Betterment says it is now the biggest independent robo-advisor in the game.
In less than a year since the company first passed the $1 billion of assets under management benchmark, Betterment now manages more than $3 billion, the company said.
CEO and founder Jon Stein attributed the growth to an increase in new users (from 50,000 to 120,000 this year), as well as new features like RetireGuide and SmartDeposit helping to capture a larger share of existing customers’ wallet.
“I heard a stat that something like almost 40,000 of our customers had signed up for a retirement plan through RetireGuide,” Stein said. “To see that kind of adoption for an optional, add-on product is really remarkable to me.”
Another area of growth is among older investors. While the vast majority of assets come from millennials, Stein said the average age of customers has risen to 36. About 30 percent of the business comes from customers older than 50.
In September, Cerulli Associates said robo-advisors would realistically need to grow about 50 to 60 percent annually for six years in order for venture capitalists to realize a return on their investment. According to Stein, Betterment shattered that benchmark by roughly doubling its AUM every six months for several years, and he doesn’t see growth slowing down.
Stein compared the growth of automated digital advice to the growth of exchange traded funds, which grew 20 percent year-over-year for the last decade into a multi-trillion dollar market despite being a more difficult product to explain to investors than traditional mutual funds.
“Most people on the street who aren’t fluent in finance might not know why [ETFs] are better,” Stein said. “With this robo-advice product, it is a sea change; a totally different experience. It is so much better than what you do on your own.
“I feel very good about the business we’ve built, and our investors are incredibly exited," he said. "At any time in our past, I think we’ve proved that it has been a good investment for all of them.”
Stein wouldn’t provide specifics regarding which portion of the assets come from Betterment’s retail product verses Betterment Institutional, but did say that the bulk of assets come from the retail side.
New research released Wednesday by Cerulli predicted the robo-advice market will reach $489.1 billion by 2020, and Stein believed Betterment is in the best position to corner a sizeable chunk of the market.
“This is where everyone is going to managing their money; this type of service,” Stein said. “We won’t own all of that market. There’s going to be others who are in this space. None of the robo-advisors have the tech stack that we do and none of the incumbents do what we do.”
Betterment now has more AUM than Wealthfront, another leading robo-advisor. While Wealthfront had been the larger company, the two were essentially neck-and-neck in their ADV filings throughout the year. Wealthfront did not respond to requests for comment.
Betterment still trails behind robo-advisor services offered through traditional brokerages. Charles Schwab announced in October that its Intelligent Portfolios product now manages $4.1 billion, and Vanguard's digital-human hybrid program Personal Advisor Services now manages $17 billion.
