I recently came across the press release that that Schwab was creating Schwab Intelligent Advisory, a new platform that gives folks access to a human advisor for 28bps (maximum fee of $3,600 per year) which utilizes the Schwab Intelligent Portfolios strategies. The minimum asset level for the human advisor option is $25,000, The 28 bps fee on that is $70 per year which I would say is very reasonable depending on the types of high level questions you could expect your advisor to be able to answer. This is obviously to compete with the success that Vanguard has had with their personal adviser service (30bps, minimum balance: $50,000). It would be great if this Schwab decision encourages Vanguard to drop their minimum to $25,000 so that more folks can utilize Vanguard’s hybrid robo service.

I decided to check out the allocations that Schwab was currently offering. My biggest complaint about the robo-advisers over the years, most notably Betterment and Wealthfront, has been that their robots just lazily put everybody into Tax Exempt Bonds in a taxable account after taking the questionnaire. Even people in low tax brackets who shouldn’t be in tax exempt bonds, and even people in California who should be in California muni bonds.

Schwab’s robot has now given investors these options that I’ve been railing on about. I don’t remember this being an option when Schwab originally launched their  robo product. This is a game changer in the robo-adviser space and I’m frankly surprised that it hasn’t received more press.

Schwab Muni's

 

Of course, Schwab’s product is by no means perfect. They have the dreaded “cash drag”. And the more conservative you make your portfolio, the more cash they put in it. As interest rates go up, you have to assume that Schwab’s cash account is always going to be less lucrative than an online bank or credit union that has minimal overhead. You also have several tiny positions. I manipulated the questionnaire and the most conservative option (with muni’s) is as follows. Are all these tiny percentage exposures to sub-asset classes going to make a difference in the portfolio? It’s hard to know.

Schwab conservative

 

Don’t want the muni bonds? Then it looks like this. Credit to Schwab for splitting up the typical aggregate bond index fund into treasuries, corporates and securitized bonds. In many states, such as California, treasury bonds are not taxed at the state level. But if you have treasuries inside of an aggregate bond index, you have to pay tax on all of the dividends that are produced out of that fund. So, if you’re in a low tax bracket that doesn’t warrant municipal bonds, holding your treasuries separately from corporates and mortgages is a very intelligent tax decision that any robot should make….

Schwab conservative no muni

 

If you’re curious, the most aggressive option is this. It’s definitely a big tilt towards Schwab’s “fundamental index” strategies.

Schwab aggressive

 

Finally, it’s worth noting that Schwab has an “income portfolio” model which uses a broad domestic and international dividend stock index funds rather than the tiny allocations to the various indexes that are shown in the portfolio above. It’s certainly not perfect, but it sounds a lot better than the snake oil that a lot of folks get sold in the financial industry.

Schwab income no muni