Betterment Now Offers Human Advice + Flat Fee Structure

betterment_logoThe robo-advisor evolution continues. Betterment just announced some significant changes that include the option to upgrade to a Certified Financial Planner (CFP®) and a more simplified flat fee structure. Here are highlights from the new plans:

  • Betterment Digital. Their original product with digital portfolio management and guidance. Now at a flat 0.25% annually (no more tiers). No minimum balance. There is no longer be a $3/month fee if you don’t make monthly auto-deposits. The management fee on any assets over $2 million is waived.
  • Betterment Plus. Digital features above + an annual planning call from a “team of CFP® professionals and licensed financial experts who monitor accounts throughout the year.” You will also have unlimited e-mail access. The plan is a flat 0.40% annually. $100,000 minimum balance required.
  • Betterment Premium. Digital features above + unlimited phone access to a “team of CFP® professionals and licensed financial experts who monitor accounts throughout the year.” You will also have unlimited e-mail access. The plan is a flat 0.50% annually. $250,000 minimum balance required.

Betterment’s previous fee structure for Digital was 0.35% for balances under $10,000 with $100/mo auto-deposit (or a flat $3 a month without), 0.25% for balances of $10,000 to $100,000, and 0.15% for balances above $100,000. This means that with the new flat 0.25% fee structure, people with balances under $10k will end up paying less while those with $100k+ will be paying more. If I had a big balance at Betterment, I’d be quite unhappy with the price hike. Existing customers on the 0.15% tier will stay on that fee structure until June 1st, 2017.

Here’s how this breaks down in terms of your account size:

  • $10,000 account balance. Digital would cost just $25 a year ($2.08 a month). There is no longer any requirement for auto-deposit to avoid a $3 a month fee. Plus or Premium not available.
  • $50,000 account balance. Digital would cost $125 a year ($10.41 a month. There is no longer any requirement for auto-deposit to avoid a $3 a month fee. Plus or Premium not available.
  • $100,000 account balance. Digital would cost $250 a year ($20.83 a month). Plus would cost $400 a year ($33.33 a month) and include an annual planning call with a human advisor. Premium not available.
  • $250,000 account balance. Digital would cost $625 a year ($52.08 a month). Plus would cost $1,000 a year ($83.33 a month) and include an annual planning call with a human advisor. Premium would cost $1,250 a year ($104.17 a month) and include unlimited calls to a human advisor.

Commentary. I don’t write about robo-advisors all that often, but Betterment adding human advisors as an upgrade option signals a big change in the industry. For the investors with modest balances, the flat fee is cheaper but it has always been pretty cheap; at $50k in assets it costs the same as a Netflix subscription. Perhaps more important is knowing that as you continue to grow assets, a human advisor will become available without having to move your money elsewhere.

For those with at least $100k in assets, the upgrade cost to talk to a human advisor annually appears reasonable ($150 a year more at $100k asset level). You also get unlimited e-mail interaction for quick questions. If you go to an independent CFP and request a one-time consultation, that will usually cost a $400 to $500 flat fee. Potential concerns include that you don’t get a dedicated person but a team. However, in my experience even if you get assigned a dedicated person, they’ve often moved onto another job within a year. The wording also suggests that the pool of advisors are not all CFPs.

This move signifies both the good and bad about the current robo-advisor environment. The good is that they keep evolving and looking for ways to improve (i.e. index replication, tax-sensitive asset location, tax loss harvesting). The bad is that these can involve big changes with little notice (i.e. portfolio tweaks, fee changes). This time, the good is now you have the option to pay more for human advice. The bad is that if you already had a lot of money with Betterment, your fees got hiked by 10 basis points. This is why I prefer to DIY, because I enjoy being in control.

That said, if I had to switch I would prefer human access for estate-planning purposes (Mrs. MMB doesn’t want to manage our portfolio). Betterment says they have an advantage because they are independent. For comparison, I would look into Vanguard Personal Advisor Services (VPAS) which costs 0.30% annually and includes a team of human advisors. Possible drawbacks of VPAS include no automated tax-loss harvesting and you’ll be confined to Vanguard products.

Comments

  1. C’mon – this seems like a marketing job for Betterment. While the fees are arguably competitive, the problem is this company has shown NO consistency. I defended their previous changes to their investing portfolio (even though it was more international than I would typically like). But raising fees on existing customers? The goal is to minimize fees and have consistent goals – and this is a bait and switch.

    Competitors such as Wealthfront add value the more you invest (the first 10k is invested for free, and the more you invest, you qualify for direct indexing, which saves you the expense ratio of the ETF and opens up more possibilities for tax loss harvesting). Wisebanyan is trying to be revolutionary by offering everyone investing with no minimum for free – and only charging for add-on services.

    The only value add that Betterment is now providing is to pay MORE (higher expense ratio) for human advising. I think this is an epic failure, and Vanguard should be looking pretty – no advising costs necessary for smaller investors (outside of fund expense ratios), and a company that fights to LOWER fees for their investors over time instead of increase them.

    • Betterment did raise their prices for those with $100k+ balances. People are understandably upset if that is your status quo. You already pay for Betterment and now you’re paying more. Wealthfront also charges a flat 0.25% so now there is no price advantage either way.

      How do you know that Wealthfront (or any robo) won’t change their fee structure or portfolio allocations in the future? WiseBanyan also changed up their portfolio while I was a customer and generated taxable capital gains.

      I don’t have Betterment (or haven’t for years), so my status quo is that they are adding human advice as an option. I really do think that is a positive change.

      1) If you have less than $50k it really doesn’t matter what you choose. Nobody is giving you human advice anyway because you’re paying something like $50 a year in fees. Sure at Wealthfront the first $10k is invested for free but that only saves you $25 a year vs. Betterment. Is that really a big deal? Paying $25 or even $100 a year for a computer to handle your slice-and-dice ETF portfolio is quite reasonable in my opinion. I’ve long recommended Vanguard Target Retirement funds for those not enamored with an eight ETF portfolio.

      2) If you have something like $100k+ AND are the type to pay someone to manage it, wouldn’t you want to have a qualified person to talk to? Hybrid is the future. I’d be willing to bet that Wealthfront will be adding an advisor pool in the next year or two. VPAS is going to keep growing.

      3) If you have $100k and want to DIY to save a few hundred dollars a year, then you’re not paying Wealthfront or Betterment or Vanguard anything to manage your portfolio.

  2. You lost me with this status quo thing. Here’s plain English – if you have 100K+ and were invested with Betterment, or were not invested with Betterment but were considering them, it’s going to cost you more now. Where you’re invested now is irrelevant as far as that fact is concerned. It was reasonably priced before, it no longer is now, especially if you’re mostly or all tax-advantaged thus wouldn’t use TLH+.

  3. I don’t use Betterment an never have. I understand the uproar from people who are facing a fee increase.
    But let’s just remember that these business models are new and evolving. It is definitely possible that Betterment’s original pricing model was too low and led to operating losses that were being subsidized by the easily available venture capital available over the last several years. Now that financing has tightened up, they may be making these moves to remain viable. In other words, the original pricing may have been too good to be true, so the company could either raise their fees or go out of business. They chose the former, but if there isn’t enough demand for their services at the new fee level they may be facing the latter.

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