Betterment vs Charles Schwab Intelligent Portfolios: Which Robo Advisor Should You Choose?
If you venture into the world of robo advisors, one of the most prominent battles is the Betterment vs Charles Schwab Intelligent Portfolios battle. As these titans lock horns, who will emerge victorious?
Betterment vs Charles Schwab Intelligent Portfolios is a raging debate in the world of robo advisors. They are both extremely popular among modern investors and they both offer a host of great features. In this post, we will compare the two and help you decide the victor of the Betterment vs Charles Schwab Intelligent Portfolios battle. Let’s get started.
Betterment vs Charles Schwab Intelligent Portfolios: Battle of the Robo Advisors
What is Betterment: Pros and Cons
As far as the field of robo-advisors is concerned, Betterment is one of the pioneers. Betterment is one of the first to use technology to recommend a portfolio and automate the investment process. Over the years since its founding in 2008, the firm has added additional asset classes, launching a savings product in July 2019. A checking account is rolling out in 2020.
There are several ways to use Betterment: you can sync all of your financial accounts to get an overall picture of your assets without investing, you can invest in one of their portfolios. You also have the option to create a Flexible Portfolio which is catered to your specifications. Taxable accounts are designed to maximize after-tax returns using tax-loss harvesting, and portfolios are rebalanced when necessary. Betterment should be considered as a goal-based platform. It also features a plethora of planning tools for users and comes with a lot of useful advice. Let’s take a look at the pros and cons of Betterment:
- Quick and easy account setup
- Portfolios are fully transparent prior to funding
- You can sync external accounts to individual goals
- Add a new goal at any time and track your progress with ease
- Easily change portfolio risk or switch to a different type of portfolio
- Users of the planning function are constantly nudged to fund a Betterment account
- The standard plan incurs a charge of $199–$299 to talk to a financial planner
- Socially Responsible portfolios are invested in exchange traded funds (ETFs)
- There is no margin lending, secured loans, or borrowing options against your portfolio
What is Charles Schwab’s Intelligent Portfolios: Pros and Cons
Charles Schwab’s Intelligent Portfolios offering was made available to the public in 2015. It immediately grabbed attention because of its zero-fee advisory service with a minimum investment of $5,000. Later on, the company also launched a premium service that allowed its customers unlimited access to one-on-one guidance from certified financial planners. The financial planners can generate a personalized action plan for an initial fee of $300 with monthly charges of $30. To avail the premium service, investors must have at least $25,000 in their investment corpus. This review and our rating focus on the standard offering, but we will cover some of the attributes of the premium product as well.
Schwab’s service sets up a portfolio chosen from 53 exchange traded funds (ETFs) across 20 asset classes, including commodities. Some other prominent robo advisors in the market offer access to a commodity ETF. Part of your portfolio, usually 8% to 10%, remains in cash, which is one of the ways Schwab earns money while charging no management fee. The company’s other sources of revenue are management fees earned on the Schwab ETFs held in the portfolio and the market centers executing ETF trade orders.
The standard account gives you access to investing professionals, although not a dedicated planner. Your portfolio is monitored and rebalanced daily if required. Let’s look at the pros and cons of Charles Schwab Intelligent Portfolios.
- No management fees
- The platform includes a very easy-to-use website and app
- A standard account holder can switch to the premium level once the account minimum has been attained
- Schwab’s education offerings and library of resources are available to Intelligent Portfolio clients
- The portfolio is not revealed until the account is funded, and it is not customizable
- The platform requires higher-than-average cash balances
- Portfolio contents focus on Schwab-managed ETFs, which do generate fees for Schwab
- Little goal-planning help available
Betterment vs Charles Schwab Intelligent Portfolios
Betterment vs Charles Schwab Intelligent Portfolios: Management
Accounts are evaluated once a month and rebalanced if they have shifted from their goal allocation. As your target date nears, your portfolio gets more conservative with the goal of locking in gains and avoiding major losses. Having this automated risk reallocation is one of the primary reasons robo-advisors have become so popular. These are standard portfolio management techniques that most investors do not have the time or dedication to actually implement.
Tax harvesting on taxable in house accounts is available for all of Betterment’s clients. The account balance doesn’t matter. This is another key point of differentiation in favor of Betterment. Betterment really shines in this category as competing robo-advisors usually require a minimum account balance of $25,000 to turn tax loss harvesting on. Tax-loss harvesting is an option set at the account level, so if you turn it on, it will be applied to all of your portfolios within your Betterment account.
Charles Schwab Intelligent Portfolios
Intelligent Portfolios are rebalanced by an algorithm that takes tax implications into account. A portfolio rebalance is triggered whenever the asset allocation drifts from its defined allocation. This could happen at any time depending on deposits, withdrawals and market activity. Accounts are monitored daily for drift.
Betterment vs Charles Schwab Intelligent Portfolios: Goal Setting
Betterment has very easy-to-follow steps for setting a goal, and each one can be monitored separately. The asset allocation is displayed in a ring, with equities in shades of green and fixed income in shades of blue. If you’re falling behind on meeting a goal you’ve set, Betterment will encourage you to put more aside. This can be a helpful prompt, particularly for young investors who may not yet feel the urgency to save for some of their longer-term goals.
Charles Schwab Intelligent Portfolios
Aside from a rudimentary college expenses lookup, this robo advisor platform doesn’t really have a lot of goal setting tools available. However, once you’ve defined your goal , the what-if analysis capabilities allow you to modify the plan by changing your retirement age or monthly savings. You’ll also check out the potential impact of changes in market returns. The dashboard built into the web site and mobile app gives you a swift update on your performance so far.
There are additional goal-setting capabilities for the premium product, including unlimited access to financial planners. it might be nice to ascertain a more robust set of options for all accounts that goes beyond the fundamentals. The analysis capabilities and tools suggest that the logic is already there to permit interested clients to supply more detail and obtain a better-targeted portfolio.
Betterment vs Charles Schwab Intelligent Portfolios: Research and Security
Betterment’s Resource Center includes dozens of informative and well-written articles about retirement planning and how to minimize your tax burden. There are also a few videos to help you figure out how to use the platform. A lot of Betterment’s articles are dedicated towards helping investors understand portfolio compositions and Betterment’s approach towards negative market events such as the COVID-19 epidemic.
Betterment’s security is sufficient. The website is encrypted, and mobile apps offer two-factor authentication. There is no excess Securities Investor Protection Corporation (SIPC) insurance carried by Betterment itself, but trades are cleared through Apex Clearing, which has risk management tools in place. Betterment clients are not placing risky trades and there is no margin lending offered, so it’s unlikely that there would be a need for additional SIPC coverage. Still, if your account has more than $500,000 in it or more than $250,000 in cash, you might consider moving the excess to a firm with additional insurance.
Charles Schwab Intelligent Portfolio
As you would expect from an established name in the field, Schwab has a large vault of resources and excellent security features. Intelligent Portfolio customers can choose from a wide variety of content available, which includes videos, online articles, podcasts (Choiceology and Financial Decoder), OnInvesting magazine, live webcasts and special events, market updates, and the Investing Insights blog. Mobile apps support fingerprint and face recognition while the website has advanced encryption security.
Betterment vs Charles Schwab Intelligent Portfolios: Account Services
You’re encouraged to set up automatic deposits, and once an account is linked during the initial account opening process, it’s easy to enable. There is no option to let you borrow against the assets held in your Betterment account. Betterment offers a “Smart Saver” account that is invested in high-yield bond ETFs, which is currently paying over 2% (as of Sept. 23, 2019).
Consolidating external accounts to provide a full picture of your assets is one of the strengths of this platform. Each outside account can have all of, or a portion of, its contents dedicated to one of your goals. This consolidated overview of assets can be quite valuable for investors, even if it comes at the price of being prompted to move more into the platform.
Charles Schwab Intelligent Portfolios
Charles Schwab Intelligent Portfolios has a nice array of account services on offer. Tax-loss harvesting is out there for clients with at least $50,000 in their Intelligent Portfolios account, and they need to enroll in the service to enable it. The tax-loss harvesting is completed by the algorithm in conjunction with the regular portfolio rebalancing. Basically the program identifies securities to sell at a loss and replace with similar securities that fit an equivalent portfolio requirement. The program is meant to evolve to the wash-sales rules.
Schwab clients can also avail a cash management account, which offers checking and debit cards. It’s worth noting that there’s no margin available, and you can’t borrow against your portfolio. The interest paid on cash is 0.7%. If you’d wish to trade individual stocks or ETFs, you’ll need to open a separate account.
Betterment vs Charles Schwab Intelligent Portfolios: Cost Comparison
Digital-only customers pay 0.25% per year in management fees, increasing to 0.40% per year for the premium plan. Betterment offers a discounted fee on assets over $2 million, dropping the digital fee to 0.15% per year on the portion of the balance that exceeds $2 million. In the premium plan, you will pay 0.30% on the balance above $2 million. The underlying ETFs incur management fees of 0.07%–0.15% per year.
You can use Betterment’s financial planning and account consolidation tools at no charge, but you will be frequently prodded to move some of your cash into an investing account.
- Monthly cost to manage a $5,000 portfolio: $1.04
- Monthly cost to manage a $25,000 portfolio: $5.21
- Monthly cost to manage a $100,000 portfolio: $20.83
Charles Schwab Intelligent Portfolios
One of the highlights of this robo advisor is the incredible fee structure.
- Monthly cost to manage a $5,000 portfolio: $0 (Premium not available)
- Monthly cost to manage a $25,000 portfolio: $0 (Premium $30/month plus $300 setup)
- Monthly cost to manage a $100,000 portfolio: $0 (Premium $30/month plus $300 setup)
Charles Schwab eliminates fees as there will be some in the ETFs they offer. However, like all ETF fees, these are relatively minor and Schwab’s ETFs hold up well to the rest of the industry. Some will argue that this is a less transparent way of charging fees, but it is definitely a clear differentiator for Schwab regardless.
So that was the Betterment vs Charles Schwab Intelligent Portfolios battle. If you are searching for the ideal robo advisor, hopefully, you will be able to decide between the two with more ease now.