Betterment moves closer to larger RIA needs by potentially making assets of 19,000 high-net-worth robo accounts referrable and by reactivating an old stakeholder, Steve Lockshin

Betterment's [mostly] small-RIA advisor custody unit might convince bigger RIAs to have a second look by floating a better idea – sharing high-net-worth robo clients accounts with them.

The company also confirmed it has a deal with original investor Steve Lockshin to build out advanced planning. Lockshin first invested in Betterment in 2012, four years after its founding.

The plans for an RIA referral network were confirmed by a Betterment company spokesperson. "We’re developing an advisor referral program with a launch date and additional details to be announced in 2026,” in an email exchange.

Referrals give Betterment a leg up on other custodians, the spokesperson added, without elaborating how. 

“Our retail business is a unique competitive advantage in creating a customer pipeline for advisors" she says.

The New York City robo-advisor, 401(k) recordkeeper, discount brokerage and custodian let on about the RIA development in a CityWire interview of the Betterment CEO at Future Proof and in a press release featuring Vanilla, an estate advisory platform.

Betterment would – like Schwab Advisor Services or Fidelity Institutional – let RIAs manage larger, more sophisticated accounts with the idea that they would remain in Betterment's custody. 

It's unclear whether the assets would also stay in Betterment managed portfolios, or whether referral fees would be involved.

Client entry point

Betterment has a bounty of accounts to refer.

Its SEC ADV shows that the firm has about 19,000 high net worth accounts and $12.3 billion of assets under management (AUM).

A high-net-worth individual is defined by the SEC as a client with at least $1.1 million of AUM by the adviser or with a net worth exceeding $2.2 million, excluding their primary residence. 

Bettermetn's SEC filing also discloses an additional $39.9 billion of sub-high net worth assets but technically some of those mass market investors could have $1 million at Betterment.

With RIAs as an “advised solution,” Betterment may be able to position itself as one decision for upwardly mobile, next-gen investors

“We could be essentially an entry point for clients earlier in their wealth building journey, who could then effectively graduate to advised solutions,” Betterment CEO Sarah Levy told Citywire.

Free access

However, Altruist, another RIA custodian geared to small RIAs, does not have an in-house retail presence from which it can funnel leads; neither does TradePMR/Robinhood or Pershing.

Pershing is building out its own referral program; as are Altruist, and Robinhood-owned TradePMR, which expect to launch programs later this year. See: The anticipated Robinhood to TradePMR 'bridge' is on the way.

Relying on RIA custodians for referrals has its perils, according to Eden Ovadia, co-founder and CEO, FINNY a startup that provides investor leads to financial advisors. See: Ten month-old New York City startup uses artificial intelligence to gin up RIA leads and reel in immediate success

“Custodians are recognizing the profitability of directly serving these referrals,” she writes. 

"This is creating a new level of competition where RIAs might find themselves competing not only with local firms, but with the custodians themselves. And, it’s been reported that this should ultimately decrease the amount of firms that are offered the chance to participate in these referral programs.

“This shift can be a rude awakening for RIAs that haven’t diversified and invested in their growth channels. Both inorganic and organic approaches demand time, attention and proper resources.”

Vanilla extract

Signing the Vanilla deal was spurred on by its founder Lockshin's ties with both firms. It gives RIAs free access to Vanilla’s data-gathering, prospecting, and document creation tools, as well as access to its "AI" estate summaries, and three estate planning packages.

“Steve Lockshin is a longtime Betterment partner and helped to initiate conversations,” says a company spokesperson.

"Having the right technology in place can make or break an advisory firm," says Alison Considine, director for strategy and operations at BAS, in the Sept. 10 release.

Betterment declined to fully flesh-out the terms of its deal with Vanilla, directing further inquiries to a sparse information webpage listing details of a forthcoming ‘webinar’ for advisors.

Vanilla is already widely available from competing vendors. See: Steve Lockshin's self-funded Vanilla gets Rockefeller VC funding.

Vanguard, Altruist – Altruist founder and CEO, Jason Wenk invested in Vanilla's $11.6 million, 2021 ‘A’ raise – and Schwab all provide access to Vanilla. See: Schwab's 'superhighway' project could supercharge RIA business.

‘Clear line’

In July, Vanilla also secured a patent for parts of its estate planning software, including its use of AI and its workflow automation and data visualizations, largely to create "legal protection," and 'validate' its "technical leadership," a spokeswoman said in a Jul. 24 email.

"Locking this down [was] less about showmanship and more about drawing a clear line in the sand: Here’s what we built, and here’s where others can’t follow," she added.