Betterment users can now donate shares from their portfolios directly to charitable organizations with an account on the automated advice platform, a feature industry experts said is a another step toward the robo advisor offering more holistic services to investors.
The company announced the new feature Wednesday, along with a number of organizations already on board, including UNICEF, the Wounded Warriors Family Support, Save the Children and The Breast Cancer Research Foundation. Those charities and others will be able to receive donations in the form of shares of stock. More partnerships are expected to be announced in the future. The feature will launch Nov. 28 and also be available through Betterment for Advisors.
“We’re throwing technology at the problem like we usually do,” said Alex Benke, Betterment’s vice president of Advice and Investing.
Benke said the Charitable Giving feature has been on Betterment’s to-do list and now seemed as good a time as ever given the year’s market performance and interest from investors. There was some concern that charitable organizations would be hesitant to open an account with the robo advisor, but the benefits ultimately overcame any perceived risk, he said.
Through Betterment, 100 percent of share contributions make it to the organization. But donors and charities also enjoy respective benefits from using the feature.
Investors choose the amount they want to donate and Betterment funds that donation using shares from their portfolio that have appreciated in value the most. The strategy cancels out any capital gains taxes an investor would pay had they just sold the securities. In addition to reducing their tax liability, investors can also deduct the full appreciated value of the donation.
Kendra Thompson, the managing director and head of Accenture’s global wealth management practice, said robo advisors need to do more than asset allocation and move toward offering holistic advice to continue to attract new investors. Betterment’s Charitable Giving “broadens the value proposition” to investors, Thompson said.
Aside from a new source of potential donors, charities get a more efficient way to accept donated shares that is free of paper and fees. Charitable organizations don’t pay an administration fee for a Betterment account and are not charged for the management. Accounts with assets valued more than $1 million are changed 25 basis points, but the charities are encouraged to sell donated securities and withdraw funds before they reach that threshold, a Betterment spokesperson said.
The charities are also relieved of the operational burden to accept shares. Betterment handles the transaction from end-to-end and sends both the donor and the charity their required tax documents. ”[Charities] absolutely love that because they are able to spend more time doing what they do best as a charity and that’s focused on their actual cause and not record keeping,” Benke said.
Charitable giving is “perhaps the least automated wealth management function,” according to William Trout, a senior analyst at Celent whose research focuses on securities, wealth management and banking.
Investors have long donated shares to charitable organizations and many, especially the largest charities, are well equipped and experienced in accepting them. Those organizations still stand to benefit from partnering with Betterment but smaller charities without the resources or with little experience in accepting shares also have much to gain, said Chris Martinez, the managing director of Oakbrook Solutions, a consultant to wealth managers on systems, process and delivery.
Martinez, who was previously the managing director and chief information officer at Wilmington Trust, said Betterment’s new feature was, to his knowledge, unique and he could see it attracting broad interest. Younger generations are especially interested in what they are investing in and conscious of how efficiently they are giving to charity, he said.
But Martinez also said for Betterment’s new feature to really become widely used, it must continue to give investors good cause to use the robo advice platform in the first place.
Thompson shared a similar opinion—the Charitable Giving feature will not solely continue to draw assets away from traditional managers but that “richer experiences will drive people to the platform.”
Personal Capital, another robo advice platform, said its advisors can help its investors donate shares but it does not have an automated process like Betterment’s. The robo advice company Wealthfront could not be reached about its process for donating shares.
