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Jon Stein: Automation Avant Garde — The 2016 IA 25

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Betterment’s had a heck of a year. With the launch of Betterment for Business, its robo-401(k), and Betterment Institutional, a digital platform to aid advisors, it’s grown the number of customers it serves from 50,000 in January 2015 to 150,000 as of mid-April 2016, while assets have grown from just over $1 billion to over $4 billion.

CEO and co-founder Jon Stein started in the financial services industry at First Manhattan Consulting Group. “In my years working with banks and brokers,” he saw “they were building products, not really building advisory services,” he said.

That led him to start Betterment in 2008, right in the middle of the recession. “On the one hand, there was something of an opportunity because there was distrust in the traditional financial institutions, and at the same time, I think a lot of the traditional financial institutions were distracted by regulatory concerns and keeping their businesses afloat.” Stein saw an opportunity to bring “trusted advice” to consumers and to “make that advice accessible to anyone who wants it.” The consumer platform was officially launched in 2010.

“In my view, the future of financial services is all about advice,” Stein said. “It’s all about great, fiduciary trusted advice.” Betterment’s goal, he said, is “to be our customers’ central financial relationship. We want to continue to build out more advice, more financial planning, to really give our customers a holistic sense of what they should be doing with their money.”

Betterment isn’t necessarily competing with other robo-advisors or with traditional advisory firms, but with the “do-it-yourself kinds of brokerage firms; the traditional big firms, the Vanguards, the Schwabs, eTrade, Fidelity, etc.”

The difference, he said, is the service Betterment provides its customers. “We have better service and experience than the other firms because the new technology that we’ve brought to bear.” The advice available to customers on the Betterment platform provides better outcomes than those achieved by strictly do-it-yourself investors.

“We think the proof of the advantages is in our growth. It’s why we’re the largest and the fastest growing robo-advisor,” he said, adding that the firm was recoginzed last year by Consumer Reports among the top five brokerage firms for customer service.

As for the moniker “robo-advisor”? He said, “We don’t mind it. We think it wasn’t originally meant to be a complimentary term.” The term is a useful shorthand for consumers to understand the service, but it also “lumps everyone together,” Stein said. An investor might hear the term and think “all such services are the same, and there’s actually huge differences between different robo-advisors,” Stein said. “We’re the only robo-advisor that’s goal-based, for instance. We’re the only one that is full stack and really controls the whole customer experience from end to end and doesn’t rely on some legacy brokerage.”

— See the full 2016 IA 25 in the May issue of Investment Advisor, and find ongoing coverage of the honorees, including extended profiles, all month on the IA 25 homepage.