Another bites the dust.
Schwab will close its premium service that combines digital advice and human advisors, Schwab Intelligent Portfolios Premium, early next year. The discount brokerage will continue to offer its flagship, online-only service, Intelligent Portfolios, which has a $5,000 minimum and does not charge a fee. It’s the latest example of traditional banking giants abandoning their heist aspirations, following similar announcements from UBS and US Bank. But Schwab’s move marks the first major example of a bank scrapping just its premium service, rather than throwing the entire baby robot out with the bathwater.
“The bulk of (Schwab’s) assets were at the Digital-only Smart Portfolio level,” said David Goldstone, investment research manager at Condor Capital, which publishes a quarterly report on robo-advisors. “I wouldn’t be surprised if Schwab decides to refocus on its (core) offering as it exits the premium hybrid tier.”
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Schwab was one of the first major brokerages to enter the robotics space, launching Intelligent Portfolios in 2015. Since then, the non-premium service has gained more than $80 billion in assets. A main reason for shutting down the premium service is that hybrid offerings, which combine human and digital advice, are much harder to scale, Goldstone said. What sets Schwab apart, he added, is that it was able to expand its core product. “If you have a hybrid offering where you offer live advisors, rather than just phone or chat support, it doesn’t scale as well,” Goldstone said. “For Schwab Intelligent Portfolios Premium, as you added clients, you also had to add staff. You had to add CFPs to be able to support those clients.”
Schwab’s basic service, instead of charging a fee, has a high allocation of cash, which it transfers to interest-bearing accounts for the bank. This allocation is around 10%, Goldstone said, but varies depending on the risk level selected. The strategy allows Schwab to make money from its automated accounts. “It’s not directly a fee, but that’s the business model, it’s like generating a lot of cash… I’m not a big fan of that,” he added. “I would rather see a fairly transparent fee on assets under management rather than curbing performance by investing a ton of cash.”
And now what? Schwab remains a major player in the traditional robo offering space, or products offered as part of a larger, long-established bank or brokerage. Vanguard maintains its digital and hybrid offering and, among standalone products, Betterment and Wealthfront take the lead. “There are still quite a few out there,” Goldstone said. “There have been some closures, but most of the major banks launched one of these, and (only) a couple of them closed them.”
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