Betterment encourages investing excess cash with new automatic feature

SmartDeposit pulls funds from clients' accounts based on a predetermined minimum balance and automatically invests them in ETFs

Jul 14, 2015 @ 6:45 am

By Alessandra Malito

A new Betterment tool goes beyond a traditional automatic deposit feature — it checks client bank account balances for discretionary funds and then invests the excess money accordingly.

SmartDeposit, which launched on Tuesday, is part of the robo-adviser's online platform that will pull funds from clients' accounts based on a predetermined minimum balance. SmartDeposit automatically determines when a client's account has exceeded that threshold and how much it is appropriate to invest. It is available to Betterment's retail customers and advisers who use Betterment Institutional. There is no additional costs for the user.

"This is one less thing for you to think about," said Matt Salefski, the product manager in charge of SmartDeposit at Betterment.

A client or adviser sets a minimum bank balance and maximum investment amount as parameters for the program. When SmartDeposit sees that a client's account exceeds the account threshold, it will remove the excess cash and invest it in an exchange-traded fund.

Mr. Salefski said that the tool helps investors to avoid a possible cash drag on their portfolio's returns.

"We definitely know some of [our clients] have cash in checking accounts that they'd like a long return on," Mr. Salefski said.

Vicki Zhou, co-founder of WiseBanyan, a fellow automated investment platform that charges no account fees, said that it's a smart move on a behavioral finance standpoint, as it pushes a client to save. Reducing a cash drag to potentially boost returns is also wise, she said.

"If I already decided to put out a certain amount, I want that money working for me," Ms. Zhou said. "If you put it into cash, that's not what the client is looking for."

On the other hand, clients may have other plans with their money in a bank account, and in that case, a cash drag wouldn't be their "biggest concern," she said. Other more short-term goals, like rent or anything comes up, may be their first priority with money in a savings account.

The number in a bank account may not be the whole story, either, said Matt Lynch, managing partner at Strategy & Resources, a consulting firm in Dayton, Ohio.

"I may have more money in my account [than anticipated] — maybe I received a bonus or a birthday gift that I had plans for," Mr. Lynch said. "I don't know if I would want to put that on an adjustable auto-pilot [investment] with a robo-adviser. Maybe there's more to it."

Still, the notion of an automatic deposit — where the platform does all the work for the client — is on the up and up, especially as more investors begin to use robo-advice.

Ms. Zhou said WiseBanyan isn't considering the move, but SigFig, another online investment platform, is.

"There are a hundred things we can be improving," said Tomas Pueyo, vice president of growth at SigFig. "This is one of them."

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