Charles Schwab launched Monday the retail version of Schwab Intelligent Portfolios (SIP), the highly anticipated retail client version of its made-from-scratch digital advice, or robo-advisor, offering.
Available now at Intelligent.Schwab.com, SIP is a paperless platform available to clients with as little as $5,000, who can create an ETF-only portfolio using 54 ETFs representing 27 asset classes from 11 fund families — including 14 Schwab ETFs — that were a result of an objective, rigorous screening by Schwab, the company said, along with an FDIC-insured account for the cash portion of a portfolio.
Accounts with a minimum of $50,000 also have access to automated tax-loss harvesting; all will have access to automated portfolio monitoring and account rebalancing.
The platform is free to investors and features a user-friendly interface and behavioral finance sensitivity to help set up an individual's portfolio. Before building that portfolio, the tool walks users through a 14-question "Investor Profile Questionnaire," or IPQ, designed to capture "factual information to assess investors' risk capacity," along with "investors' behavioral attitude toward risk," which goes into creating a user's "risk willingness score." Finally, users are asked questions about their age and investment product preferences, which help determine "the appropriate set of portfolios."
The ETFs were chosen by Charles Schwab Investment Advisory (CSIA), and the process uses a CSIA algorithm to pick specific ETFs in a portfolio. CSIA will have discretion over the assets in SIP, and the choices include Schwab-branded ETFs and funds from third parties including Vanguard, iShares and PowerShares using quantitative criteria offering low risk (no leveraged, actively managed or single-country ETFs), adequate size for liquidity, narrow bid-ask spread (no spread more than 25-30 basis points), high consistency tracking to its index and a low operating expense ratio (OER).
During the onboarding process, users are given the option to chat in real time, to contact a Schwab branch or to call a Schwab call center staffed with specially trained personnel.
Mark Riepe, president of CSIA, said the ETFs would include both market-cap based ETFs and smart beta products that will allow users more "personalization" of their portfolios: "investors want portfolios to reflect" who they are, he said.
As for the cash portion of the portfolio, Riepe said, "I think of cash as just another asset class" which adds diversification — "it has the lowest correlation with every other asset class" — as well as inflation protection: "when inflation picks up up, yield will rise on cash." Finally, "from a philosophical standpoint, we think a cash cushion is important to help investors stick with an investing plan," he said.
In announcing the launch during an online press conference, Schwab Executive Vice President Naureen Hassan, who heads the Schwab Intelligent Portfolios project, said that Schwab had received 28,000 inquiries since it first announced it was developing SIP last October. Of those inquiries, Hassan said, only half were from existing Schwab customers; and of that group, 50% reported having more than $250,000 in assets.
"This is not just for younger people getting started," Hassan said during the conference, but instead "Schwab Intelligent Portfolios is for a wide range of investors — including those who've accumulated some wealth," and who are attracted by a digital advice offering that is "easier, more accessible and more transparent, with an established company."
In an interview following the press conference, Hassan said that the advisor version of Intelligent Portfolios–Institutional Intelligent Portfolios–was in development and on track to be released in the second quarter of 2015. As for the retail version, Hassan said that when new users sign up, the final question will be "Do you want to talk to a financial professional?" Calls from those who do want to talk to a person will be directed to a team "that's skilled enough to vector clients to the right" solution, Hassan said.
"If they have more sophisticated needs," Hassan said, the team "will follow our standard" referral protocol, to either a branch or to a Schwab-custodying independent RIA.
