Betterment Editors

How Portfolio Rebalancing Works to Manage Risk for Your Clients Dec 20, 2024 12:00:00 AM Portfolio rebalancing, when done effectively, can help manage risk and keep your clients on track to pursue the expected returns desired to meet their goals. What is rebalancing? Rebalancing is a Betterment feature that seeks to reduce drift in your client portfolios. Betterment performs two types of rebalancing on your clients’ behalf. First, in response to cash flows such as deposits, withdrawals, and dividend reinvestments, Betterment buys underweight holdings and sells overweight holdings. Second, if cash flows are not sufficient to keep a client’s portfolio within its applicable drift tolerance, automated rebalancing sells overweight holdings in order to buy underweight ones, aligning the portfolio more closely with its target allocation. Measuring Portfolio Drift Over time, the value of various holdings within a diversified portfolio moves up and down, drifting away from the target weights that help achieve proper diversification. Over the long term, stocks generally rise faster than bonds, so the stock portion of your client's portfolio will likely go up relative to the bond portion—except when you rebalance the client’s portfolio to target the original allocation. Clients may also transfer in assets from outside Betterment that are not part of the target portfolio strategy and/or allocation. The difference between the target allocation for your client's portfolio and the actual weights in your client's current portfolio (e.g. their actual allocation) is called portfolio drift. Betterment and partner portfolios For Betterment constructed portfolios (excluding Betterment’s Crypto ETF portfolio*), we broadly define portfolio drift as the total deviation of each “super” asset class (put in positive terms) from its target allocation weight, divided by two. These six super asset classes are US Bonds, International Bonds, Emerging Markets Bonds, US Stocks, International Stocks, and Emerging Markets Stocks. Here’s a simplified example, with only four assets: Target Current Deviation (±) U.S. Bonds 25% 30% 5% International Bonds 25% 20% 5% U.S. Stocks 25% 30% 5% International Stocks 25% 20% 5% Total 20% Total ÷ 2 10% A high drift may expose your client to more (or less) risk than you intended when you set the target allocation. Drift for Advisor-built Custom Model Portfolios Your firm may elect to construct a custom Model Portfolio on our platform. If so, drift for these portfolios is evaluated on the security group level, rather than at the super asset class level as described above for Betterment constructed portfolios. Betterment will calculate drift at the security group level for custom model portfolios even if the security group(s) used are pre-populated options provided by Betterment in the interface. Advisors can also set customized drift tolerance thresholds for their client’s portfolio. For reference, security groups are groupings of ETFs that include a primary ticker, and may include secondary and/or IRA secondary tickers designed to help avoid wash sales and allow for tax-loss harvesting opportunities. This means that for Custom Model Portfolios, drift is calculated as the total deviation of each security group (put in positive terms) from its target allocation weight, divided by two. *Please note: As of the date of the publication of this article, Betterment’s default drift tolerance threshold is generally 3% for stock and bond ETF portfolios, 5% for portfolios containing mutual funds, 7% for Crypto ETF portfolios, and for custom model portfolios, Advisors can set a custom drift tolerance threshold. Betterment may change the default drift thresholds without notice. Rebalancing Betterment automatically takes actions to reduce drift for your client through cash-flow rebalancing and sell/buy rebalancing, depending on the circumstances, and with an eye on tax efficiency. If you choose to take advantage of Betterment’s tax smart transition features, we will aim to respect the customized drift tolerance and gains allowance that you’ve set when rebalancing your clients’ goals. A gains allowance can reduce eligible opportunities to reduce drift through rebalancing, because Betterment will not initiate rebalancing transactions (or will only initiate partial rebalancing transactions) in a client goal with gains in overweight securities above the gains allowance. Learn more. Cash Flow Rebalancing This method involves buying or selling when cash flows into or out of the portfolio happen. Cash flows (such as deposits, dividend reinvestments or withdrawals) can be used to rebalance your client's portfolio. Fractional shares allow us to allocate these cash flows with precision. Inflows: When a client makes a deposit or receives a dividend, we use the inflow to buy holdings that are currently underweight, reducing their drift. The result is that the need to sell in order to rebalance is reduced. Whenever client drift is higher than normal, we calculate the deposit required to reduce the client's drift to zero, and make it easy for them to make the deposit. Although we show the deposit amount needed to bring drift back to 0%, smaller deposits also help reduce drift. Outflows: Withdrawals (and other outflows) are also used to rebalance, by prioritizing selling holdings that are overweight. Sell/Buy Rebalancing When cash flows are not sufficient to keep your client's portfolio’s drift within its applicable drift tolerance (such parameters as disclosed in Betterment’s Form ADV), Betterment seeks to rebalance client portfolios by selling and buying assets, aligning the portfolio more closely with its target allocation. Rebalancing requires a minimum portfolio balance (Advisors can review the estimated balance at www.betterment.com/legal/portfolio-minimum). The rebalancing algorithm is also calibrated to avoid frequent small rebalance transactions and to seek tax efficient outcomes, such as preventing wash sales and minimizing short-term capital gains. As with any sell trade, our tax minimization algorithm seeks to select the lowest tax impact lots for rebalancing transactions. Since short-term capital gains are taxed at a higher rate than long-term capital gains, we can achieve higher after-tax outcomes by simply waiting for those lots to become long-term before rebalancing, if it's still necessary at that point. As a result, it’s possible for your client's portfolio to experience higher levels of drift without rebalancing if we have no long-term lots to sell. Generally this is because the account is less than a year old, or a substantial portion of the account’s holdings have been purchased within a year. A client account with a gains allowance can also experience higher drift, since rebalancing will not recognize any gains above the gains allowance. And large positions transferred in via ACATs with embedded gains can also lead to higher drift and delay buy/sell rebalancing. If you’d like to turn off automated buy/sell rebalancing in a client’s account (so that Betterment only rebalances client’s accounts in response to cash flows), you can do so in the Clients tab of your advisor dashboard. Betterment has discretion to limit or postpone rebalancing in order to prioritize other trading activity on any given day, including days where extreme market conditions produce a higher volume of trading. To learn more about rebalancing, see our rebalancing disclosures. Allocation Change Rebalancing Changing your client's target allocation by moving the allocation slider and confirming the change could also cause a rebalance. When you update a client's portfolio strategy and/or asset allocation, Betterment will give you the option to select one of our three tax-aware migration strategies. Depending on which option you select, this could result in selling securities and could possibly realize capital gains. As with all sell trades, we will utilize our tax minimization algorithm to help reduce the tax impact. Additionally, before confirming the allocation change, you can review the potential tax impact of the change with Tax Impact Preview. *The Betterment Crypto ETF portfolio is composed of two ETFs that are market weighted in the portfolio, and as such, do not have geographic and stock to bond super asset classifications. See disclosures for more information. Transaction Timelines

AI tools for financial advisors: friend or foe? Nov 21, 2024 3:33:35 PM With 80% of financial advisors using AI, let’s take a look at the benefits of AI and tips on how to implement AI wisely at your firm. If you’ve seen headlines like, “Can AI replace your financial advisor?” in the Wall Street Journal, don’t fear the clickbait. The data tells us a different story. In 2024, Betterment Advisor Solutions wanted to explore trends that we saw emerging in the financial advisory space from the next generation of RIAs. We surveyed 500 financial advisors, of which 72% were Millennials (Download the survey). What we learned about AI is that the only fear advisors should have is not adopting the technology soon enough. Let’s take a look at the data on how RIAs are using AI, the benefits of AI, plus a few tips on how to implement AI wisely at your firm. The data: AI can empower (not replace) financial advisors Our survey found that four out of five advisors use AI in some capacity in day-to-day tasks, and among those who don’t, 64% intend to. This means that over 90% of RIAs may be leveraging AI in some form in the near future for tasks, like crafting client communications, automating operations, or even managing portfolios. “It is encouraging to see how many advisors are adopting AI and not running from the opportunities and efficiencies it can offer to their firms.” —John Mileham CTO of Betterment It’s clear that AI is not just a trend. It’s a technology that’s becoming critical for modern advisors to grow and compete. The benefits: AI tools for financial advisors create efficiencies We surveyed advisors currently utilizing AI at their firms, and the results show that the most frequently cited benefit of AI is assistance with client service tasks, chosen by 56% of respondents. According to our survey, here are the top benefits of using AI tools for financial advisors: Assisting with client service tasks (56%) Creating personalized client communications (53%) Assisting with marketing efforts (52%) Assisting with operational tasks (51%) Note-taking / meeting recaps (21%) Additionally, a few trends stood out based on the firm size and the age of an advisor: Among advisors managing a larger client base ($150M to $250M), 68% reported utilizing AI for operational tasks. The top use cases for AI also differ by generation, with Gen X and Boomer advisors more likely to leverage tools like ChatGPT for crafting personalized client communications. Tips for getting the most out of AI at your RIA If you're about to implement AI for the first time or are expanding your use of AI, keep these tips in mind to help guide your technology implementations. Find the right AI solutions: Rather than simply asking ChatGPT questions, shop around for specific tools that meet your business needs. There are specific AI platforms that can address business use cases for your firm. For example, you could implement an AI tool specific to investment management or for personalizing automated client communications. Approach AI like any other technology investment with a methodical review to ensure it fits your needs. Invest in AI training: Regardless of the type of technology, staff training is a must. With AI, provide ongoing training to staff, focusing on how to leverage AI for efficiency but also responsible use of the technology to protect client and business data. Keep your clients in mind: AI can drive efficiency across your business, but be sure to evaluate how it is changing your client experience. For example, AI may empower you to send personalized emails at scale, but be sure to review the emails for accuracy, tone, and other details. Automating tasks is a time-saver, but maintaining a high-quality client experience is just as important. Want to learn more about tech trends for RIAs? Check out the 2024 Betterment Advisor Solutions Survey. We dive deep into custodial platforms, technology challenges, and more.

Introducing a new Donor-Advised Fund (DAF) Nov 19, 2024 2:22:42 PM Betterment Advisor Solutions is excited to announce the addition of Daffy, our first donor-advised fund provider, which allows your clients to make a donation—and an impact—with ease. Clients can now access a cost-effective, subscription-based DAF, where they can set annual giving goals and distribute donations to 1.5 million charities, schools, and faith-based organizations—all in one place. Why donor-advised funds can be ideal for high-net-worth clients With a donor-advised fund, your clients can contribute appreciated assets—like stocks—to a charitable account and receive immediate tax deductions. Contributing to a donor-advised fund can simplify the donation process and give your clients the flexibility to decide when and where to distribute funds to various charities over time. It also enables them to avoid capital gains taxes on the donated assets. Top benefits of a donor-advised fund with Betterment Advisor Solutions Cost advantages: Your clients will pay a flat fee starting at $3/month for self-directed donations, instead of the AUM-based fees incumbents charge that can add up over time. And clients who want to collaborate with their financial advisor can add you to help manage their donations. Compare that to donor-advised funds managed by traditional advisors, like Fidelity or Vanguard, which cost clients $100/month, as of October 2024. Delightful client experience: Clients seeking to maximize the tax benefits of a DAF can manage one-time or recurring donations, set up automatic contributions, and view their donation history—all in one place. They can also give you access to manage everything on their behalf for added convenience. No processing fees: Unlike other providers, Betterment doesn’t charge processing fees for transfers to the donor-advised fund—or for charitable donations. This means 100% of what your clients give goes directly to the charities they care about. How to get started with our donor-advised fund provider Getting started is easy! Clients can navigate to the Transfers tab on their Betterment dashboard. From there, they will scroll down to “Other ways to transfer” and select “Donate to charity.” They’ll receive information on the perks of donating, and at that point, they can choose to donate through Daffy. Here’s how: Make a donation to Daffy. Clients will receive an immediate tax deduction, and their funds will be held at Daffy if they have not yet set up their account. Create a Daffy account. Clients should use this referral link to set up a Daffy account, which is required to manage their donations. Daffy allows your clients to grow their charitable funds tax-free while they decide which causes to support—all for a flat fee, starting at $3/month. Select charities. After creating an account, clients can log into Daffy to make donations to more than a million nonprofits. Managing your clients’ donor-advised fund Your clients also have the ability to add you to their Daffy fund. This will allow you to make charitable donations on their behalf, request a change in the fund’s investment portfolio, access tax receipts, and recommend donations for them—all through Daffy’s advisor portal. Learn more about advisor capabilities on Daffy. Ready to help your clients maximize their charitable impact? Download our user-friendly one-pager to learn more and share with your clients to help support their philanthropic goals. And, check out this blog post to help your clients understand the specific tax benefits of donating shares to a donor-advised fund.

See How Top Independent RIAs Embrace Tech in an Ever-Changing Market Sep 12, 2024 8:05:41 AM In the first installment of our Betterment Advisor Solutions Survey, we asked 500 growing independent advisors with AUM of $10-$250 million, to tell us how they’re harnessing technology to better serve clients—and to scale. The big takeaways? The RIA’s tech stack is evolving to better meet their needs, and the adoption of AI is way ahead of schedule. Other trends that surfaced include: The evolution of the Millennial advisor How tech and AI fuels the fastest-growing advisors A rise in retirement planning Keep reading or download the survey now to dig into the top trends, expert analysis, and insights on how to grow your business today. What inspires financial advisors to break out on their own in the first place? While accessing better technology and maximizing earning potential both ranked highly, the primary reasons RIAs chose to go independent was for more freedom and flexibility. This suggests that today’s RIAs value the ability to make their own decisions, customize their investment strategies to suit their clients’ needs, and have more control over business operations without being constrained by a larger firm. Let’s see how they’ve gotten on… Navigating a shifting landscape As you might expect, advisors’ assets under management have grown this year, with more than 40% of them increasing AUM by 10% to 24%. Impressively, 36% of financial advisors experienced growth of 25% or more—with 14% seeing growth of 50% or more! What advisors look for in a custodian The custodial platform is at the core of an RIA’s tech stack. Digital account onboarding, risk analysis, and CRM all rank as at least somewhat important to daily operations. Notably, billing (52%), financial planning software (51%), and performance reporting software (51%) emerged as the top three essential tools, highlighting their critical role in maintaining efficient and effective business operations. All of which underscores the crucial role technology plays for independent RIAs. By offloading some admin tasks and streamlining processes, financial advisors can deliver more value to clients through increased one-on-one time and more personalized advice and financial planning. When asked what would they do with more time, these were the top five responses: 43% investment management and financial planning 43% serving and meeting with current clients 42% professional development 40% meeting with prospective clients 39% marketing my business “Independent advisors have very little time to do anything other than financial planning and communicating with clients. That’s especially troublesome to hear when we know independent advisors are seeking better work-life balance, but they likely have very little time outside of work, not to mention all of the other tasks they may have to take on as an independent advisor like marketing or HR administration.” —Devon Klumb Head of Sales at Betterment Advisor Solutions Financial advisors who are unable to harness the full power of technology and automation may find themselves spending more time on the nitty-gritty details of running a business, instead of focusing on high-value tasks that truly drive growth. The rise of AI Despite numerous hot takes on the takeover of AI, we found that independent advisors are embracing—and integrating—the technology into their business practices. Four out of five advisors surveyed are using AI at their firms today, and of the 20% who aren’t yet, nearly two-thirds say they have plans to integrate AI at their firms in the future. Interestingly, financial advisors who experienced the most growth (25% or more growth in the last year), are also the most likely to be using AI. This shows that advisors understand the benefit of offloading admin tasks in order to devote more time to clients. The biggest deterrent? Poor customer service and training were said to be the main factories preventing advisors from weaving more tech into their practices. “There has been so much discourse around how artificial intelligence could put advisors out of jobs, but we prefer to think that advisors who learn to use AI at their practice will be that much more powerful and future-proofed.” —John Mileham CTO of Betterment Learn more in our latest Betterment Advisor Solutions Survey.

What's new from Betterment for Advisors Jun 26, 2024 5:36:23 PM As we reach the midway point of 2024, we’re doubling down on our efforts to bolster the advisor-client experience and expand our solutions to help you work smarter. Our latest product upgrades help advisors showcase their investment expertise and build a more tailored client experience across retirement planning and wealth management. Read on to see what else is heating up this summer. Table of Contents 401(k) Open architecture 401(k) plans, exclusively for advisors Wealth management New command center for portfolio construction Integrations eMoney Kwanti Panoramix Content and industry news Supporting start-up RIAs with our enhanced XYPN partnership Attracting HNW clients with Goldman Sachs The future of the RIA custody landscape with Dimensional Fund Advisors Custom 401(k) plan design We’ve updated our 401(k) investment flexibility exclusively for advisors, so you can now serve as the 3(38) fiduciary for clients when using our all-in-one 401(k) solution. You can customize your plan design using our open-architecture platform to ensure it is tailored to each business and plan’s unique goals. As we continue to expand advisor capabilities on our platform, we remain focused on upgrading functionality and features to ensure we’re supporting you in delivering the service and expertise your clients depend on. New command center for custom portfolios We’re transforming our custom portfolio experience into a powerful command center to help you implement your firm’s preferred investment strategies and create bespoke portfolios with ease. You can now more efficiently create, assign, and edit portfolios for individual clients or entire segments of your book in minutes—all in one seamless interface. Key benefits include: Cutting-edge automation that fits you: Access Betterment’s automated trading, rebalancing, tax-loss harvesting, and more – with the control you need. Scalable technology: Create, assign, and edit portfolios for individual clients or entire segments of your book in minutes—all in one interface. Leverage tax-smart automation designed to help maximize returns: Use Betterment’s tax-efficient tools to facilitate tax-aware transitions into your models over time and provide ongoing, automated tax management at no additional cost. Learn more about the custom portfolio solution. We’ve expanded our lineup of integrations partners to help you get a more comprehensive view of your clients’ financial profiles and better navigate the increasingly complex tech landscape. By synchronizing client data across systems, you can eliminate data silos, streamline daily operations, and provide more responsive service. See how you can leverage our latest integrations to maximize productivity: Sign up for our upcoming webinars. eMoney By popular demand, we’ve integrated with eMoney. With this latest integration, you can sync all client account information, holdings, transactions, and tax lot information to the financial planning software to get a more comprehensive view of your clients’ wealth. –Learn more– Kwanti We also launched a new integration with Kwanti, an investment analytics solution. Offering detailed portfolio metrics, in-depth risk analysis, and prospecting tools, Kwanti pairs with Betterment’s automated investing features to help you optimize your clients’ goals at their preferred risk level. Plus, you can convert prospects into clients faster with Kwanti’s advanced benchmarking tools, which enable you to create a compelling client proposal whether you’re using Betterment’s models or building your own custom models. –Learn more– Panoramix: We’re excited to announce that Betterment for Advisors now syncs with Panoramix, a billing platform favored by independent RIAs looking for flexible billing configurations and detailed portfolio performance reporting on both the client and firm level. Combining Panoramix’s customizable billing and client reports with Betterment for Advisors’ automated portfolio management tools, advisors can streamline back-office operations for their firm, across custodians. –Learn more– Webinar: Plan smarter, scale faster with XYPN and Betterment for Advisors If you’re a solo practitioner looking to level up your tech stack, check out our Plan smarter, scale faster with Betterment for Advisors webinar with XYPN advisor, Ryan Frailich, CFP®. Find out how he built his firm and crossed $10M in AUM, using Betterment for Advisors as his custodian. By deepening our partnership with XYPN, Betterment for Advisors is able to provide better service for startup and small RIAs. Connect with our team to learn more about our exclusive discount for XYPN advisors here. Webinar: Elevate your practice by moving upstream With the Great Wealth Transfer already underway, and trillions in assets changing hands, there’s a growing appetite for advisors to connect with high-net-worth clients—and for good reason. Reaching this wealthy segment can lead to long and prosperous relationships, a solid network of referrals, and a more lucrative business. See how you can help elevate your practice to move upstream in our latest webinar with Goldman Sachs Asset Management. Learn how to: build a brand that aligns with HNW clients identify the gaps in your planning services to better serve their complex needs combine digital and traditional approaches to retain HNW clients. And, don’t miss our growth guide: How to engage and manage high-net-worth clients. Custodian Roundtable: The Industry Landscape, Options, and Innovation in 2024 and Beyond With more options than ever, how do you find the right custodial partner? Tom Moore, Head of Betterment for Advisors, joins Dimensional’s Managing Your Practice podcast, with BNY Pershing and SEI for a discussion on the most important things advisors should look for in a custodian, and key questions to ask during the diligence process. Give the episode a listen. In case you missed it, we kickstarted the year by helping advisors streamline their practice operations with new dashboard features, such as client activity reporting and seamless account migration, as well as greater investment choice. Learn more.

How to set up the Kwanti integration Jun 18, 2024 2:49:13 PM Overview Kwanti is a prospecting, risk management analytics platform, delivering powerful tools that help financial advisors and portfolio managers optimize their investment strategies. Kwanti’s platform offers comprehensive analytics, portfolio management, and client reporting capabilities designed to enhance the decision-making process and client engagement. The information sent to Kwanti includes: Account information Positions Transactions Tax lots Enabling the integration You can set up this integration for your firm by taking the following steps: Log in to your advisor dashboard and navigate to Settings > Integrations. Select Kwanti from the list and click Connect to Kwanti. You will see confirmation that the integration has been enabled. Client data will be sent to Kwanti within one business day. Additional resources On-demand webinar: Converting more prospects into clients with Kwanti

How to set up the Wealthbox integration Jun 18, 2024 2:41:03 PM Overview Wealthbox offers beautifully designed CRM for modern financial advisors. We’ve partnered with them so that advisors can view Betterment client account balances and details directly from Wealthbox. The data sent to Wealthbox includes: Account information Positions Transactions Tax lots Enabling the integration You can set up this integration for your firm by taking the following steps: Log in to your Betterment advisor dashboard and navigate to Settings > Integrations. Select Wealthbox from the list and click Connect to Wealthbox. You will see confirmation that the integration has been enabled on Betterment's end and data will be sent to Wealthbox within one business day. Log in to Wealthbox. Go to Applications, select Betterment Advisor Solutions, and click Settings. On the next page, choose Enable and then click Save. You will be able to see client account information on the Contact Record page in Wealthbox by clicking the Betterment tab. This can take a few business days.

How to set up the RightCapital integration Jun 18, 2024 2:38:33 PM Overview RightCapital is a modern financial planning solution. Their software is built to make the financial planning process a breeze for advisors and clients. The integration between Betterment Advisor Solutions and RightCapital enables advisors to easily connect all account information so that values automatically update daily in RightCapital. The information sent to RightCapital includes: Account information Positions Transactions Tax lots Enabling the integration You can set up this integration for your firm by taking the following steps: Log in to your advisor dashboard and navigate to Settings > Integrations. Select RightCapital from the list and click Connect to RightCapital. You will see confirmation that the integration has been enabled and data will be sent to RightCapital within one business day. Once the integration has been enabled, RightCapital will reach out directly with next steps. Please note that the integration will only work for advisors that have funded client accounts on the Betterment platform.