Schwab vs. Vanguard

Schwab and Vanguard are the two dominant platforms in the digital advice industry.  Leveraging their clout as established investment managers, Schwab and Vanguard have amassed $43 billion and $140 billion, respectively, in assets under management on their digital platforms.  Below is a comprehensive comparison of the two services, including facts, features, and historical performance based on accounts we have open at both providers.

Facts

SchwabVanguard
Minimum Intelligent Portfolios: $5,000; Intelligent Portfolios Premium: $25,000 Vanguard Personal Advisor Services $50,000 ; Vanguard Digital Advisor* $3,000
Advisory Fee Intelligent Portfolios: No fee (digital only);Intelligent Portfolios Premium: $300 initial planning fee, $30/month subscription Vanguard Personal Advisor Services 0.30% annually for the first $5 million ;Vanguard Digital Advisor* 0.15%
Account Types Taxable (personal, joint, trust), traditional and Roth IRA, SEP IRA, Rollover IRA Taxable (personal, joint, trust), traditional and Roth IRA, SEP IRA, Rollover IRA
Access to Live Advisors Yes, Intelligent Portfolios Premium Yes, Vanguard Personal Advisor Services
Automated Tax Loss Harvesting YesNo
Automatic Rebalancing and Dividend Reinvestment NoNo
SRI Portfolio NoNo
Weighted Average Expense Ratio 0.21% 0.07%

*Vanguard Digital Advisor has been announced, however it has not been made available to the public.  Facts are based on their ADV disclosure.

Management Fee Paid Per Year At Various Asset Levels

Account$1,000$10,000$100,000$500,000
Schwab Intelligent Portfolios N/A$0$0$0
Schwab Intelligent Portfolios PremiumN/AN/A $360 (plus 1x $300 planning fee) $360 (plus 1x $300 planning fee)
Vanguard Personal Advisor Services N/AN/A$300$1,500
Vanguard Digital Advisor (Release TBD) N/A$15$150$900

Fees and Minimums 

Both Schwab and Vanguard have lowered the barriers to entry into the world of professional wealth management.  For those who are looking to pay as little as possible and comfortable investing without the help of live advisors, Schwab is currently the cheaper of the two.  The lowest service level comes without a management fee, however internal fund expenses cost approximately 0.21%. 

Note: With its future Digital Advisor offering (release date to be determined), Vanguard will have the lower minimum of the two investment advisors, starting at $3,000.  Digital Advisor comes with a management fee of 0.15% and estimated internal fund expenses of 0.07% (estimated based on PAS).  However, the combined annual costs of enrolling in Digital Advisor and investing in Vanguard Funds in the Portfolio will be capped at 0.20%.

For premium services, meaning access to live advisors, Schwab becomes more cost effective at higher account balances because of their set $360 fee (billed as a subscription service of $30/month).  They also charge $300 as a one-time financial planning fee, which will increase costs in the first year of the relationship. 

Considering the total all-in cost of each (management fee and internal expenses), Schwab is less expensive for balances of $260,000 or greater, when considering a five year time horizon.  This is calculated based on the all in cost for Vanguard (0.30% management fee and 0.07% internal expenses) compared to the all-in cost for Schwab ($300 up-front for planning, $360 per year management fee, and 0.21% internal expenses).

Financial and Retirement Planning

Because of its position as one of the largest asset managers in the world, Vanguard can build comprehensive plans via Personal Advisor Services with live advice for all of its robo clients for a low fee of 0.30%, a sizable discount compared to similar offerings that offer live advice.  At Vanguard, all financial planning centers on the direct client–advisor relationship. Working with a Certified Financial Planner, users can plan for multiple long-term investment goals and receive a complete illustration of their financial life by building a personal financial plan encompassing all of an investor’s various accounts.  Though their digital planning tools are not as robust as those offered by some start-ups, their individualized approach available to all PAS clients stands out. Custom financial plans can incorporate complex financial situations, multiple retirement income streams, and the incorporation of accounts held outside of Vanguard. Vanguard is a quality option because of its emphasis on the human experience and low costs.

Schwab also provides a range of digital financial and retirement planning tools as well as access to live advisors at their Premium service level.  Although it is not guaranteed, users can request to work with the same advisor each time, allowing for a level of personalization. For digital planning, Schwab allows users to create multiple independent goals, as well as prioritize each individual goal by importance into one unified plan.  Users can model future account values, create a clear target goal, and see their likelihood of financial success.

For those who want a planning approach that is centered on live-advisers, PAS is a good choice.  Investors who are looking for a combination of live advice with a robust digital planner should consider Schwab

Performance

A unique advantage that Backend Benchmarking has over other websites comparing robo-advisors is that we have opened accounts at all the providers and have accurate performance data on the accounts. The tables below show how our accounts at Schwab and Vanguard stack up. 

Total Portfolio Performance

YTD1-Year Trailing 2-Year Trailing (Annualized) 3-Year Trailing Annualized)
Schwab 11.15% 2.21% 3.49% 6.23%
Vanguard 12.29% 3.31% 4.92% 7.04%

Total Portfolio Standard Deviation

1-Year Trailing2-Year Trailing3-Year Trailing
Schwab12.97%10.56%9.23%
Vanguard9.05%8.09%7.11%

Equity Performance


YTD 1-Year Trailing2-Year Trailing (Annualized3-Year Trailing Annualized
Schwab14.52%-0.19%3.61%7.83%
Vanguard 16.61%1.01%5.80%9.91%

Fixed Income Performance


YTD 1-Year Trailing2-Year Trailing (Annualized3-Year Trailing Annualized
Schwab7.63%8.33%3.65%3.69%
Vanguard 5.78%7.34%3.52%2.55%

Reviewing three years of performance, Vanguard has consistently outperformed Schwab.  Vanguard also has maintained a lower standard deviation in its portfolio. Vanguard also performed better when its portfolio is compared to the Normalized Benchmark (for more on that, click here).

Conclusion

Strong performance, low fees, and an approach centered on live advisors continue to make Vanguard a compelling choice for investors.  In fact, Vanguard Personal Advisor Services was recently ranked one of the Best Robo Advisor From an Incumbent Financial Institution.

For Vanguard Personal Advisor Services, their human-powered advice teams can provide quality, customized service at a considerably low price.  With a management fee of 0.30%, Vanguard undercuts most competitors with service models that provide access to live advisors. A limitation is that PAS requires a minimum investment of $50,000. Although their online experience may witness significant changes with the upcoming release of Digital Advisor, the current PAS website is not as intuitive or streamlined as Schwab’s.   Their Digital Advisor product, although it is unknown when it will be available, will provide access to Vanguard for those with a minimum $3,000 to invest.  

Schwab Intelligent Portfolios is also a good option for those looking to get started investing as cost efficiently as possible.  With no management fee and a minimum account size of $5,000, Schwab is a great option for first-time investors. Schwab also offers a robust suite of digital financial planning tools for the do-it-yourself client, allowing for multiple independent goals to be prioritized and viewed within a unified financial plan.  Schwab Intelligent Portfolios Premium is also a very cost effective option for higher balance accounts, as the monthly subscription fee is only $30 regardless of assets under management. However, the internal expenses are slightly higher than average at 0.21%. It is also worth noting that the Schwab portfolio tracked by Backend Benchmarking has underperformed over the two- and three-year time periods which is partially driven by their large cash allocation.