The Big Advisor/Client Gap

August 15, 2019

Dan Egan

Advisors can fall short when communicating performance to clients, focusing on where their portfolios have been rather than what’s needed to get them where they want to go. Technology can help bridge that communication gap, says Dan Egan, managing director of behavioral finance and investing at Betterment. Egan, who will be speaking at the “Wealth/Stack: Investing + Tech = The Future Of Advice” conference Sept. 8-10 in Scottsdale, Arizona, offers here a preview. What’s the latest at Betterment? You’re now offering banking services in addition to ETF portfolios. Why expand into banking?

Dan Egan: Our retail business is hitting the point where it’s able to start putting off some money to be reinvested into two other lines of business: “Betterment for Advisors,” and “Betterment for Business,” which is the 401(k) offering. Those are still very young, but growing very well.

We've done a lot of what we wanted to do inside of the purely investment management side of things, and a little bit in the financial planning side. We realized the other component to helping people make their money work for them is closer to their checking, because that’s where a lot of spending decisions happen.

For example, our savings service: We’re not the bank that’s giving you the rate. We’re going to work with partner banks like an intermediary—we go out and find high quality banks that are going to offer us good rates for our clients.

The critical thing there is that usually, when you get an interest rate at a bank, it’s a zero-sum game between you and the bank: The more that they're paying you in interest, the less they're making in profit.

That’s not true when you come to Betterment, because we’re an advisor, and we get paid for advice. We want to make sure our clients are getting a very high interest rate. And we actually hustle on their behalf to find it.

A lot of clients might not be ready to invest, or there might be a component of their wealth that they want to hold in an FDIC cash depository-type product. This allows us to serve them and do it in a way that highlights that we’re a fiduciary, and we’re on the same side of the table as them. Can your banking service replace an entire banking relationship? A Betterment client no longer needs to be, say, a J.P. Morgan Chase Bank client for their banking needs?

Egan: Not quite yet, though actually, it depends upon your circumstances. A lot of people hold their mortgage with their bank. There are a number of very specific services that they might need.

However, we’re on that path to where most of your everyday financial aid—receiving your paycheck, spending, not moving money between different accounts, bills, utilities, etc.— we definitely can do.

It comes back to being an advisor. A lot of what we do is give clients financial advice, but also help them execute that financial advice.

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