Tag Archives: AUM

Betterment is poised to overtake Wealthfront in AUM

AUM 600In the race for robo adviser supremacy, neither Wealthfront nor Betterment wants to be runner-up.

Love it or hate it, AUM, or assets under management, is the default metric by which investment management businesses are benchmarked.

Robo-Advisor AUM

Certainly, many automated investment services (or rather, robo-advisors) have been flaunting their AUM figures in recent years, to, well, I don’t know why, exactly, other than to beat their chest on how good they are at gathering assets.

The most vocal automated investment service for publishing AUM figures is Wealthfront, with periodic blog posts issued when the company passed the round numbers of $500 million, $1 billion, and $2 billion in AUM.

Taking the more subtle approach to AUM milestones is Betterment, long viewed as the runner-up to Wealthfront in the AUM-gathering contest since 2013.

Instead, Betterment mentions the number of customers it serves first (in part because they have more than Wealthfront, so they can be number one in that comparison), followed by the level of AUM represented by their customers.

Still, there are a few posts from Betterment that place dates on when the company crossed $1 billion (with 50,000 customers) and $2.5 billion (with 100,000 customers). One has to dig through trade publications like TechCrunch and Forbes to put a date on earlier AUM figures like the company’s first $100 million and $500 million, respectively.

Ok, fine. So how is that asset gathering coming along today?

Graph of Wealthfront vs. Betterment AUM Growth

This morning I wanted to take a quick look at the AUM growth of the two leading automated investment services, Wealthfront and Betterment. But after 10 minutes of Googling, I had no charts or graphs of how each company is growing their AUM.

So I built a quick Google Sheet using the dates and AUM figures from most of the blog posts and articles cited above. Here it is!

Wealthfront vs. Betterment AUM Growth

Wealthfront vs. Betterment AUM Growth


So what is my biggest takeaway from this chart?

Betterment poised to overtake Wealthfront in AUM

Betterment has consistently lagged Wealthfront’s AUM since 2013, and Wealthfront’s growth rate was higher than that of Betterment, but then something changed around December 2014.

The rate of Betterment’s AUM increase accelerated, while Wealthfront’s growth rate generally remained the same from January 2014.

And the most recent figures for August 2015 show that Betterment has significantly closed the AUM gap with Wealthfront.

This being mid-August, and assuming Betterment’s faster growth rate continues as it has since the beginning of 2015: Betterment is poised to overtake Wealthfront in AUM.

What Happened to Betterment’s AUM Growth?

What happened to boost Betterment’s AUM growth starting around December 2014. I suspect the cause is:

Betterment Institutional

So not only does Betterment have its own client acquisition strategies (web banner ads, TV commercials, ads on taxis and phone booths in NYC…), now the company has a new salesforce, if you will, of investment advisers who are using the Betterment Institutional service for their emerging clients.

This new cadre of advisers likely stands at a hundred or so today, but as the popularity and appeal of automated investment services expands, potentially thousands of financial advisers may be directing their emerging clients to use the low-cost service.

This is a totally new salesforce and asset gathering funnel that Wealthfront lacks today.

So in the race to be the dominant VC-backed automated investment service measured by AUM, the guard is about to change.

And nobody wants to be number two.

AUM Billing Revisited: You’re Working Harder For Less

Nearly two years ago I wrote this FPPad post about the need for advisers to abandon the AUM fee model. No thanks to another dismal quarter in the stock market, I’m again finding myself thinking about this topic.

For the second quarter of 2010, the Dow fell 10 percent, the S&P 500 lost 12 percent and the Nasdaq dropped 12 percent (and some portfolios may need rebalancing). But guess what? The amount of service you delivered to clients didn’t decrease. If you bill based on AUM, you’re going to take about a 10 percent cut in revenue compared to the first quarter (unless you were one of the lucky ones who sold in May to go away).

For many of you, why are you willing to accept less revenue for sustaining, or even increasing, the services you provide?

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Cost-Effective Alternatives to Layoffs

For those firms who derive revenue from assets under management (AUM), revenues are down anywhere from 20 to 40 percent year over year.  In response, financial advisers are evaluating all available options to trim operating costs.  Undoubtedly, salary cost is the biggest line item expense for independent advisory firms. 

That said, layoffs are often the method of choice to reduce this significant expense.  However, there are other, more cost-effective ways to reduce labor costs.

I want to highlight an article by Wharton’s Dr. Peter Cappelli on Flexible Downsizing on FastCompany.com.

Here are the major takeaways from the article:

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Advisers: You Will Soon Abandon AUM Fees

Here’s my not-so-bold prediction for challenging times:

In less than 5 years, AUM fees will no longer be the main compensation mechanism for independent registered investment advisory firms.

I’m not alone in my prediction (I wish I had published this post months ago when I intended!), as Andrew Gluck of Advisor Products, Inc. wrote the following in a recent October article in Financial Advisor magazine titled Fixing AUM Fees:

The mode of compensation that most advisors use is broken. The system of charging clients based on the amount of assets they place under your management is fatally flawed. The AUM compensation often forces clients with simple financial lives to pay you more, while those clients with highly complex financial arrangements can demand more and get away with paying you less.

The AUM Dilemma

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