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Betterment is using four software and services vendors and discounts up to $3,100 per RIA per year after getting the idea from one of its largest customers

Betterment iscreating an ad-hoc outsourcerthat can compete forstart-up RIAs and breakaways againstOrion Advisor Solutions and Envestnet -- with a familiar blueprint.

The New York Cityrobo advisor and RIA custodian announced a new partnership (Jun. 22) with CRM vendor Wealthbox, compliance outsourcer RIA in a Boxand financial planning software company RightCapital, which bundles their software together in an off-the-shelf package, discounted $3,100 yearly from the sticker price. See:Betterment informs RIA clients of new $2,400 license fee then cancels it, for now, after advisor blowback

"We continue to ramp up our investment in the RIA business [and] the reaction from both our existing firms and new firmshas been fantastic over the last several months," says Betterment CEO, Sarah Levy, via email. See:Betterment will make RIA custody its 'biggest business.'

Yet, for now, there's no evidence that Betterment and its partners have actually succeeded in making their disparate software work together cleanly, says Manish Khatta, president and CIO of Miami-based Potomac Fund Management.

"Betterment is likely just offering [discounted] use of these tools that will be subsidized through the use of their platform. Good luck trying to make the integrations actually work," he adds.

One existing customer, Michael Kitces, co-founder ofXY Planning Network (XYPN) in Bozeman, Mont., also has a bone to pick--Betterment's lack of originality. See:After famous Twitter feud, Jon Stein and Michael Kitces make up and join forces

"In essence, Betterment re-created the XYPN-Betterment tech package but without XYPN," says the co-founder of the Bozeman, Mont.-based firm.

"Or really beyond XYPN,as XYPN and Betterment still have an ongoing relationship as well, and its the growth and success of the XYPN-Betterment relationship that I suspect is leading Betterment to try to replicate the same result with more firms beyond XYPN."

Betterment acknowledges that itsformula bears a resemblance to Kitces' and Alan Moore's creation, according to Jon Mauney, general manager of Betterment for Advisors.

"Firms that are members of the XYPN community are certainly an important part of our customer base," he said. "Our RIA Tech Suite is simply encouraging adoption of each of the services as it has proven to be a powerful combo."

Betterment won't be a head-to-head competitor with XYPN, adds Mauney.

"XYPN offers a much wider array of services to their members, and has done incredible work in helping independent RIAs start and manage their practices. Theyve built a real community that provides value well beyond pricing."

Kitcesis less effusive about Betterment, but hopeful Levy's efforts will raise Betterment'sRIA game.

"[Betterment use] has grown more slowly within XYPN in recent years because Betterments early lack of commitment to the RIA channel -- and limited capabilities and ongoing speed bumps--resulted in some bad worth-of-mouth within the XYPN community in the early years," he says.

"Though it does appear that Betterment is trying to really put more resources towards the RIA channel under Sarah Levy," he adds.

In addition to the offerings of many large outsourcers, like Orion in Omaha, Neb., the Betterment groupingalso includes custody as part of its pool of services, meaning advisors can opt to use the third party partnership to run a basic practice right out of the box.

Its an attractive addition, says Orion CEO, Eric Clarke. "Well have to keep an eye."

Yet in the short-term, the Betterment partnership is a defensive move to shore up growth, says independent wealth management consultant, Greg O'Gara, via email.

"Standalone solutions with a narrow value proposition are becoming less valuable."

"But this partnership should increase their value, as it provides an incremental opportunity for growth, which adds up to more attractive valuations down the road," he explains.

Betterment led the creation of the new group named the RIA Tech Suite.

It declined to reveal the total value of its assets under custody, stating only that the business "continues to grow at an accelerating pace."

Betterment also opted not to include other software, such as risk management or data analytics, because it views planning, asset allocation, custody, client relationship management (CRM) and compliance management as the bones of an RIA practice, according Mauney.

"The impetus was really quite straightforward. A large quantity of our existing customers were already using a few of these services, so it seemed like a no brainer to try to do something with them," he says, via email.

The newly created partnership follows a wave of M&A-spurred consolidation among outsourcers keen to grow their marketshare by selling more services.

Fidelity Investments'FidelityManaged Account Xchange (FMAX) and BNY Mellon's Pershing Managed Accounts Centralhave also moved to offer RIAs all-in-one software and custody bundles. See: Fidelity's Mike Durbin unleashes FMAX as 'Schwabitrade' takes life, but if they build it, will leery advisors buy into it?

Yet Betterment has rejectedbecoming an all-in-one outsourcer because it has no interest in spreading itself too thin, according to Mauney.

"As a software and service provider, it's an extremely challenging prospect to try to build a solution that is everything to everyone, especially where there are a lot of great options out there," he says.

To benefit from the discount offered by the four partner firms, RIAs must sign up with at least two. The full $3,100 discount is contingent on using software from all four vendors.

Although it led the creation of the group, Betterment does not have to be the custodian of an RIAs' assetsor require the use of its softwareto obtain a discount.

The robo-advisor and RIA custodian, whichmanages $30 billion in client assets, built its custody brand on being an easy to use service.

It handles no frills investment management without fuss for smaller RIAs, in particular those affiliated with XYPN.

It has also won several larger clients since the 2016 launch of its custody business, including New York City-based Ritholtz Wealth Management, which manages $1.8 billion and Los Angeles-based AdvicePeriod, which manages $4.5 billion.

"[As such,] this bundle is not just for startups. The reason we've tilted our messaging toward newer RIAs is to encourage them to adopt this entire stack as an easy, modern way to get their practice going," Mauney explains.

"New firms have a blank slate; we're just shining a spotlight on a bundle that has been very successful for firms already using the combination," he adds.

When Betterment came calling, we didn't think twice, adds RIA in a Box CEO Will Bressman, in an email.

"Some advisors ... want a more bundled or packaged offering ... and [as] advisor breakaways continue to surge, our partnership with Betterment seemed like a no brainer," he explains.

The new partnership makes sensebecause it's far easier to sell into the mainstream RIA market with a nuts-and-bolts, all-in-one offering, than it is as a solo indie vendor, says Scott Smith, director for advice relationships at Boston consultancy, Cerulli Associates, via email.

"[The RIA Tech Suite] makes the [partners] a viable entry for those who are essentially looking to outsource selection of tech-stack instead of limiting them to the DIY crowd.

"This gives them the opportunity to grow adoption as much as possible, allowing them the potential to grow their base to a sustainable level, or maximize it for a takeover bid," he adds.

RIAs want simplicity, Clarke agrees.

"Any time you survey advisors, their No. 1 concern is the integration of their technology. Were all trying to solve that for them as quickly as we can," he says.

But joining a bundle is just another way to compete -- not a fallback,says Bressman.

"The competitive landscape was not the driving force behind this partnership."

"2020 was a record growth year for RIA in a Box and were on the path to surpass that in 2021. More than 450 RIA firms adopted our compliance software for the first time in 2020. Our team has more than doubled in size to over 120 people since [last] spring."

Backed by New York private equity firm Aquiline Capital Partners, RIA in a Box serves 2,200 RIAs and IBDs, and it recently acquired RIA cybersecurity vendor ITEGRIA.

Neither it, nor Aquiline intend to sellin the near term, adds Bressman. See: RIA in a Box gunning for top-notch staff as it readies for Aquiline-fueled roll-up binge, targeting old-school, mom-and-pop compliance competitors.

The bid by large outsourcers to capture a larger share of the overall software market also has had no impact on Wealthbox, says founder and CEO John Rourke, via email.

"On the contrary, Wealthbox's revenues have soared, due to an always advancing CRM, larger enterprise dealsand increased distribution through partnerships," he explains.

"Wealthbox's annual recurring revenue is currently at a 65% growth rate, and we just beat out the leading competitors [with] a to-be-announced enterprise customer with 215 advisors in a five year, sole-source deal," he adds.

Shuang Chen, RightCapital co-founder and CEO did not respond to a request for comment.

That said, in a late 2020 email correspondence, Chen told RIABiz that the company had bumped its headcount by 30% to deal with surging growth at the expense of incumbent planning vendors, MoneyGuidePro, owned by Envestnet, and eMoney, owned by Fidelity.

"Weve grown our business largely by winning advisors over from eMoney and MoneyGuidePro, rather than adding advisors who didnt use a planning software in the past," he said.

Editor's note: Michael Kitces' comments were added shortly after the original publication of this article.

Original post:
After promising to make RIAs job one, new Betterment CEO puts trust in RIA brands --and knocks off XYPN-- to create an Envestnet-lite outsourcer for...