Betterment is an online investing service. Betterment touts its service as “Simple to Use. Sophisticated Investing.” They also say you can “Invest like an expert without the hassle.” Low fees ranging from 0.15% to 0.35% of net assets certainly seem attractive.
Here’s where it gets a little “less better.” For whatever reason, Betterment has seen fit to declare war on financial advisors. For the record I don’t view Betterment as my competition, but rather I resent what I see as misleading attacks that confuse the investing public.
Betterment also saw fit to quote a flawed study of brokers (mislabeled as financial advisors) by NBER as proof that Financial Advisors are Bad for
Wealth. This post from their blog is in my opinion so full of holes that it could double as a piece of Swiss Cheese.
Don’t take my word for it, check out Mike Alfred’s post in Forbes Why Betterment, Wealthfront, and Other Online Investment Firms are Wrong about Financial Advisors. Or check out this post by Josh Brown who blogs as the reformed Broker Taking Betterment to School. Lastly this excellent post from Scott Bell at I heart Wall Street Et Tu, Betterment? says it all.
Sour grapes. Not at all. From my perspective say what you want about me or about financial advisors. Just be accurate. The folks at Betterment were anything but accurate in their broad brush approach to lumping financial advisors and brokers together.
They claim they were trying to call out bad advisors and toxic practices. In reality their approach was in my opinion a toxic practice. I suggested to them via Twitter that they consider a post discussing the differences between advisors and financial sales people. Perhaps they could educate people on how to determine if working with a financial advisor is right for them and if so how to choose one that fits their needs.
Online services like Betterment are clearly part of the changing landscape that will shape the future of the delivery of financial advice. I really want to like Betterment so that I can suggest it as an alternative to younger investors and to others for whom this type of service might be a good fit.
What troubles me though is that Betterment went ahead and published a post that was so full of inaccuracies. Was this a cheap attempt to bash advisors in order to drive business their way? Did they truly not understand why their post was inaccurate? Were they unaware of the flaws in the NBER study?
If the answer is yes to any of these questions it raises doubts in my mind as to the business maturity of the Betterment management team. Maybe their model is wonderful and they are a “better mousetrap.” At the end of the day, however, this episode will forever make them suspect in my mind.
Check out Personal Capital which in my opinion offers a much better option in this space.
I agree that it's a question of management team maturity. Some people I respect think Betterment has decent technology. But I'll probably never see it because they've taken an unfortunate approach to communicating their philosophy to the public. Unfortunately for them, there are going to be 100 other companies that can offer the investing public the exact same thing. So, it's highly unlikely they will exist in the same form in 5 years anyway.
Thank you for your comment. Your points are excellent and I agree.
There are very few investment advisors that can beat the indexes. Between the fees of the investments and the fee that the investment advisors charge, it is near impossible to beat the indexes. However, The value of an investment advisor is the plan that is created. So many people go through their lives without an investing plan, leave their money in investments that don't beat inflation and retire poor. This happens because they don't have a plan.
James thanks for your comment and for visiting the site. I couldn't agree more with everything you said.
I must say you have come up with an exclusive piece of content for your readers. Well, Betterment has just announced lower fees. Their fees have dropped to between 0.15% and 0.35% a year depending on your account balance (as long as you invest $100 a month). This makes them competitive with the lowest-priced mutual funds and ETFs. I liked Betterment when we first published this review last year with the exception of the fees as many commenters pointed out. With these new lower fees, I like them even better. Thanks a lot for sharing.
Andrea Jones
Andrea thanks for visiting the site and for your comment. My issue with Betterment regards the misleading attack they launched against the financial advisor community. They later claimed that they had not meant to lump fee-only advisors into this attack, but one has to question how this happened in the first place. Either they are lying and just got caught or they really did make a mistake, which is just as bad and shows a lack of knowledge about the industry of which they are a part.
I like the “idea” of Betterment, I think that offering low cost online alternatives of this nature is good for the consumer. I’m just not sure that I would have the confidence in the folks running Betterment to recommend that someone entrust their money to them. I’m sure that over time new and even better online services will come along. Please check out the articles that I linked to in the post for more opinions on this issue.
I for one am 100% excited about these new web based tools. For the whole planning industry, for pure investors and for America. I’m serious. Just think for a minute how much more interest in planning as a whole the likes of Betterment, Futureadvisor, SigFig and others are going to generate for the industry?
Also think for a minute about how many eyes will be opened up about the value of planning and how much at the end of the day working with a live human being will be that much more anticipated for those consumers who need it? I’m not saying everyone will need full planning and I’m not saying everyone will fit in with algorithmic investment technology.
I personally feel that there will be cases for “tech only / robot” planning just as there are cases in the real world for suggesting whole life over term. The key part here is which company is going to approach the market and quietly corner their opportunity rather than rushing in because “VC” money is behind them and everyone is screaming at them for returns?
Attacking the planners is not only immature, it speaks loudly about what is really behind the benevolence. Hey I’m a capitalist just like many others, but I at least know its easier to win market share when you look for ways to work “with” your competition rather than against them.
Andrew thanks for your comment. I agree that online planning and investing services will play a big part in the future of financial planning. I also think that services that will blow Betterment out of the water are in our future as well. Its sad that the management of Betterment chose to take this route and worse that even afterwards steadfastly seems to defend what they did. It speaks volumes to me about their management in terms of trust and frankly exudes a lack of business maturity. GOOD online services are a great place to refer folks for whom my services might not be a fit. Maybe someday the folks at Betterment will get that traditional financial planners are not the enemy and reach out to us, but I’m guessing that it will rain nickels first.