Finance

Charles Schwab is beefing up its robo-adviser with a tool to help customers avoid unexpected tax hits when cashing out of portfolios (SCHW)

  • Charles Schwab is bolstering its robo-advice by launching a tool next month that helps users plan how to draw funds from their portfolios, the company said on Wednesday.
  • “For some investors, this may be their first relationship with Schwab. This may be everything they ever need from Schwab. But for many others, it’ll be the start of a relationship,” Tobin McDaniel, the firm’s senior vice president of digital advice and innovation, told Business Insider. 
  • The Schwab Intelligent Income feature will be built as an option in its robo-advice offerings and will point users to smart drawdown strategies. It’s been in the works for a little over one year, said McDaniel. 
  • Schwab, which said last month it would buy smaller rival TD Ameritrade in a deal expected to close next year, earlier this year rolled out a subscription fee model for its hybrid service that pairs human advice and a robo. 
  • Visit BI Prime for more wealth management stories

Charles Schwab is launching a tool next month that helps users figure out how to navigate taxes and time withdrawals when cashing out from their portfolios.

The new feature, called Schwab Intelligent Income, will be available to users of its robo-adviser tools who are closing in on retirement, and comes at no additional cost.

Schwab offers a basic automated investing service, as well as a hybrid model with Netflix-like subscription pricing that pairs the robo with human advice from a certified financial planner. 

How far robo-advice can go in replacing the human adviser is something of a hot topic of debate in the wealth management industry. Many agree that more basic tasks like portfolio management could largely be automated out, with the human touch still needed for more complex financial planning and coaching. 

By pairing the new tool with both the pure robo offering as well as hybrid advice, Schwab appears to be handing technology a relatively complex task to carry out.

And while Schwab’s robos and other lower-minimum offerings like Wealthfront and Betterment may be seen as aimed at tapping into demand among young investors to do everything by app, this effort is aimed at those trying to figure out retirement. 

“For some investors, this may be their first relationship with Schwab. This may be everything they ever need from Schwab. But for many others, it’ll be the start of a relationship,” Tobin McDaniel, the firm’s senior vice president of digital advice and innovation, told Business Insider. 

The tool has been in the works for a little over one year, McDaniel said, and will be built as an option in its robo-advice offerings to guide users toward smart drawdown strategies depending on their goals and overall financial situation.

It will help people figure out the best strategy for cashing out of taxable, IRA and Roth IRA accounts, while also taking into account tax-loss harvesting, complexities involving dividends, and how to rebalance portfolios in a way that avoids a hefty tax bill.

The discount brokerage, which said last month it would acquire rival TD Ameritrade in a deal expected to close in the second half of 2020, earlier this year rolled out the subscription fee model for its robo-adviser’s premium offering. 

Schwab’s new tool alongside its automated client portfolios underscore traditional financial services firms’ moves to embrace human-less or technology-heavy options — and figure out ways to bring in new clients with less expensive products and introduce them to more premium offerings.

Around 40% of digital advice assets are new to Schwab, a spokesperson said. Schwab Intelligent Portfolios comes with a $5,000 account minimum and no advisory fee, while the premium version has a $25,000 minimum and charges a monthly fee.

Customers do pay operating fees on the exchange-traded funds that are used as building blocks to make up the portfolios — and those ETFs include both Schwab-branded and third-party funds. 

More than half of Schwab’s existing digital advice clients are older than 50. Of the 1,000 Americans aged 55 years and older that Schwab and the research firm Logica Research surveyed earlier this year, nearly three-quarters of respondents within five years of retirement said they were overwhelmed by running out of money later in life.

McDaniel, who leads Schwab’s digital advice and innovations teams and was previously chief of staff to founder Charles R. Schwab, said the firm designed the feature for “a range of investors and income needs.”

He also said that CFPs, whose advisory services come with Schwab’s premium robo-advice offering, have been involved with the tool’s creation.

“Some of them have been involved through the process as experts, and providing input. And we’ve had a fairly extensive training program, both for CFPs as well as some of the other people who work with clients at Schwab,” in recent weeks, like support teams, he said.

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