The Customer Effect

Betterment adds personalization to appeal to wealthier clients

  • Betterment is giving wealthier customers more control over asset weights in an effort to gain market share from incumbents
  • Betterment's move is part of a bigger trend among robo-advisers to offer premium services to wealthier clients
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Betterment adds personalization to appeal to wealthier clients

Betterment is giving its wealthier customers more control of asset class weights to attract and retain more well-heeled clients.

Asset class weights refer to the different ways securities can be allocated within a customer’s portfolio. On Wednesday, it launched the Betterment Flexible Portfolio, which lets customers choose how asset weights are allocated, a function that’s normally pre-set for clients who have invested less than $100,000. For example, customers can choose to dial up the proportion of U.S. stocks versus international stocks or bonds, adjusting proportions as they see fit.

“The vast majority of our customers still use our core recommendation [of asset class weights], but this is more for the ‘corner cases,’ the more affluent investors,” said CEO Jon Stein.

betterment
The New York-based startup joins Wealthfront and Ellevest in trying to become more appealing to the more affluent target base of incumbents like Charles Schwab and Merrill Lynch. The hope is that by offering a way to personalize accounts, they can incentivize people with more complex financial needs to move their assets to Betterment, driving up the company’s assets under management and ultimately growing revenue.

betterment-personalization
The Flexible Portfolio feature is designed to attract wealthier customers with investment accounts outside Betterment. It will offer them a holistic view of their financial lives in single place and allow them to take advantage of its additional features, like tax optimization, guidance, financial projections and nudges at the same time.

Where wealthy clients park their assets will be a growing battle between startups and incumbents, said Alois Pirker, a research director at Aite. Like checking accounts, it happens more often that customers open new accounts in addition to their existing ones instead of completely migrating their assets to an upstart provider. There are many reasons for that, Stein noted; some do so to test the waters of younger startups, some aren’t ready to take on the big project of moving assets and some are happy with their existing financial managers.

The pivot towards personalization is a response to the perception that robo-advisers aren’t for high-net-worth individuals, with incumbents offering human advice and other tailored services for wealthier clients.

“Robo-advisers like Betterment were always considered unsuitable for complex investors due to their inability to serve up complex asset classes,” said Capco partner Kapin Vora. “This move is a natural next step … we should expect others to follow suit.”

Betterment is currently the largest independent robo-adviser with $13.5 billion in assets under management and 340,000 customers. Its outreach to wealthy clients is just one step of a trend among robo-advisers to offer products for clients across a range of customer needs, with digital tools and human advice added for those who can afford it.

“Robo-advisers are heading to where large incumbents have either already arrived or are heading, providing a broad range of services across the spectrum from model portfolios purchased without human contact to seeking human advice on asset allocation and achievement of long term objectives,” said Thomas Holly, asset management leader at PwC.

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