Schwab Intelligent Portfolios Premium provides a way to invest your money and get inexpensive access to a team of financial advisors.
In this article, I’ll explain why Schwab’s program is one of money expert Clark Howard’s favorite recommendations and why it’s important to meet a certain investment threshold if you’re going to use it.
Table of Contents
- What Is Schwab Intelligent Portfolios Premium?
- How Does Schwab Intelligent Portfolios Premium Work?
- Where Schwab’s Financial Advisor Shines
- Where Schwab’s Financial Advisor Falls Short
- Calculate Your Fees Before Joining
- What Do I Get as a Schwab Intelligent Portfolios Premium Customer?
- Is This a Robo-Advisor or a Financial Advisor?
- Other Financial Advisor Options at Schwab
What Is Schwab Intelligent Portfolios Premium?
|$300 up front, then $30 per month||0.18%*||$25,000||8.69%*||Taxable, Retirement, Trust, Custodial|
*Based on Backend Benchmarking’s Fourth Quarter 2020 Robo Report. Schwab Intelligent Portfolios recommends different portfolios to different clients. Your actual results will vary based on the portfolio option you select as well as future market performance.
Founded in 1971, The Charles Schwab Corporation was managing $6.7 trillion in assets as of February 2021.
Clark thinks Schwab Intelligent Portfolios Premium is a good solution. But what is it, exactly?
Some of Schwab’s naming conventions can be confusing. Fortunately, Intelligent Portfolios Premium follows logic. Look at the last word: “premium.”
By itself, Intelligent Portfolios is Schwab’s entry-level robo-advisor. For as little as $5,000, Intelligent Portfolios will invest your money in a diversified portfolio that consists mostly of low-cost ETFs, bonds and cash.
To upgrade to Premium, clients pay a one-time $300 planning fee in exchange for a customized financial roadmap and a consultation with a Certified Financial Planner (CFP). Upgrading also requires a minimum $25,000 investment.
Clients also pay $30 per month thereafter, or $360 per year. This allows continued access to a CFP, the customizable financial roadmap and digital planning tools.
How Does Schwab Intelligent Portfolios Premium Work?
Prospective clients start by filling out Schwab’s online onboarding questionnaire. It asks for your age, income, current assets, goals and more.
Schwab says it takes about 15 minutes to fill out, but you can always save it and come back later. (That’s helpful if you have a partner or spouse and need their information as well.) If you want to, you can connect outside financial accounts to the questionnaire to make it easier to tabulate your total assets.
After recommending a portfolio that fits your goals, Schwab will ask whether you want the portfolio invested in a taxable, retirement, trust or custodial account.
If you decide to deposit at least $25,000 in assets with Schwab and pay a $300 fee, you can then opt into Intelligent Portfolios Premium.
You’ll start by reviewing your goals and questionnaire answers with a Certified Financial Planner (CFP), who will help you create a financial roadmap for you. Then, for $30 per month, you’ll get ongoing access to Schwab’s CFPs, your financial plan and Schwab’s planning tools.
Where Schwab Intelligent Portfolios Premium Shines
Some of the biggest benefits of Schwab Intelligent Portfolios Premium include:
- Potentially inexpensive access to Certified Financial Planners. You should take care to figure out the cost as an annual fee. However, if a customer hands Schwab enough assets to manage, he or she can get inexpensive ongoing access to a team of Certified Financial Planners.
- Strong suite of tools. Play with “what if” financial scenarios, hone your retirement income plans and view your long-term financial roadmap.
- Always possible to get human help. Schwab’s customer service staff is available 24/7 and has a strong reputation. Clients can schedule a video or phone call at any time to consult with a CFP.
- Access to Schwab’s locations, educational tools and research. Allowing a robo-advisor to handle your investment portfolio may limit the benefits of Schwab’s educational tools and research, but what you get is still world-class. Plus, Schwab operates 358 branches, so there’s a good chance there’s a branch near you.
Where Schwab Intelligent Portfolios Premium Falls Short
Some of the downsides of Schwab Intelligent Portfolios Premium include:
- Flat fee can disguise rates. If you’re at (or not far above) the minimum $25,000 investment, you’ll pay more than the 1% that’s typical for full-service financial advisors. If you include the initial $300 planning fee in your calculations of first-year expenses, Schwab Intelligent Portfolios Premium can cost as much as 2.64%.
- Hidden costs. Schwab doesn’t charge expense ratios, even for investors using its entry-level robo-advisor product Intelligent Portfolios. However, according to Backend Benchmarking’s Fourth Quarter 2020 Robo Report, Intelligent Portfolios clients pay an average expense ratio of 0.18%. That’s 0.11% more than Vanguard’s equivalent product. Schwab also keeps a higher-than-usual amount of clients’ portfolios in cash: between 6% and 22.5%. That cash earns 0.12% interest while Schwab makes 1.21% on that money. The Intelligent Portfolios product includes proprietary Schwab ETFs, which contribute to the expense ratios and earn money for Schwab.
- No in-person meetings. COVID only accelerated the remote, digital trend. But not long ago, hiring a financial advisor usually meant meeting with your advisor in person somewhat regularly. That’s not part of the dynamic with Schwab Intelligent Portfolios Premium.
- Moving assets from elsewhere can be expensive. Clients may feel a bit pressured to sell or transfer their investments from other brokerage firms to Schwab. Depending on what’s required, this can be an expensive proposition.
Calculate Your Fees Before Joining
Flat rates for Schwab’s services can be beneficial, but they can also be tricky.
After an initial $300 fee, Schwab Intelligent Portfolios Premium charges $30 per month.
That $30 per month charge starts 90 days after you confirm your first meeting with one of Schwab’s CFPs.
You do get access to planning and coaching at lower costs. But with a flat rate, you need to do some math to figure out if you’re paying a lower annual rate.
Traditional full-service human financial advisors charge about 1% annually. The actual price varies based on numerous factors, but that’s an industry benchmark of sorts.
In order to achieve a 1% annual fee from Intelligent Portfolios Premium, you need to invest at least $36,000. Remember, the minimum investment is $25,000. And that 1% calculation excludes the initial $300 fee.
For context, clients of Vanguard Personal Advisor Services pay 0.30% annually.
|Investment||First-Year Cost||Annual Fees||Second-Year Cost||Annual Fees|
*The $30 per month charge starts 90 days after you confirm your first meeting with one of Schwab’s advisors. A Schwab spokesperson said that, on average, clients can schedule an appointment “within a few days” of paying the initial $300 fee. However, you won’t receive a personalized financial plan until after you meet with the advisor. So if you delay the initial meeting, $570 for your first year may be a bit misleading.
What Do I Get as a Schwab Intelligent Portfolios Premium Customer?
Schwab Intelligent Portfolios Premium customers get three main benefits:
1. Guidance From a Human Financial Advisor.
You’ll get access to a team of financial advisors from Schwab. You may be able to request an assigned advisor, although the standard procedure seems to be that you’ll just talk to a random available advisor.
All communication takes place via phone or video call rather than in person.
After working with an advisor to create an initial financial roadmap based on your goals, income and assets, customers can access unlimited one-on-one guidance.
You just schedule an appointment online at any time to discuss things like retirement or saving for a child’s college education.
Schwab’s robo-advisor holds a large percentage of its portfolios in cash and skews toward bonds. Its annual performance is nearly 2% worse than Fidelity’s in the last five years, according to Backend Benchmarking. It also carries a hefty average expense ratio at 0.18%.
However, Schwab allows plenty of customization. Customers can switch out up to three ETFs from the portfolio that Schwab recommends. You can also hold as many as 10 different Intelligent Portfolios simultaneously, provided you invest at least $5,000 in each account.
3. Digital Planning Tools.
Access to financial advisors and automated investing may be the features that get the most attention with Schwab Intelligent Portfolios Premium and the company’s other hybrids.
But don’t overlook the value of Schwab’s digital planning tools.
Schwab Plan: Reveals the probability that you’ll meet each of your goals and recommends steps you should take to give yourself the best chance to do so.
Play Zone: According to Schwab, this tool lets you “stress-test your plan by adjusting variables like retirement age, savings rates and lifestyle choices.” Clients can use the tool to figure out the impact of changes in timelines, monthly savings, market performance and long-term health care costs.
Intelligent Income: This tool allows you to set up a tax-friendly, recurring monthly withdrawal from your portfolio. It offers guidance on how much you can withdraw safely and how much you need to withdraw to comply with Required Minimum Distribution (RMD) rules.
Is Schwab Intelligent Portfolios Premium a Robo-Advisor or a Financial Advisor?
“Hybrid financial advisor” isn’t a common term. Robo-advisors have existed for barely a decade, and financial advisor hybrids are even newer and fewer in number.
But what exactly is a hybrid financial advisor? And is Schwab Intelligent Portfolios Premium a robo-advisor or a financial advisor?
A robo-advisor is a wonderful set-and-forget option for those who don’t need financial advice beyond investing. It’s inexpensive — typically in the neighborhood of 0.25% in annual fees plus expense ratios — and allows clients to access well-diversified portfolios replete with tools such as automatic rebalancing and tax-loss harvesting (requires a minimum $50,000 investment with Schwab).
Some robo-advisors offer customer service via phone. But robo-advisors don’t give clients access to human advice from a trained financial advisor. They don’t offer financial planning or other services beyond investing.
However, with a hybrid financial advisor, a client gets not only the robo-advisor services but also unlimited ongoing access to a human financial advisor as well as a full, customized financial roadmap.
Robo-advisors are digital, automated and rely on algorithms. The financial advisors associated with hybrid models such as Schwab Intelligent Portfolios Premium don’t meet clients in person, which saves overhead costs.
Therefore these hybrids create a way for clients to get inexpensive access to financial planning and coaching.
Other Financial Advisor Options at Schwab
Schwab offers choice at every turn, including within its financial advisor offering. And as with most investment firms, more money equals more options and features.
Invest at least $1 million to unlock Private Client to enjoy the full power of the Schwab advisor ecosystem. You’ll pay annual fees that start at 0.80% and decrease from there if you invest certain (larger) amounts.
Private Client offers advice on insurance, taxes, retirement planning, investment management and more through a team of specialists.
Another option: Invest with a local Certified Financial Planner affiliated with and vetted by Schwab (minimum $500,000).
Finally, Schwab’s ThomasPartners Strategies builds investment plans for retirement.
If you want to save money on a financial advisor while still getting quality service, Schwab Intelligent Portfolios Premium can be a great option. Clark recommends it.
If you want to pay less than the 1% benchmark for financial advisors, just make sure that you have at least $36,000.01 to invest.