Robo-Advisers Battle Wall Street for Rich Investors
Robo-Advisers Battle Wall Street for Rich Investors
Betterment wants to stake a claim on the wealthy before
big banks do.
by Julie Verhage May 24, 2017, 5:30 AM PDT May 24, 2017,
5:32 AM PDT
Citigroup Inc. doesn’t think its richer customers will
drop their high-priced money managers in favor of automated investing, but
Betterment LLC is betting it can prove the big bank wrong.
The robo-adviser—the largest among independent digital
advice startups that popped up after the 2008 financial collapse—has overhauled
its entire brand. The shift in marketing and advertising strategy is aimed at
attracting more affluent customers just now becoming aware of the option. It’s
also not a coincidence that Betterment’s pivot comes as more traditional
players such as Vanguard Group Inc., Charles Schwab Corp., and even JPMorgan
Chase & Co. are starting to use more technology when offering investment
advice.
In other words, the robo-adviser pie is about to expand,
and Betterment wants to make sure it gets a bigger piece.
“These are fundamental decisions about who we are as a
company,” Founder and Chief Executive Officer Jon Stein said in an interview.
“We’re attracting a lot of affluent customers already, but I think our voice—as
we speak to that person—has to show we are established.”
Late last year, Citigroup, which has invested in
Betterment through its venture capital arm, sent clients a research report
voicing skepticism about just how large assets under management could grow for
robo-advisers when it comes to wealthier individuals. “Higher net-worth or more
sophisticated investors will, in our view, always demand face-to-face advice,”
wrote Citi analysts led by Ronit Ghose.
But Betterment says that’s not the case, explaining it
already has a number of customers with more than $10 million under management
each. On top of its redesign, the firm is thinking about adding access to more
exclusive products. “People do want access to alternatives, and that’s something
we see demand for among the mass affluent,” Stein said. Betterment doesn’t
disclose how many of its accounts are held by accredited investors (who would
be allowed by regulators to participate in complex investments such as hedge
funds, venture capital, or private equity) but said it’s well more than 25,000
of its 250,000 customers.
Some on Wall Street are already moving to stake a claim.
Although JPMorgan CEO Jamie Dimon didn’t say last year how much money the bank
has put into building its robo-adviser, he did say roughly $600 million was
devoted to “emerging fintech solutions” and that technology is an extremely
important part of the company’s future strategies.
For Betterment, this is the second big change in 2017.
Earlier this year it introduced a new fee structure and added more certified
advisers, also in an attempt to draw in wealthy customers as well as younger
individuals who will have major financial decisions to make in the next 5 to 10
years, such as buying a home.
While affluent individuals are a big part of this new
push, the firm said its mission is still to attract people spanning the
financial spectrum, and that was a part of the research process that went into
the redesign.
“We looked at people across the range in age and income,”
said Elyssa Gray, vice president in charge of brand at Betterment. “Regardless
of the level of experience or the amount of money they had, there were a number
of common denominators when it comes to financial services.” A big part of that
was taking out financial jargon the firm said irked some customers.
“We heard over and over again: ‘Start talking to us like
a person,’” said Sarah Kaufman, director of brand and content. “It’s really
about how we are telling this story, too, not just the design.”
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