Robo advisers are stepping up their financial planning

Betterment and Wealthfront expanding their platforms

May 2, 2018 @ 3:54 pm

By Ryan W. Neal

Both Betterment and Wealthfront rolled out enhancements to the financial planning services offered on their direct-to-consumer digital advice platforms on Wednesday.

Betterment is updating its retirement planning tool to account for any held-away accounts like an employer's 401(k) plan, while Wealthfront is expanding the capabilities of its college-savings service.

Betterment has long let users sync outside assets, but now those accounts will be factored into how clients are progressing towards their retirement goal.

The robo-adviser's retirement planner also will provide advice across an investor's retirement accounts, said Dan Egan, Betterment's director of behavioral finance. Accounting for the investor's marital status, salary, the kind of retirement account offered by the employer and any matching terms, Betterment's algorithm will recommend which accounts investors should add to first to maximize retirement savings.

While the algorithm will identify a rollover opportunity and recommend a product managed by Betterment, Mr. Egan said the advice is independent from Betterment's sales goals.

"[Advice is] firewalled from business considerations here," he said, adding that the algorithm doesn't distinguish between a Betterment retirement account or a held-away account. "If you have a good, low-fee 401(k), we will recommend plowing your money into there."

Betterment will examine held-away accounts for any inefficiencies, such as cash drag or an allocation not aligned with the client's risk profile. If investors can't make changes on their own, the robo-adviser will show how a Betterment account can offset deviations.

For now, these recommendations will be straightforward and simple — more about identifying issues than giving specific recommendations on which funds to buy or sell, Mr. Egan said.

"We don't want to build up a Rube Goldberg machine that tries to maintain external holdings," he said.

While advisers and other sophisticated investors may like digging into details, Mr. Egan said most Betterment clients want to just click a button and have the problem solved.

(More: 10 best-performing robos during Q1)

The company also is hoping that showing users inefficiencies or hidden fees in their 401(k) will increase employee demand to switch to Betterment for Business, the robo-advisers retirement plan business.

Betterment will not charge for this advice. Mr. Egan explained that it only charges clients based on their assets under management, not assets under advisement.

Separately, Wealthfront said itsaccount aggregation, which first launched in 2016, already factors in users' accounts into a projection of net worth. Path, the financial planning service Wealthfront launched in February 2017, also uses client information both at Wealthfront and from other accounts to help clients save money for retirement, buying a home and paying for college.

"It's great to see Betterment now signaling that they too believe the future of advice will be fully technology-based, without the use of a human intermediary, or hybrid approach," said Wealthfront spokeswoman Kate Wauck.

Meanwhile, Wealthfront is expanding the college savings service on Path to let all users understand the costs of sending a child to school, not just those with a 529 college savings plan.

Path pulls in data from the National Center of Education Statistics to show projected costs like tuition, books and room and board at any university or college in the U.S. Wealthfront also can estimate how much financial aid a user can expect and factor this into a savings plan.

Investors still years away from children can enter when they would like to have a child and explore the impact it will have on a financial plan.

"We'll make recommendations on which account you should save into to help you reach your goals," said Dan Carroll, Wealthfront's co-founder and chief strategy officer, in a blog post. "We provide suggestions on how much to put in a 529 to earmark for education versus how much to invest in your other accounts to balance flexibility for all your goals. You tell us what you want to achieve, then we do all the heavy lifting for you."

(More: It may be too early to write off robo start-ups)

Anything that brings increased transparency to the 401(k) industry is a good thing, said Matt Cosgriff, a retirement plan adviser with BerganKDV. If Betterment can shine a light on hidden plan participant fees, he welcomes it.

However, he's a bit skeptical that many investors will take action to improve their retirement plans allocations, even if Betterment highlights investment inefficiencies.

"Broadly speaking, inertia is probably one of the biggest detriments to people inside of 401(k) plans," Mr. Cosgriff said. So while prompting recommendations could be "hugely beneficial," he said human advisers still have an advantage by being able to make those actions on behalf of the client.

"I can have my phone tell me I need to work out every day … and that's awesome. But it still requires an action," Mr Cosgriff said. "Until they can solve that or automate that in some way, I'd be curious to see what the results are."

As for Wealthfront's college-savings move, Mr. Cosgriff said any innovation in the 529 space is a good thing. While Wealthfront may not be reinventing the wheel or offering an investment product better than most on the market, he said the technology overlays offered by the robo-advisers tend to be "way simpler and easier to use."


What do you think?

View comments

Recommended for you

Upcoming Event

Nov 13


Best Practices Workshop

For the sixth year, InvestmentNews will host the Best Practices Workshop & Awards, bringing together the industry’s top-performing and most influential firms in one room for a full-day. This exclusive workshop and awards program for the... Learn more

Featured video


How interest rates have affected different types of insurance

Social media and engagement editor Scott Kleinberg and reporter Greg Iacurci discuss a common theme in this week's popular insurance stories.

Latest news & opinion

LPL video about private equity looks like a swipe at Cetera

Recruiting video warns about potential consequences for advisers when a PE firm buys a broker-dealer.

Ladenburg chairman Phillip Frost steps down

The SEC charged Frost with fraud earlier this month.

Wells Fargo plans to cut staff up to 10% within next three years

Bank is struggling to cut spending amid regulatory fines and higher legal costs stemming from scandals.

Universal life insurance lawsuits underscore product risk

Sudden cost increases could cause clients to pay much higher annual premiums — or lapse their policies.

10 least affordable U.S. cities for renters

Based on average salaries and rents, here are the least affordable U.S. cities for renters, according to


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print