So – budget day, first day of the Ashes, Wimbledon Quarter-Finals… This blog isn’t about any of those, which for a firm targeting the UK personal finance industry screams displacement activity, especially with the boss on holiday.

However, it is timely, as overnight the leading robo-advisors in the US, Wealthfront and Betterment have gone to war (whether or not they were actually inspired by Terminator Genisys is unconfirmed) – and Wealthfront started it.

Along with reducing their minimum investment from $5000 to $500 (undeniably a good thing, especially as Wealthfront doesn’t charge any fees on the first $10k under management), its CEO, Adam Nash, published a blog directly attacking Betterment’s pricing, and accusing it of taking advantage of its poorest customers. It’s the latest in a series of blogs from Wealthfront attacking its competition, following pieces criticising Charles Schwab’s robo-investing product and a more general piece accusing its competition of failing to innovate as successfully as it does. I dabble a bit in politics in my spare time, and try to work on the principle that any direct attack on an opponent should be absolutely on the money – and unfortunately this one misses the mark.

For those with less than $10,000 under management, Betterment offers a ‘builder’ product, with a charge of 0.35% for those who have a direct debit set-up contributing at least $100 a month. Those without the direct debit are charged a flat fee of $3 per month, and it is this charge at which Wealthfront has taken aim. However, as Betterment makes clear in its rebuttal, it doesn’t want to make this charge to customers, and communicates extensively with those who pay it encouraging them to switch to monthly contributions. It is used partly as a mechanism to nudge those with low levels of assets to make regular investments, which is particularly positive behaviour for newer investors. It is one of several features of Betterment’s product which make it especially attractive for new and inexperienced investors.

The starting point of Betterment is to enter your age and income, and to select an investment goal – for example, rainy-day or retirement saving.


A suggested portfolio, such as the one above, is then created, which the customer can either adjust manually or go ahead and invest in – if manual changes to the allocation mean the expected returns are no longer enough to get to the customer’s goal, the customer is notified. While these features would need to be adapted in the UK in order to avoid being seen by the FCA as advice (a subject for another blog), they are exactly the kind of support a new, inexperienced investor seeks to get the reassurance they are investing in the right things. It is because of this user experience that Betterment has had so much success in attracting smaller investors, with 3 times as many customers as Wealthfront (albeit with a much lower average account size).

Wealthfront is a hugely impressive company, brilliantly innovative with a great product. However a big part of its success so far has been its ability to attract large investments from Silicon Valley employees, which has contributed to its phenomenal growth in AUM. Reducing its minimum investment from $5,000 to $500 gives it a chance to attract more smaller investors, and by not charging a fee below $10,000 it offers those investors a phenomenal deal. However, new and inexperienced investors want more than just low-cost services. If Wealthfront is going to continue preaching from its pulpit, it needs to get its facts straight first.



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