Jon Stein, chief executive of robo-adviser Betterment LLC, has big aspirations. He wants his firm to go public, reach $1 trillion in assets and become an innovator for investment advice the way Amazon.com Inc (AMZN.O) has been an innovator for retail.
But Stein is facing a substantial challenge: getting more people with substantial assets to sign up for Betterment accounts.
"We want to get the boomers," Stein said on Tuesday at the Reuters Wealth Management Summit in New York, referring to the baby-boomer generation of those born between 1946 and 1964. "Those in retirement have more money and represent fewer customers, so this is our biggest opportunity."
Betterment differs from traditional wealth managers by guiding clients to set investments via a low-cost digital platform, rather than employing human financial advisers, who typically charge much higher fees.
Since its founding in 2008, growth has been rapid. In the last 15 months, Betterment has more than quadrupled its assets under management, to $4.8 billion.
But that amount is peanuts compared with entrenched players. Bank of America Corp's (BAC.N) wealth business, for instance, has around $2.5 trillion under management.
Betterment has an advantage in attracting the younger clients who Wall Street craves because of the wealth they may someday accumulate. The firm is geared toward a digitally savvy investor, and Stein boasts of its business model, which does not have conflicts in terms of selling investment products or bank accounts.
However, those young clients tend not to be very profitable today. The average client balance at Betterment is $28,000, and no minimum balance is required. The robo-advisory service of Charles Schwab Corp (SCHW.N), by comparison, has an average account size of around $80,000.
About 30 percent of Betterment's clients are in the 35-and-under set known as millennials, Stein said. On average, those clients have 70 percent of their assets with the firm.
Clients over age 50 account for roughly another 30 percent of Betterment's clients. The firm has managed to increase the percentage of these clients' assets it manages from 5 percent several years ago to 20 percent today, but it has room to grow, Stein said.
"There is this perception, because we are technology-driven, that we are just for millennials," Stein said, something Betterment has been trying to change by publishing articles about retirement on its website and featuring a special retirement income product for older clients.
Stein said he wants the company to be "giant" and pursue a public stock offering in the coming years. The only way to do this, he said, is to broaden its client base.
"We have to go from this crowd to broader mass and less early adopter," he said.
Separately on Tuesday, Mark Casady, CEO of brokerage firm LPL Financial Holdings Inc (LPLA.O), said that the cost and difficulty of attracting new clients was the reason LPL nixed an in-house robo-adviser it had tried to develop several years ago.
LPL unveiled the digital offering, called NestWise, in 2011 and shuttered it in 2013.
"We did it about two years, and then we shut it down," Casady said. "The client acquisition cost just didn't make any sense."
(Reporting by Olivia Oran in New York; Editing by Leslie Adler)