Betterment is an American financial advisory company founded in 2008 by MBA graduate Jon Stein and lawyer Eli Broverman. Betterment makes money via investment plans, financial advice packages, betterment for advisors, betterment for business, cash reserve, and checking accounts.
Business Model Element | Analysis | Implications | Examples |
---|---|---|---|
Value Proposition | Betterment’s value proposition is centered on providing a user-friendly and automated solution for investing. For Investors, Betterment offers: – Automated Investing: A platform that builds and manages a diversified portfolio based on individual goals and risk tolerance. – Goal-Based Planning: Customized investment strategies aligned with specific financial goals. – Tax Optimization: Tax-efficient investing to maximize returns. – Low Fees: Competitive pricing compared to traditional financial advisors. – Accessible: Easily accessible through a user-friendly digital platform. Betterment focuses on simplifying the investment process and making it accessible to all. | Simplifies investing through automation and personalized strategies. Attracts investors seeking an easy and hands-off approach to building wealth. Provides tax-efficient investing to optimize returns. Offers competitive fees compared to traditional financial advisors. Appeals to individuals looking for accessible and user-friendly investment options. Offers an alternative to traditional investment services. | – Automated portfolio management based on individual goals. – Customized investment strategies aligned with specific financial goals. – Tax-efficient investing for maximizing returns. – Competitive pricing compared to traditional financial advisors. – Accessible through a user-friendly digital platform. – Appeals to investors seeking easy and hands-off investing. – Provides an alternative to traditional investment services. |
Customer Segments | Betterment serves multiple customer segments, including: 1. Individual Investors: Individuals looking to invest for their financial goals. 2. Joint Account Holders: Couples or partners investing jointly. 3. Retirement Savers: Individuals planning for retirement. 4. Trust Accounts: Trusts looking for investment management. 5. Financial Advisors: Professionals using Betterment for advisory services. Betterment caters to a range of users with varying investment objectives and preferences. | Focuses on diverse customer segments with different financial goals and needs. Customizes investment strategies based on individual goals and risk profiles. Provides a platform for various customer types, including individual investors, couples, retirement savers, trusts, and financial advisors. Offers a versatile solution for wealth-building and financial planning. | – Serving diverse customer segments broadens the user base. – Customized investment strategies cater to individual financial goals. – Provides a platform for various customer types. – Offers a versatile solution for wealth-building and financial planning. |
Distribution Strategy | Betterment’s distribution strategy relies on its online platform, mobile apps, and partnerships with financial advisors. Users can access Betterment’s platform through its website and mobile apps, making it accessible across devices. Betterment also partners with financial advisors who use the platform to offer advisory services to their clients. The company leverages these partnerships to expand its reach and collaborate with professionals in the financial industry. | Utilizes its website and mobile apps for direct access to its platform, catering to users’ device preferences. Collaborates with financial advisors to expand its reach and offer advisory services. Provides users with convenient access across various devices. Leverages partnerships to increase its market presence and serve a broader audience. Maintains a multi-channel distribution strategy for accessibility and convenience. | – Website and mobile apps cater to users’ device preferences. – Partnerships with financial advisors expand its reach and collaboration. – Provides convenient access to Betterment’s offerings. – Leverages partnerships to reach a broader audience. – Multi-channel distribution enhances accessibility and convenience for users. |
Revenue Streams | Betterment generates revenue primarily through management fees based on assets under management (AUM). Its primary revenue streams include: 1. Annual Management Fees: Revenue from fees charged as a percentage of AUM. 2. Premium Plan Fees: Revenue from fees associated with premium plan offerings. 3. ETF Expense Ratios: A portion of ETF expense ratios is passed on to Betterment. Management fees are a significant source of revenue. | Relies on management fees as a primary source of income, charging investors based on the assets they have under management. Earns additional revenue from premium plan fees, which provide access to enhanced features and services. Gains revenue through a portion of ETF expense ratios. Prioritizes management fees for sustaining operations and supporting its business model. Utilizes premium plan fees and ETF expense ratios for additional income. | – Management fees provide a steady and scalable revenue stream. – Premium plan fees offer additional income from enhanced features. – A portion of ETF expense ratios contributes to revenue. – Prioritizes management fees for its business model. – Utilizes premium plan fees and ETF expense ratios for additional income. |
Marketing Strategy | Betterment’s marketing strategy includes online advertising, content marketing, partnerships with financial advisors, and educational resources. The company advertises its platform through online channels and social media platforms to reach a broad audience. Content marketing provides educational materials on investing and financial planning. Partnerships with financial advisors promote collaboration and expand the platform’s reach. Educational resources offer insights and knowledge to investors. | Utilizes online advertising and social media to reach a wide audience interested in investing and financial planning. Provides educational materials and resources to empower investors with knowledge. Collaborates with financial advisors to expand the platform’s reach and serve more investors. Promotes a sense of community and learning among its user base. | – Online advertising and social media reach a wide investing-focused audience. – Content marketing empowers investors with educational materials. – Partnerships with financial advisors expand the platform’s reach. – Educational resources offer insights and knowledge to investors. – Promotes a sense of community and learning among its user base. |
Organization Structure | Betterment’s organizational structure includes teams dedicated to technology development, portfolio management, customer support, partnerships, data analytics, and marketing. Technology development teams focus on platform enhancements and feature development. Portfolio management teams oversee investment strategies. Customer support teams assist users with inquiries and transactions. Partnerships teams collaborate with financial advisors. Data analytics teams provide insights for investment strategies. Marketing teams handle promotional efforts and content creation. This structure supports platform excellence, investment performance, customer satisfaction, collaborations, data-driven strategies, and marketing effectiveness. | Employs specialized teams for technology development, portfolio management, customer support, partnerships, data analytics, and marketing. Prioritizes platform enhancements and feature development through technology teams. Ensures the effectiveness of investment strategies through portfolio management teams. Assists users with inquiries and transactions through customer support teams. Collaborates with financial advisors through partnerships teams to expand the platform’s reach. Utilizes data analytics for investment insights and strategy improvements. Manages promotional efforts and content creation effectively through marketing teams. Ensures platform excellence, investment performance, customer satisfaction, collaborations, data-driven strategies, and marketing effectiveness. | – Specialized teams drive platform excellence and innovation. – Ensures the effectiveness of investment strategies for investors. – Assists users with inquiries and transactions for enhanced satisfaction. – Collaborates with financial advisors to expand the platform’s reach. – Utilizes data analytics for investment insights and strategy improvements. – Manages promotional efforts and content creation effectively. – Ensures platform excellence, customer satisfaction, and data-driven strategies. |
Competitive Advantage | Betterment’s competitive advantage stems from its user-friendly platform, personalized investment strategies, tax optimization, and partnerships with financial advisors. User-Friendly Platform: Offers a straightforward and accessible platform for investors. Personalized Investment Strategies: Creates customized portfolios aligned with individual goals and risk profiles. Tax Optimization: Utilizes tax-efficient strategies to maximize returns. Partnerships with Financial Advisors: Collaborates with professionals in the financial industry to expand reach and expertise. Betterment stands out as a platform that simplifies investing, provides tailored solutions, optimizes taxes, and offers access to expert advice. | Derives a competitive advantage from: – A user-friendly platform for investors. – Personalized investment strategies aligned with goals and risk profiles. – Tax optimization for maximizing returns. – Partnerships with financial advisors for expertise and reach. Stands out as a platform that simplifies investing and offers tailored solutions, tax optimization, and access to professional advice. | – Offers a user-friendly platform for investors. – Creates personalized investment strategies aligned with individual goals. – Utilizes tax optimization for maximizing returns. – Collaborates with financial advisors to expand expertise and reach. – Stands out as a platform that simplifies investing and offers tailored solutions, tax optimization, and access to professional advice. |
Origin Story
Betterment is an American financial advisory company. Based in New York City, it was founded in 2008 by MBA graduate Jon Stein and lawyer Eli Broverman.
Initially, Stein and Broverman wanted to create an investment and broker-dealer advice service for customers. After securing the relevant regularly approvals, the Betterment platform was launched in 2010.
The company quickly expanded its product range to include goal-based investment advice, auto-deposit and rebalancing, checking and savings accounts, and individual retirement accounts (IRAs).
As of 2012, Betterment has more than $29 billion in assets under management across 600,000 customers.
Betterment revenue generation
Betterment generates revenue via multiple channels.
Let’s take a look at them in more detail.
Investment plans
Betterment offers two investment plans, with each offering a different level of features and professional advice:
- Digital – where the company charges an annual fee of 0.25% of the account balance.
- Premium – where the annual fee is 0.40% of the account balance.
Financial advice packages
To help simplify the often bewildering world of finance, Betterment customers can gain access to accredited financial advisors.
For the privilege, customers pay a one-time fee of $99 or $299 for a one-hour consult. However, it should be noted that these advisors do not work for Betterment directly. It must be assumed the company only receives a portion of the total fee.
Betterment for Advisors
To strengthen the relationship between the company and its financial advisors, Betterment offers them a SaaS application. This application incorporates a range of features designed to help manage client wealth.
To access this platform, Betterment charges a monthly fee of $150 plus a tiered fee ranging from 0.12-0.20%.
The exact fee is dependent upon the aggregate assets of the advisor in question.
Betterment for Business
Betterment for Business is the name given to Betterment’s proprietary 401(k) plan for companies and their employees.
Betterment offer tailored advice specific to retirement through their network of financial advisors. The company also offers integration with several payroll management systems, including Ceridian and Rippling.
Pricing for this service depends on the number of employees and the monetary assets deployed. Add-on features and the payroll system chosen also influence the total price.
Cash Reserve
With Cash Reserve, Betterment customers have access to high-interest, fee-free bank accounts.
Since the company does not derive revenue from fees, it instead receives compensation from partnering banks such as Citi and Barclays.
Checking accounts
For those who prefer a simple checking account with an attached debit card, Betterment has them covered also.
Like the Cash Reserve facility, there are no fees associated with the use of Betterment checking accounts. The company instead splits the transaction fee of around 2-3% with the merchant a customer has made an eligible purchase from.
Value Proposition
- Automated Investing: Betterment provides automated investment management services powered by advanced algorithms and portfolio optimization techniques, enabling investors to build and manage diversified investment portfolios tailored to their financial goals, risk tolerance, and time horizon without the need for manual intervention.
- Personalized Financial Planning: Betterment offers personalized financial planning tools and advice to help investors set and prioritize their financial goals, such as retirement planning, college savings, home buying, and wealth accumulation, providing actionable recommendations and guidance to optimize their financial strategies.
- Low-Cost Investing: Betterment offers low-cost investment options, including exchange-traded funds (ETFs) with competitive expense ratios and no commission fees, allowing investors to benefit from cost-efficient and tax-efficient investment strategies that maximize long-term returns and minimize fees.
- Tax-Efficient Investing: Betterment employs tax-efficient investment strategies, such as tax-loss harvesting and tax-coordinated portfolio allocation, to minimize tax liabilities and optimize after-tax returns for investors, helping them maximize their investment growth and wealth accumulation over time.
- User-Friendly Platform: Betterment provides a user-friendly and intuitive platform with a streamlined interface, easy-to-use tools, educational resources, and transparent fee structures, empowering investors to make informed decisions, track their progress, and stay engaged with their financial goals and investments.
Marketing Strategy
- Content Marketing: Betterment invests in content marketing initiatives, including blog posts, articles, guides, and educational resources on personal finance, investing principles, retirement planning, tax optimization, and financial goal setting, providing value-added content to attract and engage potential investors.
- Digital Advertising: Betterment utilizes digital advertising channels, such as search engine marketing (SEM), display advertising, social media advertising, and affiliate marketing, to target relevant audiences, promote its investment products and services, drive website traffic, and generate leads for its advisory platform.
- Referral Program: Betterment operates a referral program that incentivizes existing clients to refer friends, family members, and colleagues to the platform by offering referral bonuses, account credits, or promotional rewards for successful referrals, leveraging word-of-mouth marketing and social proof to acquire new customers.
- Email Marketing: Betterment employs email marketing campaigns and newsletters to communicate with clients, prospects, and subscribers, delivering personalized investment insights, market updates, product announcements, and promotional offers to drive engagement, retention, and conversions among its target audience.
- Educational Events: Betterment hosts educational webinars, workshops, and live events on various financial topics, such as retirement planning, investment strategies, tax optimization, and financial wellness, providing opportunities for clients and prospects to learn from financial experts, ask questions, and interact with the Betterment community.
Distribution Channels
- Online Platform: Betterment operates an online platform and mobile app where investors can sign up, create accounts, manage investments, access financial planning tools, monitor portfolio performance, and track progress towards their financial goals, providing a convenient and accessible channel for client acquisition and engagement.
- Referral Partnerships: Betterment partners with financial advisors, registered investment advisors (RIAs), insurance agents, employer-sponsored retirement plans, and other financial institutions to offer its automated investment management and advisory services to their clients or members, leveraging existing distribution networks and customer bases.
- Direct Sales and Marketing: Betterment employs a direct sales and marketing approach through its website, digital advertising campaigns, social media channels, and email marketing efforts to attract and convert potential investors, providing educational resources, promotional offers, and personalized recommendations to encourage account sign-ups and conversions.
- Strategic Alliances: Betterment forms strategic alliances and partnerships with fintech companies, banks, brokerage firms, and financial services providers to expand its reach, enhance its product offerings, and tap into new markets or customer segments through co-branding, co-marketing, or integration agreements.
- Customer Referrals: Betterment leverages customer referrals and word-of-mouth marketing to acquire new clients through satisfied customers who share their positive experiences with friends, family members, colleagues, and social networks, providing referral incentives and rewards to encourage client advocacy and loyalty.
Key takeaways:
- Betterment is an American financial advisory company founded in 2008 by Jon Stein and Eli Broverman. It offers a range of investment, banking, and retirement services and advice.
- Betterment drive revenue from two investment plans, charging a flat fee based on the total investment balance.
- The company also makes money in an advisory capacity, offering individuals and businesses sound financial advice and access to a host of tools. Betterment also makes a less significant amount of money via fee-free checking and high-interest bank accounts.
Key Highlights
- Founding and Expansion: Betterment, an American financial advisory company, was founded in 2008 by Jon Stein and Eli Broverman. Initially launched as an investment and broker-dealer advice service, it expanded its product range to include goal-based investment advice, auto-deposit and rebalancing, checking and savings accounts, and individual retirement accounts (IRAs).
- Significant Assets Under Management: As of 2012, Betterment managed more than $29 billion in assets across 600,000 customers.
- Multiple Revenue Streams: Betterment employs various channels for revenue generation, including investment plans, financial advice packages, Betterment for Advisors (SaaS application for financial advisors), Betterment for Business (proprietary 401(k) plan for companies and employees), Cash Reserve (high-interest, fee-free bank accounts), and checking accounts.
- Investment Plans: Betterment offers two investment plans, Digital and Premium, each with different features and professional advice. The company charges an annual fee of 0.25% for Digital and 0.40% for Premium based on the account balance.
- Financial Advice Packages: Customers can access accredited financial advisors for personalized advice. They pay a one-time fee of $99 or $299 for a one-hour consultation, with Betterment likely receiving a portion of the total fee.
- Betterment for Advisors: Financial advisors can access Betterment’s SaaS application for managing client wealth. The company charges a monthly fee of $150 plus a tiered fee based on the advisor’s aggregate assets.
- Betterment for Business: Betterment offers a tailored 401(k) plan for companies and employees, providing retirement-specific advice through financial advisors. Pricing varies based on the number of employees, monetary assets deployed, add-on features, and chosen payroll management systems.
- Cash Reserve: Betterment offers high-interest, fee-free bank accounts through Cash Reserve. The company receives compensation from partnering banks like Citi and Barclays instead of charging fees to customers.
- Checking Accounts: Betterment provides fee-free checking accounts with attached debit cards. The company splits the transaction fee of around 2-3% with the merchant for eligible purchases made by customers.
- Focus on Simplification: Betterment aims to simplify finance and investment for customers, offering accessible services, personalized advice, and a range of user-friendly tools.
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