A war of words between two of the biggest independent robo-advisors taking place in the blogosphere may be a main event for the combatants but is more likely a sideshow for the financial advisory business as a whole.
The war involves Wealthfront, which recently slashed its minimum investment from $5,000 to $500, and Betterment, which never had a minimum. Wealthfront’s CEO, Adam Nash, attacked Betterment for charging a $3 monthly fee on accounts that don’t automatically invest at least $100 a month or have a minimum $10,000 balance. “It’s really disappointing that Betterment has decided to build their business preying on those who can least afford it,” Nash wrote.
Betterment CEO Jon Stein responded, point by point, knocking down Nash’s criticisms, and noting that the average net worth of customers paying the $3 monthly fee is $110,000, making the fee equivalent to 0.03% of assets rather than the double-digit examples that Nash citied. (Nash cited 36% for an account of $100 and 14.4% for one worth $250.)
What’s really happening here is more intense competition between robo-advisors themselves and between robos and the big legacy financial firms that have entered the business.
The robo-advisor space is “getting crowded,” and the market share race between Wealthfront and Betterment is “neck in neck,” says Sophie Schmitt, senior analyst at Aite Group, a research and consulting company that focuses on wealth management.