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Facing volatility, robos race to add safe harbors

Facing a volatile market, two of the leading independent robo advisors are in an arms race to offer access to new asset classes that may provide a safe harbor for clients worried about the possibility of a market downturn.

Commodities, and especially precious metals like gold, are viewed as safe investments in an underperforming market, says Danielle Shechtman, a Betterment spokeswoman, in an email. “They can be a good diversifier, as they often exhibit low correlation with other assets such as stocks or bonds, and they have been seen as being a good inflation hedge.”

Betterment added broad-based commodities to its Flexible Portfolios offering, which gives advisors on the white-labeled Betterment for Advisors platform direct control over asset class weights within the Betterment core portfolio. The platform also provides exposure to international and domestic REITs, high-yield corporate bonds, a Goldman Sachs smart beta option and Vanguard ETFs.

Access to commodities has been a top priority for advisors using the firm’s Betterment for Advisors platform, meaning the new offering might help advisors gain traction with clients when markets waver. “Gold usually stays constant in price even with rising inflation,” Shechtman says. “Commodities can give advisors another dimension in which they can differentiate their offering from others.”

With 450 firms now on the Betterment for Advisors platform, the digital advice firm has doubled efforts to tend to their needs. The firm currently manages 450,000 individual accounts, including retail, according to its latest Form ADV filed this month. The firm does not break down how much of its more than $15 billion in assets under management come from institutional.

Betterment IAG

Advisors can invest client funds in GraniteShares Bloomberg Commodity Broad Strategy No K-1 ETF or COMB, a basket of futures contracts of up to 24 different commodities, according to the firm.

Looking to attract clients with cryptocurrency holdings, Wealthfront is offering a way for its retail clients to account for tokenized assets they may hold, according to the firm. The second-largest robo advisor created new APIs to integrate with the popular exchange, Coinbase. The firms says by integrating with Coinbase, a client can now account for their crypto holdings in their financial plan, offering them a more holistic view of their financial picture.

The Coinbase exchange lets users buy and sell Bitcoin, Bitcoin Cash, Ethereum, Ethereum Classic and Litecoin, according to its website.

The firms’ advice algorithm, called Path, syncs client accounts into a single terminal, like banking and brokerage accounts, mortgages and student loans. “As an innovation, we believe Bitcoin may prove very useful over time as a payment network and a software platform,” says Wealthfront CEO Andy Rachleff in a blog post. “Some people around the world may also treat it as a store of value. But, as an asset today, it is primarily a speculation.”

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In some cases, clients are advised to pay off their debt instead of putting money aside to retire.
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Wealthfront manages almost $11.5 billion in client assets in 280,000 accounts, according to its Form ADV. The average age of a Wealthfront client is 32 with an account average of $60,000, according to the firm.

The second largest independent robo recently offered free financial plans to anyone interested in using the firm’s software, betting the firm can steer users into fee-based accounts after they interact with its software. To streamline onboarding, the firm partnered with Intuit’s TurboTax to share client data.

Unlike its competitors that have offered hybrid investing options, Wealthfront remains a pure-play digital investment platform with ambitious goal to evolve from investment and planning advice to serving as a central hub for all of its clients’ financial needs.

“Our vision is to optimize and automate all of our clients finances,” says a Wealthfront spokeswoman, “and one of the most important advantages of a fully automated financial planning solution is it continuously improves as more data becomes available.”

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