Betterment reorganizes personalized portfolios, advices on direct indexing


In a move that could set the stage for Betterment to begin offering direct indexing capabilities for advisors, Betterment for Advisors is removing minimum investments and revising its software. With the introduction of personalized model portfolios, advisors no longer have to meet a minimum of $ 2.5 million investment, which was once required. In addition, Betterment overhauled its back-end systems, reducing the need for advisors to work directly with Betterment’s trading and investment teams and making it easier for advisers to build their own portfolios by accessing the more than 1,500 ETFs available. .

While Betterment is making its custom model portfolio feature available to more advisors, the core of the feature remains largely the same as what was quietly introduced earlier this year.

Advisors can choose from a menu of ETFs (for all practical purposes, individual securities are not yet supported on the platform), adjust the allocation of these funds to match up to 10 levels of client risk different, deciding how quickly to move from an existing portfolio to a new portfolio — and considering the tax consequences during that transition — as well as assigning the portfolio to a client.

Currently, advisers are tied to Betterment’s capital market assumptions, but they will soon be able to review and change those assumptions as well. Tasks such as harvesting tax losses and rebalancing are already automated.

When the feature was first announced, Betterment cited the cost of building and maintaining the wallet as the reason it required a minimum. An improvement in “operational capabilities” has reduced that cost and it no longer needs to be supported by a minimum investment, said Jon Mauney, managing director of Betterment for Advisors.

“Previously you had to come see us and we would work with our operations team, our trading team and our investment analysis team to actually be able to put together these portfolios,” he said. “Now this is entirely in the hands of the advisor. “

While they can build portfolios more easily, advisors are still limited by Betterment’s investment menu.

Crypto investments like those offered by iCapital Network and Grayscale or Wealthfront, for example, are not available. “Our general opinion is that things are always a bit pricey,” Mauney said. “We want to provide efficient access to asset classes. Crypto is an increasingly important asset class. If we get to the point where we think it’s effective access, and we trust the fundamentals and we trust the cost and that sort of thing, that’s definitely something we can look at.

Individual stocks are not yet widely available either, at least for now.

But in a preview of the revised wallet functionality offered at, evidence from the platform’s backend suggests direct indexing capabilities are on the horizon. Advisors who build their own portfolios build what are called “security groups” from a drop-down menu of available ETFs, under a heading called “Securities”.

Betterment’s “Security Group” and “Securities” functionalities, part of an interface designed for advisors creating personalized portfolios.

“The idea for us internally is that it’s a flexible concept, and we didn’t want to get locked into something too specific at the moment,” Mauney said. “We are of course interested in direct indexing, because it is an interesting space. There are a lot of things that we have to do on our end to be able to release a great product around this, but it is definitely something that interests us in the long run.

Direct indexing at Betterment for Advisors could happen, Mauney added, “maybe in the future.”

The possibility seems more and more likely given the available capacities. Although Betterment retains its own assets, it uses Apex Clearing in its trading technology stack. Apex has for years provided support for investing in fractional shares, a fundamental feature of direct indexing.

If Betterment sees direct indexing on the horizon, it’s not the only one. Vanguard bought direct index technology company Just Invest this summer, a first for the asset manager. Just Invest was founded in 2016 and manages over $ 1 billion in assets. Vanguard has already launched a pilot program for its RIA clients over the past year and a half, powered by Just Invest. Enhancement competitor Wealthfront also offers a direct index version.

Technology, however, is not a silver bullet. RobustWealth, now closed, started offering this feature three years ago. Its activity for advisers was closed this year.

Meanwhile, the custom template wallet interface used by advisers has been revamped to make it more user-friendly, Mauney said. The company is in the process of migrating the retail and business segments of Betterment to the same base used by the advisory business.

As wallet personalization gains in importance at Betterment, executives have considered offering a model market, Mauney said, but it doesn’t appear to be gaining much traction. Betterment already offers third-party models from Vanguard, BlackRock and Goldman Sachs, and has entered into an agreement with Dimensional Fund Advisors to offer portfolios. “We’ve talked a lot about the idea of ​​a model portfolio market,” Mauney explained. “One of the things we come back to is that we don’t necessarily feel the need to go out of our way to highlight these portfolios, now that you can create whatever you want on our platform.

Betterment for Advisors has over 600 companies on its platform, Mauney said, with a “dumbbell situation” of very large companies looking to segment clients, on the one hand, and companies under 150 million. dollars who want more automation. “We encourage our existing businesses to further consolidate their business volume on our platform,” he added, noting that the increased accessibility of custom model portfolios has now eliminated a major reason why businesses were hesitant. to change completely.

Advisors should be encouraged by the improvement, concluded Mauney. This aligns with CEO Sarah Levy’s pledge to put Betterment for Advisors “at the front of the queue,” he said.

“It was not a trivial investment on our side,” he said. “We have done a non-trivial overhaul of our backend to be able to accommodate a larger set of models in the future in a way that will benefit us immediately; but also ultimately benefit our other business sectors.

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