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Betterment Takes Aim at Vanguard, Personal Capital

By Murray Coleman February 1, 2017

Another big robo player is jumping into the white-hot hybrid advice field, aiming to attract investors who still prefer human intervention as opposed to strictly computer-driven asset management.

New York-based Betterment, an early pioneer in online investment advice, says it’s joining a growing number of fund providers and independent wealth managers who are turning to “real-life” advisors to help manage client accounts.

On Tuesday Betterment launched two new services. Its “plus” offering charges 0.4% and lets clients of its basic “digital” platform make one call a year with a human advisor. The all-robo option’s fees are being streamlined to 0.25% a year.

Betterment also says it’s now going to provide a “premium” service for 0.5% where clients can call human advisors on an unlimited basis during weekdays. To boot, the company says each advisor will be fully licensed and expected to hold CFP designations.

The plus plan requires a $100,000 minimum balance and the premium service takes $250,000 to qualify.

“Our digital-only clients will still be able to call us for support about how to use the website and answer basic questions,” says Alex Benke, vice president of financial advice and investing at Betterment. “But we’re now adding an extra layer where people can talk to a human and get actual financial advice.”

Besides beefing up its hiring of new advisors, Betterment is also promising to expand its referral network for brick-and-mortar advisors using its platform. Right now, Benke says more than 300 advisory firms are using such technologies. Few have been properly vetted to be matched with investors who might need more sophisticated planning services, he adds.

As human advisors become a permanent fixture at Betterment, however, robo officials say they expect to ramp up those numbers as clients ask for even greater access to humans.

How such a “matching” process goes will likely depend on how sticky the robo’s human upgrades prove to be over time, observes Michael Walliser, executive vice president at Condor Capital, which manages about $900 million.

The Martinsville, N.J.-based independent RIA is using its four-member research staff to put together an in-depth quarterly review of how different robo advisors are performing.

Alex Benke

Of particular interest, Walliser points out, is Betterment’s technology upgrade to include “asset location” into the mix. Betterment tells FA-IQ that its platform is now able to look across accounts held by clients to make sure that allocations are invested in the most tax-efficient ways.

That includes overriding computer-driven allocations into less-desirable ETFs from a tax standpoint. For example, Betterment says its human advisors will be able to tweak brokerage portfolios for clients in relatively high-taxpaying states like California and New York to state-specific municipal bond ETFs.

Most robos to date use generic national muni funds, opening investors up to local taxes on bond distributions, notes advisor Walliser. “Human advisors being able to step in and make adjustments is another step to help fill the gap between traditional wealth managers and robos,” he says.

The upgrade comes at an opportune time, notes Sean McDermott, a robo analyst with Corporate Insight in New York. “This sort of hybrid strategy is really emerging as the service model to beat,” he says. “We see this as the next wave of innovation taking place in robo advising.”

Already, hybrids are becoming a rather crowded marketplace, McDermott adds. Established competitors include heavyweights like Vanguard and Personal Capital. Later this year, Schwab is planning to debut a new “intelligent” portfolios hybrid model of its own.

Others are also making overtures to a more hybrid look and feel, says McDermott. Those include Fidelity, E-Trade and Trade King. He also categorizes platforms expected out later by TD Ameritrade and Merrill Lynch as falling in a sort of “gray area.”

“All of these platforms are incorporating the human element in some sort of way by either offering dedicated call centers or assigning humans to monitor computer-driven portfolios behind-the-scenes,” McDermott says.

But will it work? Advisor and market tracker Walliser views next-generation hybrids as “complementary” rather than as “direct competitors” to his full-service practice.

“As more mass-affluent clients are able to come out of the cold and get some level of planning help,” he says, “the more appreciation we’ll see for comprehensive and sophisticated investment advice and financial planning.”