Robo Adviser Betterment Using Charity Giving to EnticeBy
With stocks at records, firm bets feature will help on taxes
Digital platforms seek any edge over Wall Street competitors
Competition to handle investors’ cash is forcing robo advisers to get increasingly creative in the services they offer clients. The latest battleground? Charitable giving.
Betterment, the largest independent electronic advisory firm with $11.6 billion in assets under management, is launching a new feature that will enable its 300,000 customers to donate shares from their portfolios to certain charities. With the automated program, users can increase their tax savings by avoiding capital gains levies and getting a deduction at the same time.
“This is something we’ve been thinking about doing for a couple of years,” Alex Benke, the firm’s head of financial advice and planning, said in an interview. “It’s becoming even more important from a tax perspective since markets are so high.”
The program will begin on Nov. 28, also known as Giving Tuesday. Betterment clients will be able to give directly to a number of large charities, such as UNICEF and Feeding America.
“We hope to see more than half of eligible customers use it this year,” Joe Ziemer, a spokesman for the firm, said in an email.
That projection may be ambitious, however, considering charitable giving for tax benefits is a tool typically used by older, wealthy investors, while the typical Betterment client is young and has an account with less than $40,000.
“There is a sensitivity among the young to be supporting causes, so I do think there is an opportunity to offer an easy way to do that,” Alois Pirker, director of wealth management research at Aite Group, said in an interview. “It’s all about differentiating and where can you go next to have something unique.”
The continual development of new products is essential for robo advisers, as they vie for growth in a competitive landscape where traditional Wall Street firms like JPMorgan Chase & Co. and Morgan Stanley are launching similar services of their own.
“Ultimately, what they’ve created can be replicated and offered at a larger scale at the bigger firms,” Pirker said. “They need to keep innovating.”
Jon Stein, Betterment’s chief executive offer, said he’s not worried about threats from deep-pocketed rivals. His firm, which started in 2010 and has yet to turn a profit, keeps introducing new products to stay ahead. The latest offerings include a socially responsible investing tool, new portfolio choices from BlackRock Inc. and Goldman Sachs Group Inc. and added human advisers for a hybrid investing option.
This constant innovation, Stein believes, is his company’s competitive advantage.
“The banks are still incredibly far behind when it comes to offering great user experiences,” he said in an email.