For RIA custody, Betterment's platform fees will begin at 0.20%

• Key insight: Betterment will roll out a new custody fee schedule for RIAs and other advisory firms starting next year.
• What's at stake: More than half of RIAs already use multiple custodians, according to new Cerulli research; Betterment aims to better compete with the dominant players in the industry.  
• Expert quote: "The purpose of this pricing reset is to say that we've reached a scale that we can support bringing the fee schedule down and simplifying it." — Sarah Levy, Betterment CEO
  

As it aims to win more business among increasingly multicustodial RIAs, Betterment is rolling out a new "very, very simple" fee schedule, CEO Sarah Levy said.

Starting Jan. 1, registered investment advisory firms and other advisory practices with less than $10 million held at the Betterment Advisor Solutions custodian will pay a 0.20% platform fee on assets, Levy told Financial Planning. Firms with more than $10 million at the firm's custodian will pay 0.12%, while those with more than $100 million will receive a negotiated rate. 

Custody is a highly competitive part of the wealth management industry, dominated by giant players like Charles Schwab and Fidelity Investments. Looking for a larger share of that business, Betterment and other upstart custodians are pitching RIAs with a combination of technology and relatively transparent fees.  

New York-based Betterment has reached more than $70 billion in assets under management and 1 million retail clients across a business that spans its custodian, a 401(k) arm called Betterment at Work and the biggest part of the company, the consumer-facing automated asset management service known as a "robo advisor." 

But Betterment launched its custodian business in 2014, and 600 RIAs currently use the service for an undisclosed amount of assets. The firm has notified its custodial clients of the impending fee changes, with some existing customers securing agreements with Betterment to keep at least some of their current fee structure in place, according to Levy. The shift in fees follows a similar one last year for its retail robo advisor clients, she noted.

"The purpose of this pricing reset is to say that we've reached a scale that we can support bringing the fee schedule down and simplifying it," Levy said. "We are now profitable as a firm, and so, as a result, we have the flexibility to do what's right, both for the customers and for the business."

In addition to the fee changes, Betterment has created an AI document reader to speed up the client onboarding process for its custodial customers and opened a client referral service among select client RIAs that Levy said will eventually be more widely available. 

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Half of RIAs already use multiple custodians

Betterment's custodian has now changed its name twice from its earlier branding as Betterment for Advisors and Betterment Institutional. Like its larger competitors, it generates business through cash sweeps and lending services, third-party payments from fund companies and payment for order flow through the firm's "trading and clearing partner," Apex Fintech Solutions, Levy noted. 

In exchange for platform fees and a charge for automated customer account transfers — Betterment Advisor Solutions' sole transaction fee, Levy said —  financial advisors receive portfolio management, tax optimization, onboarding, trading, billing, reporting and other services. 

"It's important both to qualify what we do and what we offer," she said. "I like to think of us as a custodian, plus a TAMP, plus more."

Five years after Betterment raised $160 million in growth capital through a credit facility and a Series F fundraising round that valued the firm at almost $1.3 billion, the industry's custodial marketplace remains top-heavy. But developments like the continuing rise in RIAs using multiple custodians, Vanguard's deal to buy Altruist and big-name firms' collaboration with Anthropic's Claude for Financial Advisors reflect a more fertile environment for disruption. Betterment is continuing to plant its seed there, with the custodian's website comparing Betterment's Cash Reserve annual percentage yield of 3.50% to the "national average" of 0.38% and stating in an FAQ section that it is "independently owned" while Altruist has agreed to be acquired.

"We're a custodian typically used alongside Fidelity or Schwab for a subset of clients where time-saving automation can improve profitability," Betterment says on its website. "For clients you bring to Betterment, assets are moved here, with portfolio management, billing and onboarding built in. However, it's flexible to your firm's needs if you prefer to segment and use it alongside another custodian." 

Firms like Betterment, Altruist and TradePMR by Robinhood are asking, "How do we scrape assets away from the legacy custodians?" in a time in which some advisors "have become disillusioned" with their primary providers, according to Stephen Caruso, the director of wealth management at consulting firm Cerulli Associates. At the end of 2024, at least 22% of RIAs already had three or more custody relationships, while another 28% used at least two. But the larger the firm, the less likely they were to rely on a single custodian. 

While Betterment is "another very interesting, technology-forward custodian," it's still too early to tell whether its pitch to RIAs to be firms' secondary or tertiary vendor will win out over the other players or the inertia for advisors seeking to keep the same setup, he said.

"I could game-plan a path in my mind," Caruso said. "It does take time, and it takes a lot of resources to execute on, so it's hard to plan out how that would fare."

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For her part, Levy said the current conversation reminds her of "a lot of potential drama that is a little bit reminiscent" of the days when some predicted robo advisors would put human advisors out of business. Those fears turned out to be "overblown," she said, because of "the value that a human advisor brings" to the client relationship. So Betterment is striving to develop AI tools that open up more time for advisors to spend with clients, whether through avoiding manual tasks filling out data for clients' onboarding through the latest feature or other ideas that RIAs are suggesting it pursue for their workflows. 

"We've been doing a ton of research with them," Levy said. "We have an entire road map of things rolling out this year and next that will just continue to chip away at the automation we have been known for."

Levy acknowledged that the largest RIAs may well require one of the biggest custodians to fill their needs around vehicles like complex derivative products. But she also said that any advisory practices that are trying to reduce the number of layers of technology integrations could find a home with Betterment in a time in which the "velocity of change" is accelerating across the industry.

"Advisors can use us for scale when they want and for control and customization when they want and run that whole gamut," Levy said. "These incremental tools in the short term are going to make advisors' lives more complicated, because it's more tools to worry about."