Betterment wants your bank account as well as your investments

THOSE SAVING for retirement face plenty of quandaries. Spending today is more fun than waiting to spend tomorrow. Once savings have been amassed you must decide what to do with them. The possibilities are many and complex. And people are prone to error, buying when asset values are high and panic-selling when they dip. The promise of robo-advisers, which offer computer-generated financial advice, is to assist savers with these problems far more cheaply than human ones.

Rock-bottom fees, usually just 0.25% of assets, have helped them grow fast. Betterment, a robo-adviser based in New York that was founded in 2008, manages $16bn-worth of assets. Wealthfront, a rival from San Francisco, manages $11bn. But skimpy fees mean they need hefty assets to survive. In a report in March HSBC claimed that robo-advisers need to oversee $11bn-21bn of assets to break even. Jon Stein, Betterment’s boss, says that the company is profitable, helped by low costs for running the accounts. But it is probably a close-run thing. Betterment has launched some pricier, fancier products—but its business model would suggest that revenues of just $40m must pay for nearly 300 employees, swanky midtown Manhattan offices and advertising blitzes.

Competition in robo-advice is fierce, as established asset managers have muscled in. Vanguard...

via The Economist: Finance and economics Business Feeds

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