Schwab's entry into the robo advisor space in March was met with withering critiques from digital competitors. Nonetheless, its Intelligent Portfolios -- retail and institutional versions -- have quickly grown, the firm noting the digital offering has gathered $4 billion in assets and over 55,000 accounts as of the end of the third quarter.

Steering its efforts is Naureen Hassan, Schwab executive vice president of investor services segments and platforms. Hassan sat down with Reinvent Wealth during Schwab's recent Impact conference to talk about what the firm has learned from the launch of an all-digital product and to elaborate on how the firm will seek to develop automated investment platforms.

What lessons were learned since the launch of Schwab's Intelligent Portfolios in March?

Let's talk about the clients that have come on board the platform. It has not just been millennials. It has been far broader than that. It ranges from 18 year-olds to 80 year-olds in terms of who's on the platform. Automation is not limited to the young, the value of automation is not limited to the young, and we've seen that play out.

It is not limited to those who have a certain amount of money. The clients on the platform -- this could be their only account, and there are clients who have multi-millions with us, and their Intelligent Portfolio accounts are even outside their regular accounts.

We've seen the importance of mobile, particularly among our younger clients. Among them there's a 50% greater usage of the mobile app as compared to our older clients.  

Given that it’s a new product, have there been any operational lessons from its launch?

What's been amazing is the efficiency associated with it. We're able to open hundreds of accounts a day, straight through -- instantaneously. There's no paper work, there's no people keying in data. It's a great scale and efficiency play for us, as well as being easy for the clients.

Is that a process lesson to be applied to the entire firm?

It definitely is. The innovations that we've brought through Intelligent Portfolios, we are now bringing to our other account types and other processes as well.

Did that come as a surprise to anyone in the organization? Was it was meant to be an outreach to a new market, not a tool for internal change?

No it wasn't. From the get-go, we saw this as an opportunity to do both -- to attract new clients to get the $1 trillion in assets we have in self-directed into an advice product, and also make our processes more efficient as well. We knew going in that we wanted to have all of those benefits.

What then are some refinements to the platform that are needed?

Because of demand, we're continuing to add different account types and features, which you'll see coming soon. We're continuing to evolve the engagement model, in how we communicate with clients. So we're continuing to build upon it. You're never going to put it out there and be done.

One addition will be custodial accounts, which you'll see before the end of November. That's been very interesting. A lot of folks have wanted to use this for their kids. We've talked with advisors about attracting that next generation of clients, and we assumed that would be 20-somethings. But it turns out, no, clients want it even for their younger children. They want it to help them understand about investing and help them put money into the markets, see what happens, the power of compounding. These were children under 18, so we needed custodial accounts. That's been the biggest ask -- grandparents wanting to fund their grandchildren's accounts. It's been the biggest surprise actually.  

In time then, automated investing will become more complex, able to serve many needs?

Automated technology is a technology, and automated investing is a technology platform. As such it's got a lot of uses. Just because you have [underlying] ETFs, that doesn't mean it only has to be ETFs. The tool doesn’t care what asset type you put into it; what it does is it understands it, rebalances it and tax loss harvests it. But at the end of the day, it's agnostic to the security that it's working on. And that's where we see the evolution. There's nothing that says it only has to be based on ETFs. Historically it has been; but it can be based on mutual funds, individual securities -- whatever we want it to be, because it is a technology platform.

I'm not saying we will move away from ETFs -- we're not limited to ETFs because of the technology. We use ETFs because of a conscious decision with this product to make it very low cost, and ETFs are one component of that. But within Institutional Intelligent Portfolios, for example, we've opened up the ETF portfolios to advisors to 450 ETFs so they can construct it. But we can open it up to mutual funds if advisors want to use them, and that's their investment philosophy. We're not dictating the philosophy; we're the technology platform. So over time, we'll continue to evolve it.

Advisors remain very interested in hearing how automated investing will affect them.

Technology has continually made wealth management evolve. This isn't a revolution, this is an evolution. There have been continual innovations that have made it easier for people to do business with financial services firms, like mobile check depositing. This is another step in that evolution. We are taking things that used to require paper and people, and saying, 'We can make it easy, we can make it online. If you want people, we have people, but you don't have to talk to someone.' And we can automate things that in the past had people looking for the time to push the rebalance button.  

It's about making things more efficient, and easier for the client to do business. So when [Schwab CEO Walt Bettinger] says robos are overhyped, the hype he's referring to is that it's a revolution that's going to kill wealth management as we know it. No, it's an evolution, not a revolution.

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