Betterment is building on its efforts to cater to advisors using its platform, launching a new strategy that it says will give them more flexibility in how they manage client assets.

Called Flexible Portfolio, it gives advisors direct control over asset class weights within the Betterment core portfolio, the firm says, and provides exposure to international and domestic REITs and high-yield corporate bonds that were previously unavailable.

“We definitely heard feedback from our advisors that they needed more control,” says Cara Reisman, director of Betterment for Advisors. “They know their clients the best and want to personalize their experiences.”

Betterment CEO Jon Stein boasted his firm has nearly $10 billion in AUM.
Betterment CEO Jon Stein has said the goal of the firm's institutional platform is to help advisors spend more time with clients. Bloomberg News

Clients with legacy holdings were also a major pain point that advisors wanted addressed, she adds. “If they generally like the preset allocation, but the client has holdings outside the portfolio, you can adjust to accommodate those existing positions,” Reisman says.

Retail clients with over $100,000 in their accounts will also have access to the portfolio, Betterment officials add, but not the additional asset classes.

With 400 firms now on the Betterment for Advisors platform (Betterment does not break down how much of its $14B in assets under management come from institutional) the digital advice firm has doubled efforts to tend to their needs.

The advisor platform has undergone a rebranding and expansion of options. It has worked to develop a lead generation pipeline for firms in its Betterment Advisor Network, and added more staff dedicated to working with RIAs too.

Betterment’s portfolio offerings was always a point of contention for advisors. Before its relaunch, 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.

Also spurring change is added market competition from TAMPs, broker-dealers and custodians that have all developed their own advisor-focused digital advice platforms in the past two years. Though Betterment's user interface is hailed by users for its slickness, the firm is still dwarfed by incumbents: Schwab, which has its own digital platform for advisors, Institutional Intelligent Portfolios, has 7,500 RIAs and more than $1 trillion in AUM overall.

“Rightly or wrongly, Betterment is not often mentioned as a digital solution for advisors,” says Brad Felix, co-founder of Cincinnati-based RIA RhineVest and a Betterment for Advisors client. “For the longest time portfolio customization was the biggest hang up.”

There is more than one way to create a low-cost index-driven portfolio, he says, acknowledging individual advisors will have differing opinions on the best methodology.

“Advisors have their own angle on how they sell their services,” says Grant Easterbrook, founder of the retirement solutions provider Dream Forward. More control means advisors can then differentiate themselves to clients, he says.

Digital investment platforms will likely continue to open up their business models to grow AUM in a tight market, he adds. “Robos will have to come up with something sexier than just straight passive portfolios,” Easterbrook says.

Sean Allocca

Sean Allocca is an associate editor of Financial Planning, On Wall Street and Bank Investment Consultant.