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How Betterment Stayed on Top in 2018 (and How they Plan to Stay There in 2019)

By Garrett Keyes January 2, 2019

Robo advisor Betterment currently manages $15 billion in assets for its more than 400,000 customers, firm CEO Jon Stein tells FA-IQ. But at the start of 2016, Betterment’s AUM was just a little over $6 billion, Stein says. The firm has cemented its place on the 2018 Financial Times' 300 Top RIAs list. Sitting down with FA-IQ, Stein outlines how Betterment managed its growth and what new services it introduced to customers in the process.

Q: What has driven Betterment’s growth and helped maintain its standing on the FT 300 list?

A: One of our values is “Iterate to Breakthrough,” meaning that we never settle. As a company we always strive to improve our offerings and think of new ways to help our customers make the most of their money. We also make sure to always put our customers first and put a strong emphasis on customer research.

Q: This year Betterment began offering individual financial advice packages to guide clients through various life events. Why did Betterment decide to add these service offerings?

A: We decided to start offering one-off financial planning packages as we are always looking for ways to innovate how investors receive financial advice.

Our new lineup of financial advice packages expands access to personalized advice from licensed financial experts. Betterment customers can now purchase individual financial advice packages to receive in-depth guidance around various life events. We’ve found that, after speaking with customers several times a day, financial planning questions most often come up around major life events such as marriage, saving for college and retirement.

Customers are looking for immediate, actionable information to implement. We also believe customers walk away from the call with a strong appreciation for the importance of an advisor. There is clear value that comes with providing access to quality advice at a low, fixed cost.

Q: How has Betterment’s business plan changed?

A: Betterment’s mission has and always will be to empower people to do what’s best with their money. The plan hasn’t changed but it’s certainly evolved as we’ve added new features. One example would be addressing the money that is sitting idly in customers’ checking accounts earning little to no interest. We knew we had to do something, so we’ve started to build more savings and cash optimization features.

For example, we recently launched features that automatically balance funds between checking accounts and Betterment’s low-risk, high-yield product, Smart Saver, which is 80% Treasuries and 20% high-grade corporate bonds. We listened to our customers and heard that they want advice on what to save and how much to have in checking, but we decided to take it a step further and automate it all for them.

Jonathan Stein

Q: How has Betterment's client base evolved?

A: When Betterment was first launched, our customer base was mainly young folks in their twenties who were depositing $100-$500 to invest at a time. That client demographic has shifted dramatically over the years. Today, more than one-third of our business comes from customers who are at least 50 years old.

This shift comes primarily from the fact that our services have become drastically more sophisticated and are addressing real financial problems people in their 30s, 40s, 50s, and beyond are facing. Now we offer features like unlimited access to a CFP for all financial planning needs, cash management/optimization tools, and access to more portfolio options, including Goldman Sachs’ smart beta and BlackRock’s income portfolio.

Q: How has Betterment experienced increased competition from robo advisors such as Vanguard, Charles Schwab, and Fidelity?

A: Betterment has seen an increase in competition over the years but we will continue to lead and move the industry forward. The larger incumbents in the space also don’t have the technology to keep up with the advancements that Betterment is making. The long-term challenge of larger incumbents is that they would like to take a different approach but are lacking the technical talent and the customer alignment to do so. They focus on basic stuff like asset allocation and it is hard for them to expand their focus when primary objective is to just push their own funds.

*This interview was edited for brevity and clarity.