Advisers can now create custom model portfolios using Betterment's white-label robo

Firms can adjust the weight of the 17 asset classes available on the platform according to their own investment strategy and research

Oct 2, 2019 @ 6:50 am

By Ryan W. Neal

Betterment is giving financial advisers greater control over how client assets are allocated in portfolios managed by the white-label version of its automated investment software.

Firms will soon be able to create custom model portfolios on Betterment for Advisors by adjusting the weight of the 17 asset classes available on the platform according to the firm's own investment strategy and research. Advisers can then assign these models to client investment goals and Betterment will take over the rest, handling rebalancing, asset location, tax-loss harvesting and reporting.

[More: New sources for data on model portfolios could help increase adviser adoption]

The models will only be available to clients of the firm and can be branded with custom names. Betterment for Advisors head of product Jon Mauney said that branding will let advisers take more ownership over the investment process and demonstrate to clients the value of the firm's investing expertise.

Promoting a firm's investment management abilities may appear to run counter to the value of digital advice promoted by the technology's proponents. For example, when Ritholtz Wealth Management announced that it would use Betterment for Advisors to power its own robo, the firm's director of research, Michael Batnick, said he was happy with Betterment's own philosophy for managing smaller portfolios.

But Mr. Mauney said the model portfolios functionality is meant to make Betterment for Advisors useful to firms that have more specific investment needs.

"Some firms like Ritholtz are just fine with what we do and want to offload the responsibility of investment management to us," he said. "There are plenty of exceptions for why that might not be correct."

"We're certainly not advocating active trading or anything like that," Mr. Mauney added. "But in portfolio construction there are different ideas."

There are still some guardrails. For example, only firm administrators can create new model portfolios and edit existing ones. Betterment will also provide information on asset diversification and projected returns for each model to help advisers understand how models vary.

"We're just trying to put more tools in the hands of the adviser to help them run their business how they want," Mr. Mauney said.

Sgroi Financial, a 48-year-old broker-dealer, launched an RIA less than two years ago with about $300 million in AUM, according to its most recently filed form ADV, and is using Betterment for Advisors to service next-generation clients and other small accounts.

Vincent Scarsella, a registered representative and financial research analyst at Sgroi, said the model portfolios will help ensure clients on the platform receive service and investment advice that's consistent with what's provided to larger clients.

"When we first got into Betterment, they didn't have that capability to create a unique portfolio for the end client," Mr. Scarsella said. "It's just a peace of mind thing for myself being in the research department."

"It's important for us to be engaged with our portfolios," added Urmas Lupkin, vice president of sales and marketing at Sgroi. "It is one of the pillars of our product here."

According to its most recent form ADV, Betterment now has $16 billion in assets on its platform, but a spokeswoman said the overall platform has nearly $20 billion.

The company doesn't break out assets by business line, but the spokeswoman did say that there now 500 firms on Betterment for Advisors.

[Recommended video: How the client experience will be different in five years]

Betterment has been steadily giving more advisers more control over its white-labelled product as it tries to expand into new more markets and appeal to larger firms. In June, the fintech added ACATS transfers to make it easier for firms to bring assets over from other custodians, and in April it added mutual funds from Dimensional Fund Advisors.

Betterment launched Flexible Portfolios in March 2018 to let advisers tweak the weighting of asset classes for individual portfolios. Now firms can save the allocation strategy as a model they can rapidly deploy across other portfolios, Mr. Mauney said. And firms can more easily make mass updates to strategy that will automatically update across all portfolios assigned to the model.

"The more flexibility we can add to advisers to allow them to do exactly what they need to do have the best outcome for clients, that's what we're trying to do here," Mr. Mauney said.

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