The new trend among robo-advisors might just be human advice.
Betterment, the leading independent robo-advisor with over $7.3 billion in assets under management, announced Tuesday that it will offer two new service plans, both with access to a team of certified financial planners and investment advisors. The company is also changing the pricing for its existing digital offering, moving from a tiered fee structure to a flat management fee of 0.25% per year.
New services have higher fees, higher minimums
Though investor portfolios are still built and managed by computer algorithms, clients who opt in to the new services — which the company is calling Betterment Plus and Betterment Premium — will also have their accounts monitored by that team.
Betterment Plus clients will be able to request an annual financial planning call with the advisors; Betterment Premium includes unlimited phone access to advisors. Both services will include unlimited email, says Alex Benke, Betterment’s vice president of financial planning and advice, who also notes that the team may proactively reach out to customers.
“This team can give specific situational advice and do proactive monitoring of the account. For example, if you’re trying to time the market rather than taking our recommended allocation advice, we’d proactively reach out to you via email and ask why. In the digital offering, you can see if you’re too aggressive or too conservative, but you have to log in to do so.”
The services come with higher management fees and account minimums than the current offering: Betterment Plus requires $100,000 and charges an annual fee of 0.40% of assets managed; Betterment Premium has a $250,000 minimum balance and a 0.50% management fee. The company’s existing plan will now be called Betterment Digital, with a new flat fee of 0.25%. That service will continue to have no minimum balance requirement.
Previously, Betterment charged a tiered management fee based on account balance; that pricing structure was particularly appealing to clients with balances over $100,000, who paid just 0.15%, one of the lowest management fees among robo-advisors. Those customers are being notified via email about the fee increase, and will continue to pay 0.15% until June 1, the company said.
On all three plans, Betterment won’t apply its fees on the portion of an account balance that is over $2 million, though the average Betterment account holds just $32,000. Benke says clients are able to move between plans as their needs change.
A pivot back toward human advice
Betterment’s new plan offerings are in response to customer demand, says Benke. “As our customer base has gotten older and more affluent through time, we’ve had questions come up that our tools couldn’t necessarily answer. We’ve continuously built out the self-service offering over time, but this helps the type of customer who wants an extra helping hand or confirmation from a person that they’re doing the right thing.”
Several online advisors launched as hybrid services, combining computer algorithms and human advisors from the start. Vanguard Personal Advisor Services is the most notable; clients there are offered a team of advisors until their account balance tops $500,000, at which point they’re assigned a dedicated advisor. Though the service started with a leg up by replacing a legacy offering, Vanguard Asset Management Services, it has seen continued growth and has $47 billion in assets under management.
Also in the space is Personal Capital, which charges 0.89% for accounts under $1 million but offers a dedicated financial advisor rather than round-robin advice from a team. Fidelity Go portfolios are built, monitored and rebalanced by a team at an institutional investment advisor, though those advisors aren’t available for client questions.
Benke says what sets Betterment’s new offering apart is the company’s independent status. Several other services — including Vanguard, Fidelity and Charles Schwab’s Schwab Intelligent Portfolios — invest clients at least partially in their own proprietary funds, though, like Betterment, Personal Capital is independent and acts as a fiduciary.
Betterment isn’t the first robo-advisor to add human advisors to its service. Blooom, a 401(k) advisor, recently brought on a team of salaried advisors, with communication available by chat, email and text messaging.
Betterment compared with other online advisors
|Advisor||Management fee||Investment expenses||Account minimum|
|TD Ameritrade Essential Portfolios||0.30%||0.06% to 0.08%||$5,000|
|Fidelity Go||All-in fee of 0.35% to 0.40%||Included in all-in fee||$5,000|
|Betterment||0.25% to 0.50%, depending on plan||0.09% to 0.17%||$0|
|Wealthfront||First $10,000 is managed free, then 0.25%||Average 0.12%||$500|
|Personal Capital||0.49% to 0.89%, depending on account balance||Average 0.10%||$25,000|
|Vanguard Personal Advisor Services||0.30%||0.05% to 0.19%||$50,000|
|Schwab Intelligent Portfolios||None||Weighted average of 0.08% to 0.24%||$5,000|
|E-Trade Adaptive Portfolio||0.30%||0.20% to 0.45% for hybrid mutual fund/ETF portfolio; all-ETF portfolio averages 0.20%||$10,000|