Robo Financial Advisory Firm Adds Humans

The larger question is whether this means that the market for robo-advice generally, across the economy, is limited and that those enterprises seeking faster growth, whatever their service, need to provide hybrid offerings combining human and technological solutions. At least for another generation. JL

Anne Tergesen reports in the Wall Street Journal:

The company’s goal is to give prospective customers who want more hand-holding that option, and to equip itself to serve existing customers whose needs become more complex as they age. (The) Chief Executive says he expects the new hybrid service to allow the firm to expand at about twice its current rate.
Robo-adviser pioneer Betterment LLC is joining the industry’s fast-growing trend of offering hybrid services that pair computerized financial advice with human help.
Betterment, founded in 2010, is one of a handful of startups that put the robo-advisory industry on the map by providing automated portfolios of low-cost exchange-traded funds, mainly to younger clients. While the company will continue to offer its purely automated service for a fee of 0.25% of assets a year, it is now giving clients—whose ranks currently number 210,000—the option to also hire a human adviser for an additional annual fee of 0.15% to 0.25% of assets.
The New York-based company’s goal is to give prospective customers who want more hand-holding that option, and to equip itself to serve existing customers whose needs become more complex as they age.
Betterment Chief Executive Jon Stein says he expects the new hybrid service to allow the firm to expand at about twice its current rate. In 2016, the firm’s assets under management increased from $3.2 billion to $7 billion. “We were hearing from new customers who were coming to us and checking us out but weren’t sure if it was right for them without someone to talk to,” says Mr. Stein. “We think there is a lot of latent demand for our service.”
In offering a human option, Betterment is following in the footsteps of more traditional wealth-management rivals that have added human advisers to robo offerings to assist customers with financial planning, a process that includes setting long-term financial goals and figuring out how much to save and in what accounts.
In December, Charles Schwab Corp. announced a new hybrid robo-advisory service that will launch later this year and exist alongside the company’s Intelligent Portfolios, the purely robo service it launched in June 2015 that now has $12.3 billion in assets. A number of other big financial-services companies—including Morgan Stanley and Bank of America Corp.’s Merrill Lynch—have recently announced plans to offer automated investment services, most of which include advisers.
The industry is dominated by Vanguard’s Personal Advisor Services, a hybrid financial-planning and investing service that launched in May 2015 that now has more than $52 billion in assets.
Among the original pure robo-firms, only Wealthfront Inc. remains all-digital. A spokeswoman for the Redwood City, Calif., firm, which has $5 billion of assets under management, says it has no plans to introduce a hybrid service.
With its new offering, Betterment will compete more directly with firms including Schwab and Fidelity Investments, which offer digital-only and hybrid platforms. Schwab also refers clients with more complex needs to full-service independent advisers that have assets in custody at Schwab—something Betterment now plans to do as well with advisory firms that use its platform.
Betterment’s new service, which launches Tuesday, will offer clients three options. The most basic is the firm’s existing online offering, which will remain the same. Renamed Betterment Digital, it will scrap its current tiered pricing structure of 0.15% to 0.35% of assets a year, depending on a client’s account size, and instead charge a flat 0.25% annually. (Investors also pay about 0.13% for their ETFs.)
Those who want some advice from a human can choose one of two options. Betterment Plus charges 0.40% a year for an annual phone consultation with a financial planner. Betterment Premium charges 0.50% a year for unlimited telephone access to a team of planners. Clients will pay no fees on balances above $2 million, although the waiver doesn't apply to ETF fees. The Plus service requires a $100,000 minimum balance and the Premium requires $250,000 or more.
The services provide phone consultations that may address topics including how much to save and in which accounts, debt management, Social Security claiming strategies, annuity and life insurance purchases, and withdrawals from retirement accounts.
The firm has hired about a dozen advisers, many of whom have a certified financial planner designation, which requires extensive training and experience.