Schwab Becomes Latest Brokerage to Scrap Robo Service

Another one bites the dust.

Schwab will shut down its premium service combining digital advice and human advisors, Schwab Intelligent Portfolios Premium, at the start of next year. The discount brokerage will continue to offer its core, online-only service, Intelligent Portfolios, which has a $5,000 minimum and doesn’t charge a fee. It’s the latest example of traditional banking giants abandoning their robo aspirations, coming on the heels of similar announcements from UBS and US Bank. But Schwab’s move marks the first major example of a bank tossing just its premium service, as opposed to throwing the whole robo baby out with the bathwater.

“A bulk of [Schwab’s] assets were at the Intelligent Portfolios, digital-only tier,” said David Goldstone, manager of investment research at Condor Capital, which publishes a quarterly report on robo-advisors. “I won’t be surprised if Schwab decides to refocus on their [core] offering as it exits the hybrid, premium tier.”

Cash Cow

Schwab was one of the first major brokerages to enter the robo space, launching Intelligent Portfolios in 2015. Since then, the non-premium service has garnered more than $80 billion in assets. A main reason for shuttering the top-tier service is that hybrid offerings, which combine human and digital advice, are much more difficult to scale, Goldstone said. What makes Schwab different, he added, is that it was able to scale its basic product. “If you have a hybrid offering where you’re offering live advisors, more so than just phone support or chat, it doesn’t scale nearly 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, rather than charging a fee, has a high cash allocation, which it sweeps into accounts that generate interest for the bank. This allocation hovers around 10%, Goldstone said, but varies depending on the selected risk tier. The strategy allows Schwab to earn money on its automated accounts. “It’s not directly a fee, but that’s what the business model is, is like generating a bunch of cash … I’m not a big fan of it,” he added. “I would rather see a pretty transparent fee on the AUM instead of holding back performance by investing a ton in cash.”

What Now? Schwab is still a major player in the incumbent robo offering space, or products that are offered as part of a larger, long-standing bank or brokerage. Vanguard maintains both its digital and hybrid offerings, and among independent products, Betterment and Wealthfront take the lead. “There’s still quite a few out there,” Goldstone said. “There’s been some closures, but most of the major banks launched one of these, and [only] a couple of them have shut them down.”