Betterment doubles down on its for-advisors channel

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After a year of growth for Betterment for Advisors, the firm is bullish on the prospect of providing technology to the traditional wealth management industry.

Betterment for Advisors, which sells a white-labeled version of Betterment’s automated investing software to independent financial advisors, is now the fastest-growing business at the New York City-based robo advisor, according Jon Mauney, the general manager of Betterment for Advisors. Mauney’s team saw a 21% year-over-year increase in the number of new advisory firms using the service in 2020, bringing Betterment for Advisors’ client base to about 2,000 advisors across 600 firms.

Betterment doesn’t break out assets under management across its retail, retirement or for-advisors businesses, but now manages a total of $27 billion, Mauney says.

“We saw a lot of momentum in 2020,” he says. “The typical hurdles we would have to get over have started to melt away.”

Betterment for Advisors general manager Jon Mauney

To further expand its market share and change perceptions that Betterment for Advisors is simply towed behind the retail product, Betterment is building more products and services exclusive to financial advisors, Mauney says. It’s starting with one of the biggest hurdles still preventing RIAs from handing client portfolios over to the robo — limitations on the investment strategies available to advisors.

Instead of selecting from a small menu of model portfolios built by Betterment or a few third-parties, firms can now give their exact investment parameters to Betterment’s trading team to construct a custom model portfolio offered exclusively to their own clients on Betterment for Advisors. The service comes at no additional cost to advisors, though Betterment does require firms to move $2.5 million in assets into each portfolio constructed to justify the expense of constructing and maintaining the portfolios, Mauney says.

“The only reason we have that in place is as we roll this out, we want to be sure we can offer a high level of service,” Mauney says, adding that Betterment envisions a “white glove” and “concierge” service for wealth management firms.

Once created and funded, the model portfolios enjoy the rest of Betterment’s features, including automated performance reporting, rebalancing and tax-loss harvesting. For client-facing financial planning tools and goal tracking, Betterment can either use capital assumptions supplied by the firm or provide their own.

Right now, models can only be built using ETFs, and Mauney says the Betterment team will work with each firm to ascertain whether their model is a good fit for the robo. Some strategies might not work with Betterment’s asset location technology, and some obscure ETFs might not have enough trading volume to make it past the robo’s safety mechanisms, Mauney says.

“That being said, we’ve sort of been piloting this with firms for the past six to eight months and have yet to come across a model we couldn’t build,” Mauney says.

When the robo-advisor first launched Betterment for Advisors in 2014, RIAs using the platform could only put clients into Betterment’s proprietary model portfolios. Betterment has gradually added more flexibility by letting advisors tweak asset class weightings and bringing on third-party models from BlackRock, Vanguard, Goldman Sachs and Dimensional Fund Advisors.

Betterment has been able to attract some high-profile RIAs like Ritholtz Wealth Management and AdvicePeriod, but firms still want greater control over client portfolios. By adding custom portfolios, advisors can apply their own research into models, said Ritholtz Wealth CEO Josh Brown in an emailed statement.

Though Mauley dismisses comparisons to TAMPs and other technology providers like Riskalyze that are offering outsourced investment management, Betterment is interested in someday creating a TAMP-like marketplace of model portfolios. Supporting firms’ custom investment strategies on the platform lays a foundation to someday build a model marketplace, Mauney says.