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Fidelity Goes Low-Fee With Betterment

October 16, 2014

Fidelity Investments’ partnership with Betterment is another sign the mainstream is embracing robo-advising as an alternative to traditional wealth management. Rather than fight the technological wave, the fund company seems to want to accommodate smaller investors, who often fear that flesh-and-blood advisors care only about wealthy clients.

The 3,000 advisors who use Fidelity for custody and other institutional services will have access to Betterment’s online tools to help clients set financial goals and establish ETF-based portfolios, according to the Financial Times. Betterment plans to charge retail clients 0.25% of AUM, holding the assets itself and paying Fidelity a referral fee, according to The New York Times.

Other traditional financial institutions have already entered the digital game with internal services. For example, Merrill Edge was designed to let Merrill Lynch serve mass-affluent clients online. Fund giant Vanguard is ramping up its Personal Advisor Services offering. And Schwab is readying a new Web-based advice offering. It remains to be seen whether any of these initiatives make it profitable to serve lower-end clients.

Even if they don’t pan out as expected, the sheer number of robo-advisors hitting the market gives the old guard every reason to adapt. Other popular names in the field — such as Wealthfront, FutureAdvisor and LearnVest — are increasingly appealing to young people who might otherwise pay higher fees for a human’s advice at a wirehouse or independent firm.

The Betterment deal is just one major shift taking place at the $5 trillion fund company. Fidelity recently announced Abigail Johnson as its new chief executive, as the FT reported. She’s the granddaughter of Fidelity’s founder and the daughter of the previous boss, Ed “Ned” Johnson. One of the few women atop a major asset manager, Johnson has been outspoken about the need to increase business from women investors. In the firm’s latest annual report, Johnson said women are dissatisfied with the financial industry despite becoming ever-more important financial decision makers.

By Chris Latham
  • To read the Financial Times article cited in this story, click here if you have a paid subscription.
  • To read the New York Times article cited in this story, click here if you have a paid subscription.