Hurley: Won’t technology allow advisors to $2 million clients to cost-effectively expand their services and in turn reduce the pressures on their fees?

Stein: I think that’s right, and many of those advisors will be using Betterment Institutional. I don’t think those guys are going away, but I do think that we will be the next great financial services company.

Hurley: And how do you define “great”?

Stein: Advice and a better quality of life for millions of people. We will be their central financial relationship.

Hurley: This suggests that you’re going to expand your services.

Stein: Yes. Advice is at the core, but we’ll be bringing back the feeling of defined-benefit pensions in a defined-contribution world. We will be the place where you send your paycheck. We’ll make sure that you do all the right things with it, and you won’t have to worry about money.

Hurley: So retail banks are another one of your targets?

Stein: Retail banking faces a threat on the lending side from a lot of new platforms, and on the deposit side is where we come in. Banks have had a nice protected oligopoly. But should anyone have a large balance in a checking account?

Hurley: Despite your success, Betterment is still a tiny company. What will be big in 10 years for a robo-advisor and for a traditional advisor?

Stein: Betterment will have at least three major business lines: direct-to-consumer; advisor-driven through Betterment Institutional; and our 401(k) offering, Betterment for Business. I believe each of those would be trillion-dollar-asset businesses.

Hurley: Next level down, what will the industry landscape look like in your view?

Stein: [With regard to traditional advisors], it’s hard to see the future. I think that platforms [like Betterment, Schwab and Fidelity] will continue to be technology hubs that’ll have advisors who are affiliating with them, and you’ll probably see some others with a more open architecture approach. We hope both to have advisors affiliated with us and directly [advise] clients on the platform.

Hurley: Traditional wealth managers will use you as a vendor, instead of compete with you?

Stein: In the same way that they use an iPhone, or they use Excel, or they use whatever they’re using today. Many of them are already using us today.

Hurley: How will they pay for the technology?

Stein: Either licensing fees as they do for many of their technologies today, or they’ll pay a percentage of assets under management.

Hurley: Given the scope of the technology that you are describing, $100 million of capital sounds like only a drop in the bucket. How much capital is it going to take for any robo-advisor to succeed?

Stein: How much capital did it take Schwab to get off the ground?

Hurley: Schwab’s success was helped by a fortuitous confluence of events.

Stein: Everyone has to get lucky at some point. And we’ve been very lucky.

Hurley: Aren’t the circumstances a little bit different today?

Stein: Maybe it’s that time when a once-in-a-generation opportunity happens. Remember, [Schwab’s success came] many years after the securities laws of the 1930s and 1940s were passed, and a lot of things were changing at that time. And a lot of things are changing today.

Hurley: Many technology companies ultimately generate a sufficient return on capital for their investors by going public. If Betterment ever becomes a public company, do you ever envision it being in the business of acquiring traditional advisors and becoming a more fully integrated firm?

Stein: We are very good at building and deploying the best in market technology. We’re not good, and we have no competitive advantage, at hiring, retaining, training advisors. I think advisors are going to keep doing what they do well, and we’ll keep doing what we
do well.

Hurley: Final question. If you had a family member who was a traditional advisor, what should they start doing now to be ready for 10 years from now?

Stein: They should sign up for Betterment.

Hurley: Thank you very much.

Stein: Thank you.


Effie Guo contributed to this article.

First « 1 2 3 » Next