Betterment and Wealthfront revive rivalry with high-yield cash accounts
The robo advice industry’s old school rivalry is back.
The push for bigger client wallet share among digital advice players has seen almost every brand bolt on checking and savings accounts in the last few months.
None though have been more eager than Wealthfront, which escalated the interest rate on its cash account three times since its February launch to its current 2.57% annual percentage yield, making it higher than any other offering. (In fact, some competing banks in that time lowered the rates on their accounts, a point Wealthfront even blogged about).
The Silicon Valley-based robo continued that in-your-face tone as it broadly advertised its account as the highest yielding in the market, as well as loudly touting it had attracted $1 billion in assets as a result.
But now the high-yield bragging rights go to longtime New York-based digital rival Betterment, which launched a new suite of banking services, including a savings account with a 2.69% APY rate and a checking account with no account fees, overdraft fees, minimum balances or monthly maintenance fees, according to the firm. (The rate only applies to money deposited this year. Otherwise the rate is 2.42%.)
Wealthfront was less than charitable.
“It’s disappointing to see Betterment play a bait-and-switch game that you’d expect from the traditional industry — offering a short term promotional rate to lure new customers in,” said spokeswoman Kate Wauck in a statement. “The new entrants in this space have to push the industry to do better than the same old tactics. It’s why we exist and we cannot lose sight of that.”
Betterment responded with its own critique, picking up the controversy surrounding Wealthfront's risk parity fund, which at the time the product launched, automatically opted in client accounts worth more than $100,000. Wealthfront maintains it has since stopped the practice and customers only join the fund if they choose.
“It seems implausible that a company would claim any sort of moral high ground while at the same time forcing customers into a heavily conflicted, proprietary product,” said Joe Ziemer, Betterment's vice president of communications. Ziemer stood by his statement, despite Wealthfront's rebuttal.
Betterment has stated its promotional rate will run through the end of the year.
Wauck said that Wealthfront's account rate was not a promotion. "There are no restrictions or strings attached to getting Wealthfront's 2.57% APY," she said.
The testy exchange was reminiscent of the early years for both digital-first firms, when they would trade public critiques. That dialogue lessened as they diverged in models, with Wealthfront chosing to remain a pure automated advisor while Betterment branched into hybrid robo advice and institutional offerings.
Betterment Chief Technology Officer Michael Reust said competitor launches of cash products in recent months did not weigh on Betterment’s decision to offer its own checking and savings account, dubbed Betterment Everyday.
“We were really looking at the needs of our own customers,” he says, adding: “however, we will be driving a much better rate than Wealthfront.”
The Betterment Everyday savings app is available to all of Betterment’s 500,000 clients as will be the checking account, expected to go online in September. Customers also receive a Visa-branded debit card issued by nbkc Bank, a community bank based in Kansas City, Missouri that’s carved out a niche using multiple partnerships with fintechs, including Joust and Truebill.
“The biggest challenge for Americans when it comes to their money is saving for the future, and unfortunately a majority of the traditional banks they depend on charge extra fees, encourage cash-holding and upsell unnecessary products,” says Betterment CEO Jon Stein in a statement. “Right now, it’s nearly impossible to find a banking solution that has its customers’ best interests at heart.”
Funds transferred from checking accounts will transfer within one to two business days, while transfers from brokerage accounts generally take around five business days, Reust says. Betterment, which manages approximately $18 billion in client assets, will also reimburse fees on ATMs nationally and internationally.
The move comes as Betterment’s largest competitors have spread a buffet of services for its clients blending banking and investment needs. In addition to Wealthfront, Carson Wealth, Personal Capital, SoFi, Ally Bank and Marcus by Goldman Sachs have all launched products intended to encourage clients to store more assets on their platforms.
Carson Wealth, through a partnership with the digital banking provider Galileo, was one of the first big advisory firms to offer checking accounts with direct deposit options and access to tens of thousands of ATMs. Carson’s RIA clients will now have access to offerings including a Mastercard-branded debit card, online bill pay, mobile check deposit and ACH transfers, among other features.
Betterment originally launched a product in December called Smart Saver, designed to give clients a way to store cash in low-risk investment vehicles like high-yield government or corporate securities, according to Reust. He expects most clients will now switch to the Betterment Everyday option.
The firm's decision has advisers and clients questioning the investment policies and maturity of the digital platform.
William Brancaccio, co-founder of Rightirement Wealth Partners in Harrison, New York, expects products with such options will be well-received.
“Most clients that choose to work with an RIA firm [do so] for transparency and to have someone independent of the [wirehouse] firms that might push certain products,” he says. “Offering clients a transparent banking option that increases the interest rate when interest rates increase is a nice option to have.”
Betterment partnered with five banks to offer the savings accounts services: Citi, Barclays, Valley National Bank, Seaside National Bank and Georgia Banking Company. The National Bank of Kansas City will provide the checking account services.
While Brancaccio currently does not have clients interested in opening up a bank account through his RIA, the higher interest rates could prove a good option for clients with high balance emergency funds that are earning next to nothing in traditional accounts.
However, the lure of banking accounts are ultimately limited, he says.
“A number of clients have several different bank accounts for various reasons,” Brancaccio says. “Replacing all of them to have everything under one roof is unlikely.”