For me, the biggest con for the Schwab Intelligent Portfolio is the cash "feature"; even if you are a financial advisor using their platform to create your own mix of ETFs to service your clients, there is a minimum cash allocation of 4%. As an individual, the minimum cash allocation is 6%. The portfolio I set up with Schwab is 85% stocks, 3.1% commodities, 5% fixed income and 6.9% cash (Equated to $34,500 uninvested ballast on a $500,000 initial investment). And that allocation seems a little aggressive for me -- Schwab does show this as having a High Risk and High Return Potential with this allocation, though I would be more comfortable with a moderate or moderate-aggressive portfolio. I would have to up the cash to 7.3% for a less aggressive portfolio 77% stocks/4.7% commodities/11% fixed income and 7.3% cash). That would be an additional $2,000 uninvested ballast in a portfolio starting out at $500,000.
Schwab has a lengthy whitepaper regarding their cash feature, but the FAQ with respect to their institutional platform reads as follows:
The Whitepaper https://intelligent.schwab.com/public/i ... ation.htmlis a little more expansive and gives a little less attention (maybe none) to the "program economics" which is a code word for "we make money off of the cash which helps lower our fees. Still, under the individual investor FAQ they do acknowledge:Q. Why does Institutional Intelligent Portfolios require a 4% cash allocation?
A. The 4% required cash allocation is a component of the overall program structure and supports program capabilities like rebalancing and tax-loss harvesting. The cash allocation also helps support the program economics, with no added cost to the advisor or client. Across all accounts that advisors custody at Schwab, the average cash balance is 7% to 9%. With Institutional Intelligent Portfolios, the asset allocation strategy is up to the advisor. Advisors can elect a higher cash allocation if that fits their investing strategy.
However, just because Schwab makes money off of my cash does not mean having idle cash is necessarily a bad thing. For example, if all other asset classes drop in value, having cash on hand means some of it will be deployed because cash will have become over-weighted in my portfolio. I don't know how often that occurs, however, if it happened when I was 80/20 split between stocks and bonds, I would have no cash to buy on that dip. That may be fine for most people because having cash on hand to buy on a dip is really a kind of market timing, though not the worst kind as far as I am concerned.Schwab affiliates earn revenue from the underlying assets in Schwab Intelligent Portfolios accounts. This revenue comes from managing Schwab ETFs™, 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.
Another downside to Schwab Intelligent Portfolios is that they seem to make their money by tilting toward fundamental ETFs with higher operating expenses. Still, the average annual operating expenses are pretty low. According to their websitehttps://intelligent.schwab.com/public/i ... -fees.html, annual operating expenses average: 0.07, 0.16 and 0.22 for conservative/moderate and aggressive portfolios. However, the more conservative the portfolio, the larger the cash allocation, so to get the rock bottom operating expenses you have to subsidize that with a lot of uninvested cash.
Wisebanyan's website https://support.wisebanyan.com/hc/en-us ... -any-fees-claims that their portfolios have an average fund fee of 0.12% and a range of 0.03% to 0.13%. Assuming a portfolio valued of $500,000 the expenses ratios could potentially eat an extra $450 a year on the high end (0.22%-0.13% x 500k). So, even paying the $240 a year for Tax Loss Harvesting (included free of charge at Schwab) could result in a lower overall fee at Wisebanyan if my portfolio is large enough.
Schwab's portfolios are more complex because of their use of both market cap and fundamental ETFs; also because they invest in commodities. Wisebanyan's ETF list is much smaller, but it looks more like the portfolio I'd construct form myself. Their ETFs can be found at https://support.wisebanyan.com/hc/en-us ... -any-fees-.
I think the biggest downside to Wisebanyan is how few people use it and therefore, the increased likelihood that it shuts down at some point leaving you with all the hassles of come with a brokerage account shutting down. Hopefully, if they fail, they are acquired by another robo-advisor so that at least the cost-basis information transfers over seamlessly and they won't require customers to be making claims through SIPC. Fortunately, with their tax loss harvesting package turned on, they allow you to convert your traditional IRA to a Roth IRA, so that allows for an annual conversion at a cost of $20 assuming I was not otherwise going to turn tax loss harvesting on.
Anyhow, thanks for reading if you've done the reading. And more thanks if you have anything you'd like to add. My Wisebanyan account has not yet funded as I am waiting on the micro deposits to show up so I can verify the bank account. Once it does, I look forward to taking it for a spin. I am currently leaning toward Wisebanyan even though I think Schwab appears more polished and has less risk of folding up shop over time. Still, the choice is not a fait accompli and with only $8,000 in each account at the moment, the winner is going to get a pretty big pot.
(Note: I believe that neither service will let you transfer securities in kind, unlike the case with Wealthfront and, I assume, with Betterment. This is unfortunate because it would make I much easier to transfer over a sizable account since it would not require liquidation of my existing assets. I expect this too has a lot to do with why they have so few assets under management.