I’ve had a love affair with Robo-advisors for three years. I have accounts with roughly five and I’m poised to open several more in the upcoming months. I was elated when I read that the Schwab robo-advisor subscription model launched.
Robo-advisors or digital investment managers award innovation, better products, and lower fees for consumers. They’re a win for investors.
Big secret – I’m so enamored with this investing platform that I started the Robo-Advisor Pros.com website devoted to discussing and analyzing these fintech darlings. Finally, a financial investment management tool that democratizes the once uber-expensive commodity – investment advice and management.
First, a speedy trip down memory lane.
As the long road to the Schwab robo-advisor subscription model starts here.
The Birth of Robo-Advisors
The first phase of cheaper investing alternatives, the index fund, was launched by beloved John Bogle and Vanguard funds. Then as the index fund concept took hold and research highlighted its benefits, index fund offerings exploded. Today, there are index funds available for every market niche and sector.
Next came lower fees for index fund investors. Recently, Fidelity shook up the industry with zero fee index funds.
In the throes of the 2008-2009 financial crisis, Betterment and Personal Capital launched their digital advice services to help investors manage their money, sans the high fees of typical financial planners.
From there, an abundance of robo-advisors continue to launch and answer the call for affordable investment management and guidance.
Robo-Advisors Evolve and Consumers Win!
Over time, competition grew and the robo-advisor services and features expanded. From combined hybrid models of computerized platforms plus human advisory financial investment managers to specialty income only up portfolios, socially responsible portfolios and more.
The new robo-advisers are essentially unrecognizable from the past.
So, in a move to capitalize on the Netflix subscription model, Schwab took a step forward and created the subscription robo-advisor. Schwab is the first robo-advisor to move from the traditional fee model, which charges a percent of assets under management (AUM). In that model, higher net worth clients pay proportionately larger management fees. There are some sites, such as Personal Capital and Betterment, however, that lower their average management fee as assets grow.
While the Schwab Intelligent Portfolios basic robo-advisor remains free, the Schwab Intelligent portfolios Premium has moved from a fee of 0.28% of AUM to a subscription-based model.
The Schwab Intelligent Portfolios Premium Subscription Robo-Advisor
The services offered by the Schwab Intelligent Portfolios Premium subscription match up well with those of a traditional financial planner’s office. Wth branches across the country, there’s the convenience factor to consider as well.
Here’s what you get for the Schwab robo-advisor premium subscription:
- Diversified portfolio of low cost investments, apportioned to account for your age, goals and risk tolerance.
- Daily portfolio monitoring and automatic rebalancing when needed.
- Tax-loss harvesting.
- 24/7 support from professionals.
- Unlimited individual guidance from a Certified Financial Planner professional.
- A complete financial plan.
- Interactive online planning tools.
What does the Schwab Intelligent Portfolios Premium Plan Cost?
Distinct from the free Schwab Intelligent Portfolios robo-advisor the Premium plan has a set-up charge and monthly fee.
All investors in Schwab Intelligent Portfolios Premium pay a one-time $300 initial planning fee.
The monthly ongoing subscription charge is $30, regardless of portfolio size.
You’ll pay the $300 set up and $30 monthly fee whether your portfolio is valued at $25,000 or $2.5 million.
Visit the Robo-Advisor Selection Wizard, take a quick quiz, and find out which robo-advisor is the right one for you.
To sign up for the Schwab Intelligent Portfolios Premium, you’ll need a minimum account value of $25,000. At that amount, the $30 per month is equivalent to a 1.44% AUM fee, which is on the expensive side, even for all-access financial planning.
Yet as portfolio values rise, the monthly charge becomes relatively more reasonable, when measured as a percent of assets under management. Once your investments reach approximately $128,500, the $30 per month fee equates to 0.28% of assets under management, the former charge for Schwab’s premium robo-advisor.
A $500,000 portfolio pays an investment management fee of just 0.07%, in contrast with the average financial planner advisory fee of 1.02%, making it a real bargain for wealthier investors.
For reference, our management fee analysis didn’t include the $300 set up fee, only the ongoing $30 monthly subscription cost.
It’s worth mentioning that all investors, whether investing on their own, with a robo-advisor or a financial advisor pay the fund company a management expense ratio that ranges from 0.05% to 0.70% to run the ETF or mutual fund. This money goes directly to the investment fund manager.
Is the Schwab Robo-Advisor Subscription Worth it?
With a $25,000 investment portfolio, the $30 monthly subscription fee and $300 set up charge is too expensive. It’s difficult to justify paying 1.44% of AUM to consult with a financial advisor. If your portfolio is in that range, you’re better off with Betterment’s a la carte financial planning packages in which you pay for specific financial planning advice. For instance, the Betterment Financial Checkup Package gives you a 60-minute Certified Financial Planner call to review your investments and make recommendations, for $199.
Another option for owners of smaller portfolios is to sign up for a free robo-advisor and then hire a fee-only financial planner for as-needed planning sessions.
For wealthier investors, the Schwab Intelligent Portfolio’s Premium Plan is a bargain. Most robo-advisors that offer financial planners charge approximately 0.50% of AUM. To equal 0.50% of AUM you’ll need approximately $72,000 invested with the Schwab Intelligent Portfolios Premium robo-advisor. Any amount over that level would lower the average fee percentage, excluding the $300 set-up fee.
So, if you’re in the market for all access financial planning guidance, tax-loss harvesting and rebalancing, and have a portfolio that’s approaching six figures, the Schwab Intelligent Portfolio Premium subscription is worth a look.