Charles Schwab Intelligent Portfolios Review: A Free Robo-Advisor?

As robo-advisors are sweeping across the investment universe, large investment brokers are adding their own versions. Charles Schwab has decided to put their hat into the ring, too, with its Intelligent Portfolios.

This is an interesting development, considering that Charles Schwab & Co., Inc. pioneered the discount brokerage concept. Of course, it was originally tailor-made for do-it-yourself investors. But now, with Intelligent Portfolios, the company offers a fully managed account option. Even better is that it comes with the best cost structure in the industry – it’s completely free!

What are Charles Schwab Intelligent Portfolios?

Charles Schwab Intelligent Portfolios is an online managed investment account. That means that your portfolio is constructed and managed by Intelligent Portfolios. With Schwab handling all of the details of portfolio management for you, your only responsibility in the investment arrangement is funding your account.

This makes Intelligent Portfolios perfect for people who want hands-off investment options. However, Charles Schwab is also one of the most competitive investment brokers and offers one of the widest selections of exchange traded funds (ETFs) and mutual funds – as well as virtually all other investment securities.

So you could easily use Intelligent Portfolios as the cornerstone of your investments. But then you could maintain self-directed investments with the same broker.

Charles Schwab itself is a full-service discount brokerage firm, one of the largest in the industry. Overall, the company has nearly $3 trillion in client assets under management, including more than $234 billion in their investment advisory programs.

Related: 5 Advantages of ETFs Over Mutual Funds

How Charles Schwab Intelligent Portfolios Work

You can open an account with Charles Schwab Intelligent Portfolios with as little as $5,000. Investors can hold the following account types in Intelligent Portfolios:

• Individual taxable brokerage accounts
• Joint taxable brokerage accounts
• Custodial accounts
• Revocable Living Trust accounts
• Traditional, Roth, and rollover IRAs

Your portfolio is set up as either conservative, moderate, or aggressive. When you apply for an account with Charles Schwab Intelligent Portfolios, you first complete a questionnaire. That includes 12 questions that relate to your investment goals, your investing time horizon, and your risk profile. Your answers determine the level of portfolio risk.

Much like other robo-advisors, Schwab creates an investment portfolio for you based on your own investment preferences. That portfolio is constructed of as many as 20 individual ETFs (out of a total field of 53 potential ETFs). Those ETFs represent investments in stocks and fixed-income funds.

But where Intelligent Portfolios departs from many other robo-advisors is that it also includes investments in commodities and cash within your portfolio. This includes real estate investment trusts (REITs) and gold/precious metals funds.

Related: Paul Merriman’s Ultimate Buy-and-Hold Investment Strategy

Schwab ETFs will primarily hold the stock portion of your portfolio. But the portfolios do have secondary ETFs in this category provided by Vanguard and PowerShares. By contrast, the account places most fixed-income-based ETFs in non-Schwab funds.

Meanwhile, the gold and other precious metals position is likely to be held in an ETF through either IAU-iShares Gold Trust or GLTR—ETFS Physical Precious Metal Basket Shares.

Charles Schwab Intelligent Portfolios Features and Benefits

Charles Schwab & Co., Inc. itself offers more features and benefits than we can possibly list in a single review. But here are some of the features and benefits that pertain specifically to Charles Schwab Intelligent Portfolios:

• Account protection — The SIPC covers the funds in your Charles Schwab Intelligent Portfolios account. This insures the value of your account for up to $500,000, including up to $250,000 in cash. The cash position in your portfolio is FDIC-insured for up to $250,000 per individual depositor.
• Brick-and-mortar branches nationwide — Charles Schwab has well over 300 local branches located in and around most major cities. This is a big advantage over typical robo-advisor services, which operate entirely online and have no local branches whatsoever.
• Accessible from any digital device — You can access your Charles Schwab Intelligent Portfolios account on the go using iOS and Android apps, which are available for download either at the App Store or on Google Play.
• Automatic rebalancing — Your Charles Schwab Intelligent Portfolios account is automatically rebalanced so that your portfolio maintains the target allocations established when the portfolio was created.
• Customer service — One of the benefits of working with Charles Schwab is that their customer service is available 24 hours a day, seven days per week. And from personal experience, I can say that that their customer service is outstanding. Many other investment platforms stop answering the phones by 6 PM or 8 PM, and many are not available on weekends and holidays. At Schwab, customer service is always available. And that service is available either by toll-free phone or by live chat.
• Tax-loss harvesting — Charles Schwab Intelligent Portfolios offers this service at no additional cost if you maintain an account balance of at least $50,000. Tax-loss harvesting is the process of selling off losing positions in order to reduce capital gains on high-performing investments. The service later repurchases the harvested positions using equivalent investments. The process minimizes capital gains taxes, and can increase the average return on your portfolio by greater than 1% per year. Naturally, tax loss harvesting only applies to taxable accounts, not tax-sheltered retirement accounts.

Learn More About Rebalancing Your Portfolio

Charles Schwab Intelligent Portfolios Pricing

One of the biggest advantages to investing with Charles Schwab Intelligent Portfolios is that it charges no fees.

That means you pay no management fees, no commissions, and no account service fees. The only fees that you do pay are the operating expenses included in the ETFs in your portfolio. But you would pay these fees on any ETFs that you own, whether with Charles Schwab or any other broker. The ETF operating expense ratio (OER) ranges between 0.07% and 0.21% of the ETF balance.

Unfortunately – unlike a lot of other robo-advisors – Charles Schwab Intelligent Portfolios isn’t currently offering any kind of promotion in the form of a sign-on bonus or any other incentive. However, when a managed account comes with no management fee, that should be all the incentive that you need, especially considering that it’s an ongoing arrangement.

Related: 4 Hidden Fees of Mutual Funds

Should You Sign Up With Charles Schwab Intelligent Portfolios?

The best feature about Charles Schwab Intelligent Portfolios is that, as I mentioned, there is no management fee. That’s ridiculously inexpensive, even as robo-advisors go.

The biggest disadvantage is that it has a fairly high minimum initial deposit, at $5,000. This could be beyond the reach of new and small investors. Those individuals might be better served going with Betterment, which has no minimum investment requirement, or Wealthfront, which requires just $500 to open an account.

But for investors who can meet the minimum deposit requirement, and particularly those who have larger balances, Charles Schwab Intelligent Portfolios offers an excellent package. Not only do they have the Intelligent Portfolios robo-advisor feature, but you can also do self-directed trading with Schwab. They are a full-service, discount brokerage firm, that charges a very competitive trading commission of just $4.95 per trade.

You could choose to have some of your money managed through Intelligent Portfolios, while having other funds within a do-it-yourself account. Or you could even shift back and forth between the two. The point is, Charles Schwab gives you the best of both worlds, and that’s the type of flexibility that can be incredibly valuable when it comes to investing.

• More information on opening an account with Charles Schwab

Topics: Reviews

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