One of the leading robo advisors is getting a little more human.
Betterment announced Tuesday the creation of a new call center of Certified Financial Planners to monitor accounts and provide advice.
It comes at a cost, and Betterment now offers three tiers of service: Betterment Digital, Betterment Plus and Premium. Betterment Digital is the classic robo advice offering with no account minimums, costing a flat fee of 25 basis points (bps). Plus requires a $100,000 minimum balance and costs 40 basis points for an annual call from the “team of CFP professionals and licensed financial experts,” while Premium offers unlimited access to the advisors for a cost of 50 bps and at least $250,000 invested. Customers looking for even more hands-on advice can be recommended to a dedicated financial advisor using Betterment for Advisors.
“We’re still very much digital first and using the technology to manage the money,” said Alex Benke, a CFP and Betterment’s vice president of financial advice and investing. “Over time, as our customer base has grown and become more affluent, we’ve had more difficult, complex questions come in. Our customer support team is not licensed and is unable to give advice.”
The advisors will be monitoring accounts for unusual activity like drastic changes to allocations, getting off track from goals or allocation changes. Benke said the advisors can also walk users through its RetireGuide financial planning tool, but won’t force every user through the process.
Benke added that Betterment has actually offered human consulting since day one, but was only available for very large accounts. The New York-based company began testing a wider use of human advisors last year and decided to make it a full-on product offering.
Though some in the industry may remember when Betterment took a more antagonistic view towards traditional advisors, the move towards adopting a so-called “hybrid robo” approach isn’t surprising. Betterment already shares its technology with advisors and brought it to the lucrative 401(k) space; the hybrid model is a logical next step for the company looking to grow revenue streams to match its sizable venture capital investment.
Many in the industry think these hybrid approaches are the future of the wealth management industry. My Private Banking Research expects 10 percent of worldwide assets, or $16.3 trillion, to be managed by hybrid robos by 2025 (compared with just 1.6 percent by traditional robos). The Aite Group said the hybrid model would be one of the top wealth management trends of 2017.
“Adopting this model will enable Betterment to move upstream to target a richer clientele, and up-selling higher-fee products. This is where the industry is headed: providing a hybrid model of investing to provide an effective client engagement model,” said Isabella Fonseca, a wealth management consultant at the Aite Group. “The end result of these initiatives should be a cost-efficient firm, streamlines costs, and new revenue opportunities through new products and services.”
What is surprising is Betterment’s price point. Though Betterment Plus and Premium fall within Aite's recommended fee ranges for hybrid robos, it’s still more expensive than existing competitors in the space. Vanguard’s Personal Advisor Services, for example, requires a $50,000 minimum investment and charges 30 bps. Personal Capital’s fees are higher, but give investors a dedicated financial advisor instead of a call center team, and minimums are just $25,000. The question is if customers will turn to Betterment for human advice when they could get it for a lower cost at a most established brand.
Betterment could also be threatening the revenue stream of traditional advisors who turned to the white-label version of the robo advisor. Schwab met a similar pushback in December when it released its own hybrid robo.
Benke acknowledged that some advisors may see the hybrid offering as competitive, but said advisors who are good at demonstrating their value aren’t threatened.
“People are different in how they want advice, and that also changes through time. Some people just do not want to talk to a person. Others need a personal relationship,” Benke said. “Part of the power of this is the ability to move between the plans as the situation changes. It depends on what the clients want. If they come and say they need more help, we might recommend them into that dedicated advisory space.”
Benke added the price point is just the company’s initial offer, and was determined using data Betterment has on what types of customers would use the tiers and covering internal costs. He also noted how hybrid services from traditional firms are able to offset the cost of advice by selling their own products, while Betterment's team of CFPs will provide fiduciary advice across Betterment accounts as well as held-away accounts without recommending any proprietary products.
“The group will be asking questions they need in order to give good advice in terms of [the client’s] whole financial picture,” Benke said. “They’re not compensated based on product sales or anything like that.”
Benke denied that the move was to counter slowing asset growth at Betterment, but rather a response to growing customer demand. He also wouldn’t comment if the price tiers were a step toward a Betterment IPO.