
What's The End Goal for Wealthfront and Betterment? (2016) - kloncks
http://larrysukernik.com/blog/2016/1/1/wealthfrontandbetterment
======
lquist
Gurley's post [1] (from 2014) gives one possible end goal: "Learning about
Yu’e Bao gave us an epiphany that Jack Ma likely had years ago. If you want to
truly disrupt the financial services industry, perhaps you need to stop
attacking the transactional experience and launch a competitive product on the
asset gathering side. Once you have the assets, all the disruptive things that
Silicon Valley types want to do will be easy. The hardest part has been
getting access to the funds."

[1]: [http://abovethecrowd.com/2014/06/18/disrupting-finance-
from-...](http://abovethecrowd.com/2014/06/18/disrupting-finance-from-above-
wealthfront/)

~~~
pbk1
why don't Silicon Valley firms partner with existing smaller banks looking to
do more with their balance sheets? seems like if their ideas are truly
disruptive it would be a win-win for both parties.

~~~
leereeves
Banks are heavily regulated and the government forbids such investments.

> The FDIC permits insured state banks and their subsidiaries to undertake
> only safe and sound activities and to make investments that do not present a
> significant risk to the deposit insurance funds

[https://www.fdic.gov/regulations/laws/bankdecisions/InvestAc...](https://www.fdic.gov/regulations/laws/bankdecisions/InvestActivity/index.html)

~~~
bunderbunder
There's still room for innovation and partnerships with startups, though, even
if they can't do something wildly disruptive*. For example, I originally found
out about CreditKarma because my bank had partnered with them in order to
incorporate a credit monitoring widget into their online banking portal.

------
_wgnp
Since this is a community of programmers, you _might_ be interested in doings
things like this yourself instead. There are a couple of options:

\- Quantopian ([http://quantopian.com/](http://quantopian.com/)): Python
based, kinda a little bit open source (backtesting only), live trades on
Interactive Brokers or Robinhood. Has a big community for stocks.

\- QuantConnect ([http://quantconnect.com/](http://quantconnect.com/)): .NET
based, more open source (includes live trading), live trades on Interactive
Brokers, has a similarly sized community but the community's attention is
spread to other asset types like Forex as well.

Both have numerous example algorithms you can clone and run without much
trouble. An example vaguely suited to investing:
[https://www.quantopian.com/posts/modern-portfolio-theory-
min...](https://www.quantopian.com/posts/modern-portfolio-theory-minimum-
variance-portfolio)

~~~
frgtpsswrdlame
I'd just like to quote an old comment here:

>One thing I see every once in a while on HN is people with the belief that
they can spend a week or two knocking out an algorithmic trader and start
raking it in. In order to break this illusion I would recommend:
[http://financial-math.org/](http://financial-math.org/)
[http://www.quantresearch.info/](http://www.quantresearch.info/)

~~~
nhorob67
Thank you for this. My thoughts exactly

------
eeeeeeeeeeeee
This article didn't mention it specifically, but Betterment already put in a
rate hike. You used to be able to get 10 basis points if you had over 100k and
they just increased that to 25 in a really underhanded way. I had been using
Betterment for about 2 years when they did this.

I had been happy with Betterment but it's clear that they want to get as many
people in under the low rates and slowly increase it on you, knowing that you
can't easily move it around to another provider (especially if you're
dependent on their tax loss harvesting etc).

~~~
suresk
Yeah, that was really disappointing. I'd bought into the Betterment kool-aid,
and shortly after funding my account, I saw their 'price increase buried in an
unrelated product announcement' email.

I think these companies (Betterment, WealthFront, etc) are struggling with
really high customer acquisition costs that take quite a while to break even
on. I'm sure that not many people noticed/cared enough to transfer out (I'm
doing it now, it isn't a small task), so they came out way ahead on it.

Unfortunately, I think it will be easy for them in a year or two, when they
need more quick revenue, to look back and say "Hey, not many people said
anything when we raised fees by 67%, what's another 10 bps or so?"

~~~
eeeeeeeeeeeee
Yep, I agree. I signed up based on the rates at the time, thinking they
wouldn't change THAT often. But it sounds like this is going to become more
common.

I'm in the process of moving everything to Vanguard.

------
mfrykman
In the article, it states that Chase is offering 0% funds, yet Betterment
claims that their "All-in Actual Cost" for a 100k fund is better than Chase's
due to cash drag and a lower expense ratio. (Found here:
[https://www.betterment.com/comparison/schwab-intelligent-
por...](https://www.betterment.com/comparison/schwab-intelligent-portfolios/))

This is confusing and hard to fact check. Who do I believe?

~~~
toomuchtodo
Neither option is better than a Vanguard account with one of their target date
funds (or funds targeted by level of aggressiveness).

Vanguard is a mutual company; they exist for the benefit of their users. Hard
to compete against that.

Disclaimer: moved from Betterment to Vanguard

~~~
Ductapemaster
Could you explain a bit more? Are you making a better ROI? I currently have a
Betterment account and would consider switching if there's a good reason.

~~~
twblalock
If you moved your money to Vanguard and invested in the same funds Betterment
currently invests in for you, and you rebalanced as often as necessary, you
would get a slightly higher ROI at Vanguard because Vanguard has lower fees.

However, all of the things Betterment does for you now would be your
responsibility, including asset selection, rebalancing, thinking about how to
manage taxes, etc.

The bottom line is that you can do this yourself for less money, but you have
to do it all yourself. Betterment offers more convenience for a higher fee.

~~~
avenoir
I know next to nothing about investing and this is exactly why I'm using
Betterment. Even with the recent hikes in fees they're still cheaper than
hiring a financial adviser. I really feel like I have very little choice but
to stay put. However, how does one get started managing their investment
account? I have more than 100K tied up in Betterment and trial-and-error type
of learning could be pretty disastrous.

~~~
zerkten
Hiring an independent financial adviser was one of the best decisions I've
ever made. It's an occasional check-in to support decisions I make around
investments with Vanguard and my 401k. Finding an adviser is the hard part, so
it's worth talking to a bunch of people so you can find someone that's
comfortable with what you want to do.

I got the Wealthfront pitch when I started with my employer, but I feel much
better with my current arrangement. Your comment "I have very little choice
but to stay put" is never nice to hear in any context, so I hope you can move
along from that place.

~~~
toomuchtodo
You must ensure that your financial planner or adviser is a fiduciary.
Otherwise, they have no obligation to advise or act in your best interests.

[http://www.cnbc.com/2015/06/16/is-your-advisor-a-
fiduciary-c...](http://www.cnbc.com/2015/06/16/is-your-advisor-a-fiduciary-
chances-are-you-have-no-idea.html)

------
teej
Wealthfront has raised ~$100M and Betterment has raised ~$200M. If they are
only burning $4M/year to grow as fast as they are, they are doing
fantastically well. I suspect though that the author's burn rates are off by
an order of magnitude.

~~~
hn_throwaway_99
Agreed. I know the author was trying to be conservative, but I wouldn't be
surprised if fully loaded employee costs were about double his estimates.

------
lewisl9029
While we're on the topic of robo-advisors, I'd love to see a robo-advisor that
lets clients customize a portfolio allocation and just _advises_ them on when
and what to trade to keep their portfolio balanced on a regular schedule, for
a fixed fee. That is, instead of these so-called robo-advisors that are
actually robo- _managers_ , in the sense that they _manage_ your portfolio and
trade on your behalf, and are compensated as such, for a percentage of the
entire value of your portfolio.

I'm sure there is enough space in the market for both types of products, the
robo-advisor and the robo-manager. Personally, I'd prefer the former.

~~~
bwood
Shameless plug, but I'm actually working on a product that does exactly that.
It started as a personal tool that integrated with my brokerage account to
take the hassle out of rebalancing and knowing which trades to make with my
monthly contributions. It currently only works with Questrade, but I'm looking
at adding support for more brokerages.

[https://rebalancr.com/](https://rebalancr.com/)

~~~
prdonahue
Interesting.

Btw, suspect you'll have trouble getting people to sign-up using such a
flight-by-night custodian. Maybe take a look at Interactive Brokers?

Also, would encourage Questrade to fix this: Mixed Content: The page at
'[https://www.questrade.com/'](https://www.questrade.com/') was loaded over
HTTPS, but requested an insecure image
'[http://ads.yahoo.com/pixel?id=2459149&t=2'](http://ads.yahoo.com/pixel?id=2459149&t=2').
This content should also be served over HTTPS. (index):1 Mixed Content: The
page at '[https://www.questrade.com/'](https://www.questrade.com/') was loaded
over HTTPS, but requested an insecure script
'[http://www.questradeaffiliates.com/scripts/track.js'](http://www.questradeaffiliates.com/scripts/track.js').
This request has been blocked; the content must be served over HTTPS.

~~~
bwood
Thanks for the feedback! Yeah, I don't expect much mass appeal from supporting
only Questrade, it's just the brokerage that I use myself. Good idea on
getting them to fix those HTTPS issues, really no excuse for it these days.

------
Johnie
The failure of articles like this is that they take a snapshot of a company at
a point in time and assume that the company's business model and reach doesn't
change. This is the same mistake that many analyst make on early stage
companies.

Companies evolve over time and grow in terms of scale. Take a look at Facebook
and Google as an example.

~~~
fullshark
I think their growth has slowed though. At least I remember them bragging
about 3 billion under management a year ago.

~~~
krallja
This article is from January 2016, by the way.

~~~
fullshark
Makes sense, is there any data from 2017?

~~~
krallja
Betterment has $8B as of March 16, 2017: SEC form ADV page 8, "Regulatory
Assets under Management"

[https://www.adviserinfo.sec.gov/IAPD/content/ViewForm/crd_ia...](https://www.adviserinfo.sec.gov/IAPD/content/ViewForm/crd_iapd_stream_pdf.aspx?ORG_PK=149117)

edit: Wealthfront $5B
[https://adviserinfo.sec.gov/IAPD/content/ViewForm/crd_iapd_s...](https://adviserinfo.sec.gov/IAPD/content/ViewForm/crd_iapd_stream_pdf.aspx?ORG_PK=148456)

~~~
fullshark
Thanks. That seems healthy but not enough based on this blog's conjecture. I'd
guess they are eventually acquired if I were to bet on their future.

~~~
krallja
I think acquisition is a totally legitimate exit strategy, as long as they're
aware of the direction they are heading.

------
frgtpsswrdlame
I think that he's definitely right about consolidation and then acquisition.

I work in HNW wealth management and I think that there needs to be better
education on what for example a young person's IRA should look like. An ideal
robo-advisor would make buy recommendations, ask you to never sell, and use
education along the way to help prevent you from making the same mistakes most
people fall trap to. I also think that if any of these companies have a desire
to stay around for a while they need to be targetting the IRAs of young, high-
income programmers. With a good fee and good education and assistance they can
probably retain these customers, encourage them to max out contributions into
their IRA (you should!!) and slowly build up a long tail of decent-sized
accounts from people that may have only been interested from a tech
perspective initially.

~~~
mattzito
Sorry for the naive question - but if you're contributing to a 401k, aren't
you ineligible for tax-deductible contributions to an IRA?

If so, it would seem like an even better business would be getting into
administering 401k plans cheaply with employers and then keeping people on the
platform post-employment.

~~~
beisner
I'm pretty sure that contributing to a 401k doesn't make you ineligible to
contribute to an IRA, but making over a certain amount of money annually does.

~~~
MarkPNeyer
Adding to this:

Not a lawyer etc but I don't think a 401k prevents you from making IRa
contributions either. Never heard of that.

As for income limits, you can still contribute to your IRA if your income is
above the limit (I think that's 125k or so) but the contributions will no
longer be tax deductible.

Once you're past that limit, you may as well convert from regular to Roth IRA
(this is called a backdoor conversion) so that your money grows tax free.

------
nateberkopec
I haven't switched to a roboadvisor product for a few reasons, but one of them
is that saving for retirement is a decision you make on a 30+ year timeline.
Most startups hardly last 3 years, much less 30. Why would I trust my money to
an industry where the typical case is a flameout in only a few years?

~~~
lukejduncan
It's a fair concern. Both Wealthfront and Betterment are Broker dealers and
they have legal obligations in the event of going out of business.

Wealthfront spells it out as: "In the unlikely event Wealthfront were to cease
doing business, your account would be held by our brokerage partner until you
transferred your account to a new broker or chose to liquidate your account to
receive a check."

[https://support.wealthfront.com/hc/en-
us/articles/211004083-...](https://support.wealthfront.com/hc/en-
us/articles/211004083-What-would-happen-to-my-account-if-Wealthfront-were-to-
be-acquired-go-public-or-cease-doing-business-)

------
scurvy
If you want a good robo advisor with no fees, check out Wise Banyan. I'm a
client, but a happy one and that's my only relationship with them.

~~~
zazpowered
I use Wisebanyan as well and would recommend it

~~~
aorth
According to a link about performance from a comment above, Wise Banyan has
done pretty well over the last three years.

[https://senzu.io/investing/robo-advisors](https://senzu.io/investing/robo-
advisors)

~~~
neogodless
But... you don't want to make long-term (or even short-term) investment
decisions based on recent past performance.

------
zazpowered
If you guys want to see a comparison of historical performance and fees of the
top robo-advisors check this out [https://senzu.io/investing/robo-
advisors](https://senzu.io/investing/robo-advisors)

------
Analemma_
I don't use them, but I can tell their strategy is working. My broker (through
work) is Fidelity and lately they've been throwing up pop-ups on login, and
sending me emails, urging me to try their low-cost funds that they insist are
cheaper and better than Vanguard. They're definitely feeling the heat; I don't
think companies like this push their low-fee funds on you unless they're up
against the wall.

~~~
pscsbs
Doesn't this mean that Vanguard's strategy is working, not
Wealthfront/Betterment?

------
jjn2009
Charles Scwab does take fees in a way, their robo advisor requires a certain
percentage of your account be cash. This cash in turn is invested for their
own profits.

------
yalogin
I looked into these companies but couldn't find a reason to invest through
them. I don't understand what value these guys bring. If I am already paying a
commission for each fund I don't know why I shypay these guys a cut again.

Eventually I think these guys will and must come up with their own funds. Else
it does not make sense for them.

------
cheriot
The article's scenarios top out at 16B AUM , but vanguard is at 4T with a T.
Their problem is not lack of TAM.

------
narrator
Why can't I buy VTI and dividend reinvest? I compared that to Betterment since
2004 and it wins handily. What am I missing? Tax loss harvesting sounds fancy
but what's the actual bottom line benefit after fees?

~~~
sulam
I don't use a robo-advisor, but TLH saves me 6 figures in taxes every year.
Sadly I'm not comfortable disclosing the size of my portfolio. It's big enough
to have an account with most bankers, but not big enough to require dedicated
staff. :)

~~~
narrator
So you have big capital gains somewhere else in your portfolio that lets you
take big deductions from TLH?

~~~
sulam
Yes, absolutely. I also have an AMT overhang, but I doubt that will be used up
in my lifetime.

------
aphextron
I tried out these services, and it just freaks me out too much having $50,000
sitting in an iPhone app. I get that they are insured and legit, but it's just
too much money for me to hand over to a startup.

~~~
twblalock
Don't you have a broker, or a 401k?

~~~
aphextron
Yes, I have Vanguard but decided to give Betterment a try when they first
launched.

~~~
krallja
I think twblalock is trying to say there's an app for that: Vanguard by The
Vanguard Group, Inc.
[https://appsto.re/us/HKO-t.i](https://appsto.re/us/HKO-t.i)

