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Tiburon CEO Summit extrudes big news: Betterment Institutional is born

Steve Lockshin lays out his plans for TAMP-like venture and how Michael Kitces, a public critic of the Betterment CEO, very much fits in

Author Brooke Southall April 8, 2014 at 9:39 PM
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Steve Lockshin: I wrote a big check.

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Mentioned in this article:

Consulting Firm
Top Executive: Michael Kitces

Betterment, LLC
Financial Planning Software
Top Executive: Jon Stein

Rick Dude

Rick Dude

April 9, 2014 — 5:19 PM

This is an interesting move by Betterment. I find it particularly surprising as they had previously held tightly to passive ETFs and now are beginning to flirt with active management.

My firm, QuantAdvisor, has already started doing this as of February 2014. I think there is more than enough business for both firms to exist and thrive.

Stephen Winks

Stephen Winks

April 9, 2014 — 10:06 PM

Lockshin’s Betterment Institutional is interesting in that it is addressing institutionalized inefficiencies in advisory services with an emphasis on better managing custodial cost. Not many custodians are capable of serving as a master custodian in a fiduciary capacity. However to address the biggest institutionalized inefficiencies require a more modern approach to portfolio construction outside the use of terribly expensive packaged investment products made possible through inexpensive technological innovation. Not only in massive cost savings are achieved, but the degree of real time portfolio detail managed is greatly enhanced as is the advisor’s value proposition. Higher margins at the advisor level are achieved at a lower cost to the consumer. Further professional standing for the advisor and better compensation is accomplished. None of this is possible in a brokerage/custodial format (preoccupation with fiduciary liability and internal technical competency considerations) resulting in a self imposed barrier to entry for b/ds.

Robo advice will openly play the questions of (1) why brokers are not accountable or responsible for their recommendations, (2) why the best interests of the investing public are not allowed to be served by virtue of internal b/d compliance protocol and (3) why “retail investors” are accorded lesser consumer protections than all other investors. B/d and regulator push back on acknowledging and supporting the full fiduciary standing of the broker, creates troubling obsolescence in the brokerage/custodial format filled by next generation Robo advisors either used by advisors or consumer’s directly.

The advisor’s margins start looking more like that of a money manager, as the advisor is adding the value. Product vendors which by design can not be client specific become commodities.Broker/dealers are simply commodity product platforms that divorce themselves from client specific advice entailing fiduciary duty/responsibility.

Don’t discount Robo advice it is the route to scale, expert standing, lower cost, better compensation.


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