This year I began using Betterment for Advisors to better serve my clients’ investment needs. The platform is a game changer for our profession when it comes to serving next-generation clients. I tell my clients that 80% of what I do for my clients has nothing to do with investing. For the 20% that does, I use Betterment for Advisors.

Passive vs. Active Investment Strategies

Over and over again, research has shown that managed mutual funds rarely outperform index funds. And now automated investing services like Betterment are making it easier to invest in passive ETFs and to make trades with a click of a button. However, many clients may still need guidance when it comes to setting goals. That means maintaining the financial planning relationship remains critical.

I was already using many of the underlying Vanguard and iShares ETFs that are in Betterment’s stock and bond portfolios, and making the transition seemed like a natural fit. The low cost my clients pay for Betterment for Advisors is more than made up for by the benefits, which include daily rebalancing, wrap-in trade costs, and automated tax loss harvesting. That means I save a significant amount of time while being able to offer my clients more of my attention. My clients can save a significant amount of money by not paying transaction costs when their portfolio is rebalanced and using lower expense ETFs, for example.


Investing Is Becoming Commoditized

The world of investments is changing because of technology. Long ago, stockbrokers had control over investments. A person had to call up a stockbroker to make a trade, in which he made a commission off the sale.

Even a decade ago, an investment advisor had a ‘secret sauce’ of mutual funds and stock picks and clients paid him a hefty investment management fee to manage money. That has changed.

Today, online brokerage firms make it extremely easy for clients to invest money and buy stocks in seconds, but they can be often overwhelmed by the choices. There are so many different online brokerage accounts that they could set up that they may be paralyzed and don’t open any accounts at all. Or maybe they open the account but the money sits in cash because they can’t decide how to invest their money.

This is one reason why so many people choose to engage financial planners, and it is also a reason why others choose to work with a robo-advisor. But now clients can choose both: a comprehensive financial planner who’s using a robo-advisor for investment management. The technology that these robo-advisors are implementing is beyond anything I was receiving using a traditional custodian and the costs are favorable for my clients.

Financial Planning Can’t Be Commoditized

While investing has become easier, financial planning has only gotten more complicated. There are many movable parts to coordinate: saving, spending, major life events, debt, assets, protection planning, maximizing company benefits, 401(k)s, estate planning, career planning, and more.

With all these other things to focus on, why should I spend 80% of time on managing investments and only 20% of my time on these other items that often play a bigger role in my clients’ lives? Betterment for Advisors allows me to spend 80% of my time on the things that can create the biggest impact for my clients. After my clients’ assets are moved over, I estimate that investment management will take up less than 5% of my time.

Working Together Instead of Competing

I know many financial planners are scared of robo-advisors, but I believe that this concept is here to stay. I see the biggest potential for growth is by working collaboratively with financial planners.

My belief is that planners who embrace robo-advisors will work with middle-market clients more profitably than those that don’t. By charging a flat monthly financial planning fee, I can get away from AUM minimums. I’m not the only planner that’s doing this, either. Many members of the XY Planning Network are starting to partner with robo-advisors so they can better serve their clients.

Quicker Onboarding

I was at a different custodian for the past two years that didn’t accept online signatures, that had a clunky website which made it difficult to find monthly statements, and had clients calling me asking, “How do I increase my contributions to my Roth IRA online?”

(They had to fill out a form, which then had to be emailed to the custodian, so the answer was: “You can’t actually do that online through the website.”)

Betterment for Advisors has solved these problems for me by accepting online signatures, making it easy to open and contribute to accounts online, and has a beautiful user interface that makes it easy to find account information.

(My old custodian emailed me to tell me they recently updated their fax number! Seriously? Who uses fax machines anymore?)

Saves Me Time

I recently updated stock and bond asset allocations for 10 clients’ accounts. It took me a total of 10 minutes. This is a huge time saver from having to manually rebalance client accounts, make trades, and stick my clients with trade fees each time we rebalance.

Other financial planners choose to invest in expensive software, which will tell them which trades to make. Those programs serve little purpose when working with a robo-advisor who is doing the balancing for you.

Expand Your Business

As the Founder of Gen Y Planning, I work virtually with clients in their mid-20s to mid-40s across the country. I love working with young clients and, while most of my clients make six-figure incomes, they haven’t had time to build up seven-figure portfolios.

Many clients were asking me what to do with old 401(k)s and small Roth IRAs. By partnering with a robo-advisor it has made it easy for my clients to rollover those accounts and start new brokerage accounts without requiring an asset minimum. I think that this is going to be a game-changer for advisors who want to work on attracting younger clients or build up clientele in the middle market. It’s a win-win for everyone.

This article was published on July 30, 2015

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