Fidelity has picked a horse in the "robo advisor" race.
The Boston-based financial services giant is throwing its considerable weight behind Betterment's effort to sign up financial advisors for its digital services, using its institutional practice management team to introduce Betterment Institutional to the custodian's approximately 3,000 RIA clients.
Betterment's new institutional product, which mirrors the startup's online retail product, charges advisors 25 basis points to offer a white-label digital service to clients. The service uses Betterment's portfolio management and rebalancing technology but emblazons it with the advisory firm's own brand.
"The stamp of Fidelity on Betterment immediately legitimizes them as an option for advisors looking for a digital offering," says industry consultant Tim Welsh, president of Larkspur, Calif.-based Nexus Strategy. "It's a two-way street: Fidelity enhances its reputation as a forward-looking firm and Betterment benefits from Fidelity's brand name and access to their advisors. And I think the profile of the whole digital advisor category is raised with Fidelity's involvement."
ADDRESSING MASS AFFLUENT
Advisors have been clamoring for help understanding the digital market, says Fidelity executive vice president David Canter, who heads the practice management team at the company's Institutional Wealth Services' unit. "Three years ago, advisors were concerned with segmentation and finding the right client," he says. "But in the last year they've been more focused on attracting the clients of tomorrow. We saw an opportunity to help them navigate the marketplace and address the mass affluent market."
Fidelity's "strategic alliance" with Betterment will be similar to the custodian's relationships with other "practice management solutions," Canter says, such as the one the company has with third-party lender Live Oak Bank.
Fidelity will help advisors understand the digital space, assess their needs and make an introduction to Betterment if appropriate, he says -- and will get "a business credit in the form of a referral fee" for every RIA firm that signs on with Betterment.
Fidelity will use its practice management team, which works directly with advisors, to spread the word, Canter says. Promotional efforts will also include events, white papers and the company's web site, he adds.
In addition to its Fidelity partnership, Betterment is primarily relying on two high-profile (and high-energy) industry executives -- Steve Lockshin, chairman of Convergent Wealth Advisors and a Betterment investor, and Marty Bicknell, chief executive of Mariner Wealth Advisors -- to promote the institutional digital service to RIAs, says Betterment chief executive Jon Stein.
The pair will distribute and sell Betterment Institutional through their jointly owned company, B+ Institutional Services. B+ is owned by Lockshin through his firm OpenAdvisor and Bicknell through Montage Investments, which is Mariners asset management affiliate.
Betterment currently has over $800 million in assets under management on its retail platform, Stein says, and he believes Betterment Institutional can exceed $500 million in AUM by the end of 2015. Stein says the firm already has 25 advisors on board.
In addition to promoting the startup's digital features for advisors -- which include onboarding, back-office functions, client-facing mobile apps, an advisor dashboard and regularly rebalanced ETF portfolios -- Stein thinks Betterment Institutional's custodial status will help it win over both established and new RIAs.
"Everything is electronic and it couldn't be easier for an RIA startup," he says. "We provide branded digital tools for advisors and clients, [and] back-office functions, and they don't need a clearing firm."
But industry observers expect Betterment Institutional to have plenty of competitio. Firms like Upside, Jemstep, Motif and Trizic are already approaching advisors, with more on the way.
"Advisors are very nervous, and they right now they don't know how to approach the market," Welch says.
According to a recent Fidelity poll, 56% of RIAs and broker-dealer executives say they plan to either incorporate digital advice into their existing businesses or partner with a digital advisor.
And while Betterment offers a "very strong solution," for many advisors, it may not be for everyone, says Sophie Schmitt, an analyst for Boston-based Aite Group.
"They offer off-the-shelf ETF portfolios that are completely outsourced, without a lot of customization," Schmitt says. "That may appeal more to firms that are more geared to financial planning, but not investment management. Firms that lead with their asset management expertise may look for a platform where they put on their own investment model."
Register or login for access to this item and much more
All Financial Planning content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access