The Charles Schwab Corp. announced it will no longer allow registered investment advisors to on-board clients to its white label robo-advisor, Institutional Intelligent Portfolios, before it shuts down the platform next year.
The Westlake, Texas-based firm told advisors they can begin migrating those clients to the iRebal platform, which is the legacy tool Schwab obtained as part of its acquisition of TD Ameritrade.
“iRebal offers the flexibility and customization advisors have been asking us for with fewer limitations on models, no cash minimums, and expanded available account types,” Schwab said in its announcement about the change. “There is no platform fee, so it's available to your firm at no additional cost.”
Advisors can no longer enroll their clients into Institutional Intelligent Portfolios as of November 15, the firm said. In its communication to clients, Schwab stated that iRebal will offer better services than what Schwab was providing. TD Ameritrade acquired iRebal in 2007 and, several years later, decided to make it available to advisors who used its custodial services for free. Ironically, it saw the move as a way to compete against Schwab.
“Now that we can offer innovative tools gained through our Ameritrade integration, we can help you meet your clients' portfolio management needs through the iRebal platform,” the firm said.
Financial Advisor contacted Charles Schwab’s press office, but did not receive a call back by press time.
David Goldstone, manager of investment research at Martinsville, N.J.-based Condor Capital Wealth Management, believes the RIA robo-advisor was shuttered for a lack of client interest.
“My impression is that business never really took off,” he said in an interview. “It was a product that never got sufficient traction to continue to service it.”
That is not the case for Schwab’s two other robo-advisors: Intelligent Portfolio and Intelligent Portfolio Premium. In both, investors have complete control over their investments. However, in the premium version they also have access to a financial advisor. Both have been tremendously successful, garnering more than $80 billion in assets under management.
Advisors have the option to send their clients to iRebal, which Goldstone described as a trade order management system—an electronic system used to execute trade orders that he said many advisors already have in their tech stack.
Longstanding users of Institutional Intelligent Portfolios may have a problem when it comes to serving their clients if they move them over to iRebal, according to Goldstone.
“Being transferred over to iRebal, it allows you to maintain those accounts, but it really doesn’t solve your problem as to what you had originally proposed to your clients as far as what the service level is going to be and whatever the transition is going to be,” he said. “It’s a tough place for the advisors to figure out what they’re going to do with this book of business.”
The closing of the Institutional Intelligent Portfolios is the latest example of firms moving away from the robo business. J.P. Morgan and Goldman Sach had earlier made decisions to close out their robo-advisors, and Goldstone said that Schwab’s move is just the latest example in that trend.
“We expect that the largest players with the most scale are going to survive, and a lot of smaller ones aren’t going to reach that kind of scale and survive,” he said. “This is just another step in that consolidation process.”