Schwab Plan – Feature Review

Posted on September 11, 2020

• Schwab recently released Schwab Plan, a financial planning tool available to all clients for free
• The Plan is powered by MoneyGuidePro and has garnered buzz due to its institutional quality and sophistication
• The tool boasts a hypothetical simulations feature, detailed client considerations, and intuitive sliding scales to easily make adjustments

Overview

Schwab is not the first company to offer a “freemium” model where basic digital planning is free and clients pay for live advice. Firms such as Personal Capital and Wealthfront have popularized versions of this approach already. However, there has been some additional buzz around the fact that Schwab Plan is a white-labeled version of MoneyGuidePro (albeit a lite version), which is a professional software used by financial advisors.

The Schwab Plan experience is more akin to working with an expert than it is taking a quick survey found online. This is a big differentiator when compared to many other digital tools out there.  

Getting Started

The set up begins with detailed questions about users’ current financial picture. This includes each user’s income, spouse’s income, and more. The following screen prompts a user to select a retirement age, a life expectancy, whether we plan on moving in retirement, and even a question on our willingness to retire later. A typical robo advisor often looks for a singular point of retirement and basically assumes that users will handle the other aspects on their own.

The next step prompts users to evaluate what they need versus what they want in retirement. With most tools, an investor might estimate just one number for an annual requirement amount.

However, by breaking out needs and wants separately, investors may find themselves asking deeper questions about what’s most important and how they made need to make changes if they’re falling short.

Income Sources 

The tool next collects information about other income sources including Social Security and pension income. Again, there is a level of sophistication even with this input. By using the sliding scale, users can receive immediate feedback on how their retirement age impacts their benefits. This is an easy way to measure the tradeoff between taking distributions earlier and for more years versus waiting and taking fewer but larger distributions.

Additionally, there are prompts to include other income sources, stock options, and restricted stock. 

Funding Sources

Schwab Plan is able to aggregate your Schwab accounts all in one screen. For outside accounts, it has the ability for you to manually estimate your other assets. Here we do see an opportunity for improvement as cutting-edge tools like Wealthfront and Personal Capital can aggregate accounts with outside providers. In fact, automated account aggregation is becoming very common. This may come up as a drawback more so in the future when one wants to check in on their Schwab Plan. 

The Plan provides flexibility by allowing users to change how any given account directs its funds through clicking “Fund All Goals” and changing its path.  This includes options like healthcare. and other specific aspects of retirement. Although this is a powerful aspect of planning, its level of detail may be difficult for people to use because these questions are sometimes hard to answer and are better done with a live expert.

Your Portfolio

After inventors complete their profiles, goals, and funding sources are established, they move into the risk tolerance phase of the investment process. There is a sliding scale that gives them an easy to understand “Great Recession” portfolio shock. A unique and useful feature is that it shocks the portfolios that users can actually choose to invest in. This screen is one of the best we have seen in terms of intuitive risk tolerance questionnaires. 

Next, the tool looks at a user’s current portfolio based on the requested inputs. It is a smooth transition that uses the same Great Recession stress-test to use on the user’s current portfolio allocation. It also offers a rate of return for each asset class, a rare attribute in a digital planning tool. The rates of return for stocks are on the high end of the range. It is convenient to have the assumptions right in front of you and see one’s portfolio and one’s 2008 stress-test all in the same picture.

Simulations

As we move toward the end of the tool, we see one of the professional features of Schwab Plan. The Plan projects a range of retirement outcomes as opposed to only one ending value through a Monte Carlo simulation; by clicking “Run 1000 trials”, the tool generates different hypothetical outcomes based on the possible market environments. This effectively reminds the investor that they are playing a game of probabilities as opposed to charting one linear to success. It also lends itself to going back and tweaking one’s inputs to see what it would take to improve the Probability of Success. 

Making Adjustments

In the final stage, users get to a screen called the “Play Zone”. It contains a series of prior inputs that users can modify to see how it impacts their plans. The slide scale feature is prominent throughout the Plan and its effectiveness is pronounced here. On one screen you can make a change and see the result instantly. By tinkering with different changes, the investor can model in real-time what is happening with their situation. 

Pros

• The Plan thoroughly breaks down the client’s financial picture, including Social Security, stock options, and other financial considerations 
• Sliding scales throughout the Plan allow users to easily experiment with various scenarios
• Displays a range of 1,000 simulations to determine a “Confidence of Success”, or the likelihood that the users achieve their goals
• Simulates a user’s current portfolio’s return during the 2008 Financial Crisis

Cons

• The Plan does not aggregate non-Schwab accounts for a user’s full picture but instead opts for a manual approach
• The Plan models one retirement goal, not a suite of goals

Final thoughts

The Schwab Plan is impressive. From start to finish, it is a thorough approach to managing an important part of your life, your retirement. The user experience is fairly intuitive thanks to the process being broken up into clear stages. Also, sliding scales make weighing options easier along the way. Highlights include the Monte Carlo simulation, the Great Recession stress-testing, and the Play Zone at the end.

The next opportunities for Schwab Plan include aggregating non-Schwab accounts, and modeling multiple goals in one plan. However, at some point, a live advisor may actually be needed to make this process work smoothly. All in all, if you are modeling retirement, this is one of the best tools on the market. 

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Tagged FinTech, Retirement, Robo Review, Schwab