Earlier this week, we announced that, along with launching two new packages with different amounts of human advice, we were flattening our prices for our digital offering from three tiers (0.35%, 0.25%, or 0.15%) to one: 0.25%. This meant that prices went down (immediately) for the majority of our customers, and would go up (in June) for those in the 0.15% tier.
When we made the announcement, we heard a lot of feedback from our customers, much of it expected. What we didn’t expect was that some customers would criticize us for not being transparent about the pricing change. This affected me personally, deeply. What bothered me most was that these customers who said we should have been more transparent were… right. The pricing change was not as clearly called out in the email we sent as it should have been. The email just said, “Your Digital plan will be 0.25% per year.” It should have said, “Your fee was 0.15%, and is going up to 0.25%.” And it should have continued to explain why we’re doing this and how we feel about it.
Customers are right to demand the highest level of transparency from us. We are a company that is all about transparency in everything—in fees, in how we work and give feedback internally, in our investment process, and in working in the best interests of our customers, always. I said the same to our team—and I take personal responsibility for this mistake. The email was from me. I am so excited about the plan changes that I buried the lede for these customers.
We’ll send a clearer email about the fee change to those customers who will see an increase, well before the change goes into effect. We’ve also prepared these FAQs that clearly outline how our service plans and pricing have changed. Thank you for reminding me what you expect of us—and I assure you we expect that same exceptionally high level of transparency of ourselves.
Back to your feedback: I responded to as many of you personally as I could—and read through far more emails than I could respond to myself. I heard a few common themes. Some were ecstatic, thanked us for lowering their fees, and shared their aspirations for what’s next. Some were excited about the new human advice plans we’re offering. And some of the customers for whom this will represent a price increase were, understandably, angry. Even if they felt 0.25% was a fair price to pay for Betterment’s services, they wondered what our motives were, and what they could expect from us going forward.
Some asked whether they should now anticipate frequent changes to our pricing plans: No. We’ve been in business long enough now to know at what price we can appropriately service customers, and it was hard to provide all the services we provide today for our customers at 0.15%. When we introduced that tier, five years ago, we did very little of what we do today, and our offering was simple. For instance, our trading costs were much lower, because we didn’t yet do automated asset location or tax loss harvesting. Customer service costs were lower, too, as people had fewer questions about simpler offerings. We’ve negotiated our trading costs down as we’ve scaled, of course, and improved explanations on the site to make servicing more efficient, and we are sure to find further efficiency over time. As we do, my hope is that we can drive fees down, not up. I’m certain that we’ll drive value up—we’re working all the time to increase your net returns, and the new plans allow us to do even more for you. Our model—transforming the financial services industry for the better—is a shared experiment we are working on, together, with you. And when you are doing something new, you sometimes don’t get it exactly right the first time. You then have a choice of making adjustments, or not succeeding. So we are making an adjustment.
Some customers thought that we’re raising prices to cover the cost of that human advice. Far from it—those customers who want human advice pay for that separately from the 0.25% for digital advice (0.15% or 0.25% extra with our Premium and Plus plans, or another amount for a dedicated advisor, depending on how they prefer to get advice). We’re using the digital plan revenue (and at least a like amount from all plans) to continue to invest in more automated services that will be accessible to everyone on our platform. That’s the core of our business, where most of our customers will always be, and our competitive advantage over the old way of investing. Of course we’ll continue to build that out. I’m convinced, beyond a doubt, that we offer the best investment value in the industry for most investors, and that we are working harder than anyone to maximize our customers’ money, net of fees.
Some wondered why we would raise our prices on our highest-balance customers. Because all of our customers are smart, it’s not lost on them that for a majority of our customers, this move amounted to a fee reduction. Knowing that those who were getting a fee cut were not our highest-balance customers, and that we’d be raising prices on those with more invested at Betterment, tortured us as we discussed and evaluated the new plans. But the reality is that our lower-balance customers call us much less than higher-balance customers, their trading costs are less, and so on. So they’re less expensive to serve. We want to be open to everyone—it’s part of the promise of our company. And, while we knew some would be unhappy, this move, flattening the fee, felt most fair, while allowing us to invest in more return-enhancing services, for all of our customers.
Some asked whether we changed prices because we’re preparing to sell: No. We’re preparing for the long haul—as always—and we aim to make this a public company. The first large, public financial services company with fiduciary advice at its core—not a mutual fund manufacturer trying to sell its own funds, not a broker trying to sell whatever pays the highest commissions, but an advisor, doing everything in our power to maximize the money of our customers. That vision remains core and is the driver behind this move, which sets us up to better execute and achieve our long-term vision.
We are grateful that so many of you cared enough to reach out, to share your support, your thanks, your frustration, your hopes for the future, and what you want to see us do next. We’ve never been more excited to be on this journey with you.