XY Planning Network has partnered with Betterment Institutional to offer its 61 member firms access to Betterment’s automated investment management platform and custody services. WealthManagement.com first wrote about the potential partnership in April of last year.
The idea is to remove the administrative burdens and cost of working with a traditional custodian, allowing XY Planning advisors to focus on building firms that serve younger investors.
“Providing investment related services to smaller accounts is incredibly time consuming, and forces many advisors to focus on high-net-worth clients,” Alan Moore, a financial planner and co-founder of XY Planning, said in a statement. By using Betterment, XY Planning's member firms avoid the custodial minimums and transaction costs to keep fees affordable for next-gen clients.
Betterment pitches its direct-to-consumer platform as a service for inexperienced, lower-asset investors, but Moore said it doesn't conflict with the clients his network is trying to serve. Instead of managing assets and tacking on financial planning for free, XY planners want to flip the script.
“The big thing we discovered was a real cultural shift among advisors in their attitudes towards investment,” Moore said. “[Advisors] are so investment focused, and with the XY Planning members that are starting firms, they are really passionate about starting a firm and sort of ‘meh’ about the investment side.”
For these advisors, Betterment provides a turnkey platform to open an account, build and automatically rebalance portfolios, and create a branded online portal for their tech-savvy clients. Moore said it’s like hiring an investment manager for a fraction of the cost, and frees up time for him to focus on the other aspects of planning.
Sophia Bera, a member of XY Planning and founder of Gen Y Planning, said that 80 percent of her job has nothing to do with investments, but rather guiding clients through retirement accounts, company benefits, credit cards, student loans and advising on insurance, taxes and estate planning. Betterment fills the other 20 percent, Bera said, and that she already had clients coming to her with accounts in place.
“I am not a robo-advisor. I am a human and what I've found is that clients like working with humans,” Bera said. “But I think we, as financial planners, can work in conjunction with robo-advisors to better serve the needs of our clients.”
The planning-centric model may not be as profitable as the traditional firm that focuses on HNW clients, but Moore said there is a much larger market of consumers that can afford a $150 per month fee for financial planning. He added that with the rise of robo-advisors and the fee compression, firms that only offer investment management will have a hard time competing.
“An advisor is between money and really bad decisions,” Moore said, adding that if a client is just looking for investment management, he sends them directly to Betterment, and Betterment refers users looking for some advice or planning to partnered advisors. “[Betterment] lets me focus on what I need to be doing, which is making sure clients don’t do something stupid. The true value is helping clients do nothing when nothing is the best thing to do.”