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Why Is Betterment Partnering With Uber?

Betterment founder and CEO Jon Stein often uses Uber’s story of using technology to improve the taxi industry as an analogy for his company’s impact on the wealth management industry. With Betterment continually expanding into the business-to-business landscape with its new 401(k) offering, it makes sense that a Silicon Valley power like Uber would turn to robo advice to help drivers invest in retirement. 

At first glance, a partnership between the two companies sounds like a match made in heaven. Uber drivers can use the Uber app to open an IRA or Roth IRA with Betterment for free, with no account minimums, and pay no fees for the first year. Drivers can also add taxable accounts, investment goals and take advantage of tax loss harvesting and features like RetireGuide.

For Betterment, the partnership promotes the robo advisor to hundreds of thousands of Uber drivers around the country (the offer is available first to drivers in Seattle, Boston, Chicago and New Jersey, and eventually nationwide).

"Large scale deals like this make sense for Betterment," said industry observer Michael Kitces, who wrote about Betterment's client acquisition costs and user growth on his blog. 

On a closer look, however, the partnership raises some puzzling questions and even shines a spotlight on some of the issues each company is grappling with. Uber’s network of drivers is obviously a huge lead gen boost for Betterment, but is it a profitable demographic for the robo advisor? 

"Whether it turns into material asset growth, who knows," Kitces said. "The Uber driver base is a very large audience, though, so certainly I can see real potential for Betterment in this."

Others were less optimistic. 

“I think it’s a stretch,” said Tim Welsh, a wealth management consultant and founder of Nexus Strategy. “That’s not your target client, it’s not your target opportunity.

"The whole idea smacks of desperation. If Betterment is resorting to Uber drivers to push their platform, it seems to me its definitely desperate times." 

Many, if not most, Uber drivers drive in their spare time, as noted by Stein in a blog post about the partnership. But that is likely to make ends meet, Welsh said, not because they have excess cash flow.

“If you put your financial planning hat on, [Uber drivers] should be paying down credit cards, starting an emergency fund, or, if they have a family, starting a 529 plan,” Welsh added. “The last thing they should be doing is taking on investment risk.”

Of course, Betterment has argued in the past that traditional advice around safety net funds is wrong and that investing in a moderate-risk portfolio is better than a cash savings account because it protects against inflation.

But another head-scratcher is: If the point of the deal is to “offer flexible retirement accounts” to Uber drivers, why isn’t Uber taking advantage of the 401(k) plans offered through Betterment for Business?  

Uber did not respond to questions, and Betterment’s director of communications, Joe Ziemer answered, “[Betterment for Business] is specifically for 401(k)’s with plan sponsors.”

So perhaps this isn’t so puzzling after all. Uber can’t use Betterment’s 401(k) plan because it doesn’t recognize drivers as employees, but rather independent contractors.

While that makes Uber ideal for Betterment's direct IRAs, it does carry some controversy. Uber is entangled in a a class-action lawsuit with drivers who dispute their employment classification, and a California judge rejected Uber’s $100 million settlement offer on Tuesday, ruling it wasn’t fair or adequate.

Drivers also complained their pay has been negatively impacted by price cuts made in January. As Fortune pointed out, its unlikely drivers will be able to save and invest if they are working longer hours for the same pay.

As for full-time employees working in Uber offices, the company did not answer if they would get the same access to Betterment’s services.

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