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Betterment Empowers Advisors to Shift Asset Class Weights

Flexible Portfolios is the first of many features Betterment hopes to launch this year focused on giving advisors more control.

Advisors who use Betterment to manage their clients’ investments now have more control than ever before. The automated investment company said Wednesday that it rolled out a feature within Betterment for Advisors called Flexible Portfolios, allowing advisors to shift asset class weights within each client portfolio.

It’s a significant milestone in the development of the robo advisor’s platform because it addresses a chief complaint by human advisors interested in using Betterment for investment management—a lack of control over client investments. 

Flexible Portfolios addresses two pain points advisors had with the platform prior to the launch. For one, many advisors still do some level of investment management and perhaps favor or manage certain asset classes and not others. With Flexible Portfolios, those advisors can underweight the class they are managing themselves (or outsourcing) and use the remainder of the core Betterment portfolio. Previously, that wasn’t possible.

The option to adjust asset class weights also allows for advisors to account for concentrated positions a client might already own. There might be strategic advantages to selling a concentrated position over time instead of immediately liquidating it so that advisors can underweight the concentrated asset class in the meantime. In some cases, a client also might not want to reduce those holdings, which could also be taken into consideration when weighting asset classes.

“We think this was just a natural evolution for their platform,” said Brad Felix, the founder of RhineVest, a portfolio manager in Cincinnati. “I think this was one of the huge knocks against using Betterment, particularly in portfolio construction.”

RhineVest has used Betterment for Advisors since it was founded in 2015 and regularly demos similar products by other companies. Felix said Flexible Portfolios is a significant improvement to Betterment’s platform because “the reality is the implementation of portfolios and how to build them is still kind of subjective” and the new flexibility caters to advisors who need or want more control over their clients’ investments.

Cara Reisman, the director of Betterment for Advisors, said the platform is also adding domestic and international real estate investment trusts and high-yield bonds to the platform.

Betterment released Flexible Portfolios to some advisors a few months ago to test it. Reisman said their feedback so far has been “really good,” but that it’s constantly fielding suggestions and working on it.

The addition of Flexible Portfolios in the core Betterment strategy has not changed the cost structure. Underlying clients are charged a 25 basis-point annual fee on their portfolio and financial advisors charge their fee in addition to that, at their discretion.

Reisman also said Flexible Portfolios is the first of many features Betterment hopes to launch this year focused on giving advisors more control.

She declined to share specific details about what the company plans to roll out, but said the new features will be focused on the platform’s functionality versus portfolios. Reisman said Betterment is working on enabling advisors to open certain accounts on a client’s behalf and rollover their retirement accounts.

The flexible portfolio feature will also be available to Betterment’s retail customers with at least $100,000, but they will not have access to the REITs and high-yield bonds asset classes. The retail clients will also have “behavioral guardrails” when using the feature—a risk and diversification score according to changes in asset class weights.

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