Meet our writer
Jon Stein is the founder of Betterment. Passionate about making life better, and with his experience from his career of advising banks and brokers on risk and products, he founded Betterment in 2008. Jon is a graduate of Harvard University and Columbia Business School, and he holds Series 7, 24, 63, and is a CFA charterholder. His interests lie at the intersection of behavior, psychology, and economics. What excites him most about his work is making everyday activities and products more efficient, accessible, and easy to use.
Articles by Jon Stein
The Best of Both Worlds: Smart Technology + Financial Experts
We’re confident we’ve long had one of the best ways to invest for those in the know. Now, ...The Best of Both Worlds: Smart Technology + Financial Experts We’re confident we’ve long had one of the best ways to invest for those in the know. Now, our financial experts are going to play an even bigger role in our story, giving our customers the best of both worlds. I’m going to let you in on a Betterment secret. People are always asking me for our secret sauce—read on and you’ll learn about a key ingredient. From the beginning, technology has been a big part of the story behind our mission. It’s a critical part of how we’ve built our company—to do the things we do for customers requires better technology than what the incumbents can offer. Our technology is why the term “robo-advisor” has pervaded the space we created, and why stock photos of literal robots appear in just about every article that mentions our name. Unbeknownst to those who would portray us as robots (often disparagingly), we’ve always had a secret powering our success, the less-talked-about reason for our recognized, industry-leading service: our people. (Shhh, don’t share it, everyone will want them.) Yes, our living, breathing human experts. While our shiny tech pleases crowds and wins awards, over the years, our human Investment Committee has carefully personalized our investment portfolios, our Investment and Advice teams have written algorithms and moonlighted by counseling tens of thousands of customers, and our Customer Support team is available to talk. Real people, real talk. Now you know. Starting Jan. 31, we’ll be offering access to our team of CFP ® professionals and licensed financial experts to help customers monitor their accounts, answer their financial questions, and give them advice. Now, our financial experts are going to play an even bigger role in our service for customers. Starting Jan. 31, we’ll be offering access to our team of CFP ® professionals and licensed financial experts to help customers monitor their accounts, answer their financial questions, and give them advice. For all of us who work here, Betterment has always been a no-brainer. We believe, and vote with our livelihoods, that Betterment is the right place to invest your money if you care most about long-term returns. Our digital advice has made us the largest independent automated advisor—and now we are proud to launch our digital advice with access to our advisors, who have always been the driving force behind Betterment. There has never been anything like this in financial services. There have been brokers, who have wanted to sell something. There have been advisors, who haven’t always had the best technology or capabilities (and were often expensive, given these limited capabilities). We believe we are the only company you can be sure is constantly working to make the most of your money. Now, we’ve brought together technology and unbiased human advice, because sophisticated investors require both high-tech and high-touch forms of advice to satisfy their increasingly complex financial needs. We believe we are the only company you can be sure is constantly working to make the most of your money. Betterment gives customers the best of both worlds: modern investment technology, plus the reassurance of a trusted financial expert who can help them plan and keep an eye on their money. Now, our customers can have peace of mind knowing there’s a financial expert who is looking out for them—monitoring their money and ready to talk about it. Read about all of the offerings. Customer-First, Always: A Brief History We’ve always built what our customers have asked us to prioritize, and what would have the biggest impact for them. We believe we’ve crushed that, and then some—every feature we've built has been designed to put even more money back in your pocket. We built Tax Loss Harvesting+™ as well as tools, which advise you on your family’s holistic retirement picture, including how much to invest and what types of accounts to open. We started to hear that our customers wanted to see their wealth in one place, so we gave them the ability to sync their non-Betterment financial accounts. This enabled us to give our customers even better advice, because we were able to identify high fees and idle cash that was losing the long-term potential of being invested in the market. Then, most recently, came Tax Coordination— the most important breakthrough in investing since the index fund. We built this to be the most advanced money management system available on the market. It automatically shields your dividends from taxes. Experts have called it the “closest thing to a free lunch” in investing. As we’ve improved our customers’ net returns with these new features, we’ve started to attract a more diverse set of customers, who have financial situations in all shapes and sizes, with varying levels of complexity. We’ve learned that many customers want to talk to an advisor. At first, we let them call us ad-hoc, and we allowed our advisor partners to add their clients to the Betterment for Advisors platform. We heard from some customers that they wanted more, and we want to give them the flexibility to manage their money as they want. We Can Manage Your Money How You Want It To Be Managed For many customers, that means continuing to use our digital-only platform, which will now be called Betterment Digital. It’s for customers who want to continue connecting with Betterment primarily through our website and mobile apps. Betterment Digital includes all of the investing strategies and account services that make Betterment the better way to invest today: our intelligent investment portfolio, automatic rebalancing, Tax-Loss Harvesting+, Tax Coordination, retirement planning tools, the ability to sync external financial accounts, and excellent customer service. For other customers, who want a partner to help proactively review their accounts, help answer their questions, and act as another set of eyes to make sure their money is in order, we’ll have a new offering: Betterment Premium will include unlimited access to our team of CFP® professionals and licensed financial experts. Of course, each of the new options will be rooted in our self-service, personalized advice, available 24/7 through our digital tools. See more details about each of the offerings. Your Satisfaction—Guaranteed Everything we do is for you, our customers, so it’s important to us that you’re happy with our service. If for any reason you are not completely satisfied with your Betterment account, we will do everything we can to make it right, up to and including waiving Betterment’s management fees for the next 90 days. I’ve never been more excited about the future of Betterment. As we look to the next five, 10, or even 50 years, we’ll always continue working for you. We’ll evolve as you evolve. We’ll grow as you grow. And we’ll always empower you to do what’s best for your money, so you can live better.
The Fiduciary Rule Is on Life Support – We Must Act Now
Whether or not the fiduciary rule survives could directly impact you. Because if it dies, ...The Fiduciary Rule Is on Life Support – We Must Act Now Whether or not the fiduciary rule survives could directly impact you. Because if it dies, and your money manager is no longer required by law to act in your best interest...are they going to anyway? You give your retirement money to a money manager. You expect them to look at all the investment options out there and make decisions based on what’s best for you, your portfolio, and your money’s growth over time. You expect them to act in your best interest—to do the right thing for you. You expect them to charge reasonable fees, try to minimize taxes, and make decisions that are going to get you the returns you deserve. You expect all of this because it’s their job. It’s what they’re paid to do. They’re the expert, the professional. Surely they’re going to advise you on the best investment decisions for you...right? I wish it were that simple, and I can’t believe it isn’t. But today, many money managers are not doing what’s best for you. They recommend funds because they make money selling them. They charge confusing fees that you can’t see. They push you into investments that are in their best interest—not yours. And the one thing that was going to help stop it might not survive. President Donald Trump on Feb. 3 signed a memorandum directing the Department of Labor (DOL) to reconsider its fiduciary rule, which would require money managers who provide retirement advice to act in their clients’ best interests. The rule was set to go into effect on April 10, but the DOL on Feb. 10 reportedly filed for a 180-day delay, putting the rule at risk of being diluted beyond recognition or, worse, thrown out completely. Whether or not this rule survives could directly impact you. Many companies were planning to make positive changes in response to the rule and publicly supported it, back when they were going to be required by law to do what was best for their clients. But now that the Trump administration is threatening the rule’s existence, we expect many of those institutions to remain silent, indicating that their former support was solely for public display. We believe that, in some ways, silence from those institutions is as bad as lack of public support. Because if your money manager is not openly supporting the rule, then they may not be willing to fight for you. And once the rule is gone for good, it could mean reverting to business as usual. We encourage you to reconsider your money manager or, at the very least, push them to clarify their stance. Because if the rule dies, and they’re no longer required by law to act in your best interest...are they going to anyway? The State of the Industry (Also Known As “Why This Rule Must Live”) The fiduciary rule’s six-year history has coincided with a secular shift in the industry that has felt promising and good. We’ve seen positive evolutions, like easier access to low-cost investments (e.g., exchange-traded funds) and heightened awareness of how financial providers are compensated. As the Washington Post’s Barry Ritholtz put it, “The fiduciary rule is not shaping investor behavior, it is now catching up with it." But now that the rule has the potential to be thrown out, we have to reexamine the conflicts of interest that are costing American workers and their families $17 billion a year—and that could persist without the proper regulations in place. Many money managers (brokers) are not currently required to make investment recommendations based on your best interests, and instead only need to pick “suitable” investments. They are allowed to consider whether a particular recommendation will result in a higher commission or kickbacks to them. As a result, you are likely to end up in a less-than-ideal portfolio—one that’s higher-cost and lower-return than it should be. This Is What Firms Are Allowed To Do. Is It Happening to You? Here’s the Way It Should Be We believe in low, transparent fees. We believe that when you give your money to a money manager, they should choose funds based on what’s best for you, the customer—not your money manager. A Defective Argument: The Fiduciary Rule “Limits Investors’ Choice” There have been various arguments opposing the fiduciary rule. The most recent came from Gary Cohn, the White House National Economic Council Director, who said that the rule would limit investors’ rights to choose their investments. He told The Wall Street Journal in an interview: “We think it is a bad rule. It is a bad rule for consumers…. This is like putting only healthy food on the menu, because unhealthy food tastes good but you still shouldn’t eat it because you might die younger.” It’s an interesting analogy, but it’s flawed. The rule isn’t about limiting choice (all the choices are still there); it’s about empowering consumers with information to make better decisions and forcing advisors to give straightforward advice. The right analogy would be both options are still on the table—you want to eat a cheeseburger instead of a salad, you can still do that—but you’ll know exactly how many calories are in it and how much it’ll cost you. In the case of financial services, if you want to put your money in a worse investment product, you can still do that—and the advisor has to disclose all the fees associated with it, and can’t tell you it’s the best option for you (unless it truly is). The text of the rule itself is clear on this point; it simply requires advisors to make an investment recommendation that they can demonstrate is in an investor’s best interest. Sure, that may be the lowest-cost option, but not necessarily. If advisors are not able to defend the investment products they are recommending, including their cost, investors will not suffer from their absence. If you want a good analogy for what this rule could do for financial services, consider the medical industry. Doctors aren’t allowed to get paid by drug companies for pushing drugs on you. That would be ridiculous, right? Why should it be different in financial services? Why should so-called financial advisors be allowed to be compensated for pushing certain products on you? It’s ridiculous! They shouldn’t. And, if we have our way, they won’t. Former Rule Champions, Where Are You Now? We’ve been closely following which big financial firms are committed to the positive changes represented by the fiduciary rule. Last fall, when it was expected that the rule would go into effect this April, many firms publicly trumpeted their support. Merrill Lynch came out with an ad campaign that declared, “We’re committed to your best interest. Not the status quo.” Other firms, like J.P.Morgan and Commonwealth Financial Group, announced they’d be cutting commissions in their retirement accounts to comply with the rule. Now that the rule’s future is in doubt, Merrill Lynch is retreating from its support of the rule and has indicated it may not complete the changes it previously committed to making. Many other firms have likewise gone silent on their support for the rule and their intent to follow through on earlier commitments. Some firms are even gloating over the fact that they didn’t take a position on the rule or commit to changes. AdvisorHub.com quoted UBS Chief Financial Officer Kirt Gardner saying, “There is some indication that [the DOL Rule] will, at a minimum, be delayed and potentially not be implemented at all. And because we delayed our announcement…that’s proved to be very effective given some of the commitments that our competitors have made.” It’s become extremely difficult to get individual firms to commit to a clear public position on the fiduciary rule. In January, Sen. Elizabeth Warren, D-Mass., a longtime supporter of the rule, sent a letter to 33 financial institutions that had already begun making changes designed to satisfy the rule’s regulations. She warned them that the rule was under attack, while also questioning whether they supported it and would continue to work toward implementing changes. This was an opportunity for these firms to speak out in support of the rule. Twelve firms ignored the letter. Of the 21 that responded, many provided a general statement about the importance of the rule's objectives, but declined to make a clear commitment to its actual implementation. Make no mistake, though, the fiduciary rule is the only realistic hope for prompt action to improve the quality of retirement advice. If firms genuinely support the rule's objectives, they should also support the rule. In the coming weeks, we encourage you to watch closely to see which firms are willing to take a clear public stand on behalf of investors, and which are silent or hide behind trade groups. What You Can Do to Protect Your Right to Honest Financial Advice Today, I’m sad for retirement savers. I’m disappointed that so many of us have trusted people we’ve chosen to manage our money, to prepare us for the future, and yet we still can’t be sure if they’re doing the right thing for us. I’m angry that the one ruling that could make us feel confident again is under attack. Why would anyone want to get rid of something that could do so much good? We encourage you to advocate for yourself and your future by submitting a public comment in support of the fiduciary rule here. You can also contact your elected representative and/or financial provider to share your support for the rule. Then it might be time to ask your money manager these questions: Why are your services and investments right for me and my situation? Who makes money from my account—and how much? Do you make more money recommending some investments over others? Are you committed to acting in my best interests for all my accounts, at all times? We’re not giving up on this. We stand for our customers and their best interests, and we always will. We don’t take political sides, but we are fighting for this rule until all investors receive advice they can trust. Because if the rule dies, whether it’s quick or slow, it’s sure to be painful. A version of this article originally appeared on CNBC.
The Pursuit Of Betterment’s New CEO (And Finding Happiness Along The Way)
Betterment Founder Jon Stein announces the appointment of Sarah Kirshbaum Levy as his ...The Pursuit Of Betterment’s New CEO (And Finding Happiness Along The Way) Betterment Founder Jon Stein announces the appointment of Sarah Kirshbaum Levy as his successor and new CEO of Betterment. It’s the fall of 2007 on the Lower East Side. My Betterment clock starts not when we launch in 2010 but as I hash out the concept in conversations with roommates and friends. I have a crazy idea: to pursue my happiness via helping Americans pursue their happiness. I write a mission statement: empower customers to do what’s best with their money so they can live better. Investing feels complicated to most people, but the best practices are known and straightforward. Why not take the smart services used by the wealthy and institutions and make them accessible to every American? People like this crazy idea, some join me, and with sweat and sacrifice, a tiny, hungry, customer-impact-obsessed company is born. I pursue Betterment’s mission doggedly. My wife (whom I met in 2006—not coincidentally—her encouragement begets a startup) calls Betterment my “first child.” I say often (usually sincerely): “I’m the luckiest person, I have the best job in the world.” At times, it feels like all of my being, every waking hour, every dream, is intertwined with my company. I am Betterment. There is nothing else. Teammates become best friends (and each other's family: I officiate weddings of Bettementers who later have Betterment babies). I star in TV ads—never imagined that career turn. Early customers email me personally for support (and some still do—love y’all, customers). We grow to $25B AUM, more than 500,000 customers, a team of more than 300, and we move the industry forward. And yet, I know we can achieve more; we have millions more Americans to reach. The Pursuit Of Our Potential For some time, I look to bring in an experienced, dynamic operating leader to help drive the company forward. The search is not initially focused on one specific role to fill; it is about finding amazing talent that could help lead Betterment to realize our full potential. The time at home this year affords more time to devote to the search process, to talk to senior operating leaders and to think about what might be needed for the next leg of the journey. I spend time with hundreds of diverse candidates. I realize that the best way to achieve our mission might be to invite a successor to lead Betterment in the next phase of growth. Due to good fortune and intense effort in a most challenging year, the company has never been in a stronger position. Each line of business is reaching new heights in 2020. We’re beating targets, well-capitalized, with wind at our backs. It’s a good time to hand over the reins. Over the summer, I connect with Sarah Kirshbaum Levy. There is something enthralling about her. I don’t want to jinx or overload it, but outside of meeting my wife, it’s hard, at present, to think of a more consequential introduction. And this is over video conference! The Pursuit Of The One Over the next few months, I spend more time with Sarah and she begins engaging with members of the team and our board. I bring her in full-time as a consultant in a trial run. What a privilege not only to recruit my successor, but to observe her building relationships, to work side by side with her as she iterates on her plan, and to see her making every meeting more open and efficient. I give her my authority to work with the team to architect plans for 2021 and beyond, and she excels. My admiration grows as she starts effectively running the company, with my proxy. My execs tell me they have so much to learn from her. The only thing that is missing is the title—and today, we give her the title. Sarah’s Pursuits Sarah started out at Disney and spent the last 20 years at Viacom, home to beloved brands including Nickelodeon, BET, MTV, and Comedy Central. Through a series of senior leadership roles, culminating in Chief Operating Officer, she’s shepherded global phenomena, from SpongeBob to The Daily Show with Trevor Noah, connecting with audiences in meaningful ways. With her experiences leading large public companies, Sarah is the right executive to lead Betterment now, as we contemplate a transition from private to public in the coming years. For someone with a “big company” pedigree, she’s remarkably down to earth and scrappy. She’s launched and grown businesses, bought and sold businesses, managed the bottom line, and driven consumer brands to win. I appreciate her “outsider” perspective. Betterment is a unique company—not just finance, not just tech, 100% customer-impact obsessed. Take it from one who’s looked: It’d be hard to find someone who’s both spent a career in financial services and can credibly lead the change we envision: to empower customers to do what’s best with their money, so they can live better. The Pursuit Of Happiness I’ve done the best work of my life at Betterment, and I have worked too hard to stop giving it my all to realize this company’s mission, whatever form those efforts may take. From my role on the board, I’ll be supporting Sarah and her team, whether it be via recruiting, investor relations, telling our story, or upholding company culture and values. A dream for me since that Lower East Side fall in 2007 has been to build a sustainable institution, to build something that will outlast me. I’ve never taken a larger step toward that accomplishment than I am today in passing the torch to Sarah. I asked Sarah what mattered most to her in her next role, and she said, without hesitation, “A brand and mission I believe in.” She’s evidenced this for me in every interaction since. I believe that she’ll more fully realize the vision I laid out years ago, and make Betterment the most beloved, most essential financial brand for this generation. And in so doing, she’ll power the pursuit of happiness for millions of Americans.
If We Aren’t Changing The System, We’re Perpetuating It
Betterment will not stand for the unequal treatment of people of color in our company, in ...If We Aren’t Changing The System, We’re Perpetuating It Betterment will not stand for the unequal treatment of people of color in our company, in our communities, or in our country.
Jon Stein: Thoughts on 2020's Volatile Market
Much of what Betterment has worked toward the past 10 years has been purpose-built to ...Jon Stein: Thoughts on 2020's Volatile Market Much of what Betterment has worked toward the past 10 years has been purpose-built to endure all the worst and the best the market has to throw at us. I started today like I imagine a lot of people around the world might have: Wondering about the latest news. Helping my wife come up with new ideas to entertain our two young daughters. Thinking about how fortunate we are to be together and healthy, and about those most vulnerable during these uncertain times. Connecting with coworkers remotely (and missing our in-person interactions). I’ve also been thinking about my family’s and our customers’ finances. I’ve been thinking about how we all can make smart decisions to make the most of our current situation. Relatives (who are also Betterment customers) have told me brokers are calling them, saying, “Now’s the time to buy,” and “Let’s transition your portfolio,” and, to all of them I reiterate the same thing I always say: “Invest appropriately for your goals. Invest regularly. Stay the course (aka, don’t try to time the market).” Betterment was born in the aftermath of the last financial crisis. Our vision, a smarter way to manage money for everyone, was based in no small part on what I saw during that time: Too many people making rash (often bad) financial decisions and struggling to make sense of the economic turmoil, because of a lack of good, outcome-oriented, fiduciary advice. Much of what Betterment has been working toward over the past ten years—the services we’ve built, the products we’ve launched, the customer-outcome-obsessed company we strive to be for you—has been purpose-built for times like these, to endure all the worst and the best the market has to throw at us. How we’re working for you in these challenging times. Betterment has migrated to fully remote operations, and our teams are all up and running. We are fortunate that we were well prepared for this; in 2019, we opened new offices in Philadelphia and Denver and onboarded a dozen remote employees living across the country. This experience has served us well in our current environment, and made it relatively easy for us to institute a mandatory work from home policy early on. Today, all of our team, all over the U.S., is working for you. Just like you, we have parents juggling meetings with at-home kids, and supportive teammates picking up extra work to allow those who need it to take time to care for loved ones. They’re answering your calls, building and launching our new checking account, or analyzing our trading, advice, and operations, and working hard to give you the service and advice you expect and deserve. That we’ve seen record call volumes might be no surprise. Our call hold times have been elevated: ~30 minutes in the recent, dramatic days of market volatility. For me, this was a positive surprise. It’s longer than I’d like it to be, but better than the busy signal I might have feared after hearing about it elsewhere. Our services have remained open and up through record trading volume. We’ve harvested billions of dollars of tax losses and rebalanced hundreds of thousands of customers smartly, and tax-efficiently, working to make the most of even down days. We’re also launching new ways to answer your questions and connect with you, including advice videos and live Q&A on platforms like Twitter and Reddit. We hear you, and we’re working as hard as we can to respond to your feedback and concerns. “Empower people to make the most of their money so they can live better.” That’s our mission at Betterment—the reason each of us joined and what brings us together. It’s our mission when the market is up and when it’s down. One of the things about working at Betterment is that every single one of us is a customer as well. It means that we’re working for you, and we’re working for our families. We celebrate with you when we reach our financial goals, and we hurt with you when the markets are in turmoil. We’re with you, working hard to help navigate spending, saving, investing, and retirement with confidence. We’ve known from the start that there will be good days and bad days in the market, as in life. We are invested in the world and with the world, in a global portfolio. As the world goes, so we go. Smart investing is the confidence to endure. On average and over time, being broadly and globally diversified is wise, today and every day. Historically, it has led to the most consistent returns, with the least amount of risk, of any widely available investment strategy that we have identified. Implementing it well requires discipline, smart automation, and appropriate identification of goals and time horizons. This approach and our advice are designed to help you make smart decisions today that help you reach your goals in the long-term. Everything we do is built with the intention of helping you achieve better results than you could without us, than anyone could without us. Just as importantly, everything we do is built to help you have peace of mind. But just because some may be better off, or more fortunate, doesn’t make anyone immune to the pain going on around us. As friends and loved ones are vulnerable or exposed and the worldwide economy goes through a rough patch, we feel it, too. Smart investing is not the absence of dark days, or the absence of fear, it’s the confidence to endure. We will get through this, and the economy will be stronger in the long run. Things will get better, for the world, our customers, our team—and you. Invest appropriately for your goals. Invest regularly. And stay the course. We’re here for you, should you want a hand to hold (or, better make that, a person to talk to), and we’ll get through it better, together.
Introducing Betterment’s Cash Management Products
Betterment helped redefine investing with automated guidance built for you. Now, we’re ...Introducing Betterment’s Cash Management Products Betterment helped redefine investing with automated guidance built for you. Now, we’re reshaping another part of your financial life: your cash management. When I started Betterment, the goal was to help people answer a basic, but universal, question: “What should I do with my money?” In my early career as a bank consultant, working for large banks across the United States, I noticed fundamental conflicts in the financial industry that made great financial advice inaccessible to most Americans. In creating Betterment, I sought to change the industry and to build the most customer-centric smart money manager. That desire for change evolved into our mission: To help you make the most of your money so that you can live better. And we focused all of Betterment’s efforts on that mission. We listened diligently to our customers. Developed personalized retirement guidance. Built our suite of Tax Smart tools. Incorporated personal choice into our investment options. Built and evolved our mobile app. Across our work, we listened and learned from you. We heard that while investing is a major challenge, it’s often not your first one—instead, it’s saving. For many of our customers (whose average age is 37), having more money tomorrow means managing your money better today. You want tools that make you confident you’re doing the smart thing: Increasing financial security for you and your family by setting savings goals and creating a plan to achieve them. To not worry about whether you are incurring unnecessary fees that might take advantage of you at inconvenient times. Ultimately, we believe that managing your everyday cash is essential to realizing your long-term goals. This is why we built cash management products: for your money today that can help you save and earn more for tomorrow, all in one place. Cash Management: A Solution That Helps You Save The problems we see in the banking industry today are the same fundamental flaws we saw in investing when we started Betterment: Companies aren’t customer-centric. Rather than suggesting what’s right for customers, they’re instead encouraged to do what makes the company the most money (which can often be a poor financial decision for the customer). Instead of investing for the long term, trade on the short term, some say. Instead of saving for your goals, spend what you make and borrow money later, others say. We’ve designed our cash management products to meet you where you are in your financial journey and to encourage saving that grows over time. Our first step is Cash Reserve, a cash account that can help you earn a variable rate of 1.10%*, is FDIC-insured for up to $1,000,000 once deposited at our program banks (or $2,000,000 if using a joint account)†, has no minimum balance, and only requires a $10 deposit to get started. Our second step is Checking—meant to help you manage the heartbeat of your financial life, your everyday cash flow. With this checking account, users will receive a Betterment Visa Debit Card and all ATM fees, worldwide, will be reimbursed; you won’t see any monthly maintenance fees or minimums and you’ll get access to advice on your full financial life. The same reason that we don’t put our own ETFs into portfolios is the same reason Betterment is not a bank—because we can offer you value and help you build a better life as your advisor and advocate. We want to help you make the most of your money, and a cash account is an important part of that. With Checking, we’re taking a similar approach. No checking fees‡, and all ATM fees reimbursed worldwide. A partner that works for youーeveryday. We’re pushing the boundaries of how finance serves you, helping you save more with less hassle, so that ultimately, you can live better. We’re on the path to building your self-driving wallet. When I think about what the future holds for my two young daughters and children across the United States, I can’t imagine that they’ll ever have to spend time figuring out how to intelligently allocate their paychecks across various accounts—I want them to have easy access to the right answers, from a trusted advisor. I want them to know that they’re on-track to meet goals important to them—and if not, how to get on track. I believe that technology will help make smart money management accessible to all Americans. To get there, come join us. Tell us what you want to do with your money. We can make it easy, then help you automate the most frequent, distracting, and tedious (but nevertheless valuable) tasks—just as we have with investing. With our cash management products, we bring our role as your financial advisor into your everyday life, turning your daily choices and transactions into saving for the future. We’ve built the framework for where we believe the industry can (and should) move. We believe the future is smart money management, and we’re helping lead the way. Months ago, I described why the financial industry fails to help people save: We place the responsibility to save more money on the customer, rather than taking on that challenge as investment managers and banks. Ultimately, I believe institutions that survive into the future will be accountable for what real people struggle to do: Automate their savings. We are striving for a future of smarter financial behaviorーfor a stronger middle class, empowered to thrive and pursue happiness, with the true peace of mind that comes from having a smart money manager always working for you. This brings us a significant step closer to that goal.
How Banks Fail in Helping You Save Money
You may not realize it, but our financial lives are shaped by a great divide: banking vs. ...How Banks Fail in Helping You Save Money You may not realize it, but our financial lives are shaped by a great divide: banking vs. investment managers. In between lies most people’s pinnacle challenge: saving for the future. I have the good fortune of being able to question the institutions that shape my financial life. I studied economics in school. I earned a CFA credential while working in consulting. I started a financial tech company when I found problems that the industry seemed content to leave unsolved. But not everybody can afford to question the institutions they work with. To most Americans, the bank is the bank. It’s where you put your paycheck, who you talk to for a car loan, what form you look at when you file your taxes. Your 401(k) is your 401(k); who provides it, what the investments are, what fees are charged—these are questions that most people only get to ask on occasion, if they ask them at all. Today, I see millions of people tied to two kinds of institutions often misaligned to their needs. The first is banking. Neither banks nor credit unions have a fiduciary duty to put their clients’ interests first. Instead, they have a proclivity for charging extra fees and an unjust ability to earn profit on the rates loaned out by the Federal Reserve as their clients lose their savings to inflation. The second is investment managers. Whether a 401(k) plan, an advisor, or a broker, investments are still designed mostly for institutions and the wealthy, and the managers are often far too focused on asset allocation when Americans’ real financial outcomes are most determined by savings. While I have critiques for each group, the greatest problem to me is the fact that there are two. Somewhere in between their bank and their investment manager, Americans lose out on the most important element of finance: Saving their cash. Make no mistake; your savings is what matters. It’s what matters when paying down debt. It’s what matters for starting a business. It’s what matters for securing a healthy retirement. And yet, banks typically don’t help you become a better saver; they encourage holding cash at the ready for spending and sell you loans when you don’t have enough. Meanwhile, most investment managers pay little attention to your saving; they focus on larger deposits, like retirement money withheld from a paycheck. Between working with a bank and an investment manager, we, as a nation, fail to save enough for the things we need. The everyday American deserves a cash advisor. The truth about the future is that saving is all we have. Younger generations can’t count on Social Security the way Baby Boomers still do. And the pension plans of yesteryear are gone. Not only that, students today are graduating with more student loan debt than ever before, and no other part of life is becoming cheaper. Houses, cars, kids—they’re all becoming more expensive, not less. The average American aged 35-44 has $133,100 in debt according to Money. As a nation, we’re mostly deep in the red, not the black. To avoid debt, to save enough for retirement, to successfully navigate inevitable emergencies, Americans need a partner who has their best interests at heart not just in investment advice but for managing their cash. For helping you manage the day to day, so that, at the end of the month, you’ve actually saved more for the future. We need a cash advisor perhaps more than any other kind of financial advisor. For years, RIAs have encouraged their clients to outline their financial goals, to set a budget, and to save enough to fund each of their goals. But what have we been able to do to help ensure our clients’ success? Coaching, support, suggestions—yes, RIAs have led in this arena. But is it working? Americans today are saving less than they ever have. And even worse, they’ve seen limited wage growth and increasing inequality at the same time. Forget budgeting. Cash advice must automate the act of saving. What investment managers and banks silently have agreed on is that saving each month is the client’s responsibility. It’s the client’s money, and so, it’s theirs to set a budget. To me, the suggestion to “set a budget” is a failure of advice. It implies a lack of empathy for how a wallet really works or how human minds decide to spend. These are the facts: The world gives us many reasons to spend, and it offers far fewer reasons to save. Store sales. Credit card rewards. Low interest rates. The world creates many reasons to buy things. Meanwhile, no part of the industry solves saving. Banks and investment managers leave it to their customers to solve. The solution is having an advisor that puts the work in to do what real humans struggle with: Automating your savings. Helping to keep your spending in check. And nudging you toward your long-term goals. Ask any financial engineer and she’ll tell you that predicting the right level of cash you need each month is no great feat. As predictive modeling and advanced technology goes, your cashflow isn’t a big mystery. The choice to build that business so that everyday Americans can live better? Now, that is a different story. America’s future depends on how we save cash. Who will solve it? You can look at national debt, student debt, Social Security insolvency, or growing income inequality. As a country we need ways to help people save, and so far, the answer I see suggested most is Mint, a budgeting tool from Intuit that only helps if you’re already good at budgeting to begin with. And if you’re not, it mostly serves to sell you credit cards or investment apps. And I don’t blame Mint; it’s great for budgeting, just not for the reality of saving. Will you trust a bank to help? Maybe one of the new online banks or app-based banks? Banks have every opportunity to change how we save for our goals, and yet, they won’t. They thrive when you’re using your debit cards and taking out loans. They love it when your savings sit growing at less than 1% while they’re loaning your money at 4%. When we, as a nation, need every ounce of the risk-free rate we can get to save for our goals, banks prove again and again that they’re not problem-solving, they’re taking advantage. So, who would you rather work with? The solution I see is that we have to turn to those whose interests align with our own. I want to see fiduciaries get into the business of managing cash and savings. I want registered investment advisors and CFP® professionals to become true cash advisors. To use innovative technology at scale. Yes. To drive empirically better behavioral outcomes. Absolutely. To make a profit. It’s a must. But, at the core, we need advisors acting in their customers’ best interests; not just for already-wealthy individuals, but for everyday Americans looking to save their way to wealth.
This Is Why an ETF Portfolio Serves You Better
ETFs are the next level in access, flexibility, and cost. Here’s a look at the five key ...This Is Why an ETF Portfolio Serves You Better ETFs are the next level in access, flexibility, and cost. Here’s a look at the five key attributes that make ETFs right for Betterment customers. When we first started Betterment, our goal was to create the best possible portfolio for investors. To do this, we had to take into consideration cost, performance, and access. We needed products that could suit investors saving for a down payment on their house, major purchases and, of course, retirement. Given all of these stipulations, it’s no coincidence that exchange-traded funds or ETFs make up the core of Betterment’s portfolios. First developed in the early 1990s, ETFs now account for $1.7 trillion in assets in the United States. Betterment selects the most appropriate ETFs for our clients to build a fully diversified, global investment ETF portfolio. While registered investment advisors have been building portfolios of mutual funds for clients for decades, ETFs are the next level in access, flexibility and cost. Here’s a look at the five key attributes that make ETFs right for Betterment clients. Low cost Most ETFs are index funds, aiming to deliver the performance of a stock, bond or commodity index, minus fees—no more, no less. These funds don’t have managers who are paid to “deliver alpha” or market-beating returns. Instead, ETF portfolio managers are quantitative disciplinarians with a laser-like focus on hugging the index. The cost of an ETF covers licensing the index from a data publisher, paying administrative fees (lawyers, trusts, exchanges) and compensating the managers, who tend to work on multiple ETFs at once. All of this is bundled together into what is known as the expense ratio. In contrast, many mutual funds—particularly those that are actively managed—add costs through distribution agreements with brokerage platforms or financial advisors, and some are only available direct from the manager. With ETFs, the gatekeepers (and toll takers and middlemen) have been marginalized, allowing greater benefit to accrue to the end investor—you. For individual investors who want to build a portfolio, basic stock and bond index ETFs tend to be cheaper than equivalent index mutual funds. Consider the price difference between Vanguard's Total Stock Market ETF (VTI) and equivalent mutual fund (VTSMX). They both follow the same CRSP U.S. Total Market Index, but there is a significant cost difference. VTI has an expense ratio of 0.05% and VTSMX has an expense ratio of 0.17%. The expense ratios for the ETFs used by Betterment range from 0.05% to 0.40%. For individual investors who want to build a portfolio, basic stock and bond index ETFs tend to be cheaper than equivalent index mutual funds. Diversified Most exchange-traded funds—and all ETFs used by Betterment—are considered a form of mutual fund under the Investment Company Act of 1940, which means they have explicit diversification requirements. They do not have any over-concentration in one company or sector, unless called out specifically in the fund offering prospectus. Diversification, both within a fund and throughout a portfolio, has been said to be the “only free lunch” in finance. This is what drives Betterment’s focus on asset allocation, ensuring that our clients aren’t overly exposed to individual stocks, bonds, sectors or countries. Tax-efficient All mutual funds are required to distribute any capital gains to their investors at the end of the year, regardless of individual trading activity or the timing of a purchase—these are distinct from capital gains you would realize from selling the share of the fund itself. That means you could buy a new fund in December and receive a taxable distribution just a week or two later! But when it comes to tax efficiency, ETFs have two jewels in their crown. First, most ETFs already have the tax efficiency of index funds—which don’t tend to generate internal capital gains due to churning (frequent buying/selling of stocks and bonds due to investor or manager movement). Second, the two-tiered market by which shares of ETFs are transacted isolates investors from additional tax consequences and limits capital gains from accumulating within the fund. Because an ETF is a type of mutual fund, shares can only be issued or redeemed through a fund administrator, once a day at Net Asset Value, like every other mutual fund. Yet ETF shares trade all day long in transactions between buyers and sellers: How do these sync? When large investors or market makers, known as authorized participants, notice an imbalance between the price of the ETF and the aggregate of the prices of the underlying securities the ETF tracks (or they need to fill a large order of ETFs for a customer), they essentially swap the underlying stocks or bonds for shares of the ETF, or vice versa. This transfer in (or out) of the fund is known as “in-kind” and limits the tax consequences for the fund by allowing it to constantly raise its cost basis of individual securities by swapping out the securities with the largest built-in gains first (swaps, as opposed to sales, don't realize the gains.) In the event that the fund needs to sell securities itself, having a high basis would limit its tax liability. Non-ETF mutual funds don't have this luxury. Flexible ETFs are the duct tape of the investing world. They can be accessed by anyone with a brokerage account and just enough money to buy at least one share (and sometimes less—at Betterment we trade fractional shares, allowing our customers to diversify as little as $10 across a portfolio of 12 ETFs.) While most ETFs are straightforward in their exposure, they are used in so many ways, that they have become an essential tool for all kinds of investors—short-term traders and long-term investors alike. This versatility as an investment vehicle helps keep ETF pricing true to the price of the underlying assets held by the fund. Sophisticated ETFs take advantage of decades of technological advances in buying, selling and pricing securities. Alongside their modern structure sit myriad data points watched by investors and advisors who are constantly analyzing the funds and their investments to make sure that the fund prices stay true. They are looking at what they know about the portfolio, what is happening in the market, and how the ETF is trading throughout the day. The net effect: multiple market forces keep the ETF trading in-line with the underlying holdings.
The Senate Is Planning a Tax Hike on Retail Investors. It Should Be Removed.
The Senate’s current tax bill includes a mandate that would be punitive for everyday ...The Senate Is Planning a Tax Hike on Retail Investors. It Should Be Removed. The Senate’s current tax bill includes a mandate that would be punitive for everyday investors. Without a doubt, the FIFO mandate should be removed from consideration. Congress is currently working on a massive overhaul to our tax code, and the Republican-led majority appears committed to signing a bill into law before the end of the year. While the proposals have far-reaching impact, one provision proposed by the Senate would be particularly punitive for retail investors: the so-called “first in first out” (FIFO) mandate. This provision mandates that when retail investors sell a portion of an investment, they must sell their oldest shares first—that is, the first shares “in” must be the first shares “out.” While this technical change may sound innocuous, the FIFO mandate would dramatically harm millions of retail investors. It would raise taxes in unintuitive ways, distort investment behavior, and deprive investors of the opportunity to plan efficiently for retirement. Investing would become more complex and more time consuming—disempowering and disenfranchising everyday people who need to invest for their future. The Senate has already recognized that the FIFO mandate is bad news. In the first draft of the bill, the FIFO mandate applied to investments made by investment funds, but the Senate exempted them after an intense lobbying effort. As a result, investment companies will continue to have the freedom to decide which shares they want to sell. Retail investors unequivocally deserve the same opportunity. What a FIFO future could look like Imagine an investor who, for the last 20 years, has been putting $100 each month into an hypothetical index fund that has returned 10% on average. After 20 years, her deposits from the first year are now up approximately 600%. Say the market has been down this year, but she smartly continues her monthly investments, knowing that in the long term, consistency is the best strategy. Now assume that, before the index fund has recovered its value, our investor has an unforeseen expense of $600. She covers it by withdrawing from her portfolio. Under current tax law, she would be able get the $600 she needs by selling the shares that she purchased earlier in the year. Since these shares are currently trading at less than what she paid for them, she wouldn’t owe any taxes because she actually lost money on those shares. In fact, she could use her losses on the shares to offset other income, reducing her overall tax burden. In contrast, under the proposed FIFO mandate, she would not be able to sell her most recently purchased shares. Instead, she would be forced to first sell the shares that she purchased 20 years ago, which would mean that $500 of the appreciated value would be considered taxable gains. Assuming a combined federal/state long-term capital gains rate of 25%, she will owe $125 in taxes. In trying to withdraw $600, she will be left with $475, net of the tax she owes. To get the full $600 out of her portfolio, she would have to sell about $760 worth of shares, even though the most recent $600 she invested has actually lost value.1 The FIFO mandate might cause her to attempt complex and burdensome strategies to avoid this harsh result. Or, more likely, she would simply decrease her investments in the market, impairing her own investment goals and the growth of the overall economy. FIFO triple-taxes investment income and distorts investor behavior According to the GOP Tax Reform Framework released earlier this fall, tax reform seeks to establish a “simpler, fairer” tax code “built for growth.” The FIFO mandate will actually undermine these goals by distorting investing behavior as investors take extraordinary measures to avoid taxes or avoid investing altogether. Middle-class savers and retirees will fare the worst. By depriving investors of the freedom to choose which shares they want to sell, the FIFO mandate effectively raises taxes on investment income, resulting in a new era of triple taxation for retail investors. Under current law, retail investors already pay personal taxes on investment returns, and the companies they invest in pay corporate taxes. By greatly increasing the impact of the capital gains tax, which could otherwise be deferred (or possibly avoided) under current law, the FIFO mandate essentially imposes a third layer of taxation. Under the FIFO mandate, investors would have to take extraordinary measures, divorced from economic reality, to avoid a large tax bill. Decisions made decades earlier could lead to potential tax consequences that would prevent investors from making what would otherwise be the best investment decisions. Investors would have to maniacally focus on the tax lots they purchase and sell. They might be encouraged to purchase countless versions of similar funds to preserve the ability to access their money in response to unplanned needs. They could seek to open a multitude of accounts at different financial institutions to avoid the FIFO mandate. But, these complicated strategies are likely to be impractical for ordinary retail investors, many of whom already struggle to find the time to properly manage their finances. Only wealthy investors are likely to successfully avoid the FIFO mandate; others are more likely to pay higher taxes—or worse, invest less. Thus, the FIFO mandate will be particularly punitive precisely for middle class savers who have done everything right: picking an investment strategy and sticking to it consistently. They are the ones who would find themselves with fewer and more expensive options when they need to access their savings, including in the face of an unplanned emergency. This is plainly unfair. Retirees would suffer disproportionately. In a world where corporate pension plans have largely disappeared and Social Security benefits are set to be increasingly uncertain (the Social Security Administration says it is “three quarters funded for the long term”), saving for retirement is already a challenge for most Americans. FIFO further complicates retirement savings because older investors will disproportionately face higher taxes early in retirement, as the first shares they will be required to sell will likely have the largest gains. In a future where retirees are personally responsible for their retirement, every penny matters and depleting retirement savings is counterproductive. Furthermore, the many unanswered questions about the mandate could have major consequences for investors. For example, would the FIFO mandate apply across spouses, meaning there might be a marriage penalty? Would it apply across different brokerage accounts, leading to complex accounting or gaming by opening multiple accounts? Would the FIFO mandate apply to charitable giving? Depending on how these questions are answered, the FIFO mandate could inflict additional harm. FIFO clearly hurts investors. But it doesn’t really help Congress either. So, given all the consequences of a FIFO mandate, why is it in the Senate’s tax plan today? The probable answer is, of course, the mandate’s potential to raise revenue—$2.7 billion over 10 years, according to the Joint Committee on Taxation. That $2.7 billion will come primarily from middle-class investors early in retirement. Yet, the revenue generated from the FIFO mandate is miniscule compared to the Senate tax plan of $1.5 trillion in overall deficit spending. The FIFO mandate’s paltry revenue generation is hardly a solution to Congress’ larger budgetary problem. It would cause collateral harm and create unfairness that is not nearly justified by the additional revenue. If Senate Republicans are truly looking to establish a “simpler, fairer” tax code “built for growth” they should eliminate the FIFO mandate. Given that it adds relatively little revenue in the overall scheme of the tax plan, and is extremely punitive to individual investors, removing FIFO should be a straightforward fix everyone can agree on. Citations 1 The tax rate on the capital gains could end up being much higher due to the capital gain being a component of AGI (Adjusted Gross Income). A higher AGI may reduce tax credits, limit tax deductions, and increase the portion of Social Security subject to income tax. This editorial was originally published on Investment News.