Since joining the robo advisor race in 2015, Schwab has quickly become the second largest digital advice provider, with its Intelligent Portfolio offerings claiming $19.4 billion in assets under management and more than 170,000 accounts.
Schwab — which has an all-digital robo solution, a hybrid robo offering and an institutional platform for Schwab RIAs to offer clients —
Speaking with Financial Planning, Jalina Kerr, vice president of client experience, and Ed Obuchowski, Schwab’s senior vice president of technology solutions, discussed how the firm has been working to tweak the platform to incorporate advisor feedback.
An edited transcript of the conversation follows.
What technology needs have you identified among small advisors (under $100 million in assets)?
Kerr: What we found is there’s a lot of interest in trading and rebalancing tools. They want a broader suite of tools for that particular capability. I think portfolio management technology is another, and we’ll be able to leverage Portfolio Connect when it comes into the market next year for small advisors at a largely discounted rate so that they can take advantage of some of those features without having to pay a disproportionate amount that you might for some third party technology. We still see some opportunity in the CRM space, too.
There are a number of emerging providers trying to build scale by offering services cheaply to small clients. How does Schwab compete?
Kerr: Through automated investing and Schwab’s institutional Intelligent Portfolios, small advisors can offer different services to different types of clients. I think advisors are still coming to terms with how they leverage it, how they price it, versus the rest of their offerings. It’s slowly starting to happen, people are starting to get their arms around it, but I think that’s one way that they can start to leverage that platform for maybe some smaller, emerging clients that they’re bringing into their practices.
Obuchowski: To be candid, the uptake [in Intelligent Portfolios] among advisors hasn’t been overly impressive just yet, for a variety of reasons. Some have said, ‘Hey, you’re missing some features.’ That probably amounts to the majority of the feedback we’ve gotten: ‘I’ve got to add mutual funds, I’ve got to be able to convert accounts, I don’t want to have to open up brand new accounts for everybody. And if I get a new client, I want to be able to be the one to assign the portfolio, not have the client do it themselves, and answer their questions.’
Other advisors are still trying to figure out how it fits into their practice. Some say, ‘I’ll offer it up,’ others say, ‘You know what, I’ve got a segment of my end clients that would fit really well, these are small clients, maybe they’re $100,000 accounts, they fit really well.’ Others say, ‘I just don’t see it at this point, I don’t see the benefit.’ So it really does range. And when you talk about fit within the practice, it also means, who on the team talent-wise is going to run it, who has oversight?
Is it an issue of age? Are younger advisors more willing to engage?
Obuchowski: If I would have guessed when this came out, I would have said, ‘Oh, it’s the younger advisors and they’re the ones putting money in.’ In fact we’re seeing it across the board. It’s my opinion that it tends to be the advisors that are very cost conscious and believe in automating to the nth degree. Those are the ones that are really driving growth, and those are the ones that are picking up clients. Some tend to be huge, and they say, ‘I’ve got X number of people doing this function, if you could add X, Y and Z that’s a function that I could either effectively eliminate or I can utilize those people to do other things to better serve my clients.’ And there are certainly advisors on the smaller side that are looking to grow their practice and they see this just as a tool to really help them grow.
A number of firms out there have specific people they’ve brought in to manage the automated investing side, almost setting up a practice within the practice around that. There’s certainly been some success there, too.
From a direct to consumer perspective, Schwab’s digital advice offering has been a success.
Obuchowski: I’ll be frank, when we were getting ready to come out with Intelligent Portfolios, I was expecting it to take off. Obviously we’ve seen that. So I give Tobin McDaniel (president of Schwab Wealth Investment Advisory) and that team a lot of credit for doing a great job there.
I was a little bit surprised that we didn’t see more advisor adoption early on, but after having conversations with them, I learned they had very, very specific workflows and when you sort of break that process, or you introduce a hurdle into that experience, I can definitely understand why there might be some barriers to adoption. But I’ll also tell you there are definitely some advisors out there who are waiting impatiently for us to get these features out there and they definitely consider this part of their core strategy.
Hearing critical advisor feedback on features in the institutional platform, it’s a call to action, but is it also frustrating, given the time that went into developing it?
Obuchowski: I would be lying if I didn’t say it was frustrating. I could certainly look at it and say, this was a miss. But actually I give Schwab a lot of credit for designing an engine that works across the entire firm.
So to your point, what it came down to was there were some minor tools that needed to be enhanced, and to your point, the interface that the advisors had was not, quite frankly, where it needed to be. But again, I look at that less as a challenge and more as an opportunity from the perspective that, we were expecting a slower uptake. The adoption side is so much easier on the B-to-C side than it is the B-to-B side.
At the end of the day it took us a little while to figure out exactly what this product or this platform was going to be for advisors. I think we learned a lot, we listened quite a bit, and we put in place actually what I think is a pretty impressive roadmap.
We recently ran a piece about how
Obuchowski: You do hear those things. What I’ll tell you is I still think that whether you have a fully digital account, the best interface in Silicon Valley and a fully automated backend, at the end of the day, whether you’re dealing with a Gen X’er or a millennial, the relationship is absolutely critical. It takes a lot more than simply a new tool to attract new people. It’s going to be the value proposition overall.
