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TECONOMY HOSE for retirement facing many dilemmas. Spending today is more fun than waiting to spend tomorrow. Once the savings have been ambaded, you must decide what to do with them. The possibilities are numerous and complex. And people are prone to the mistake of buying when badet values are high and selling to panic when they dive. The promise of robotics consultants, who offer computer-generated financial advice, is to help savers deal with these problems much cheaper than humans.
The lowest fees, usually just 0.25% of the badets, helped them grow quickly. Betterment, a New York-based robo-advisor founded in 2008, manages $ 16 billion in badets. Wealthfront, a rival of San Francisco, manages $ 11 billion. But minimal fees mean that they need heavy badets to survive. In a report in March HSBC claimed that robotics consultants were to oversee $ 11 billion to $ 21 billion of badets to break even. Jon Stein, the boss of Betterment, says the company is profitable, thanks to the low operating costs of the accounts. But it's probably a close affair. Betterment has introduced more expensive and sophisticated products, but its business model suggests that revenues of just $ 40 million will be used to pay nearly 300 employees, upscale offices in downtown Manhattan and blitzes.
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Competition in robo-consulting is fierce as well-established badet managers have multiplied. Vanguard, which manages $ 5.3 billion in badets, mainly in index funds, offers a $ 115 billion robotics consulting product. The same goes for Charles Schwab, a bank in San Francisco, who manages $ 37 billion in his "smart wallet" product. Some small robotics consultants have partnered with industry giants to survive. Aviva, a UK pension fund, has acquired a majority stake in Wealthify, a Cardiff-based consulting firm, in 2017. But Betterment is taking a different path. On July 23, Stein announced that he was opening savings accounts and checking accounts (checks), with the goal of becoming a "one – stop shop" for money management.
Betterment will not become a bank. Instead, it has agreements with regional banks, which will hold deposits. This, says Stein, allows him to offer generous terms. Instead of leaving deposits at a bank, Betterment will place them where the rates are the highest. It can split customer deposits between banks, which means greater coverage by the federal government. Less concerned about the rigidity of deposits, it can offer unlimited withdrawals.
The result is convincing for customers. The savings account offers a favorable interest rate of 2.69%, about 0.2 point higher than the best high yield savings accounts elsewhere. Federal insurance covers $ 1 million, four times the usual limit. The current account, to be launched later this year, will not include a minimum balance, account or overdraft fees, and will refund all fees for the use of an account. AT M.
If successful, this change in strategy could ease concerns about profitability that have hurt both Betterment and the robo-advisory sector. New accounts customers may also be tempted to use consulting services. Stein also hopes the firm can encourage account holders to save more. More than half of Betterment's clients automatically transfer money into their investment funds. If the company manages more current and savings accounts, it may be able to increase this share.
The launch, however, involves risks. The first is that it can irritate the regulators. Deposits are supposed to be a reliable source of funds for banks. If Betterment forces them to compete for their clients' funds, not only will bank margins be reduced, but deposits could become more volatile.
The second is that the conditions are too generous to be sustainable. Betterment has raised $ 275 million to fund growth so far, but has no longer needed to raise capital since 2017, when it added $ 70 million, valuing the capital. $ 800 million company. Stein expects his account products to be profitable as soon as it is launched, but admits that there may be a "learning curve" for its management. To offer its clients attractive investments, Betterment must also be a safe investment. ■
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