The Big Advisor/Client Gap

Past performance and expected returns are only part of the advisor/client conversation.

Reviewed by: Cinthia Murphy
Edited by: Cinthia Murphy

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. At the upcoming Wealth/Stack conference, you’re going to be talking about the challenges of communicating portfolio performance to clients. What's the disconnect between what the advisor communicates and what the client hears?

Egan: There are quite a few different components. First, whenever an advisor is coming into the conversation, they're thinking about expected returns and historical returns. Any given year, average returns might be, say, up 20%, or down 7%. But these numbers don’t tell the client how that performance fits in their overall financial plan. There’s a gap in knowledge and language between how the advisor is thinking about it, and how the client is thinking about it.

A big part of why I left my previous job (and moved to Betterment) was that we were doing a lot of behavioral design stuff, but we could never change the way client statements were presented. We could never change the way the web portal sent out quarterly investment statements that didn’t reference the client’s financial plan at all. At Betterment, regarding the technology we use to speak with clients—especially when we’re not around—their web portal, has that in mind.

One of the biggest problems advisors have isn't they don’t understand investment theory or financial planning or behavioral components. It’s the technology. The medium through which they communicate and work with clients continues to look like it did 40 years ago. Advisors set up a financial plan with the client, and then the next quarter, the client gets a quarterly investment performance sheet that tells them about what went up and what went down at an individual level. It has nothing to do with their financial plan as it’s presented to them.

What's going to be interesting at this conference is that we’re going to finally start talking about having technology and design that more accurately reflects the conversation, instead of simply reflecting what your investments do over the past quarter. Why is dealing with the messaging so important? Is this incomplete picture of performance leading clients to make poor decisions thereafter?

Egan: A famous economist once said, “What you see is all there is.” We’re extremely prone to focusing on whatever is put in front of us, rather than taking a step back and saying, “What are the big things I should be paying attention to?’ If we’re constantly showing people the recent history of their accounts, when they start judging advisors by their recent performance rather than their progress against their financial plan, that’s us doing disservice to ourselves.

The biggest issue is that, when we report performance, it feels informative because it’s fact. But there are zero decisions you can make off the back of it that would make you better off in the future. You see, “I underperformed the S&P 500 last month,” but what good decision are you going to make with it? Do you double down on it? Or do you sell out of it? Technology and design can help us change the message. What do you hope people will take away from Wealth/Stack?

Egan: The industry is changing, especially with how and where people get compensated. It’s exciting, because the changes in technology and design mean the good financial advisors now have a lot more of a fighting chance to become good sustainable businesses on their own. They don’t need to scale up into big roll-ups or anything. Technology will make all the difference.

Contact Cinthia Murphy at [email protected]

Cinthia Murphy is head of digital experience, advocating for the user in all that does. She previously served as managing editor and writer for, specializing in ETF content and multimedia. Cinthia’s experience includes time at Dow Jones and former BridgeNews, covering commodity futures markets in Chicago and Brazil equities in Sao Paulo. She has a bachelor’s degree in journalism from the University of Missouri-Columbia.