ETF.com: Do you focus on millennials as your core client base, much like Wealthfront does? Who is the Betterment client?
Stein: We have a lot of customers in their 30s and 40s, and I think our average age is something like 36. But make no mistake; we have a lot of customers who are older as well. In fact, 20 percent of our assets come from customers over age 50, and that number is increasing because of our retirement product where we’re actually telling customers how much they can safely withdraw, and withdrawing that for them, so that they will never have to worry about running out of their retirement savings.
ETF.com: Should this segment of automated financial advice continue to grow as quickly as it has so far? Will automated advisories ever fully replace flesh-and-bone advisors?
Stein: I don’t think the goal is to replace flesh-and-bone advisors. The goal is to give customers a better set of tools to manage their money. We’re not out to put people out of work. Our goal is to make sure that the average American has the best possible tools at their disposal to save and invest for the long term. Historically, these tools have only been available to the extremely wealthy, and we’re making them available to anyone.
ETF.com: What are the biggest risks an investor faces when opting for an automated investment service?
Stein: I would look at it the other way: What is the risk of not doing so? The risk is that you’ll continue to have suboptimal returns, and you’ll continue to underperform, and anyone who doesn’t come over quickly is just wasting time.
ETF.com: Do you think passive management and ETFs are at the center of the success in automation?
Stein: Definitely. It’s like a smartphone compared to an old flip phone. It’s just so much better, that, once you experience it, you wonder why you didn’t do it sooner.
ETF.com: Is there anything in this industry that still surprises you when it comes to investor behavior, or to what solutions resonate with investors?
Stein: One thing that was surprising to me was just how many older customers were interested in our service right away, and because of that, we started building products for them.
It was great to see that it wasn’t just college students who wanted the best tools; it’s everybody who wants them. And I’ve been to rooms full of retirees who say, “We want these kinds of tools as well, and we have just as much to gain from them as anybody, so don’t think you’re just selling them to young people.”