The Future of Financial Advice. Jon Stein,

Transcription

1 The Future of Financial Advice Jon Stein,

2 Founded in 2010, Betterment is the largest independent robo- advisor. $8,000 $7,000 Our mission is to empower people to do what s best for their money, so they can live better. Cumulative Net Deposits $6,000 $ millions $5,000 $4,000 $3,000 $2,000 $1,000 $0 1

3 Technology has long driven change in financial services, as society and regulators respond to innovation Bucket shop era Popularization of investing era Discount trading and mutual fund era 2010 Automated advice era First consumer ETF Securities and Target Date First open- end Telephone Exchange Act of Discount brokers Fund launched mutual fund adoption reaches 1934 regulates and index funds are established 50% of US 1993 financial markets households born First Internet stock trade completed Source: Adoption rates sourced from The Atlantic article entitled The 100- Year March of Technology in 1 Graph Internet adoption reaches 50% of US households Computer adoption reaches 50% of US households 2010 First automated financial advice service 2

4 Individuals are likely responsible for their own retirement, and they want advice. Participants covered by plan type Defined Benefit Plans 69% Defined Contribution Plans 7% Investors want advice but advice is expensive if you can even access it. 83% of plan participants want advice $10,000 average annual cost/client for fiduciary advice 0.2% mass market with fiduciary advisors 3

5 Financial advice is evolving, adapting to our times. Accessible Intelligent Aligned

6 Accessible Advice will be available to everyone.

7 ACCESSIBLE There is now a massive opportunity to make investment advice accessible. Assets by household wealth Traditional Advisor Targets $5.2T $10.8T Net Investable Assets per HH: $10mm+ $2 - $10mm Households by wealth Traditional Advisor Targets 0.2mm 2.2mm Net Investable Assets per HH: $10mm+ $2 - $10mm Underserved Underserved 116.2mm <$2mm $17.4T <$2mm $28T 85% of assets 118 mm 99% of households Sources: Cerulli: U.S. Retail Investor Advice Relationships 2014; State of U.S. Retail and Institutional Asset Management

8 ACCESSIBLE Customers will have access to more advice through multiple channels. Human Advisors Human Advisors Human- led Traditional human advisors who provide advice on money management and other aspects of your financial life Automated Online Advice Technology- led Fully- automated advice to help create and manage personalized portfolios at a lower cost Automated Online Advice Hybrid Service that combines automated investment management with access to licensed advisors 7

9 ACCESSIBLE Finance has become increasingly complex, but customers want to have financial confidence. Want to feel confident about their investments and the financial decisions they are making Frustrated with traditional financial services providers Expect technology to make their lives easier through a better customer experience Lost in the jargon and does not want to be taken advantage of 8

10 ACCESSIBLE Removing product and user frictions will attract more customers. 9

11 Intelligent Holistic advice and planning will put power in the hands of investors.

12 INTELLIGENT Customers expect the best of financial planning and wealth management to help them make smart decisions. 11

13 INTELLIGENT Customers are being educated to look for the best long- term, post tax returns. Additional Returns with Betterment * Based on a $100,000 portfolio, with a 70% stock allocation, after Betterment's fees.this chart is for illustrative purposes only, and is not intended to predict future performance of a Betterment portfolio. It serves to demonstrate the dollar impact compounded over time of an additional 4.3% of annual returns. Actual Betterment customers may experience different results from those shown. 12

14 INTELLIGENT Personalized tools will increasingly guide customers on how much to save and if they re on track. 13

15 INTELLIGENT Tools are becoming more powerful, providing more personalized advice. Before After Taxable Traditional Roth Taxable Traditional Roth Tax Coordinated Portfolio TM delivers an annualized tax alpha in the range of 0.10% to 0.82%, depending on assumptions. 14

16 INTELLIGENT Customers expect to be able to access their financial data across providers and to plan around it. 15

17 INTELLIGENT Through behavioral data and analytics, automated advice will increasingly manage customer behavior. Tax impact preview has prevented 75% of tax- costly transactions, curbing behaviors that lead to long- term underperformance 16

18 Aligned Customers and regulators will push for aligned business models.

19 ALIGNED Technology has driven transparency in other industries, driving down costs, increasing visibility and therefore value. Retail Travel Real Estate Auto Hospitality Information Healthcare Media Telecom 18

20 ALIGNED In financial services, transparency through technology will result in less product sold and more advice. LESS Fund manufacturing Commission- based revenue Third- party kickbacks MORE Personalized investments Transparent pricing Customer- aligned advice 19

21 ALIGNED Customers are educated on the impact that fees have on their returns. By lowering your fees, you could save over $1mm over 40 years. Note: Betterment scenario includes a 0.15% management fee and the underlying expense ratio of 0.16% for a allocation. 20

22 ALIGNED Regulators have pushed for a fiduciary standard on retirement accounts. 21

23 ALIGNED Across the financial ecosystem, customers want advice that is aligned to their goals. Loans Insurance Paychecks Advice Holistic, Integrated, Aggregated Customer Data, Peer Data Payments Taxable Investments 401(k) IRA Cash Management 22

24 These are the early days for the changes that we see coming. Total U.S. consumer financial assets $34T Total non- pension financial assets $22T Citi s projection for robo- advisor market in a decade $5T 23

25 Betterment March 6, 2017