By Ian Salisbury
October 27, 2014

Charles Schwab Corp. became an icon of the 1980s and ’90s bull market by helping individual investors make cheap stock trades.

Schwab made a smart bet that people were willing to research and pick stocks without the advice of a broker, if only they were given the technology (first just the telephone, and later online) to do it for themselves. But the new generation of investors is already comfortable with technology—what they’re increasingly wary of is picking stocks.

Enter the so-called “robo-advisers,” investment firms that rely on computer algorithms to help investors pick a slate of mutual or exchange-traded funds, typically for a lower cost than traditional advisers. Companies like Betterment and Wealthfront have gained thousands of clients and millions in start-up money, hoping that they might become, essentially, the Schwab of the millennial generation.

Not surprisingly, the actual Charles Schwab wants a piece of the action too.

On Monday the San Francisco discount brokerage unveiled its plan for a product called “Schwab Intelligent Porfolios,” which will launch in the first quarter of 2015.

Schwab isn’t the only investment incumbent to try to jump on this trend. Vanguard has been running a pilot version of a program that takes a similar approach. Fidelity recently announced a venture with Betterment, one of the new upstart firms.

All the new web-driven advice services take for granted that many investors—already used to banking online, shopping on Amazon and sharing personal details on Facebook—will be willing to interact with a financial adviser only online or over the phone. In some cases, the services do away with the flesh-and-blood advisers altogether. Instead, a computer model creates a portfolio of stock and bond funds after a customers fill out an online questionnaire about their goals and risk tolerance. Just as with books and music, putting money advice online has been pushing costs down. Working with a traditional financial adviser, you might pay 1% or more assets per years in fees. Advisers like Wealthfront and Betterment charge less than 0.5%.

The new services also tend to be available to a wider group on investors, with minimum portfolios of $25,000 or less. Many traditional advisers look won’t work with clients unless they have at least ten times that amount.

How does Schwab’s planned new service compare the upstarts? The details about Intelligent Portfolios are still a bit thin. Schwab describes the service as offering “technology-driven automated portfolios” but also says “live help from investment professionals” is available. Schwab is being aggressive on cost: It will not levy any asset-based fee at all, and will require as little as $5,000 to invest. Schwab says it will make money when Schwab’s own exchange-traded funds are included as investment recommendations, and from portfolios’ cash holdings which will be in Schwab bank products. Without knowing which ETFs Schwab ends up recommending, it’s difficult to get a sense of the total amount investors will pay. (Some Schwab ETFs are very low-cost, however.)

What is clear is that the new services have changed the game, pushing companies to get the sticker price for basic advice down as low as possible. For example, an older Schwab investment program, it’s ETF “managed portfolio,” allows investors to talk to advisers over the phone and in branches. It charges investors up to 0.9% of their assets a year.

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