Betterment catches up to Wealthfront in AUM as robo competition reaches boiling point

As the robo-adviser movement gains traction and giants such as Schwab and Vanguard flex their muscles in the space, competitors are trying to outmaneuver each other to survive

Jul 30, 2015 @ 11:40 am

By Alessandra Malito

Robo-adviser Betterment has caught up to long-time competitor Wealthfront in assets under management.

The New York-based automated investment service Betterment recently surpassed 120,000 client accounts and its AUM just hit $2.52 billion-plus, according to the company's latest ADV. Although the June 24 ADV for Wealthfront, which is based in Palo Alto, Calif., says the company is at $2.51 billion in AUM with about 35,500 client accounts, a spokeswoman for the platform said its AUM is now approximately $2.56 billion as of July 30.

Betterment also has an adviser-facing version called Betterment Institutional, which works with more than 100 registered investment advisers and has partnered up with Fidelity Investments. Although the company declined to disclose how much of its AUM came from each side of the business, a spokesman said that the retail channel represented the heavy majority of its assets.

Regardless of the exact figures, the two are neck-and-neck. Only a year ago, Wealthfront was leading Betterment by $700 million in AUM.

“We have seen tremendous growth,” said Jon Stein, chief executive of Betterment, adding that the company is increasing the distance between itself and the other automated investment service startups. “I think that in part is due to the rising general awareness of the space.”

It's true that the number of investors likely to use robo-advisers is growing. According to a recent A.T. Kearney study, the percentage of total investable assets that robo-advisory services manage will jump from 0.5% today to 5.6% in 2020.

“Many say to me it is likely the winners are already out there, and I think we will be the biggest winner in the space,” Mr. Stein said.

Meanwhile, Wealthfront has been catching criticism lately in response to chief executive Adam Nash's sharp-tongued post earlier this month bashing Betterment for its fee structure.

The two are perhaps the most well-known in the robo-advisory market, but their competition has gotten significantly more tense in recent months, as many wonder if the automated investment platform is becoming commoditized.

Mr. Nash took note of the growing robo market, saying that funding in financial technology tripled last year to reach about $12 billion. He said his post was a way to point out the bad behavior in the industry, focusing on Betterment's $3 monthly fee for accounts that do not have auto-enrollment.

“Many new companies have popped up in the space, and as a new company, you need to make the important decision of how and where you make your revenue,” Mr Nash said in a written statement. “At Wealthfront, we refuse to make money on investors just starting out.

“If founders and CEOs don't build their businesses differently, they will end up with the same perverse pricing as Citibank and the other giants that came before us,” he added.

He declined to comment further on the post or his company's positioning.

Critics are saying that the July 7 post, which is when Mr. Nash announced that Wealthfront was lowering its minimum from $5,000 to $500, is a sign that perhaps there is more pressure than before for one of the original robos.

There is.

“Wealthfront and Betterment have name recognition — those are the first [robo-adviser] names we think of,” said Craig Iskowitz, chief executive of Ezra Group, a technology consulting firm in the financial advice industry. “But there's also Jemstep. There's Hedgeable. There's FutureAdvisor, Upside, SigFig and Personal Capital.

“Innovation is what is going to keep attracting assets,” he added. “The easy money is gone.”

It's not just competitors of a similar size that are causing the tension. Pressure from the bigger firms, such as Vanguard and its hybrid robo Personal Advisor Services, as well as Charles Schwab & Co.'s Intelligent Portfolios, has also been ramping up. Although their assets under management figures include assets walked over from preexisting accounts, Vanguard has $21 billion in AUM and Schwab a little over $3 billion, impressive totals given their relatively recent respective launches.

“You won't see the same growth without the name recognition or trust that a Vanguard, Schwab and Fidelity have,” Mr. Iskowitz said. “I don't think the direct to consumer model will be successful when you have a Vanguard and Schwab.”

In March, the Wealthfront CEO accused Charles Schwab of deceiving investors by claiming its then-new robo was “free” while forcing them to hold significant cash positions, to which Schwab responded with a statement posted to its website.

Then there are the smaller, niche-focused robos entering the space, like Blooom, a retirement robo-adviser that was mentioned in Mr. Nash's last post. Chris Costello, chief executive of Blooom, said that although this has always been a competitive market, even before robos existed, his company is geared specifically toward servicing the defined contribution retirement plan market, which includes 401(k) and 403(b) plans.

“I don't feel like we are in the mix with Betterment and Wealthfront,” Mr. Costello said. “It doesn't feel like there's a lot of competition for us.

“I know that will change over time,” he said.

Overall, Mr. Nash's post may not mean much for potential clients.

Mr. Stein, who responded to it in a in a post of his own, said this is all just noise.

Hordes of people took to Twitter to weigh in on the war of words, some arguing for Mr. Nash's post and others against it.

“Most people who read them are already customers of ours or maybe Wealthfront,” Mr. Stein said. “[New users] don't care about a war between CEOs.

“What they do care about is the best advice, best user experience and best service,” he said.


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