Why a new Betterment chief could usher in an IPO

The departure of Betterment founder and CEO Jon Stein, after a decade at the reins of the industry’s leading independent robo-adviser, was certainly surprising and a bit bittersweet.

Stein wasn’t able to achieve his ultimate goal of an initial public offering, but he transformed the little-known New York-based fintech he started on the heels of the Great Recession in 2010 into a digital behemoth with more than $25 billion in managed assets and more than 550,000 customer accounts, according to the company.

Almost single handedly, he created a new segment of financial advice that reached young, mass-affluent investors that couldn’t afford a typical Wall Street adviser, another victory for investors. He was named an InvestmentNews Innovator in 2016.

IMMENSE HURDLES

The exit, however, also posed questions about the future of independent automated advice and highlights the immense hurdles that fintechs face to reach the elusive IPO. Betterment ultimately achieved the scale needed to remain independent — but not to become profitable.

The company’s value was most recently estimated at $800 million at its last funding round in 2017, a figure that has surely climbed after steady growth and the addition of considerable new assets this year. While a spokesperson did not address its finances, the company has said in the past it is pursuing growth, not profitability.

While the average digital advice customer costs somewhere around $500 to $1,000 to onboard by estimates, Betterment only charges around 25 basis points. With assets in the average account hovering around $30,000 according to its Form ADV, the path to going public remains unclear.

Notably, Personal Capital, an automated platform that offers digital advice paired with human advisers, was acquired by the retirement provider Empower for $1 billion in June before it could reach an IPO. Can Betterment escape a similar fate?

FRESH PERSPECTIVE

Enter new CEO Sarah Kirshbaum Levy, former Viacom Media Networks’ chief operating officer and an interesting choice as chief of a robo-advice firm. The seasoned executive comes with decades of experience in media but is something of a newcomer to the world of finance. The fresh perspective seems to have been a priority for the company.

The problem is that although Betterment created permanent changes to the financial advice landscape, it’s nowhere near a household name and needs significant gains in brand awareness to achieve profitability. In fact, the company tried to address its image in 2018 spending considerably on a marketing campaign that included TV commercials in primetime spots like during the U.S. Open Tennis Championships and featuring prominent actors like Maggie Siff from the HBO show “Billions.”

While Betterment has said the reason for the change at CEO was a personal decision by Stein, Levy brings years of experience at the highest levels of a Fortune 500 company that is likely necessary to push Betterment a step closer to its goal. She will certainly be tasked with increasing brand awareness — and the robo-advice industry as a whole — in order to sustain its high level of growth.

Meanwhile, Stein, at 41, has said he has one more startup left in him. Unfortunately for fintech followers, his next adventure won’t be in the finance sector.

We’ll be watching.