Betterment adding commodities to adviser platform

The ETF will not be available on the retail Betterment product

Dec 19, 2018 @ 6:55 am

By Ryan W. Neal

Betterment is expanding the menu of asset classes available to advisers using the white-label version of the digital-advice platform.

Beginning Wednesday, advisers can customize client portfolios managed by Betterment for Advisors with exposure to commodities from GraniteShares' Bloomberg Commodity Broad Strategy No K-1 ETF (COMB).

The addition of commodities is an expansion of Flexible Portfolios, a program Betterment for Advisors launched in March to give financial advisers more control over how client money is invested on the technology platform. Flexible Portfolios gave advisers the ability to adjust asset class weights and add exposure to asset classes not available to retail investors: high-yield bonds and real estate investment trusts.

Similarly, the commodities ETF is exclusive to financial advisers. Betterment for Advisors head of product, Alex Benke, said it gives them more ways to differentiate from the direct-to-consumer product.

"Advisers have their own views on the market," Mr. Benke said, adding that since Flexible Portfolios first launched, commodities have been in demand from advisers looking for diversification or a way to outperform markets.

Though commodities haven't been the most popular investments in recent years, they could see renewed interest if the recent market pullback continues.

"If gold comes back, it will become a much bigger ask," Mr. Benke said. "Some commodities, especially precious metals, tend to bounce when equities don't do well because it's looked at as one of those shelter assets."

Betterment applied its standardized ETF selection methodology to arrive at the COMB ETF as the product of choice for commodities. Launched by GraniteShares in May 2017, the commodity ETF is known for its "extremely low expense ratio relative to the space," according to ETF Daily News, and was in the top 10 for trading volume in the second quarter, according to Reuters.

(More: Equity ETFs ranked by second-quarter performance)

Betterment doesn't have plans to bring commodities to the retail product anytime soon, but Mr. Benke didn't rule out the possibility.

"Retail is a different beast," he said. "Potentially, we would add them to the core portfolio in the future, at the time we think it's a good idea. We just aren't there yet."

Michael Caligiuri, founder and CEO of Caligiuri Financial and Betterment for Advisors user, believes commodities will be a great addition to Flexible Portfolios to serve as a hedge to stock market declines and inflation.

"Many people argue gold is not a good investment because it does not produce cash flows, and there is a cost to store it," Mr. Caligiuri said. "The inherent value of gold, and the reason why it was the premier currency for thousands of years, is that relative to other commodities, the free market decided gold had the best combination of being rare, valuable, divisible and homogenous."

Betterment currently manages $15 billion in client assets but doesn't break out how much is on the retail product versus Betterment for Advisors. The robo-adviser also doesn't share how many advisers use the platform but says it's used at 450 advisory firms.

Betterment plans to invest heavily in Flexible Portfolios in 2019 to give advisers more control over portfolios and give them more reasons to bring client assets to the platform, Mr. Benke said.

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