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Betterment for advisers on its way as firm adds trust, tax-loss harvesting products

Jun 20, 2014 @ 1:10 pm

By Joyce Hanson

online advice, robo adviser, betterment, wealthfront, trust, tax loss harvesting, index
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Jon Stein, founder and CEO of Betterment.

As online investment manager Betterment gears up to introduce an institutional-level platform designed for financial advisers by early 2015, it launched trust and tax-loss-harvesting products for retail customers.

Betterment Institutional, the new platform for advisers, is now in beta testing with the help of about a dozen registered investment advisers, according to company officials. The broader launch will come sometime around the end of this year or early next year, said Chief Executive Jon Stein, who believes his so-called “robo adviser” can be a useful online tool for human advisers to use in tandem with clients.

“Our belief is that there are a number of people who rightly value what advisers bring. They value the personal relationship and the consultation about life's goals, and they value estate planning and tax planning. All of those services are best provided by an adviser,” Mr. Stein said.

Betterment built its trust fund tool because many of the company's 38,000 customers already have trusts and have requested an easier, low-cost way to manage them, according to Betterment product manager Nick Gavronsky, who noted that a customer can have an unlimited number of trusts with a single online login.

“Our fees aren't eating away into the trust's assets,” Mr. Gavronsky said. “We automate the fiduciary responsibility of the trustee.”

Betterment's automated investment service puts customer assets into index-tracking exchange-traded funds. The service costs 0.35% of a customer's average annual balance for a $100-per-month minimum auto-deposit, 0.25% on a $10,000 minimum balance and 0.15% on a $100,000 minimum balance.

Both the trust and tax-loss harvesting products are available at no extra cost to Betterment customers, although the tax-loss product is available only to customers who have at least $50,000 invested through Betterment.

Once Betterment Institutional launches, advisers will also be able to manage their client's personal and trust accounts on the platform, said company spokeswoman Arielle Sobel.

The tax-loss harvesting product, which launched on Thursday,scans the portfolio daily for losses to harvest, said product manager Boris Khentov, a tax lawyer who was closely involved in the launch.

”We're helping people squeeze tax efficiencies out of their index fund portfolios,” Mr. Khentov said. “We've built the platform to tax-optimize every transaction.”

Grant Easterbrook, a senior analyst at market research firm Corporate Insight, said Betterment's larger online investment competitor Wealthfront already offers tax-loss harvesting for customers with a minimum of $100,000 in assets on the platform.

“One of the great things about these online services is their low minimums,” Mr. Easterbrook said. “A Merrill Lynch adviser isn't going to work with you unless you have half a million dollars.”

Betterment's increased activity follows a $32 million infusion of venture capital that has resulted in new hires along with new product launches. Five new employees joined the company this week, bringing headcount to 62, Betterment officials said.

The company's assets under management stood at $641 million as of Friday, Ms. Sobel said.

Wealthfront last week announced it had crossed the $1 billion mark in assets under management.

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