Why a new Betterment chief could usher in an IPO

Why a new Betterment chief could usher in an IPO
Founder Jon Stein wasn’t able to achieve his ultimate goal of an initial public offering, but he transformed the little-known New York-based fintech into a digital behemoth
DEC 18, 2020

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. 

Latest News

Creative Planning's Peter Mallouk slams 'offensive' congressional stock trading
Creative Planning's Peter Mallouk slams 'offensive' congressional stock trading

"This shouldn’t be hard to ban, but neither party will do it. So offensive to the people they serve," RIA titan Peter Mallouk said in a post that referenced Nancy Pelosi's reported stock gains.

Raymond James hauls Ameriprise advisors managing $1.1B in New York
Raymond James hauls Ameriprise advisors managing $1.1B in New York

Elsewhere, Sanctuary Wealth recently attracted a $225 million team from Edward Jones in Colorado.

Cetera debuts new alts allocation portfolios for accredited investors
Cetera debuts new alts allocation portfolios for accredited investors

The giant hybrid RIA is elevating its appeal to advisors with a curated suite of alternative investment models, offering exposure to private equity, private credit, and real estate.

Steward Partners expands in California with $1.1 billion RIA acquisition
Steward Partners expands in California with $1.1 billion RIA acquisition

The $40 billion RIA firm's latest West Coast deal brings a veteran with over 25 years of experience to its legacy division for succession-focused advisors.

Invictus managers withhold $10M, trigger ERISA asset showdown
Invictus managers withhold $10M, trigger ERISA asset showdown

Invictus fund managers allegedly kept $10 million in plan assets after removal, setting off a legal fight that raises red flags for wealth firms.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.