Betterment is again changing how it serves clients, only months after unveiling three tiers of service with a hybrid robo adviser element.

In doing so, the independent digital leader is opening up a new avenue of advice that could be a model for an industry grappling with the challenge of scaling for smaller accounts. But the move also makes it vulnerable to increased competition from incumbents and younger providers.

The firm announced on Wednesday it is phasing out the Betterment Plus service tier. It will keep the hybrid Betterment Premium level of service, which requires a $100,000 account minimum and charges annual fees of 40 basis points, and its Betterment Digital tier, an automated investing service that has no minimum balance and annual fees of 25 basis points.

Betterment Premium clients can access the platform's team of 12 CFPs by phone anytime. And now Betterment Digital clients will have access to those advisers too, the firm says — but via messaging through its mobile app.

"We want to make advice as accessible and convenient to customers as possible," says Garrett Oakley, one of Betterment's on-staff CFPs.

The announcement comes a week after Betterment received an additional $70 million in funding and a new valuation of $800 million.

'NOTHING IS OFF-LIMITS'
Though the app appears like a text, answers to questions won't be instant, Oakley says. Questions sent electronically will generate an acknowledgment from Betterment, but clients should expect actual answers will come within one business day, he says.

Though it will be the only avenue for digital account clients to interact with an adviser, any of Betterment's 280,000 clients can send questions through the messaging system, Oakley says.

Betterment CEO Jon Stein boasted his firm has nearly $10 billion in AUM.
Betterment CEO Jon Stein boasted his firm has nearly $10 billion in AUM. Bloomberg News

"We expect to see a variety of questions, nothing is off limits," he says, adding that each response, even the acknowledgment note, would in fact be handled by a person, not a bot.

It is not a substitute for adviser meetings or a phone conversation, but Oakley says the messaging channel is a reflection of how advice delivery is changing, in terms of client expectations and how the industry will manage serving large amounts of small accounts in a personalized way.

"I used to be a traditional adviser, and what I found a lot of times, it comes back to accessibility. We are now doing everything digitally and a lot of the time people have just one or two questions, they don't need a 45-minute meeting. This way they can just ask a question on their time. They don't need to call in during certain hours or schedule a meeting."

Having done testing of the system beforehand, Betterment has expectations of what the average question will be like, Oakley adds: queries about the type of IRA a client should hold, for instance, or the type of risk allocation in a portfolio.

Clients who want more interaction can upgrade to the premium account, Betterment says, or be referred to planners within the Betterment Advisor Network. (Betterment for Business clients will also have access to the messaging service, but Betterment for Advisors clients will not, since they have their own adviser.)

NEW INDUSTRY MODEL?
Offering automated investing clients the chance to interact with an adviser, even if limited to digital messaging, is still more than what such clients have previously been offered, says Bill Winterberg, head of industry tech blog FPPad.

"I applaud their effort to offer an interactive digital plan with no minimum at a low price point," Winterberg says. "Who else offers something like that? I hope that the industry opens up more ways for customers to get fiduciary advice."

Clients at wirehouses, regionals and RIAs can text their advisers, though firms have taken different approaches to what can be communicated due to regulation.

Oakley says that all messaged questions will be answered according to the personal information that Betterment has about the client.

Digital messaging as a sole advice communication channel is an approach that will gain momentum, especially with the development of machine learning technology, says Lex Sokolin, global director of fintech strategy at Autonomous Research.

"The current trend is for massive messaging services to become the primary route of conversation with clients, so that direction bet is correct," Sokolin says. "Think of virtual assistants, chatbots, neobanks, Slack, Intercom."

But they work because of instant feedback, which is achieved using a mix of artificial intelligence and human agents, he adds. "If this lower tier planning service were to eventually become automated and smart without much human involvement that would help solve the marginal economics. But just cutting off access to humans won't necessarily work."

IS IT COMPETITIVE?
Betterment says that all clients who signed up for Betterment Plus — the option that allowed them a yearly phone call with an adviser — would be bumped into Premium.

But Winterberg wonders if clients in the digital tier may be swayed to competing services from Vanguard or Schwab that have lower account minimums and fees, but offer interaction with an adviser by phone. (Vanguard Personal Adviser services, for instance, has a $50,000 account minimum, and annual fees of 30 basis points).

"I'm a customer with $50,000, it creates a donut hole of advice," Winterberg says. "If I want to ask more complicated questions I might not qualify for a response at that level of service."

Sokolin sees potential attrition at the lower end of the client spectrum too.

"First generation robo advisers are losing millennial mindshare massively to microinvesting services like Stash and Acorns, on the one hand, and to established industry incumbents, like Vanguard and Schwab, on the other hand," he says. "So the play has to be cheaper than the traditional companies, but priced high enough to still have that human element. This is the pain of growing past the early adopter market. Not that $10 billion is a small market ― it is incredible success, just not the trillions they want."

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Suleman Din

Suleman Din

Suleman Din is technology editor of American Banker and Financial Planning. Follow him on Twitter at @sulemandn.