In a move that’s getting a bit of industry attention, Charles Schwab announced that it’s now offering a new subscription-based pricing model for Schwab Intelligent Advisory and renaming the service “Schwab Intelligent Portfolios Premium.”
After paying an initial one-time $300 planning fee with a $25,000 investment minimum, clients of Schwab Intelligent Portfolios Premium will pay $30 a month (billed quarterly) rather than 0.28% of assets each year.
It includes unlimited support from a CFP. There are no pricing changes to Schwab Intelligent Portfolios, the firm’s automated investing service, which charges no advisory fee.
A press release announcing the news said the move was made “to simplify its approach to comprehensive professional guidance and financial planning for the firm’s digital advisory services.”
San Francisco-based Schwab, which handles more than $3.5 trillion in assets, is hoping the switch will attract customers already used to monthly subscriptions for services like Netflix.
“Subscription-based pricing is second nature to many of us who pay this way for other forms of ongoing access and guidance—from streaming media services to fitness and personal training memberships. We think people should have the opportunity to pay for financial planning the same way,” Cynthia Loh, Charles Schwab vice president of digital advice and innovation, said in a statement. “This new pricing approach is part of our focus on making the investing and planning experience easier, more modern, and more approachable. We’re looking forward to helping people get the financial help they need, whether they’re investing for the long term or have more immediate life events that require a plan.”
Potential impact on independent advisors
The development was quick to attract feedback from high-profile industry experts including Michael Kitces, who predicted a move to monthly retainers as the next big thing in financial planning business models back in late 2013.
Kitces said in a March 28 tweet: “it’s amazing to see how quickly the financial advisor fee model is suddenly changing in just a few months now. Wow.”
He also noted the effect it could have on independent financial advisors.
“From the individual advisor’s perspective, though, this further emphasizes why niches and specialization will be crucial, even/including in new fee-for-service models. Solo advisors cannot compete on price/scale w/ Schwab. MUST compete on differentiated value at higher fee level,” Kitces tweeted.
Now that Charles Schwab has officially launched its subscription model to layer more financial planning onto its “robo” solution, Kitces predicted in another tweet that Vanguard might similarly launch a higher monthly subscription tier within months.
While a bit hyperbolic, it had one Twitter responder claiming it was the beginning of the end for assets under management, predicting the business model would disappear in 10 years.
The Schwab model
Schwab Intelligent Portfolios builds, monitors, and automatically rebalances a diversified portfolio of low-cost exchange-traded funds (ETFs) based on a client’s goals and provides 24/7 help from Schwab service professionals.
It is designed as a fully digital end-to-end experience, but clients also have access to professionals who can help with a range of topics including client goals, risk tolerance, and portfolio allocation.
The announcement said Schwab Intelligent Portfolios Premium builds on Schwab Intelligent Portfolios to offer:
- Unlimited 1:1 guidance from a CFP professional who can provide personalized financial advice based on current goals and provide ongoing advice as goals and circumstances change
- A comprehensive financial plan that provides a customized roadmap for reaching financial goals
- Ability to access the financial plan 24/7 via a comprehensive digital planning experience, including the ability to modify assumptions in real time to see how changing needs and circumstances could impact a client’s overall financial picture and help them stay on track
Just as if they had invested on their own, clients in Schwab Intelligent Portfolios and Schwab Intelligent Portfolios Premium pay the operating expenses on the ETFs in the portfolio, which includes a combination of Schwab ETFs and funds from third-party providers. Clients do not pay commissions in Schwab Intelligent Portfolios and Schwab Intelligent Portfolios Premium.
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
