Frequently Asked Questions

ABOUT INSTITUTIONAL INTELLIGENT PORTFOLIOS

Institutional Intelligent Portfolios is an automated investment management platform designed to help advisors deliver their personalized portfolio management services and expertise in an automated, online client experience. With this platform, advisors can efficiently serve new client segments, or smaller existing clients that may fall below their account minimums—without compromising quality or client service.

Institutional Intelligent Portfolios offers:

Robust ETF portfolios—designed by advisors: Advisors can create a diverse set of portfolios for clients that reflect each firm’s investment philosophy. Advisors choose from a broad universe of more than 900 exchange-traded funds (ETFs) across all major fund families, at their discretion.

Modern, advisor-branded digital experience for clients: The platform offers the ability to customize what clients see online and in the mobile app with advisor firm branding and information. Advisors can also use features, such as co-browsing, to facilitate conversations.

Automated rebalancing, tax-loss harvesting, and client onboarding: The Institutional Intelligent Portfolios' powerful engine provides a streamlined, paperless new account opening process for clients, while automating portfolio management tasks like rebalancing or the optional tax-loss harvesting capability. And it offers convenient integration with the Schwab systems advisors use every day.

Unmatched value to help advisors grow and serve clients efficiently: This platform is competitively priced. There is a 10 bps program fee on assets in Institutional Intelligent Portfolios. Advisors with firms that custody more than $100 million with Schwab, above and beyond any funds invested in Institutional Intelligent Portfolios, are not subject to the program fee.

It's clear that automated investment management is not a passing trend. Its growth is being fueled by a convergence of factors such as technology innovation, new market entrants, and the increasing preference among consumers for conducting business online.

According to our 2014 Independent Advisor Outlook Study, many advisors (56%) believe automated investment management platforms could supplement their current offerings and help drive growth.

We've also heard from a number of advisors asking for help in the area of automated investment management. Our goal is to ensure that when advisors are ready, they are prepared to take advantage of automated investment management opportunities.

Institutional Intelligent Portfolios offers a great deal of flexibility across portfolio construction, ETF selection, and branding for the client experience. Advisors can leverage the platform to design ETF-based portfolios that reflect their investment philosophy. Portfolios can be customized for various client needs, including:

Taxable and IRA-specific portfolios

Municipal bond portfolios

Income-generating portfolios

Advisors select from a broad universe of ETFs and asset classes. Using the most flexible level of customization, over 900 ETFs are available for selection across 45 asset classes that can be named and defined by the advisor. Advisors also have the ability to determine weighting across those asset classes plus an FDIC-insured cash allocation.

Firms are also able to customize the web platform and mobile app experience for their clients using their logo, selecting from several color schemes, and adding their contact information.

Schwab Intelligent Portfolios is a retail automated investment advisory service, offered through Schwab Wealth Investment Advisory, Inc. with portfolio management services provided by Charles Schwab Investment Advisory, Inc. (CSIA).

Schwab Intelligent Portfolios and Institutional Intelligent Portfolios utilize the same underlying technology engine for automated trading, rebalancing, and tax-loss harvesting. And both types of accounts are custodied at Charles Schwab & Co. Inc. (CS&Co.).

Institutional Intelligent Portfolios, however, is designed for independent advisors and enables them to build their own set of portfolios, reflecting their firm's investment philosophy. As a result, Institutional Intelligent Portfolios is highly customizable. Advisors determine the types of strategies offered and the number of portfolios across the risk spectrum from more conservative to more aggressive—as few as three and as many as 45. They select the asset categories and set the weighting, and can choose from more than 900 ETFs to populate the portfolios.

Another key difference is that Institutional Intelligent Portfolios allows the experience to be branded with the advisor firm's logo, name, and contact information, underscoring that the program is part of their firm's solution.

Advisors: A dedicated advisor service team specifically for the support of Institutional Intelligent Portfolios is available at 877-768-5280 from 8:00 a.m.–7:00 p.m. ET Monday–Friday. This team is in place primarily to support technical and platform functionality questions about Institutional Intelligent Portfolios. The role of Advisor Custody & Trading has not changed—they are available to answer questions and assist with account-related questions.

Clients: Institutional Intelligent Portfolios offers around-the-clock customer service for clients. If clients have questions about their Institutional Intelligent Portfolios account, they are directed to contact either their advisor or a Schwab professional, who is available 24/7 via phone at 877-805-3399.

Advisors set their own account minimums. However, the program requires at least $5,000 to open an Institutional Intelligent Portfolios account. Once an account is funded with at least $5,000, the portfolio is monitored daily and rebalanced automatically.

Advisors have the primary fiduciary duty to clients enrolled in Institutional Intelligent Portfolios. These duties include constructing portfolios, determining the appropriateness of the program for each client, selecting a portfolio for each client, and monitoring ongoing suitability of the platform for their clients, all in accordance with applicable rules and regulations. As the sponsor of the platform, Schwab Wealth Investment Advisory, Inc. (SWIA) administers services related to the platform and implements an advisor's portfolio selections. Advisors should consult the Institutional Intelligent Portfolios Program Agreement for a full description of an advisor's roles and responsibilities.

PRICING

Institutional Intelligent Portfolios has a two-tiered pricing structure based on advisor firm assets custodied with Schwab outside the Institutional Intelligent Portfolios program.

  • For those with less than $100 million in assets under management (AUM) outside of Institutional Intelligent Portfolios, there is a 10-basis points program fee.
  • For those firms that maintain more than $100 million in AUM custodied at Schwab above and beyond Institutional Intelligent Portfolios AUM, there is no fee.

No account service fees, trading commissions, or custody fees are charged to advisors or their clients by Schwab.

Advisors pay a 0.10% fee on assets enrolled in Institutional Intelligent Portfolios if they custody less than $100 million in assets at Schwab outside of Institutional Intelligent Portfolios. Additionally, Schwab Bank® earns interest revenue on the cash feature in the accounts. Also, Schwab affiliates can earn revenue from the underlying assets in Institutional Intelligent Portfolios accounts. This revenue comes from managing Schwab ETFs™ and providing services relating to third-party ETFs that advisors may select for the portfolios. Finally, Schwab may receive payments from the trading firms and exchanges where ETF trades are routed for execution.

All ETFs have an operating expense ratio (OER), an annual rate the ETF charges on the total assets it holds. Like all ETFs, Schwab ETFs charge an OER that is a source of Institutional Intelligent Portfolios revenue if advisors select Schwab ETFs for their portfolios. The OER is the same for all purchasers of the ETF, regardless of the firm where, or program in which, it is held. Additionally, some third-party ETFs included in Institutional Intelligent Portfolios pay Schwab for services provided to them as participants in Schwab ETF OneSource™, Schwab's commission-free ETF investing platform. It is important to note that the advisor has discretion over selecting ETFs, regardless of whether Schwab earns revenue.

Advisors have full control in determining the appropriate management fees they bill their clients, which can be submitted through the standard Schwab custodial billing process.

Institutional Intelligent Portfolios account data can be downloaded into a firm's portfolio management system, so advisors can calculate their fees as they normally do. If a firm uses Schwab's management fee capability through Schwab Advisor Center®, they can bill Institutional Intelligent Portfolios clients through that mechanism as well.

CREATING PORTFOLIOS

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.

Schwab Bank earns revenue based on the interest it receives by investing the cash, minus the interest paid on the deposit and the cost of FDIC insurance (which Schwab pays). Schwab Bank deposits are FDIC insured up to $250,000, and that amount includes the principal and accrued interest in the cash portion of Institutional Intelligent Portfolios accounts as well as any other cash deposits your clients may have at Schwab Bank.

Yes, cash earns interest that is pegged to an index. This is based on a national average of money market deposit account rates at the $10,000 level. This average is calculated by a third party—RateWatch. The rate of interest fluctuates over time as the national average fluctuates.

Institutional Intelligent Portfolios lets advisors choose from a range of more than 900 eligible ETFs to create customized investment portfolios for clients. The ETFs on this platform were selected by Schwab Wealth Investment Advisory, Inc. based on research and recommendations from Charles Schwab Investment Advisory, Inc. For initial selection on the Institutional Intelligent Portfolios list, ETFs are required to meet the following criteria:

Standard Portfolio Customization Enhanced Portfolio Customization
Average three-month bid-ask spread no greater than 35bps Average three-month bid-ask spread no greater than 35bps
At least $20 million in assets At least $20 million in assets
At least three full months of performance history At least three full months of performance history
Corresponds to 1 of the 28 asset classes included in the Institutional Intelligent Portfolios program Corresponds to Stocks, Fixed Income or Commodities asset category.
Excluded ETF Types Excluded ETF Types
Actively Managed ETFs
Exchange-traded notes (ETNs)
Inverse and leveraged ETFs Inverse and leveraged ETFs
Asset allocation ETFs Asset allocation ETFs

The ETFs available through Institutional Intelligent Portfolios have been through a strict evaluation process and are monitored each quarter regarding the criteria.

Advisors using Institutional Intelligent Portfolios select from a broad universe of ETFs at their discretion. There are more than 900 ETFs available for selection across all major fund families. These ETFs are selected based on standards of structure, liquidity, and history. All ETFs in the program must meet these criteria.

Schwab Wealth Investment Advisory, Inc. reviews ETFs quarterly and makes additions to the platform semi-annually as ETFs become eligible. This is done according to the program selection criteria developed by Schwab Wealth Investment Advisory, Inc.

No. One set of portfolios is offered per firm, and clients may be in any of those portfolios. New allocations and portfolios cannot be set up for specific clients or client groups.

Institutional Intelligent Portfolios offers advisors several different color schemes to customize their clients' experience. A design team evaluated the color schemes used by many independent registered investment advisors to provide options that blend with advisors' sites.

The advisor console has an area for advisors to load firm logos, select colors, provide contact information, and choose to display education content about the program for their clients on both the web and mobile experience. If settings change in one place, they change in the other. Changes that advisors make go live immediately.

OPENING ACCOUNTS

No. Clients need to open accounts themselves directly on the Institutional Intelligent Portfolios site or mobile app. Advisors can send their clients a link to where they need to go to initiate the process.

Individual Brokerage, Custodial, Joint Tenant with Rights of Survivorship, Tenants in Common, Community Property, revocable living trust (single and two trustees), Roth IRA, Traditional IRA, and Rollover IRA are the account types available in Institutional Intelligent Portfolios.

Institutional Intelligent Portfolios accounts can be funded with cash or equity securities (individual stocks, ETFs, or mutual funds). Cash can be added through deposits, cash journals from another Schwab account, wires, or MoneyLink. To fund with equity securities, clients can make the request to their advisor who in turn can initiate internal transfers through Schwab Advisor Center. ACAT and non-ACAT Transfers of Assets (TOA) from other financial institutions into Institutional Intelligent Portfolios accounts are also available using standard processes in place for those transactions.

Yes, advisors can journal cash and securities (individual securities, ETFs, and mutual funds) through Schwab Advisor Center into Institutional Intelligent Portfolios accounts. Advisors can also initiate MoneyLink cash transfers from external accounts into Institutional Intelligent Portfolios accounts.

All securities are liquidated and invested in the advisor defined portfolio, except that if there is a matching security in the portfolio, that security will only be liquidated to the extent necessary to match the portfolio allocation. Although reasonable efforts are made to trade positions on the next business day following transfer, positions are traded without regard to timing or tax consequences.

Schwab does not charge a trading commission or fees for selling deposited securities. Redemption fees, sales charges and other costs may apply.

Yes, clients are able to set up one-time or recurring deposits and withdrawals at any time through institutionalintelligent.schwab.com or through schwaballiance.com. New funds are typically invested on the trading day following the contribution.

Clients can elect to have dividends and interest withdrawn, via a form on the Institutional Intelligent Portfolios website.

MANAGING THE PROGRAM

The risk profile questionnaire is required so that Institutional Intelligent Portfolios can map the client real time to a portfolio set up by their advisor and to provide the advisor additional insight into the client's risk willingness and capacity. During enrollment, a client immediately views their advisor's recommended portfolio allocation that maps to the client's risk profile. The client can request a portfolio that is one risk level above or below that recommendation. Advisors have the opportunity to select a different portfolio for their client prior to it being invested.

Accounts enrolled in Institutional Intelligent Portfolios are analyzed daily for rebalancing and tax-loss opportunities against the platform's drift parameters. Trades calculated by the engine are aggregated into one set of trades that are executed at an undisclosed time, to avoid any front running by other parties.

Institutional Intelligent Portfolios trading orders are generally aggregated to ensure that Institutional Intelligent Portfolios clients—regardless of the advisor or the assets in the account—get the same average price on trades in the same ETF and on the same side (buy vs. sell). Thus Institutional Intelligent Portfolios strives to deliver the same price to all participants in the program, and does so at the program level and not by advisor, strategy, or client portfolio.

The Institutional Intelligent Portfolios algorithm checks to determine if asset class weights remain within a prescribed drift tolerance.

If an asset class has drifted above its target allocation by a sufficient amount, the asset class is sold to bring it back to its target allocation. The cash received from the sale is allocated to the asset classes that are underweight.

If an asset class has drifted below its target allocation by a sufficient amount, additional shares of the asset class are bought to bring it up to its target allocation. To make this purchase, overweight asset classes are sold down until there is enough cash to make the purchase.

The drift parameters are set by Schwab Wealth Investment Advisory, Inc. Advisors are not able to change the frequency of rebalancing or adjust drift parameters.

Advisors access the advisor console using the URL institutionalintelligent.schwab.com/advisor. Additionally there is a link to the advisor console from within the Schwab Advisor Center "More" menu. There is no single sign-on—advisors enter Institutional Intelligent Portfolios advisor console credentials separately.

INTEGRATION

The advisor URL is: institutionalintelligent.schwab.com/advisor

The client URL is: institutionalintelligent.schwab.com

The Institutional Intelligent Portfolios advisor console and Schwab Advisor Center are different websites. The advisor console is used to create and manage your Institutional Intelligent Portfolios program and manage your client's accounts. Only Institutional Intelligent Portfolios accounts are accessible on the advisor console. Advisors can link to the advisor console from the Schwab Advisor Center "More" menu.

The Institutional Intelligent Portfolios website is the primary destination for clients to manage their Institutional Intelligent Portfolios accounts. The site allows them to view account activity, transfer funds, and manage all necessary account information. For clients who have other accounts at Schwab, the Schwab Alliance website allows them to gain a comprehensive overview of all their accounts, including Institutional Intelligent Portfolios accounts. Clients can link directly from Schwab Alliance to the Institutional Intelligent Portfolios website with no additional login required.

Advisors cannot link to a retail Schwab Intelligent Portfolios account. Clients need to close the Schwab Intelligent Portfolios account and open a new Institutional Intelligent Portfolios account in order to link to an advisor.

Client agreements for Institutional Intelligent Portfolios are different from those for standard brokerage agreements or Schwab Intelligent Portfolios agreements. The available method for clients to agree to terms for Institutional Intelligent Portfolios is via the online account open process.

Advisors are able to see account information (balances, positions, transactions, etc.) in Schwab Advisor Center for all their clients' Institutional Intelligent Portfolios accounts. All of the normal information that advisors can see, such as documents, cost basis, and profiles, are also visible for Institutional Intelligent Portfolios accounts. In addition, advisors can find and download data on Institutional Intelligent Portfolios accounts using Schwab Data Delivery®.

Advisors are not able to move money, trade, approve portfolios, or edit dividend reinvestment instructions for Institutional Intelligent Portfolios accounts on Schwab Advisor Center.

Most account servicing can be completed online, without a form, by clients directly on the Institutional Intelligent Portfolios website. Schwab does not accept paper forms for functions that can be completed online. For functions that are not available online, advisors can access the necessary forms from the Forms and Applications page of Schwab Advisor Center. There is a new forms category to clearly distinguish which maintenance forms are eligible for Institutional Intelligent Portfolios accounts.

Across Schwab Advisor Center, there is an indicator on the master account and subaccount level to note that the account is an Institutional Intelligent Portfolios account. New data in the Profiles page indicates if accounts are Institutional Intelligent Portfolios.

All of this functionality carries through the Schwab OpenView Gateway™ integrations. Any advisor using Gateway integrations to view Schwab data in their CRM receives an Institutional Intelligent Portfolios indicator in the CRM.

The login URL for all advisor clients is institutionalintelligent.schwab.com. When clients are redirected from their advisor's website to the Institutional Intelligent Portfolios website, they need to log in using Institutional Intelligent Portfolios credentials. Advisors can provide a link to that page from their site by completing and submitting the Linking Request Form and Agreement, which advisors can request from the Institutional Intelligent Portfolios service team.

On Schwab Alliance, clients are able to view account information (balances, positions, transactions, statements, etc.). They can transfer money between their Institutional Intelligent Portfolios account and another Schwab account or transfer money to an external account using MoneyLink. Additionally, clients can designate beneficiaries on their Institutional Intelligent Portfolios IRA accounts. Clients cannot trade, edit dividend reinvestment instructions, change their risk profile, or initiate checks and wires on Schwab Alliance.

Institutional Intelligent Portfolios and Schwab Alliance share credentials. Clients accessing the Institutional Intelligent Portfolios website directly from Schwab Alliance are not required to reenter credentials. From the Account Summary page, clients can click Access Institutional Intelligent Portfolios site, which takes them to a separate website, institutionalintelligent.schwab.com.

The cash allocation in Institutional Intelligent Portfolios™ is accomplished through enrollment in the Schwab Intelligent Portfolios Sweep Program ("Sweep Program"), sponsored by Charles Schwab & Co., Inc. ("CS&Co."). By enrolling in Institutional Intelligent Portfolios, clients consent to having the free credit balances in their Institutional Intelligent Portfolios brokerage accounts swept into deposit accounts at Charles Schwab Bank® ("Schwab Bank") through the Sweep Program. Schwab Bank is an FDIC-insured depository institution affiliated with Schwab Wealth Investment Advisory, Inc. ("SWIA") and CS&Co. Cash balances held in the Sweep Program at Schwab Bank are eligible for FDIC insurance up to allowable limits.

Tax-loss harvesting is available for clients with invested assets of $50,000 or more in their Institutional Intelligent Portfolios account. Clients must be enrolled to receive this service.

Schwab affiliates do earn revenue from the underlying assets in Institutional Intelligent Portfolios accounts. This revenue comes from managing Schwab ETFs and providing services related to certain third-party ETFs that can be selected for the portfolios, 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.

Brokerage Products: Not FDIC-Insured • No Bank Guarantee • May Lose Value

Institutional Intelligent Portfolios is an ETF program made available through independent investment advisors that maintain a business relationship with Schwab Advisor Services™. The program is sponsored by Schwab Wealth Investment Advisory, Inc. ("SWIA"), a registered investment advisor.

Charles Schwab Investment Advisory, Inc. ("CSIA") provides ETF research services to SWIA for the program.

Charles Schwab & Co., Inc., SWIA, CSIA, and Charles Schwab Bank (together "Schwab") are separate but affiliated companies and subsidiaries of The Charles Schwab Corporation. Brokerage products, including the Schwab One® brokerage account, are offered by Charles Schwab & Co., Inc., Member SIPC. Deposit and lending products are offered by Charles Schwab Bank, Member FDIC and an Equal Housing Lender.

Schwab Advisor Services serves independent investment advisors and includes the custody, trading, and support services of Charles Schwab & Co., Inc., Member SIPC.

This material is for registered investment advisor use only. This material may not be forwarded or made available, in part or in whole, to any party that is not a financial professional.

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