Portfolio Management,Investing expenses, Investing fees, All-in cost, Robo advice, Robo advisor, Advisory fees, Online financial advisor, Automated investing, Automated investment service, OERs April 14, 2017

    You may have heard the acerbic Ben Franklin quote about the only certainties in life being death and taxes. Investors could add another item to the list: investment costs.

    The unfortunate truth is that investing costs money. In the world of automated investing—also known as robo advice—two common costs are advisory fees and operating expenses.

    Advisory fees

    Advisory fees are paid to an advisor to manage your portfolio. Usually you're charged an annual fee that's some small percentage of the value of your portfolio—often in the 0.1–0.4% range for automated investing. But Schwab Intelligent Portfolios® is unusual: You aren't charged an advisory fee.

    Operating expenses

    Operating expenses are what it costs to manage and market investment products, such as mutual funds and ETFs. Unlike advisory fees, you don't pay operating expenses directly. Instead, they come out of the pool of money invested in your fund and are expressed as an operating expense ratio, or OER.

    OERs tend to be higher for actively managed funds, moderate for fundamentally weighted index funds and lower for traditional market-cap-weighted index funds. And there's no getting around OERs. If your portfolio contains mutual funds or ETFs, you're going to be indirectly paying for the costs of managing those funds. Schwab Intelligent Portfolios selects ETFs based on a number of factors, but we favor those ETFs with the lowest expense ratios in each asset class.

    How do I know what I'm paying? Is this expense avoidable?
    Advisory fees Ask your advisor or check your account statement Yes. Schwab Intelligent Portfolios does not charge an advisory fee. Most other automated investment advisors do.
    OERs Read the fund prospectus No. OERs are embedded within all ETFs and mutual funds, regardless of who offers them.

    So where does that leave Schwab Intelligent Portfolios compared to the competition? Our all-in costs are among the lowest in the industry.

    How does Schwab Intelligent Portfolios compare?

    The table below compares fees that may potentially be charged by online advisory services, based on account size.

    Schwab Intelligent Portfolios Wealthfront Betterment Fidelity Go
    Advisory fees No advisory fee 0.25% of assets with the fee waived for the first $10,000
    3 Plan Options:
    Digital: 0.25% - $0 Minimum balance
    Plus: 0.40% - $100k Minimum balance
    Premium: 0.50% - $250k Minimum balance
    0.35% of assets held, which can be reduced by a variable fee credit*
    Fund fees (OERs) From 0.03% to 0.65% From 0.05% to 0.40% From 0.05% to 0.40% From 0.04% to 0.48%

    Source: Wealthfront.com, Betterment.com and Fidelity.com. Data current as of 03/01/2017. Competitor data provided for informational use only and subject to change without notice. Portfolios evaluated are each firm's retirement portfolios, or those that use taxable bonds rather than municipal bonds. Conditions and restrictions may apply. Although competitor data is taken from sources considered reliable as of date noted above, Schwab does not guarantee its accuracy. Actual investor costs may vary.

    *The amount of the Fidelity Go fee credit varies based on investments held. For Fidelity funds, the credit amount equals the underlying investment management and any other fees or compensation paid from the Fidelity fund. For non-Fidelity funds, the credit amount equals the distribution or shareholder servicing fees and any other fees or compensation paid from the non-Fidelity fund.

    The chart below compares the all-in costs of four moderate risk portfolios from online advisory services.

    An all-in comparison: Advisory fees plus weighted average OERs

    Yes, our weighted average operating expense ratio is a little higher because our portfolios include fundamentally weighted ETFs (which have repeatedly shown diversification benefits). But because we don't charge an advisory fee, you'll still generally pay less with Schwab Intelligent Portfolios than you will for a comparable portfolio with other robo advisors.

    How Schwab Intelligent Portfolios Can Help

    Over time, even small fees can make a big dent in your bottom line. That's why Schwab Intelligent Portfolios charges no advisory fees, no commissions and no account service fees. The only fees you pay are the operating expenses on the low-cost exchange-traded funds (ETFs) in your portfolio, which have similar OER ranges to other online investment advisories. With weighted average OERs ranging from 0.07% to 0.22% for portfolios across the risk spectrum from conservative to aggressive, the all-in costs for Schwab Intelligent Portfolios are among the lowest in the industry.

    Schwab Intelligent Portfolios charges no advisory fees. Schwab affiliates do earn revenue from the underlying assets in Schwab Intelligent Portfolios accounts. This revenue comes from managing Schwab ETFs™ and providing services relating to certain third-party ETFs that can be selected for the portfolio, and from the cash feature on the accounts. Revenue may also be received from the market centers where ETF trade orders are routed for execution.

    Diversification strategies do not ensure a profit and do not protect against losses in declining markets.

    (0318-8J2V)


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