Roboadviser Betterment is looking for ways into the do-it-yourself trading boom dominated by Robinhood, like adding more customization for users

  • In a recent interview with Business Insider, Betterment president of retail Mike Reust offered a window into how the robo-adviser thinks about the recent self-directed trading mania.
  • Betterment is not trying to launch a “Robinhood clone,” Reust told us. But it is trying to tap into the retail trading surge with more tailored options than it currently offers. 
  • “I don’t quite know where that will take us, but we are certainly thinking through how much more portfolio customization to offer, so I suspect you will see us offer more than we offer today, over time. It’s an area where we will invest,” he said.
  • Visit Business Insider’s homepage for more stories.

Through the coronavirus pandemic and the market volatility that’s ensued, analysts, investors, executives, and journalists have scrambled to get a handle on soaring levels of engagement with do-it-yourself trading. The team behind Betterment, the pioneering standalone digital wealth manager, is no exception.

“For us, it’s not, ‘Oh, jeez, Robinhood’s driving serious [payment for order flow] revenue. What are we going to do about that to drive some PFOF revenue?’ It’s not like that,” Mike Reust, the president of retail at New York-based Betterment, said in a recent interview over Zoom with Business Insider. 

“It’s really more like, why are customers running to Robinhood in the millions? What are they doing? Why do they believe that’s the right path?” he said.

That the digital wealth manager that made a name for itself on the back of slow, steady passive investments is considering what’s driving the recent boom in quick, often volatile retail trading underlines the rise and influence of average investors jumping into the market with both feet. 

Betterment is examining the “psychology and the human side of it,” as far as whether the company should give clients more control over their portfolios, or allow “you to do certain customizations that aren’t possible today that help you sort of scratch that need for control,” he said. 

Vlad Tenev, co-founder and co-CEO of investing app Robinhood.
Vlad Tenev, co-founder and co-CEO of investing app Robinhood.
REUTERS/Brendan McDermid

“I don’t quite know where that will take us, but we are certainly thinking through how much more portfolio customization to offer, so I suspect you will see us offer more than we offer today. Over time, it’s an area where we will invest,” said Reust, who has been with Betterment for seven years and was previously its chief technology officer.

The market’s severe volatility this spring and summer mixed with people staying home during pandemic-related lockdowns with access to an array of commission-free trading platforms have helped contribute to record levels of do-it-yourself trading.

Explosive growth in retail trading

This month, legacy online brokerages E-Trade, TD Ameritrade, Charles Schwab, and Interactive Brokers all reported record levels of daily trades during the second quarter.

E-Trade Chief Executive Mike Pizzi called the quarter “extraordinary,” with levels of customer engagement “that are without precedent in our nearly 40-year history” in a statement alongside earnings.

Reust told Business Insider that Betterment is not going to launch a product that looks like a “Robinhood clone,” and the company declined to comment specifically on how it will allow customers to add more customization to their portfolios.

Read more: Wall Street is being shaken to its core by a legion of Gen Z day traders. From a casual hobbyist to a 20-year-old running a 14,000-person platform, meet the new generation of retail investors.

The company has always sat at the intersection of digital investing meeting human advice, Reust said, with some Certified Financial Planners (CFP) and other licensed investment professionals on staff for customers to complement its app. 

“Where I think COVID has taken us a little bit, is all of a sudden, across age groups, everyone cared a lot more about human-powered advice — real fast,” he said. “We went from, it was a nice offering that a lot of customers took advantage of, to the team was oversubscribed with phone calls and appointments.”

Betterment is looking to grow its team of experts to assist users, with plans to hire one more CFP. 

In recent months, it’s hired customer-service representatives, engineers, and analytics roles. Overall, it has more than a dozen employees handling phone calls and emails from customers using its investing products, and nine people on banking products. A spokesperson said Betterment is growing both teams. 

On July 14, the day before this year’s shifted tax day in the US, it experienced the highest volume of inbound customer requests it’s ever seen as investors looked for help with navigating their filing situations.

Betterment also now has a team of four people directly supporting its premium customers, and several other CFPs serving other functions, a spokesperson said. Premium customers have at least $100,000 in assets with Betterment, and pay a 0.40% fee of those assets, as opposed to 0.25% for the digital tier that has no account minimum.

Betterment Jon Stein
Jon Stein, Betterment’s chief executive.

Betterment’s plans

Though it has an eye to greater customization, Betterment, which oversees $21 billion in client assets and has some 500,000 customers, still isn’t trying to stray from its core digital wealth management and banking products. 

It’s looking to launch joint checking accounts later this year, and on Thursday launched a feature that allows customers to create separate buckets of cash for short- and long-term financial goal-setting. 

Other fintech players have also applied for bank charters, something Reust said was a step Betterment may consider in the future, but said was not a priority.

Betterment has raised $275 million in outside funding, and last raised a $70 million round of capital in 2017 — an extension of a $100 million Series E round the year prior led by the Swedish investment company Kinnevik.

Outside of its New York City headquarters, the robo-adviser has two other offices in Denver, which opened in January, and Philadelphia, which opened in January 2019. 

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