Betterment launches way to help investors donate to charities, increasing pool of potential customers
- Robo-adviser Betterment launched a service to allow customers to more easily donate to partner charities.
- In the hotly contested space for financial advice, it's an example of how startups like Betterment are pushing unique offerings to differentiate.
Betterment, the world’s largest robo-adviser by assets under management, is launching a service it hopes will differentiate it from competitors by helping customers donate shares to charities.
Betterment for Charitable Giving goes live on November 28. It’s another example of how the robo-adviser is appealing to socially-conscious customers by removing the friction around charitable donations.
“It’s not a new strategy in general — higher-net-worth individuals have been doing this for a long time, but it’s a big pain in the butt to do this,” said Alex Benke, vp of advice and investing at Betterment. “The charity has to take shares into brokerage account, they need to pay fees to the broker to sell those shares, and they have to do some IRS calculations to determine how to value those shares.”
Betterment said the new feature saves customers time and money, and it’s it made possible through automation and having partner charities open Betterment accounts. “For us, it’s just moving from one account to another — that’s under our roof and and that’s done without fees.” Share donations can offer attractive tax advantages. The customer avoids capital gains tax on the appreciation of the shares because the charity inherits those gains; and the charity doesn’t pay taxes when they sell the shares.
Donations through Betterment Charitable Giving are available to all customers regardless of service level and there’s no minimum that customers can donate. For customers, donations to charities are covered under the robo-adviser’s “wrap fee” for all services of 0.25 percent of assets under management. Charities don’t get charged a fee as long as they keep balances under $1 million, but Benke said he doesn’t expect them to carry balances, because they’ll likely sell the donated shares to raise money. So far, Betterment has 11 partner charities including some big names like UNICEF USA, Hour Children, Save the Children, Wounded Warriors and the World Wildlife Fund.
Denise Valentine, senior analyst at Aite Group, said the move is part of a trend among robo-advisers to increasingly become focal points for customers’ financial lives, where the value of providing financial advice is paired with the benefits to presenting a holistic vision of a customer’s accounts.
“It just makes things easier — they’re moving to this place where everything is connected and all accounts are aggregated, even if they’re working with multiple partners,” she said.
For the charities, Valentine said the robo-advisory platform is another distribution channel, and having big names on board is reason enough for others to join. In addition, charitable contributions are more likely to come from the robo-adviser’s wealthier customers, so it may be another outreach mechanism to that segment, she added. So it’s way to open up charitable giving to a bigger customer base, while broadening the menu of options for those with higher-value portfolios.
In the hotly contested space for financial advice, startups and incumbents are pushing unique offerings, including the trend to offer human advice (recent examples include Ellevest and SoFi Wealth) and products for specific customer segments, including Wealthsimple’s halal investing portfolio and newer entrants like Wahed that caters mainly to Muslim investors. Betterment has also rolled out new features for customers in recent months, including the ability to access human advice regardless of service level and sustainable investment options.
“It’s a nice follow-on to the socially-responsible portfolio we launched earlier this year,” said Benke. “For a lot of investors, they probably didn’t realize this is something they could or should be doing — it opens up [investing] to a larger swath of people.”