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Description

Betterment is an American financial advisory company which provides robo-advising and cash management services.

The company is based in New York City, registered with the Securities and Exchange Commission, and a member of the Financial Industry Regulatory Authority. It is a registered investment advisor and broker-dealer.

The company's main service is automated goal-based investing, which manages portfolio of passive index-tracking equity and fixed income exchange-traded funds. It offers taxable and tax-advantaged investment accounts, including traditional and Roth individual retirement accounts (IRAs). More recently, it has added human financial advisors and checking and savings accounts as additional services.

As of April 2021, Betterment had $29 billion of assets under management. And over 600,000 customer accounts.

History

Foundation and launch

Betterment was founded in 2008 in New York City by Jon Stein, a Columbia Business School MBA graduate, and Eli Broverman, a lawyer out of NYU School of Law. Stein and his roommate Sean Owen, a Google software engineer, started building the first online platform for Betterment in 2008 using a Java application and MySQL database on Apache Tomcat servers with an Adobe Flash- and Flex-based front-end design. Initial prototype designs were provided by Stein's then-girlfriend, Polina Khentov. Facing regulation associated with starting a financial company, Stein began negotiations to bring on Eli Broverman, then a securities lawyer he met over regular poker games, as a co-founder in 2008.

Broverman and Stein were prepared to offer financial advice online as an SEC-registered investment advisor, and also decided to offer broker-dealer services for advice to customers. Betterment added Ryan O'Sullivan, a "serial entrepreneur", to establish Betterment's broker-dealer operation.

From 2008 to 2010, the founding team continued to develop the platform for launch. Betterment gained approval from FINRA for membership. In 2009, Anthony Schrauth, a former colleague of Stein's joined Betterment as chief product officer, and Owen was replaced by Kiran Keshav of Columbia University's Center for Computational Biology. O'Sullivan left his role as president in 2010.

Betterment, LLC was established as a Delaware corporation on April 7, 2009. The parent company for Betterment LLC and Betterment Securities, Betterment Holdings, Inc. was established in Delaware on January 29, 2008.

The company launched at TechCrunch Disrupt New York in June 2010, and won the award of "Biggest New York Disruptor." Within 24 hours, Betterment had attracted nearly 400 early customers, and the company began talks with early investors.

Betterment received Series A round funding from Bessemer Venture Partners in December 2010. By October 2012, Menlo Ventures provided Series B funding along with Bessemer Venture Partners and Anthemis Group. By 2012, the company established product offerings, such as IRAs, auto-deposit, auto-rebalancing, and goal-based investing advice.

Trading suspension post-Brexit

On June 24, 2016, Betterment suspended trading for 2.5 hours, after the unexpected vote in favor of Brexit sent shockwaves of volatility through the financial markets. Subsequently, the firm was accused of not properly communicating the halt in trading with its customers. Following this incident, Betterment faced significant backlash against the protective move on social media, and Massachusetts Secretary of the Commonwealth William F. Galvin raised concerns over Betterment's actions, remarking that some customers could have been at a disadvantage because of the trading halt.

The unexpected trading suspension also caused concern among financial advisers using Betterment through the Betterment For Advisors platform. Advisers including Eric Roberge grew concerned over the trading suspension as it prevented him from updating client portfolios: “I don’t feel comfortable with someone else telling me what I can and cannot do” on clients’ behalf, Roberge said. Other advisers expressed concerns about Betterment's decision regarding communication and questioned why the decision was not communicated to the customers and financial advisors, causing lingering questions around Betterment's policies.

Current operations

Betterment's current business model includes three areas of business: retail investment, a platform for advisors, and a 401(k) for mid-market business. In July 2017, Betterment announced its assets under management (AUM) had surpassed $10 billion. In March 2019, the company removed its minimum account size (formerly $100,000) for portfolio customization.

The company's personalized financial advice uses principles-based robo-advisor technologies such as computer algorithms. Licensed financial advisors provide over-the-phone consultations to customers who opt for additional support. Betterment's primary retail platform offers individual retirement accounts, trusts, taxable investment accounts, and tax-coordinated asset location services.

In October 2014, Betterment launched a business-to-business offering called Betterment Institutional, subsequently renamed Betterment for Advisors, a digital platform for managing client assets using Betterment's built-in financial advice. In January 2017, the Financial Planning Association (FPA) and Betterment for Advisors ran a program on digital investment advice for the association's members.

Betterment for Business is a turnkey 401(k) platform aimed at mid-market employers. It uses the same underlying investment strategy and generally costs less than most traditional 401(k) plans.

In December 2020 Betterment's founder Jon Stein stepped down and was succeeded by Viacom's former COO Sarah Levy.

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Alena Potapova

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