Within our Fintech Trends for 2015 analysis, robo-advisory, or also called robo investing, was featured as one of the hot markets. The attraction of robo-advisory is that it offers a cost effective long-term investing solution, when compared to traditional portfolio advisory products. Using portfolio allocation technology, robo- advisory products automatically allocate user funds in low fee ETFs while adjusting for customer risk tolerances and long-term savings goals.
The growth of the sector was noted last week, as Wealthfront reported that its assets under management reached the $2 billion milestone, representing 10x growth in two years. However, as mentioned in our Fintech Trends review, the hot sector was expected to become more competitive as with the entrance of established asset managers.
Becoming the 800 pound gorilla in the sector, Charles Schwab officially launched their robo-advisory product today, Schwab Intelligent Portfolios. The launch of Schwab Intelligent Portfolios follows notifications to clients earlier this year that the product is coming.
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Like Wealthfront and others, customers answer questions about their investment goals and risks, with assets allocated among 20 asset classes. The product also provides tax-loss harvesting to minimize tax burdens on account gains.
Among the most notable features is that Charles Schwab isn’t charging advisory fees for the service. This compares to fees between 0.25% and 0.5% at other robo-advisory firms. Charles Schwab is able to do this as the firm offers its own ETFs that are publicly traded, which it collects a management fee from.
Regardless of the fees which undercut existing players in the market, Charles Schwab has the added advantage of an existing customer base to market Schwab Intelligent Portfolios to. With over a trillion dollars already under management, Charles Schwab is viewed as a good bet to quickly become the largest robo-advisor in the world. However, it will be interesting how the product is ultimately marketed to existing clients, as it could cannibalize fees collected from higher revenue generating products. Overall, it can be said that Charles Schwab is learning from its own past. After disrupting the brokerage sector when Charles Schwab launched low-cost brokerage services, they aren’t waiting around to be disrupted themselves with the rise of robo-advising.