Free for 90 days: Sign up now and get 90 days managed free after your first deposit. See offer details

<title>Dismiss</title>
Financial Industry

The SEC and FINRA Get It Right on Automated Investing

The U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) recently released a joint investor alert about automated…

Articles by Eli Broverman

By Eli Broverman
Co-Founder, Betterment  |  Published: June 23, 2015

The joint alert is one of the first publications from either the SEC or FINRA that recognizes the category of automated investing, which we created when we launched in May 2010.

The benefits of automated investing for consumers include low costs, ease of use, and broad access.

The U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) recently released a joint investor alert about automated investment companies—and the investment industry’s primary regulators got it right.

The alert highlighted that investing tools have limitations, and people need to be keenly aware of where they are putting their money. This is not a recent issue—new investing tools have been introduced for decades. But now something different is happening. Faster, cheaper computing has allowed for rapid innovation with personal investing—making it easier for all consumers to invest in low-cost, diversified portfolios.

The joint alert is one of the first publications from either the SEC or FINRA that recognizes the category of automated investing, which we created when we launched in May 2010.

What is automated investing?

If you’re new to Betterment, we are the leader of the automated investing revolution. We use smart technology to manage and optimize your investment portfolio. The result is more transparency, more access to your money, and less stress. Best of all, we have brought to everyone a level of investing sophistication that was once only available to the super wealthy.

Since we welcomed our first customer in 2010, we have grown in size to nearly 100,000 customers and today manage more than $2.3 billion of their money. It’s validation that consumers want and are using the kind of investment automation we provide.

As with every new and popular technology, there is a period of consumer education and trust building. The joint alert recognizes many of the benefits of automated investing, including low costs, ease of use, and broad access. The alert also rightly points out important limitations of some automated investing services of which consumers should be mindful.

While there are several tech-based investment companies out there that are considered automated investment services—or robo-advisors—no other service is quite like Betterment.

Our technology is different than any other company’s. When we built our smarter technology five years ago, we worked from the ground up, creating a vertically integrated system where we handled both the advice and brokerage portions of investing. By handling both aspects, we mitigated many unnecessary fees and functional inefficiencies that exist at other investment management firms.

We are, in fact, the largest major automated investing service to be structured in such a cost-efficient way, and we pass those savings on to our customers.

Betterment is different than other investment managers

Betterment’s advice is free of conflicts: We don’t operate our own funds, advise a cash asset that we earn returns on ourselves, or receive compensation from any of our fund providers. There are no middle-men or incentive structures at Betterment that add extra friction or costs for trading. Our investment selection process is transparent, and we strive to always use the lowest total cost of ownership and most tax-efficient funds available. Our management fees are straightforward, based on a percentage of a customer’s balance.

Betterment allows investors to customize multiple goals, each with personalized allocation for their needs: The joint bulletin highlights an issue we love to talk about—personalized investment advice—mentioning in several places that automated investment tools are limited in the degree to which they accommodate individual circumstances. Every customer who signs up for an account at Betterment can personalize multiple goals with an allocation of stocks and bonds that is modeled exactly for his or her age, time horizon, and goal type. If you have any questions about the SEC’s guidance and the extent of our advice, we always make our advice methodology transparent and readily available for every investor to read.

Betterment’s underlying assumptions are always updated to current data points: Advice is not a static event; it requires constant assessment and reassessment. We use technology to continuously update our advice to investors based on their balance and how they are saving so that it continues to incorporate each individual’s current realities accurately. We also update our risk-free interest rate forecasts quarterly, using data provided by the U.S. Department of the Treasury. The underlying algorithms are tested, modeled, and constantly monitored. This means our savings advice and outlook are always tracking to the most current figures.

As automated investing grows as an industry, there will be more companies vying for consumers’ attention. We are happy that the SEC has recognized what we have believed all along, and we support the SEC’s efforts to educate consumers. Betterment is setting the standard for what automated investing should be: transparent, personalized, without conflicts of interest, and aligned with customers. Everyone should have access to low-cost and smart investing advice—Betterment is providing exactly that. It’s ‘Investing Made Better.’

Recommended Content

View All Resources
What is Tax Coordination? How Asset Location Works at Betterment

What is Tax Coordination? How Asset Location Works at Betterment

What is Betterment's approach to asset location? It's called Tax Coordination, and it's a built-in tax optimization strategy for retirement goals at Betterment.

The Difference Between Vanguard and Betterment

The Difference Between Vanguard and Betterment

I’ve been asked a lot in the last few months in the transition from my old role at Vanguard to my new role as Chief Growth Officer at Betterment – what’s the difference between the two companies?

Redesigning How You Manage Your Finances at Betterment

Redesigning How You Manage Your Finances at Betterment

Our new design represents a synthesis of a large body of customer feedback. We hope it meets your expectations.

Explore your first goal

Safety Net

This is a great place to start—an emergency fund for life's unplanned hiccups. A safety net is a conservative portfolio.

Retirement

Whether it's a long way off or just around the corner, we'll help you save for the retirement you deserve.

General Investing

If you want to invest and build wealth over time, then this is the goal for you. This is an excellent goal type for unknown future needs or money you plan to pass to future generations.

<title>Close</title>

Search our site

For more information and disclosures about the Betterment Resource Center, click here. | See our contributors.

*The Betterment Everyday Savings ("Savings") annual percentage yield ("APY") is as of . Individuals who sign up for the Betterment Everyday Checking waitlist receive a APY, which includes a promotional rate increase that extends at least for the duration of 2019 and until every individual on the waitlist has an opportunity to access Checking. Additional promotional rate increase offers will be made available upon the full launch of Checking. APY is as of without the promotional rate increase. APY is a variable rate that can fluctuate daily, based on the Federal Funds Rate and terms offered by banks participating in Savings. APY may change at any time without notice. Current APY can be found here. No minimum balance is required. There is a minimum deposit of $10.

Checking accounts and the Betterment Visa Debit Card (collectively "Betterment Everyday Checking" or "Checking") provided by and issued by nbkc bank, Overland Park, Kansas, Member FDIC. Funds deposited into Checking will be eligible for up to $250,000 of FDIC insurance. Betterment Everyday Checking made available through Betterment Financial LLC. Betterment Financial LLC does not charge foreign transaction fees for the use of the Betterment Visa Debit Card outside of the United States. However, Visa charges a foreign transaction fee of 1%. Betterment Financial LLC does not reimburse this 1% transaction fee on foreign ATM transactions or on any other foreign transactions or purchases.