Betterment, the largest standalone robo-advisor firm with $3.7 billion in assets, has just introduced an aggregation feature that automatically links all investment accounts belonging to an individual client, even those held outside of Betterment, as well as bank and credit accounts.
“With this new aggregation tool we take all those things into account that affect a client’s net worth,” Betterment CEO and Founder Jon Stein told ThinkAdvisor.
Using the aggregation feature, investors can see the breakdown of all of their assets — the amounts held in a particular fund, ETF, stock or bond plus the fees those funds and ETFs charge as well as cash.
Betterment will flag cash holdings as a drag on a portfolio that should be invested as well as funds or ETFs with high fees if its analysis finds similar funds with lower fees. It will also flag a particular account, like an IRA, if it concludes the account fees are are too high, demonstrating how much more money an investor could save over 30 years, say, if the fees were lower.
“At Betterment we aim to be the central relationship of your financial life. Seeing all of your wealth in one place is a step in the right direction,” said Stein, in a statement. “By looking at all of your assets, we’re able to provide even better advice for investing for the most important things in life, like retirement.”
More specifically Betterment looks at investors’ total portfolio to assess its efficiency, Stein told ThinkAdvisor. “The best way to look at that is to look at the fees investors are paying and any cash they have,” which can drag down performance.
Betterment’s aggregation tool supports about 13,000 institutions, so “pretty much any holding anybody would have would be covered,” said Alex Benke, the company’s director of advice products.
While Betterment analyzes a portfolio’s fees, it does not analyze its performance. “There’s not a great way to do that, to compare one index versus another,” said Stein. Presumably actively managed funds in a portfolio that are captured by Betterment’s aggregation feature (or tool) will be flagged for their relatively high fees compared with ETFs within the same asset category.
Betterment’s own portfolio of index ETFs are the “most efficient — the least expensive, most liquid, with the least tracking error,” said Stein. They cover a 12 asset classes within the broader stock and bond markets and consist primarily of stock ETFs from Vanguard and Schwab and bond ETFs from Vanguard and iShares. Betterment chooses the ETFs for investors based on their goals, age, risk tolerance and so on.
Betterment’s aggregation feature is the latest in a series of new services the New York-based company is offering.
In October 2014, the firm launched Betterment Institutional, in partnership with Fidelity, as a self-branded platform for financial advisors, providing advisors with a dashboard to view and manage client assets as well as custom reports, automatic rebalancing and tax harvesting. That partnership was dissolved a little more than a year later when Fidelity announced plans to launch its own robo offering.
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 free to set their own fees, based on the specific services they offer to clients.
In February 2015, Betterment Institutional partnered with XY Planning Network, which comprises fee-only advisors specializing in Generation X and Generation Y clients.
This January the firm introduced its Betterment for Business 401(k) platform, providing employees at participating firms the ability to invest in the 12 asset classes it offers individual investors plus personalized investment advice for no additional charge.
Its fees range from 0.10% to 0.60% per plan, depending on the amount of assets, less than the typical fee near 1.5% or more for many 401(k) plans.
As for the future, Stein told ThinkAdvisor that Betterment will continue to invest in its Institutional platform to create a “better dashboard for advisors with more personalization.”
Currently, about 200 firms use the Betterment Institutional platform and more are being added every week, Stein said. He expects assets from advisors will continue to grow but he would not disclose how much of the firm’s total $3.7 billion assets come from advisors.
—Related on ThinkAdvisor: