Schwab Intelligent Advisor

[LuckyDog]

I am a Schwab client and recently received a notification of an advisory service called Schwab Intelligent Advisor. My question is: has anyone check this out and what do you think of it?

 

[up_north]

It's worth considering, especially if you are interested in checking out a robo-adviser without paying any fees. The advantages include low-cost diversification, set-it-and-forget-it rebalancing, and some tax-loss harvesting. The controversial element of Schwab Intelligent Advisor is the amount of cash the account holds. Some people see this requirement as a hidden method of financing the accounts. Schwab argues that it makes sense on its own. I find Betterment provides more information and performs approximately the same even though it charges a fee, although those charges go up to 0.5% on June 1.

 

[Chuckanut]

I've had a small, really a very small, investment in Schwab's Intelligent Advisor (IA) for over a year. So far I don't see any real advantage over setting my AA and adjusting it every year or when things get really out of balance.

The IA has my money scattered over a number of funds, far more than I would ever manage or keep track of on my own. Is this good or bad? I don't know at this time.

What I am waiting for is a reasonably strong Bear Market. If the Intelligent Advisor can keep my assets safe, then I will consider adding more. Maybe.

Currently, I keep thinking that the IA is probably a good thing for people who otherwise would be giving their assets to an advisor who is selling them loaded, high cost funds. But for people such as the ones in this enlightened group? I am not sure at all.

 

[Another Reader]

It's worth considering, especially if you are interested in checking out a robo-adviser without paying any fees. The advantages include low-cost diversification, set-it-and-forget-it rebalancing, and some tax-loss harvesting. The controversial element of Schwab Intelligent Advisor is the amount of cash the account holds. Some people see this requirement as a hidden method of financing the accounts. Schwab argues that it makes sense on its own. I find Betterment provides more information and performs approximately the same even though it charges a fee, although those charges go up to 0.5% on June 1.

Betterment's basic fee is O.25 percent now for all accounts. At 0.40 percent you get some help from a CFP. At 0.5 percent you get more access. Minimum balances are required for those levels. I opened a very small account to see if they could invest in stuff I can't seem to invest in myself - bonds and international markets. The automatic rebalancing is interesting, but has not been used yet. The account is still small enough that the monthly contribution is used to rebalance. So far, my reaction is meh.

I am not interested in Schwab's intelligent portfolios. Too much cash on which they make money. I prefer to control my cash myself and if money is invested, it should be, well, invested.

 

[OldShooter]

My experience pretty well matches @Chuckanut's. I have lately become fond of setting up little test portfolios, starting each one at the beginning of a calendar quarter and comparing cumulative results as the months roll by. My baseline is what I call my "couch potato" (CP) portfolio. I put $100K into a 65/35 total US and total international funds on 12/31/14. The idea is that this is a portfolio that any idiot could create. I don't even rebalance it.

On 3/31/15 I gave $100K to the Schwab robot. As of the end of 1Q17, the CP's cumulative performance over eight quarters was 12.2% and the robot's was 11.5% on its equity portion and 10.9% overall. So pretty much the same.

Re the annoying cash portion, the way they set up the portfolio is via a somewhat tedious questionnaire looking at age, risk tolerance, etc. It implicitly assumes that it is managing 100% of your portfolio. I had to game the questionnaire to get the absolute minimum cash in the account, which was about 6%. It took me quite a few passes to figure out the answers that got me there.

A month or two later I actually got a call from a Schwab guy who was concerned that at my age I was 94% equities. I had to explain to him that this was a test, and that it was a very small single-digit percentage of my whole portfolio. Good customer service or CYA? I don't know.

Further annoying, the funds are not coded for reinvestment of interest and dividends. Those go into the cash balance. I watched a couple of $K build up there before I called and complained, insisting that they invest that cash. They did. I have no idea how long the robot would have waited before reinvesting but in the mean time Schwab was making a nice profit on a small amount of money.

Schwab is not showing me any compelling reason to hassle around keeping one more brokerage account, so I am leaning toward ending the experiment. Maybe I'll give the robot one more year. ...

 

[Mykle57]

I'm a Schwab client. Looked at their robo-service and like others didn't like the high cash allocation in their portfolio. Didn't like setting up another account specifically for the robo service, nor that they do not disclose their actual holdings until after you've invested.

I currently use their ETF Portfolio builder. Seems a whole lot simpler to deal with.

 

[bingybear]

I am a Schwab client and recently received a notification of an advisory service called Schwab Intelligent Advisor. My question is: has anyone check this out and what do you think of it?

OP, it looks like most if not all the replies either talked about Intelligent portfolios (IP) or alternatives to them. Although I could be mistaken.

I went further with Intelligent Adviser (IA).. at least to fill out all the goals and assets. From what my Schwab rep says I should be able to use the IA to provide a plan for all my assets as long as I have the minimum of $25k under the program. I just feel a little funny getting advise on everything when I only giving them a small % and getting advice on everything. Now the advise may just be to pull all the $ into IP.

IA has a management charge of 0.28% up to some limit ($3600 fee max ? guessing) Cash is not assessed a fee. You get a CFP to do an initial plan and meet with a CFP at least once a year to review. From what I've been told the plans are more complete than what the normal reps do.

At this point I have not pulled the plug on setting up the first meeting with the CFP. I assume all this info is present knowledge to the OP

 

[OldShooter]

FWIW, here is what the robot has selected:

And here is the fund list:



Two features that strike me are the lack of home country bias -- really underweighting the US -- and the large number of funds used.

I hope this is readable from screen shots. I am too lazy to export and format this data.

 

[LuckyDog]

Bingybear,

I thought the same as you. It appears to me (could be wrong) that some of the replies to my original question refer to Schwab Intelligent Portfolios. My original post has been edited to be more clear.

As far as the Intelligent Advisor goes, I cannot see what is offered that is better than my advisor who, I feel does an excellent job.

LuckyDog

 

[bingybear]

Bingybear,

I thought the same as you. It appears to me (could be wrong) that some of the replies to my original question refer to Schwab Intelligent Portfolios. My original post has been edited to be more clear.

As far as the Intelligent Advisor goes, I cannot see what is offered that is better than my advisor who, I feel does an excellent job.

LuckyDog

I'm my own advisor (must be a fool), so this would be a change for me. I expect the accounts they manage will use IA, but may have some differences to account for different goals. Maybe they will us different accounts for different goals (don't know).

 

[OldShooter]

OP, it looks like most if not all the replies either talked about Intelligent portfolios (IP) or alternatives to them. ...

Yup. Guilty as charged, sloppy reading. Mitigating circumstances: Probably the IA offering uses the Intelligent Portfolios robot.

 

[Another Reader]

Oops. Never heard of the IA, my bad.

Fundamental ETF's look like another fad to me. Anyone think they have value over pure indexes?

 

[OldShooter]

Oops. Never heard of the IA, my bad.

Fundamental ETF's look like another fad to me. Anyone think they have value over pure indexes?

Of course they have value. To the guys selling them. It's kind of comical, too, how we see hundreds of sector funds suddenly masquerading as "index" funds. The hucksters are clever people.

Really, a total market US and a total market international are the only two funds we need. Having the two lets each of us have our own favorite level of home country bias. If it were not for that, one ACWI fund would be all we need.

 

[DanP]

FWIW: about 18 months ago I wanted to spread out a bit and opened robo-accounts with Wealthfront, Betterment and Schwab, same seed $ (in the 6-figure range), same investor risk profile.

Can't say that I notice much difference in performance so far, after fees/taxes etc. Noting that Betterment just raised their fee.

As a small comment Wealthfront trades A LOT - not necessarily a bad thing but 60+ page 1099s kind of suck.

As another poster mentioned, it will be interesting to see how they perform in other market conditions. I'll keep the accounts as they are for the time being.

 

[Closet_Gamer]

I've avoided this trend regardless of provider.

Seems like a robot customer is either:

1) buying into market timing from another angle..."the robot can beat the market and overcome both trading inefficiencies and its incremental costs"

2) paying the robt to do asset allocation maintenance that can be accomplished for free with simple annual rebalancing. The robot is just cheaper than having a human do it.

I'm also averse b/c the robots haven't really traded thru a truly complex market event yet...algorithms that do just fine when faced with input similar to their training data sets can suddenly do incredibly wacky things when faced with unexpected/untrained inputs.

#2 is completely reasonable if you want to outsource that maintenance, but even then, not sure anyone really knows what the robot might do under market stress when no one is watching.

Will be interesting to see how this all turns out tho.

 

[DanP]

I've avoided this trend regardless of provider.

2) paying the robt to do asset allocation maintenance that can be accomplished for free with simple annual rebalancing. The robot is just cheaper than having a human do it.

Good point, and spot on at least on my end because my main motivation with those accounts is their version of allocation for my risk profile.

I do question myself on my Vanguard, Fidelity and other accounts, which are much greater than those experiments.

Still, I am planning to add $ to those accounts, call me lazy.

 

[T-Minus]

My main problem with the Schwab Intelligent Advisory service is that they have no concept of differing account types and how to manage balances accordingly. For example, let's say that I have a $100,000 balance in my Schwab brokerage account, and $100,000 balance in my Schwab Roth account, and my profile targets a 50/50 stock/bond split. According to the theory of tax-efficient asset allocation, you would ideally want to have the brokerage account fully invested in a good stock fund, while the Roth would be invested in a bond fund. However, with the Schwab Intelligent Advisory service, you'd be 50/50 in each account - generating unnecessary taxable events. Yes - this is an extreme, overly-simplistic example, but it's what I used in a meeting with a Schwab investment person a couple months back to illustrate why I believe this service is not a good fit for me. When they can factor in varying account types, I will re-consider.

 

[bingybear]

My main problem with the Schwab Intelligent Advisory service is that they have no concept of differing account types and how to manage balances accordingly. For example, let's say that I have a $100,000 balance in my Schwab brokerage account, and $100,000 balance in my Schwab Roth account, and my profile targets a 50/50 stock/bond split. According to the theory of tax-efficient asset allocation, you would ideally want to have the brokerage account fully invested in a good stock fund, while the Roth would be invested in a bond fund. However, with the Schwab Intelligent Advisory service, you'd be 50/50 in each account - generating unnecessary taxable events. Yes - this is an extreme, overly-simplistic example, but it's what I used in a meeting with a Schwab investment person a couple months back to illustrate why I believe this service is not a good fit for me. When they can factor in varying account types, I will re-consider.

I don't know if IA uses the same allocation for all account or not. You can set up different risk levels for each account with IP. But in general I would agree that they don't seem to split assets by type into appropriate accounts.
But I guess I do it wrong. I tend to keep bonds in TIRAs. But ours RIRAs (3%-4% of assets) right now is in emerging markets. Cash is in after tax mainly in CD and HY Savings... not tax efficient.
I figure the cash needs to be available without creating huge additional taxes. That is if I needed to spend it and it was in a IRA I would have to pay income taxes and penalty to get at it. But the Roth has is a different animal as gains typically come out tax free (not sure about UBTI that comes from some investments). So I prefer to put high potential return in my Roths. But remember these are a small % of assets.

 

[ducky911]

Holly tomato Batman! 44% international. ??

FWIW, here is what the robot has selected:

And here is the fund list:



Two features that strike me are the lack of home country bias -- really underweighting the US -- and the large number of funds used.

I hope this is readable from screen shots. I am too lazy to export and format this data.

 

[bingybear]

FWIW, here is what the robot has selected:

And here is the fund list:



Two features that strike me are the lack of home country bias -- really underweighting the US -- and the large number of funds used.

I hope this is readable from screen shots. I am too lazy to export and format this data.

no bonds? what risk tolerance did you select? Did you push it for mostly all stock?

 

[bingybear]

Holly tomato Batman! 44% international. ??

I think one needs to know the inputs. Since there are no bonds you are really looking at US vs international equities effectively. It makes sense to me to increase the international portion as the US has lead for a long time. It is likely smart to overweight international. The number looks high with no bonds in the portfolio.

 

[OldShooter]

Holly tomato Batman! 44% international. ??

There is a tenable argument that since the US is something like 52 or 54% of the world's investible stocks then that should be the percentage it represents in a portfolio. I also have another $100K test portfolio in a discretionary account with a DFA-affiliated advisor and that account is almost exactly 50% international with a slight tilt towards emerging markets.

Studies I have seen say that in a long-term portfolio exchange rate risk is not a big factor. One argument was that exchange rates are uncorrelated with stock behavior so they are amount to being a damper on standard deviation. A Vanguard study, a few years old, had 30% -40% international as the range that minimized SD. So I am comfortable with anything from 30 to 50%.

Finally, I am long-term bearish on the dollar. Even short term, the runup of the dollar 4Q16 pretty well wiped out international stock gains. I view that as money in the bank that will come to me after the dollar returns to more historical levels. IIRC the UK market was up 8% in local currency 4Q16 but was flattened to zero by the dollar's rise.

no bonds? what risk tolerance did you select? Did you push it for mostly all stock?

Yes, I gamed the questionnaire until I got it as close to 100% equities as I could. I am not interested in the robot's opinion of my AA, I just wanted to see what it did with equities.