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Practice Management > Building Your Business

Betterment Allies With Fidelity to Launch Betterment Institutional for Advisors

By James J. Green

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Betterment, the four-year-old robo-advisor, announced Wednesday the launch of Betterment Institutional, which will provide advisors with a self-branded, automated platform to serve existing clients and attract new clients with Betterment’s investing, tax harvesting and automated rebalancing offerings.

Jon Stein, the founder and CEO of Betterment, said in an interview that Betterment Institutional, or BI, “brings the power of Betterment to more people,” partnering with advisors who want to leverage BI’s technology solutions in their practices.

Betterment has formed a “strategic alliance” with Fidelity Institutional Wealth Services (IWS), Stein said, which David Canter of Fidelity IWS said reflected the RIA custodian’s deep interest from a practice management standpoint in educating its RIAs about the benefits of using technology to improve their practices.

“Having looked at their platform, it’s exceptional from an advisor standpoint,” he said. “It drafts off the business to consumer orientation” of Betterment’s offerings, but “with advisors as the hub” of the relationship with the investor. Betterment Institutional will become one of the practice management tools that Fidelity IWS offers to its RIA clients and prospects.

Since its founding in 2010, Betterment has attracted 50,000 customers to its automated advice platform, Stein says.

While there has been some concern among advisors about robo-advisors, Canter said many advisors see “this digital advice proposition not necessarily as a threat but as a way to serve the clients of tomorrow in an efficient, scalable solution.” Betterment Institutional, he says, “is a way to activate a digital advice strategy for their businesses.” Moreover, Canter wonders, “Could this change the client acquisition model for advisors?”

Stein said 25 advisory firms have been beta testers of the Betterment Institutional platform, and an additional “800 to 1,000 firms” have expressed interest in adopting the platform.

How does the platform work? For the advisor, BI provides a dashboard (see screen shot) that allows the advisor to view and manage existing clients and their assets on the platform. The advisor uses the dashboard as well to invite prospects to sign up for the platform, which Stein said can take as little as 10 minutes to complete. Betterment provides the engine for the platform, but everything the client sees is branded with the advisor’s name and logo.

Betterment Institutional Advisor Dashboard

Betterment also takes care of the billing and collection of fees from clients. Betterment itself charges a 25 basis-point fee, but advisors using the platform are completely free to set their own fees, based on the specific services they offer to individual clients. “It’s a hybrid solution,” says Stein, that provides tools for advisors and their clients, including BI’s automated tax loss harvesting, rebalancing and dividend reinvestment. “It’s self-serve to some degree, so the advisor gets to focus on high-value services like trust services or multigenerational issues. Betterment helps make the advisor more efficient.”

The platform provides collaboration tools like WebEx and JoinMe, and gives advisors the option of “co-browsing” with their clients, so that the advisor sees what the client sees on the client version of BI at the same time. After the advisor invites the client to join the platform, “the experience from start to finish is electronic,” Stein says, including onboarding of a new client. “There’s never any paperwork or signatures,” says Stein.

Stein says the platform is a “completely safe environment” and that “the client experience is all branded with the advisor’s brand — the emails, the statements…all go through the advisor.”

As seen in a demo of the BI platform by Betterment product manager Nick Gavronsky, Betterment’s investing offering is based on specific client goals, and the client (and advisor) sees whether the client is “on track” toward his or her goals through a simple red or green light. The advisor dashboard, Gavronsky says, shows total assets under management on the platform, the number of clients and the specific accounts. It also shows if the client has added funds to his account and allows the advisor to set his fee for each account.

As seen in the screen shot below of what the client sees, through a couple of clicks on the client’s view of the platform, clients can electronically transfer funds to the Betterment platform, and can also upload pertinent financial documents to the site, such as tax documents, that are available to the advisor. Advisors working with clients can adjust their goals as circumstances dictate, or choose a different investing model as goals change. Again, the client view is branded with the advisor’s name, and includes the advisor’s contact info.

Betterment Institutional Client View

So does the BI platform integrate with an advisors’ current tools, such as their CRM or portfolio management system? “Integration is under development,” Gavronsky said, which Betterment understands would be particularly important for bigger advisors. “Smaller advisors may not have a CRM tool, but are using Outlook or Excel,” Gavronsky said, “so this is a great platform for those advisors.” Gavronsky said BI’s intent is to integrate the platform into advisors’ workflow, “not change it,” and that Betterment encourages them to “use the tool as they best want to manage their practice.”

That raises the question of who would be a good client for Betterment Institutional. Canter says that while “a couple of years ago, advisors were going upmarket and raising their minimums, now they’re embracing the emerging affluent, the millionaires and deca-millionaires of tomorrow.”

Canter believes advisors will be “attracted to everything from the account setup to reporting, to the way you can invite clients and prospects to sign up for the program. It marries the human to the technology; our research shows that regardless of the level of affluence, investors want some degree of human touch.”

Canter calls the platform a “practice management solution available to all our advisors and prospects, but you don’t have to be working with Fidelity to work with Betterment Institutional.”

In talking to its advisor clients about how they would use the BI platform, Canter said one advisor said it could be an “interesting offering” for clients who are corporate executives of pre-public offering companies who might be wealthy on paper, but “don’t have much in terms of investable assets. “It could be a solution to a problem faced by many advisors: they take on smaller clients who don’t meet their minimums as a favor to existing clients.”

Gavronsky suggested that advisors could use the platform to better segment their client base, allowing them to “serve customers they can’t economically serve now,” including members of Gen X or Gen Y. Canter agreed, wondering if “the accommodation account becomes the opportunity account.”

The actual assets will remain on the Betterment platform, Canter said, “for the foreseeable future; maybe we can integrate them” onto the Fidelity IWS platform “eventually,” as with some other “solutions that are not Fidelity homegrown that we send to a strategic partner.”

Canter said that his research shows that for robo-advisors now, the “average client age is about 36” while the average amount of “client assets is in the neighborhood of $20,000.” For an advisor, by contrast, the average client is about 58 years old, and has assets in the $2-$10 million range. “We’ll pay attention as advisors use this solution,” Canter promised, to tease out best practices and results.

“What we’re trying to do from a practice management standpoint,” says Canter, “is to do more than just admire the issue,” but help advisors assess their digital advice options like Betterment Institutional, and “if they deem it fit, activate it.”

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