“Robo-advisers” promised to upend the world of wealth management by relying on computers, rather than people, to manage money.
But one of the leaders of automated investing in the US has made a break from that model, hiring a team of human beings in an effort to spur demand.
At Betterment, a New York-based company with about $7.3bn under management, assets will no longer be managed entirely digitally. Instead, customers will be given the option of a consultation with a financial adviser once a year, along with advice on portfolio construction from a team of certified financial planners.
That service ― “Betterment Plus” ― will cost 40 basis points, up from 25bp for the digital-only service. For an additional 10bp, customers can get Betterment Premium: unlimited access to a team of professionals. Each comes with a new guarantee: up to three months of fees returned if the customer is not completely satisfied.
“I look at this as opening the door a bit wider,” said Jon Stein, chief executive. “There are so many millions of people that should be investing with Betterment; we just need to wake them up.”
Robo-advisers require customers to complete an online questionnaire on their goals and risk appetite. The software then selects a portfolio, typically focusing on cheap exchange traded funds, and periodically rebalances to optimise profits and taxes.
Platforms such as Betterment, founded in 2008, account for a small but fast-growing slice of America’s $18tn wealth management market, luring mostly younger customers with the promise of managing their funds at a fraction of the cost of regular brokers.
But some analysts have long argued that revenues from digital asset management are insufficient to cover the costs of finding new customers willing to hand over their savings. Some have said it was inevitable that the newcomers would start to resemble traditional brokerages, with teams of advisers selling higher-margin services.
“A few firms have started to penetrate, but no one has cracked the code yet of how to grow to massive size,” said the chief executive of a smaller rival.
Betterment’s move brings it closer to the model pursued by mass-market wealth managers such as Charles Schwab or Vanguard. Schwab’s Intelligent Portfolios, for example, which has raced to $12.3bn in assets under management in less than two years, offers phone access to investment professionals 24 hours a day.
Mr Stein said the new services would probably attract customers “who are interested in having a little more hand-holding, a little more conversation”.
The company declined to provide an estimate of how many of its existing customers would upgrade to Plus or Premium, which both launch on Tuesday.
“For anybody leery about consolidating all their money with Betterment, this should increase their trust in our platform,” said Alex Benke, Betterment’s vice-president of financial planning.
In January, Betterment added about 10,000 new customers, Mr Stein said, bringing the total to 210,000. That makes it the biggest of the independent “robos” in the US, clear of Wealthfront, a California-based firm that manages more than $5bn of assets on behalf of more than 100,000 customers.
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