Today, Schwab announced it has finally launched its much-anticpated Intelligent Portfolios. This new product is the first robo-advisory service to be offered without charging any advisory fees, commissions, or account service fees. For more details and analysis, please see our landing page here.
What is most intriguing about the service is its cost. Schwab Intelligent Portfolios is marketed as a free service. Why do they offer the service for "free"? It appears there are three main reasons:
Wealthfront CEO Adam Nash came out today with a blog post comparing its services to that of Schwab. Adam discusses the potential downsides to these new products as mentioned above.
While it may appear that this approach to free robo-advisory is noble, you can see the profit motive behind it all. While making a profit isn't a bad thing (we of course encourange capitalism), we are skeptical of the means in which Schwab is generating its profits. We would argue that adding costly smart beta ETFs that merely increase fees would not be in the best interest of the client. Furthermore, we would take issue with the potentially large allocation of cash within a clients portfolio that also might not be in the clients best interest.
While we remain skeptical, we will trial the new product shortly. Please stay tuned for further details.
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There are many roboadvisors to choose from; each with distinct characteristics and a wide variety of services offered. We break down the similarities and differences between these firms here at The List.