J295 wrote: ↑Fri Nov 05, 2021 8:25 pm
Can someone help me determine the fees/ER when using the Schwab basic Intelligent Investor service. My sister is considering using this for her recently rolled over IRA? I’d like to help her compare this to the fees/costs for a basic 3 fund portfolio. Thanks.
I don't see Schwab offering an "Intelligent Investor" service but I do see "
Intelligent Portfolios". Is that what you mean?
At the bottom of that page, there's a footnote, which I've broken out into separate lines below so it's easier to read.
There is no advisory fee or commissions charged for Schwab Intelligent Portfolios.
For Schwab Intelligent Portfolios Premium, there is an initial planning fee of $300 upon enrollment and a $30 per month advisory fee charged on a quarterly basis as detailed in the Schwab Intelligent Portfolios Solutions™ disclosure brochures.
Investors in Schwab Intelligent Portfolios and Schwab Intelligent Portfolios Premium (collectively, "Schwab Intelligent Portfolios Solutions") do pay direct and indirect costs. These include ETF operating expenses which are the management and other fees the underlying ETFs charge all shareholders.
The portfolios include a cash allocation to a deposit account at Schwab Bank. Our affiliated bank earns income on the deposits, and earns more the larger the cash allocation is. The lower the interest rate Schwab Bank pays on the cash, the lower the yield. Some cash alternatives outside of Schwab Intelligent Portfolios Solutions pay a higher yield.
Deposits held at Schwab Bank are protected by FDIC insurance up to allowable limits per depositor, per account ownership category.
Schwab Intelligent Portfolios Solutions invests in Schwab ETFs. A Schwab affiliate, Charles Schwab Investment Management, receives management fees on those ETFs. Schwab Intelligent Portfolios Solutions also invests in third party ETFs.
Schwab receives compensation from some of those ETFs for providing shareholder services, and also from market centers where ETF trade orders are routed for execution.
Fees and expenses will lower performance, and investors should consider all program requirements and costs before investing. Expenses and their impact on performance, conflicts of interest, and compensation that Schwab and its affiliates receive are detailed in the Schwab Intelligent Portfolios Solutions disclosure brochures.
I
bolded a couple of key parts. Basically, if Schwab Intelligent Portfolios recommended a "3 fund plus cash allocation kept at a bank" where the 3 funds matched the typical Boglehead Three-fund portfolio, you'd be paying for the recommendation by way of
(1) a cash allocation that will act as a drag on returns (assuming that stocks & bonds will outperform cash) and
(2) the cash allocation yield typically isn't as competitive as the best money market funds such as at Vanguard. Caveat: even MMFs are paying next-to-nothing just like savings accounts, so this isn't much of a cost right now. But if interest rates go up to something significant, the cost would rise. It still may not be much, as we might just be talking about the difference between 1% yield and 0.5% yield on the cash allocation.
I would look into how much Schwab typically recommends for the cash allocation. Maybe it's just a few percentage points?