Model Marketplace - Model Portfolio Disclosure

Betterment Advisor Solutions offers Advisors the opportunity to select on behalf of their advised clients (“Advised Clients”) certain portfolio strategies (“Model Portfolios”) that are constructed and updated by third-party managers (“Model Portfolio Providers”). Model Portfolios are made available to Advisors to elect for their clients through a model portfolio marketplace (“Model Marketplace”) within the Advisor dashboard of the Betterment interface (the “Dashboard”). In addition to Model Portfolios constructed by Model Portfolio Providers, the Model Marketplace includes portfolio strategies constructed by Betterment. Disclosures applicable to such Betterment-constructed portfolios are made available on the Betterment website and within the Dashboard.

See a list of available Model Portfolios and their respective Model Portfolio Providers.

Portfolio Construction

The holdings of each Model Portfolio are disclosed within the Dashboard along with an initial asset allocation. Certain model portfolios have additional available allocations, which Advisors can review when setting up their client’s portfolio strategy. Betterment does not select the underlying securities or otherwise manage the investment strategies employed within Model Portfolios and conducts only limited due diligence with respect to the Model Portfolio Providers and their Model Portfolios. The selection and relative weights of funds in the Model Portfolio for a given allocation is determined by the Model Portfolio Provider. The Model Portfolio Provider may, at its discretion based on an evaluation of market conditions, change the relative weights of sub-asset classes within a particular allocation of the Model Portfolio.

Advisors are responsible for conducting their own review and due diligence of the Model Portfolios, determining whether a particular Model Portfolio is appropriate for their clients’ objectives, and ongoing monitoring of Model Portfolios selected for their clients’ accounts.

Advisors should be aware that certain Model Portfolios targeting certain industries or mandates could result in concentrated exposure to specific asset classes, sectors, or securities. As a result, an Advised Client’s investment performance may be adversely affected if those exposures underperform the broader market or if the portfolio lacks exposure to asset classes or securities that outperform during a given period. In addition, certain Model Portfolios use ETFs or other investment vehicles that are less liquid, more actively managed, or more narrowly focused than the investments used in Betterment’s Core Portfolio strategy. This could increase trading costs, contribute to pricing inefficiencies, and/or involve higher fund expenses or different risk characteristics as compared to the Betterment Core portfolio strategy.

Model Portfolios are generally constructed primarily (or exclusively) using funds issued or managed by the Model Portfolio Provider or its affiliates. In such cases, these portfolios may have higher fund expenses or different liquidity characteristics than portfolios constructed using funds from multiple unaffiliated asset managers, and the Model Portfolio Provider may not have the same incentive to select the lowest-cost or most competitively priced investments.

Portfolio Management

Model Portfolio Providers may provide updated allocations or other model changes for Model Portfolios on a schedule or on a discretionary basis, which may occur at a different cadence than allocation updates for Betterment’s Core Portfolio strategy. More frequent or Model Portfolio Provider-directed updates may result in increased portfolio turnover and higher trading costs relative to portfolios that make allocation changes less frequently. Betterment implements allocation updates to Model Portfolios through rebalancing that will at times, prioritize achieving the new target allocations ahead of minimizing tax impact. This means that allocation changes to Model Portfolios can result in tax consequences in clients’ accounts, including short-term capital gains. Although Betterment generally seeks to implement changes communicated by Model Portfolio Providers in a timely manner, Betterment retains discretion with respect to whether and when such changes are implemented.

Advisors should be aware that the availability and operation of Betterment’s portfolio management tools may vary by Model Portfolio. The portfolio management tools that are compatible with each Model Portfolio will be disclosed within the Dashboard.

i. Rebalancing and Auto-Adjust

Model Portfolios are generally compatible with Betterment’s portfolio rebalancing feature but are not compatible with auto-adjust or glide paths. Betterment typically attempts to rebalance an account when a portfolio is identified as having drifted from its intended allocation beyond certain tolerance parameters, when applicable portfolio minimum balance requirements are met, and when Betterment’s rebalancing algorithm can identify sufficient rebalancing opportunities to reduce such drift. The tolerance parameters used to rebalance Model Portfolios may change over time. In connection with rebalancing, certain Model Portfolios may prioritize achieving target allocations or other portfolio objectives over minimizing tax impacts, which may result in more frequent rebalancing and taxable events, including short-term capital gains. Where auto-adjust or glide paths are unavailable, Betterment will not make automatic allocation changes over time. See Betterment’s Rebalancing and Auto-Adjust disclosures for further detail.

ii. Tax-loss harvesting (“TLH”)

TLH is generally available for Model Portfolios in the Model Marketplace, and the structure and portfolio construction of a particular Model Portfolio may limit the availability or effectiveness of TLH relative to other portfolio strategies supported by Betterment. In addition, electing different portfolio strategies across multiple goals or accounts may further reduce opportunities to harvest losses. Where TLH is not available for a particular Model Portfolio, TLH will continue to operate for other eligible portfolio strategies held in taxable accounts, although overall opportunities to harvest losses may be reduced. Advisors are responsible for determining whether the use of TLH is appropriate for an Advised Client and for assessing whether investments used within a Model Portfolio are “substantially identical” for purposes of applicable wash sale rules. See Betterment’s Tax Loss Harvesting disclosures for further detail.

iii. Tax Coordination

Certain Model Portfolios may not be eligible for use within a tax-coordinated portfolio or may require that all accounts within a tax-coordinated portfolio use the same Model Portfolio. See Betterment’s Tax Coordination disclosures for further detail.

Advisors and not Betterment nor the applicable Model Portfolio Provider are responsible for reviewing the compatibility and operation of Betterment’s portfolio management tools for each Model Portfolio, including any tax-related considerations, and for determining whether the use of such tools is appropriate for an Advised Client.

Portfolio Availability and Platform Support

Availability of each Model Portfolio may vary across Betterment offerings, and the availability of a Model Portfolio in the Model Marketplace does not constitute a recommendation by Betterment to invest in such Model Portfolio. In particular, certain Model Portfolios are not offered on an exclusive basis through the Model Marketplace and may also be available to Betterment Retail clients. Conversely, other Model Portfolios may be available only through Betterment Advisor Solutions, and if an Advised Client’s relationship with an Advisor or an Advisor’s relationship with Betterment is terminated, the Advised Client’s ability to hold and manage investments allocated to such Model Portfolio may be impacted.

Betterment or its affiliates receive compensation in the form of ongoing support payments from Model Portfolio Providers to provide technology and infrastructure to support certain Model Portfolios on the Model Marketplace; these arrangements vary by Model Portfolio Provider in amount and structure (e.g., fixed or variable). This creates a financial incentive for Betterment to make available or highlight certain Model Portfolios based on the compensation that Betterment receives. Betterment does not recommend investment strategies to Advised Clients, and maintains policies and procedures reasonably designed to use objective criteria in governing the onboarding and availability of Model Portfolios, and ensure that its advice is not influenced by compensation arrangements.