Schwab to offer free 'robo-advice'
By Jed Horowitz
NEW YORK (Reuters) - Charles Schwab Corp confirmed on Monday that it will introduce free automated investment plans picked by computer algorithms in the first quarter of 2015.
The program, to be marketed as Schwab Intelligent Portfolios to retail investors and independent investment advisers, will create portfolios of exchange-traded funds managed by Schwab and other providers.
In foregoing management and transaction fees, Schwab intends to be "disruptive" to competitors, company officials said in a conference call. Most automated investment programs charge about 0.25 percent of the money that clients invest. Traditional brokerage firms, including Schwab and competitors such as Bank of America's Merrill Lynch and Morgan Stanley, typically charge 1 percent or more of clients' invested assets in advisory programs.
Clients can open robo-accounts with a minimum of $5,000. Investments are allocated by computer algorithm to some 20 asset classes ranging from U.S. stocks and bonds to commodities and emerging markets securities.
The program is aimed at neophyte investors as well as "fee-sensitive" experienced investors, Schwab Chief Executive Walt Bettinger said on a conference call.
The firm will prosper through fees from managing and servicing underlying ETFs and from investing client cash in portfolios for itself, executives said, and is not concerned about losing clients who pay fees and commissions to the new program.
Betterment, one of the oldest robo-advisers, sent alarms through the brokerage world two weeks ago by going upscale and extending its automated investment program to registered investment advisers (RIAs) who manage money for wealthy investors. Fidelity Investments will refer RIAs who want to test digital investing to the program.
Schwab has the clout, prestige and expense-control expertise to offer a similar program to its 7,000 RIAs without need of a partner, Bettinger said.
Officials at Betterment did not return calls for comment.
A Fidelity spokeswoman said the company has received a "surge of interest" from RIAs interested in Betterment and plans to build on its current strategic alliance offering.
Bettinger said Schwab's "intelligent portfolios" threaten discount competitors and full-service brokerage giants "across the entire market."
"We are not threatened by robo-advisers," Paul Hatch, a group managing director in charge of advisory programs at UBS AG's U.S. brokerage arm told a conference of mutual fund salesmen last week. Wealthy people have complex financial planning needs that only humans can understand, he said.
But Eric Lordi, who helps run investment programs for Barclays PLC's wealth and asset management arm in the U.S., said at the same conference that large firms shouldn't ignore Fidelity's role in collecting assets for Betterment. "No one five years ago knew what Betterment was and now it goes upscale," he said.
(Reporting by Jed Horowitz; Editing by Dan Grebler and Phil Berlowitz)
