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To woo advisors, Betterment takes the hybrid approach

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Priding itself on being a technology company first, Betterment has learned it needs a deeper human touch to sustain its advisor platform.

RIAs are often impressed by the slick interface of Betterment for Advisors, its contemporary user experience and the way it helps speed onboarding and back office tasks. But, the young firm can’t scale on technology alone.

Competing platforms from custodians, TAMPs and other advisor tech firms have multiplied, as firms now deem it critical to control the independent advisor’s desktop. Awash in choices, RIAs are asking for ever more flexibility in handling client accounts and a level of service and communication that is constant and personal.

“Betterment is trying to do an awful lot with the resources they’ve got,” says Forrester senior research analyst Davis Janowski. “As anyone who knows the advice business, advisors expect a lot of TLC, especially now that there are so many other entrants in the space, and some are focused exclusively on the advisor.”

Even now, some RIAs still harbor ill-will over how Betterment decided to temporarily suspend trading the morning after the Brexit vote without consulting them. And like Schwab’s experience with Intelligent Advisory, Betterment’s surprise addition of a hybrid advice offering at the beginning of the year left some advisors confused about competition.

As any tech firm would, Betterment’s response to criticism has been to upgrade. Since its launch in 2014, the platform has undergone a rebranding and an expansion of portfolio options. The company is now adding more platform features and is giving more account control to users.

It has worked to develop a lead generation pipeline for the dozen firms in the new Betterment Advisor Network. Flush from its latest $70 million round of investor fundraising, it is adding more staff dedicated to working with RIAs too.

The efforts should allay concerns about commitment to serving the RIA business that is a part of its $11 billion in assets under management, says Joe Ziemer, Betterment’s vice president of communications.

“We have a lot of self-imposed pressure to improve everything we do,” Ziemer says. “Much like the retail space, it was inevitable that more [firms in] the advisor space would look to provide more digital-first type solutions.”

While all improvements are welcome, advisors currently on the platform say Betterment will have to make it a constant process if they want it remain competitive.

“Morgan Stanley, UBS, all the brokers have or will have their own version of a robo, so they are going to try real hard to keep assets with these products,” says Paul Sydlansky, founder of Lake Road Advisors in Binghamton, New York, and a Betterment for Advisors client. “For me, as a fiduciary, it is super important that I’m differentiated in a platform that resonates and will continue to resonate.”

Tasked with promoting Betterment’s RIA platform, Nick Holeman, a CFP and financial planning expert with Betterment, gives a frank assessment of its development.

“We want to keep investing,” Holeman says. “We haven’t had the line of business as long as our consumer business, so it took a little bit of time to catch up.”

One of the most pressing concerns for advisors was Betterment’s portfolio offerings. Before the relaunch last year, advisors only had access to the Betterment Core Portfolio — a set of globally diversified stocks and bonds comprised of index-tracking ETFs.

With the rebrand, however, Betterment introduced to two new portfolios, a Goldman Sachs smart beta option and Vanguard ETFs. The firm later rolled out a Socially Responsible Investing option and a BlackRock offering designed for retirees. The Goldman fund has seen the largest inflows, according to the firm.

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“Smart beta is the best of both worlds,” Holeman says, referring to active and passive management. “It doesn’t have the problem that most funds have which are mainly high fees compared to index funds.”

Brian Thompson from BT Financial, a Chicago-based RIA that uses Betterment’s platform, says having offerings from multiple firms on a single platform adds value. “The ability to have Vanguard, Betterment and SRI options, rather than having to do that piecemeal, provides more ways to actually service clients,” Thompson says.

Other new features include an updated algorithm that provides “up-to-the-minute” tax-loss harvesting, reinvests dividends and rebalances portfolios automatically, Holeman says.

Betterment also streamlined the process to transfer holdings onto the platform, eliminating the need to physically sell the assets, according to the firm. “We can onboard new clients and prospects without the tax consequences of a sell — and it all happens a lot faster,” Holeman says. “It’s helping move money on and off the platform.”

The firm shored up another major shortcoming in opening new accounts. Advisors can now onboard clients, choose risk levels, time horizons and strategy portfolios in one seamless process, Holeman says. All an RIA’s client has to do is click ‘yes’ on terms and agreements in an email. Another added function of the platform is fee collection and distribution, which results in streamlined disbursements and quicker payments to advisors.

A major effort though has been to build the referral capability of the Betterment for Advisors Network, Ziemer says. What the firm has worked to build, he says, is the ability to feed retail offerings through it.

“It is an important development that’s been received well,” he says. “That is a major thing that custodians do. We eventually wanted to do something like that.”

Even in the hybrid offering, Ziemer says, the firm is actively analyzing clients. “If we identify people who need a traditional, dedicated relationship, we’ll get them one,” he says.

That’s the sort of effort Betterment needs to expand to convince advisors it is working for them, says Michael Anderson, a planner in Ventura, California.

“I’m trying to understand what their growth model is,” he says. “If an in-house financial planner is going to work with clients, then how am I adding value?”

Anderson left the platform three years ago before rejoining after opening his own firm, Maranantha Financial, last year.

“At first I had a few issues with allocation being the same for me — as an advisor — that clients could get on the retail side,” Anderson says. “They made a lot of changes, giving advisors tools to add value.”

Not all advisors are going along. J.R. Robinson of Financial Planning Hawaii was a vocal critic of Betterment’s Brexit decision, and little has changed his perspective.

“They didn’t want to see outflows,” Robinson says. “They raised a lot of venture capital money and it doesn’t look good if there are net outflows. The market was down 2% and that was the reaction?”

After two years on the platform, Robinson only has a handful of clients left. “They didn’t meet my expectations,” he says. “I’m shutting it down.”

Lake Road founder Sydlansky says he’s brushed off questions from colleagues about concerns that Betterment’s hybrid service might be working against him.

“The client that wants to go directly on their own, that client is not going to value me anyway,” he says. “My clients are not coming to me for some secret strategy or access to hedge funds or alternative liquidity. They’re coming to me for a relationship, for behavioral guidance, for the organization and accountability that working with financial partner really brings.”

Sydlansky says he’s okay that Betterment views itself a technology company first. “That’s advantageous in that they are quick to react and make changes. They don’t have a 50-year history of some other financial firms.

“I’m running a business as well, and you have to be prepared for when that day does come,” he adds. “I’m not naïve; Betterment may not be the same in two to five years. It’s smart to have back up plans and other ways to service clients. But honestly, every direction that I see, advisors that are growing this part of their business, are adjusting for the next best solutions.”

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