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 The service is being developed in-house and likely will be free,
giving the San Francisco-based discount brokerage pioneer a leg up
on a slew of upstart firms known as robo-brokers that charge
management fees of 0.15 to 0.35 percent of a client's assets.
It would position Schwab as the first conventional brokerage with
its own robo-broker offering. In automated investing plans, clients
fill out questionnaires about investment goals and risk tolerances.
Their answers automatically determine the portfolios of
exchange-traded funds or other assets they buy.
Executives at some large broker-dealers, which typically charge 1 to
3 percent of client assets in managed account programs, have said
they do not feel threatened by robo-brokers because they make money
offering more sophisticated wealth-planning and investment services
to wealthy clients.
But they also want to nurture younger investors to replace affluent
but aging Baby Boomers, the bulk of their client base.
Schwab is betting young investors in early stages of wealth
accumulation will remain in-house and use more sophisticated
advisory services as they prosper or as markets become complicated,
one source said. Like other brokerage firms, it receives payments
from mutual funds its clients use as well as interest that
accumulates on cash held in their accounts.
The automated service is expected to include features such as
automatic portfolio rebalancing and tax-loss harvesting that some
robo-brokers recently introduced.
Neesha Hathi, head of technology solutions for independent
investment advisers who use Schwab services, told Reuters on
Thursday the program would likely be introduced this month. She did
not comment on details, but a person familiar with the plan said it
would be introduced without fees.
In July, Chief Executive Walt Bettinger told investors Schwab was
working on "an online advisory solution," but declined to provide
details on timing or whether it would build or buy a robo-service.
A Schwab spokeswoman said Friday she could not comment further.
Schwab currently offers almost 200 commission-free exchange-traded
funds, including several managed by the company.
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"Schwab definitely has a track record of entering a market by
underpricing or pricing low, but I don’t think it has a proven way
to dominate markets,” said Adam Nash, chief executive of
Wealthfront, Inc., the largest robo-broker with more than $1.4
billion of client assets.
As of June 30, Schwab had $2.4 trillion of total client assets,
including $11.5 billion of net new assets gathered in the second
quarter.
Nash would not say whether Wealthfront, which charges a flat
advisory fee of 0.25 percent and waives the fee on accounts with
$10,000 or less, will adjust its fees to compete with Schwab.
Another robo firm, Betterment LLC, "would not alter pricing" if
Schwab introduced a free service, said a spokeswoman. "We offer an
incredible value."
Some consultants said Schwab risks antagonizing outside investment
advisers who use its services and fear losing clients, but
technology head Hathi disagreed.
"There's more of an opportunity here than there is competition," she
said, noting that most turn away smaller investors and younger
members of families that are clients. "What Walt talked about is
that here's a solution for advisers that's going to allow them to
serve those accounts."
(Reporting By Jed Horowitz; additional reporting by Suzanne Barlyn
editing by Linda Stern and David Gregorio)
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