With the recent announcement that Betterment for Business has reached 200 DC plan clients, it might be time for advisors to consider two important questions: (1) are robo-record keepers for real; and (2) are they friend or foe?
Robo record keepers are a lot like robo advisors, but there also are major differences. Robo record keepers are selling a B2B service, which is different type of sale and therefore requires a different type of salesforce. Consumers might actually go searching for investment advice, but companies, especially smaller ones, rarely do with so many advisors and providers calling on them. Plus, they have more urgent and/or important tasks to deal with ahead of retirement benefits. There’s little upside in companies taking a risk on a new service from a start-up even if they have a really slick front end at low cost.
There’s no doubt that Betterment is very attractive, incorporating state-of-the-art technology and using their robo advisor to enable workers to do online financial planning; incorporating outside assets with low, transparent fees and no revenue sharing; offering ETF models; and embracing behavioral finance techniques.
So are robo record keepers viable? Not unless they have a B2B distribution model. Some experts like Michael Kitces have gone so far as to question whether robo advisors can be viable when the cost of acquisition is greater than the value of the client. There is surely a niche market of companies that will gravitate to Betterment (John Oliver?), but the question is, how big is it?
Betterment’s answer to that question: 200 after six months or so in business. And even direct sold behemoths like Fidelity and Vanguard have gravitated toward selling small and mid-size DC plans through advisors.
Which brings us to the second question: friend or foe? When I asked Betterment what role an advisor plays in their model, they struggled to answer the question. Betterment does have a call center and offers individual investment advice and online education, which younger workers might actually appreciate. But if they are to stay low cost, is there room for an advisor?
Perhaps the DOL fiduciary rule will help, along with state-mandated auto-IRAs. But so far no one except payroll companies (who have also partnered with advisors) has come up with a distribution model for small and mid-size plans that does not include advisors.
Will Betterment, with their TV ads, change the world? Share your take in the comment box below.
