tolerance and after a review process are assigned to advisor-designed portfolios.

Advisors will also be able to brand the new digital platform with their firm’s logo and contact information.


What advisors want to charge for the service is “totally up to them,” Clark says.

“It will be at their discretion, but I think the fee will be largely based on other services they provide,” he says. “I believe this will above all remain a people and relationship business, and the more advisors get involved with their client the more value they create.”

But advisors may face an “optics problem of [charging clients] to manage what is basically a plain-vanilla basket of ETFs,” Trout says. “Even if Schwab doesn’t charge clients account service fees, trading commissions or custody fees, the RIA likely will, and so some clients will push back.”


Schwab also faces substantial competition in the institutional space, particularly from Betterment Institutional, which launched earlier with backing from Schwab custodial rival Fidelity Investments and industry heavyweights Marty Bicknell and Steve Lockshin.

But being late to the party didn’t hurt Schwab’s retail robo effort, which began in March and already has about $2.8 billion in assets.

Clark is confident that Institutional Intelligent Portfolios can also disrupt the market, pointing out that it is the only digital platform that is “fully integrated” with a custodian in a fragmented marketplace.

In fact, more robo-advisors “are pivoting to a B-to-B model to secure distribution,” Trout says, as more custodians see the power of automation in delivery [of] a high-touch, low-cost user experience.”


Schwab is promising to “provide extensive resources and support to RIAs to help them evaluate and set up Institutional Intelligent Portfolios,” according to a company statement. 

A dedicated advisor service team will support technical and platform functionality, and Schwab will provide 24/7 customer service for Institutional Intelligent Portfolios clients when an advisor is unavailable.

Accounts can be automatically enrolled, with the advisor’s client’s agreement, for electronic delivery of trade confirmations, statements, communications and other documents, and clients can access their account using Schwab Alliance or through a dedicated website and mobile application.

The new robo offering will also be integrated within existing Schwab systems and displayed in Schwab Advisor Center, the custodian’s desktop client management system for RIAs.

“Advisors will like the seamless onboarding and the digital paper trail implicit in automation,” Trout says.

“Smaller RIAs will not like having to pay for a platform that is marketed as ‘free’ under a retail wrapper. And clients, thanks in part to [Wealthfront president and chief executive] Adam Nash, will doubtless ask uncomfortable questions about why so much money needs to sit in cash in Schwab Bank.”

Read more:

For reprint and licensing requests for this article, click here.