Case Study

Overview and Origin

Betterment was founded by Jon Stein and Eli Broverman in 2008. An MBA graduate from Columbia Business School (Jon Stein) and a lawyer from New York (Eli Broverman) decided to pair up and disrupt the financial advising industry. Financial investing can be daunting, even for long-time investors but especially daunting for first-time investors. When people first start investing they expect to be confused and not know what they are doing. Jon Stein said in an interview, when asked about the design of the financial industry " Many people intuitively think that the way things are is the way they should be, or that there is something inherently good about the status quo.". Jon and Eli both set out with the goal of designing a better financial advising approach, and Betterment was born.
In 2010 Betterment officially launched at TechCrunch Disrupt New York and began speaking with venture capital firms within 24 hours. Crunchbase shows that Betterment has received a total funding amount of $275 million.

Business Activities

Betterment was created because financial advising had previously been extremely tedious and time consuming; maintaining your investment portfolio required you to monitor it frequently, or you could pay someone else to monitor it periodically (financial advisors). Additionally, previous experience and research was the only way to develop financial strategies on your own. Financial investing was only worthwhile for people who had extra time and/or additional capital. Betterment saught out to solve these problems by providing people with intelligent investing advice, financial research and monitoring, all at a modest price.
As millenials are known for being early adopters of new technology, one might say that Betterment caters to this particular demographic. This can be seen in their digital platform and unique-sounding service "robo-advisor". That being said, CEO Jon Stein has a quote on Betterment's website that says the contrary, " The problem is that singling out this one group of people would be doing the rest of the population a tremendous disservice. Regardless of age group, everyone deserves to benefit from smarter technology, especially when it comes to something as important as investing for the future.)". Even though Jon stein believes his product is for everyone, the numbers do not lie. Two thirds of their customer base falls into the millennial category. Even though Betterment's portfolio of customers is not diverse, it is still profitable, as well as reliable. In the United States, millennials make up the largest living generation at more than 72 million and are projected to spend 1.4 trillions dollars this year.

Betterment In A Jist

Betterment does not require a minimum deposit, although they do offer a premium service that requires a minimum investment of $100,000. Their algorithms work behind the scenes non-stop to maximize every dollar invested. Lastly, all of this can be done and managed from the convenience of your iPhone or Android.
Betterment uses futuristic robots to invest for you AKA robo-advisors <-- That last statement is false. Betterment utilizes advanced algorithms to fuel their automated investment platform. When users first sign up they are asked questions about their goals, the ideal time-frame to reach those goals and their susceptibility to risk. Behind the scenes - Betterment's advanced algorithms takes the answers to the questions and uses that information to match the user to a tailored portfolio. Once you start investing in your account, robo advisors (advanced algorithms) continuously look for opportunities to buy or sell investments, while keeping in mind your goal and time-frame.

Landscape

Betterment falls into the financial investing/advising industry. A few competitors in this realm include Charles Schwab, Fidelity, Blooom and SoFi. To remain competitive in this industry all of these companies use algorithms that evaluate quantitative financial data to better understand the performance of a companies and predict whether they are a good or not-so-good investment. Companies have also adopted hybrid financial advising models; utilizing robo advisors and offering human help when needed. Ultimately, in order to stay competitive all of these companies had to embrace fintech and have eliminated difficulites and streamlined investing.
A few innovative technologies that have been adopted by the companies listed above, as well as others include:
- Data collection software - Enhanced data gathering process that has been a major driver identifying potential investors, and improving company operations.
- Blockchain - The financial industry is embracing blockchain, as it has proven as a viable currency that can reduce cost, while improving security.
- Artificial intelligence - AI is a main driver of efficiency and cost-cutting. AI can be seen in customer service aspects of companies such as chatbots and voice interfaces
- Cloud computing - Allows any size company access to a robust range of services and resources such as software, data analytics, databases, computing power, and online payments and transfers. Cloud computing is instrumental in allowing smaller companies to scale up with ease, as they only have to pay for services they utilize.

Results

Betterment has made life easier for many people, while making life very difficult for traditional financial advisors. As it stepped away from the status quo by providing affordable expert advice, eliminating difficulties from the investment process and as a result, gave consumers more time to spend doing whatever it is they love. In any case, choosing the right robo advisor for you will depend on your goal, the level of human interaction you are looking for and any fees associated with doing business. Betterment charges 0.25% of AUM annually. FOr their premium service, Betterment charges 0.40% annually and requires a $100,000 acct min.
In measuring the success of companies that offer robo advisors, I choose to look at assets under management and associate this metric with market share. Below is a list of the top three robo advisors as of october 2nd. I found this data on Robo-advisors pro website

1 ) Vangaurd Personal Advisor at $161 billion AUM

2 ) Schwab Intelligent Portfolios at $40.7 billion AUM

3 ) Betterment $22 billion at AUM

Recommendations

I believe Betterment is one of the front runners in the field of robo advisors. They just recently started offering banking functionality with a high yield cash account, checking account and debit card. And like JPMorgan Chase, Betterment offers reimbursement on foreign fees and ATM use, tap-to-pay performance, in addition to offering cell phone insurance at no cost when users pay their phone bills with their Betterment Visa debit card. Additionally, Betterment just rolled out their Socially Responsible Investing (SRI) portfolio options, this allows users to invest in themselves while investing in companies that align with what they care about most, all without hindering their goals. Click here to check it out!
I think Betterment would benefit by introducing more features to their banking options. As they just recently rolled out the banking functionality, I foresee them introducing credit cards with rewards programs that include partnerships with retailers and eventually offering lending options such as peer-to-peer (P2P). One piece of technology I think Betterment could integrate into their investment platform is "round ups". Acorns is built around "round ups", where transactions are rounded up to a whole dollar. The amount that was rounded up goes into an account and once that account reaches $5, the sum of that account gets invested into an Acorns investment account that is managed by a robo advisor. I think the concept of "round ups” sounds appealing to all types of investors, but strategically, would be marketed to high schoolers and people who fall into the generation z category. Generation Z is younger, so they want to spend time doing other things (not investing), they want to know they are investing but without actually having to do it. I believe this automated process of investing is extremely appealing and if adopted, would bring in a whole new revenue stream.