Betterment Editors

Going independent: 4 key questions before starting your own RIA Jan 30, 2025 12:00:00 AM Thinking of breaking away to become an independent RIA? Ask yourself these four key questions first to help set your new firm up for success. The data looks promising if you’re looking to start an independent RIA… In 2024, PlanAdviser reported that the average Millennial who works with a financial advisor started looking for advice at age 29. That’s nine years younger than Generation X and 20 years younger than Baby Boomers. The great wealth transfer is now projected to be $124 trillion, and the population of Millennials in the U.S. hovers over 72 million people. There may have never been a better time to start an independent RIA looking to serve a growing high-net-worth market with demand for financial advice. But starting your own firm is a big undertaking–and a daunting one. Building your confidence starts with thinking through important facets of your plan. First, consider what success would look like for you. Many advisors who go off on their own, do so to gain more freedom and flexibility professionally—and personally. So, it’s important to think about what matters most to you. Below, we’ve laid out four key questions, as well as a business plan, to help you build a solid foundation for your firm. Question 1: Who do you need to support your firm? As you start an independent RIA, establishing strategic professional partnerships can help ensure you have the necessary resources and expertise to navigate the transition smoothly. These partnerships provide critical support in areas like compliance, technology, and operations, enabling you to set up a strong foundation for your practice from day one. You’ll likely need support from some, if not all, of the following professionals: Attorney: Throughout the transition, your legal counsel can offer valuable guidance, like reviewing your existing non-compete agreements with your current employer, helping you establish a business entity, and providing overall protection for your interests. Attorneys are a key resource, who can offer expertise on how to register a new business, for example. Online legal solutions can also be a solution if costs are a concern early on. Tax advisor: Having a tax advisor from the outset of going independent can be beneficial in addressing any tax-related questions or concerns that may arise. Thorough tax planning can help your firm remain in compliance and reduce your tax liability as you start a business. For example, your firm may qualify for tax credits available to new businesses. A tax advisor can help you claim all credits and deductions that you may not have known to be available to you. Compliance consultant: As an independent RIA, you will be required to have a Chief Compliance Officer (CCO) to oversee and ensure the firm's adherence to regulatory requirements. You can take on this role yourself, appoint an employee, or outsource the responsibility to a compliance consultant. Outsourcing the CCO function can be particularly beneficial during the registration phase, as it allows you to leverage the expertise of a seasoned professional, saving you valuable time. For example, a CCO can help with filing Form ADV and related documents, navigating SEC or state registration requirements, drafting tailored compliance policies, transition planning, and setting up necessary systems for recordkeeping and reporting. Marketing agency or freelancer: A polished brand is a key ingredient in ensuring prospective clients view you as a trusted, professional firm. A skilled marketing consultant or agency can help you develop a strong brand identity, create effective marketing strategies, and establish a differentiated brand presence. Services they provide can include website design, social media management, content creation, and lead-generation campaigns. Other RIAs: While you may not want to talk with direct competitors, seeking guidance from fellow RIAs who have successfully navigated the transition to independence can be valuable. By consulting with peers who have started their own RIAs, you can gain valuable insights and advice, which can help increase your confidence and better prepare you for potential challenges. If possible, speaking with RIAs who have made the transition from your current firm can provide particularly relevant and nuanced guidance, as they will have firsthand experience with the unique circumstances and obstacles you may face. We’re here to support you, too. At Betterment Advisor Solutions, we take pride in being a trusted guide for advisors looking to make the leap to become an independent RIA. We provide 1:1 support as you start your firm. Have questions? Talk to us today. Question 2: Where is your time best spent running your firm? When you’re first starting your firm, you’ll quickly find yourself wearing many hats. It’s important to understand your bandwidth and the key actions you need to take to build a successful independent RIA. For example, if you have few clients when you start, then business development, client experience, and business processes will likely require more of your time as you focus on growing your book. As more clients come onboard, your priorities will shift. Once you have a healthy book of clients, you’ll need to evaluate which activities are most valuable to your firm. For example, should you spend your time on investment management and portfolio construction? Or would it be better to outsource these tasks, and devote more time to clients and holistic financial planning? Review the following common activities, and prioritize those you feel are most important for your firm’s success: Business development: Attracting and acquiring new clients to grow your business Client transition and onboarding: Establishing a clear process for account setup and communication, including setting up client households and opening as many different accounts as needed Client experience: Delivering exceptional service and building strong relationships with existing clients and identifying opportunities to offer additional services, like tax or estate planning Business processes: Managing the operational aspects of your firm, such as compliance, marketing, and technology Wealth management: Providing holistic financial guidance tailored to clients' goals, such as retirement, education, and charitable giving Portfolio management: Developing and implementing investment strategies tailored to each client's unique needs and goals In our 2024 Advisor Survey, we found most advisors spend the majority of their time on financial planning. You can use the data below as a benchmark to compare how you spend time, but keep in mind the additional needs of your firm as you start the process of going independent. Question 3: What will your RIA tech stack look like? The term “tech stack” simply refers to the collection of software platforms and tools that you use to do business—and deciding what it looks like is one of the most important decisions for your new firm. Your tech stack can make or break your firm’s efficiency and the quality of service you provide to clients. It will include many different and often integrated software, but at the end of the day, it should be driven by this question: “How do I need to spend my time?” For example, you’ll likely want CRM (customer relationship management) software to track and manage all of your client data and interactions in one place. Without CRM, you’ll spend time manually tracking client engagements in spreadsheets, taking away time from serving clients. The four essential components of an RIA tech stack A comprehensive tech stack for independent RIAs should include the following four essential pieces of software. Custodial solution: Selecting a custodian is one of the most significant decisions for your firm. Your custodian is responsible for the safekeeping of the assets, processing transactions, and providing administrative support. Look for a custodian with strong tech capabilities for you and your clients—and the ability to integrate with your broader tech stack. Portfolio management: These technologies enable you to efficiently and effectively manage your clients' investments. The right portfolio management platform can range from providing simple model marketplaces to full-end-to-end tooling, including tax-optimization technologies, portfolio customization options, and more. Some custodians offer built-in portfolio management software, which can help your firm cut costs and streamline your operations. Financial planning: Financial planning technologies allow you to create comprehensive, customized financial plans to help clients budget, set goals, and plan for taxes. Many financial planning platforms integrate with custody software and customer relationship management (CRM) software, enabling a seamless and holistic approach to client service. CRM: CRM software is essential for managing client communications, collaborating with your team, and building long-term relationships with clients. A good CRM should be able to integrate client data from multiple systems and integrate with marketing automation technologies to track your client information and potentially send, or at least enable, personalized communications. Additional tools to support your firm's operations To run an efficient and effective firm, you may also require other tools, which can range from free platforms to robust solutions. Some of these tools you may wish to consider include: Compliance software: Compliance software covers a range of solutions, from simple archiving of firm communications to advanced cybersecurity strategies. In addition to software, your firm may require compliance consulting services, which can be provided by the software vendor or a separate third party. Accounting software: Manages your firm's finances, tracks expenses, and generates invoices. Billing software: As you sign clients, you’ll want to make sure you have billing software that integrates with your tech stack. Betterment’s fully integrated billing solution lets you set a fee schedule for each household during onboarding and automate collection and reporting. Marketing software: Automates marketing campaigns, manages social media, and tracks lead generation. Scheduling software: Streamlines client meetings, appointments, and communications. Video conferencing software: Facilitates remote meetings and collaborations with clients and team members. File management software: Securely stores and manages client documents, contracts, and other sensitive information. AI notetaking software: Automates note-taking, transcription, and data entry, freeing up more time for high-value tasks. As you review different software solutions, we can’t stress enough the need to look for platforms that integrate with each other. By carefully selecting and integrating these tools, you can build a robust tech stack that supports your firm's growth, efficiency, and ability to deliver exceptional services to clients. With Betterment Advisor Solutions, you’ll get a vertically-integrated product that combines custody with your most critical practice software, including onboarding, trading (or portfolio management), reporting, and billing. We recommend reviewing your tech stack on an annual basis to ensure it remains aligned with your firm's evolving needs and goals. Question 4: How will I transition my current clients to my new firm? Your current clients will be your most valuable ones as you start your independent firm. Client onboarding is a crucial phase of going independent. Although you may not be able to discuss your plans to start your own firm just yet, you can begin laying the groundwork for a successful transition. Talk to an attorney: Consulting with your attorney can be a smart move to ensure you're not violating any existing company policies or agreements. If permissible, start compiling a list of clients you'd like to invite to join your new firm. This may include gathering their contact information, such as names, addresses, phone numbers, email addresses, and account titles. Select your clients strategically: As you consider which clients to bring on board, take a strategic approach. Starting your own firm presents an opportunity to specialize in a specific niche or target market. Think carefully about the types of clients you'd like to serve and the services you want to offer. By defining your ideal client profile and target market ahead of time, you'll be better equipped to develop effective marketing and business development strategies when you launch your firm. This clarity will help you hit the ground running, allowing you to focus on building strong relationships with your new clients and growing your business from day one. Bonus: Building your business plan A business plan is not only helpful for you, as you start and manage your own firm, but it’s helpful for any key employees and partners of your firm. For example, a marketing agency or outsourced Chief Compliance Officer can use the information in your business plan to better serve your needs as they provide tailored advice and strategies to help grow your firm. Below is an outline to follow along with some tips for completing each section. Independent RIA business plan outline Executive summary: A brief overview of your RIA firm, its mission, goals, and objectives. Try to clearly explain why your firm exists in two to three sentences. The information in your executive summary can serve as a guiding light for many important stakeholders. For example, for you and your employees, it explains clearly why your firm exists. And for clients and potential clients, the language in this section can be used on your website and in other client communications focused on highlighting your firm’s mission. Company description: A detailed description of your RIA firm, including your history and details on any key employees, the business entity structure, and ownership structure. Writing this section ahead of starting your firm can help you have a clear understanding of steps you may need to take, such as creating an LLC and planning who will serve in key roles at your firm. For example, this section should detail who (internal employees or outsourced consultants) will oversee investment management, technology operations, compliance, and day-to-day operations. Market analysis: An analysis of your firm’s target market, including demographics, financial needs, and trends, as well as a competitive analysis of other RIAs in your market. You can conduct a market analysis yourself or work with a market research agency to assist with more in-depth analysis. If conducting market research yourself, you can leverage free data from the United States Census Bureau or Data Commons and then add paid data sources as needed. Services and products: A description of the investment services and products offered by your firm, including but not limited to portfolio management, financial planning, and other advisory services. Your services and how you price them should align with the needs of your target market defined in your market analysis. For services like financial planning, list out exactly what that will entail for your clients, including services like cash flow management, tax planning, retirement planning, estate planning, and risk management. Being very detailed in this section will allow you and your clients to understand what they are getting from your services. Marketing and sales strategy: A description of your firm’s marketing and sales strategy, including how it will attract and retain clients. One common approach to outlining a marketing strategy is using the “4 Ps” for your firm. The 4Ps help you document Product, Price, Place, and Promotion to help you build a strategy for promoting and distributing your services to the right audience. See our guide for creating a marketing plan using the 4Ps. If you have larger growth plans, this section can also describe your firm’s growth and expansion plans, including its strategies for increasing revenue, expanding its client base, and entering new markets. Operations and management: A description of your firm’s operational structure, including its management team, staff, and technology infrastructure. This section should cover the hardware, software, and network systems needed to run your firm and clearly explain how you plan to integrate your tech stack to run your firm efficiently. Financial projections: Financial projections, including revenue, expenses, and profit projections, as well as a breakdown of your pricing and fee structure. More formally, these projections should be used to create a three-year income, balance, and cash flow statement forecast to help with planning and goal setting. Also, as you transition from your current job to your independent firm, consider the funds you may need to set aside for personal expenses as you start your firm without much or any income. Compliance and risk management: A description of your firm’s compliance and risk management procedures, including its regulatory requirements and internal controls. Risk assessments should be conducted for regulatory compliance, market volatility risk, cybersecurity risk, and other practice areas such as marketing, advisor compensation, and trade execution. Human resources and staffing: A description of your firm’s human resources and staffing plan, including its staffing needs, training programs, and employee benefits. This section will be more straightforward if you’re a solo advisor, but it's important to clearly define staffing needs and roles if you have additional team members. Betterment Advisor Solutions is your partner for going independent Going independent means wearing a lot of hats as you grow your own firm. With Betterment Advisor Solutions, you get an all-in-one custodial platform that integrates and automates your most essential practice management and portfolio management tasks. From onboarding new clients to performing operational tasks and ongoing portfolio management, our team and technology will help advisors like you get set up with tooling to ensure you can cover many of your bases early on. We support hundreds of RIAs, helping them streamline their practices’ operations and technology. Take Eric, for example… “I run a solo practice — having a solid tech stack is essential to running my business successfully, especially with back office responsibilities. Having a partner like Betterment helps me streamline client onboarding and ongoing investment support so I can focus on other aspects of my business.” —Eric Rodriguez, WealthBuilders We’re here to answer your questions and be your guide as you set out on your independent RIA journey. Ready to talk?

How to set up the Elements integration Jan 24, 2025 2:24:58 PM Overview Elements is the way to deliver financial conversations at scale. With the financial vitals framework, giving advice quickly has never been easier. Advisors can connect their firm’s client data to Elements through Betterment’s data feed to ByAllAccounts. The information sent through the ByAllAccounts feed includes: Account information Balance details Enabling the integration You can set up this integration for your firm by taking the following steps through Betterment: Log in to your advisor dashboard and navigate to Settings > Integrations. Select Morningstar from the list and click Connect to Morningstar ByAllAccounts. You will see confirmation that the integration has been enabled. Data will be sent to ByAllAccounts within one business day. To link ByAllAccounts to Elements: Log in to Elements and navigate to the puzzle piece icon. Hit view details under the ByAllAccounts and request access. Be sure to save your username and password to BAA at this stage. Once you have these credentials you can set up the feed: Navigate to BAA through the Elements platform as above. Go to the “Credentials” tab at the top. Click “Create Credential.” In the pop-up window search for “Betterment Advisor - SFTP Access.” Select it and click “Next” at the bottom. Fill in the ID and Password you set up from the previous emails. Click “Save and Aggregate” at the bottom.

RIA software: How to select custodians and tech providers Jan 17, 2025 1:30:39 PM See what software is most important to other financial advisors and get tips (and a free tool) to help your RIA firm navigate tech decisions. In 2024, Betterment Advisor Solutions wanted to explore trends we saw emerging in the RIA space from the next generation of advisors. We surveyed 500 independent RIAs, of which 72% were Millennials (Download the survey). Below are our key takeaways on RIA software, along with tips and tools to help your firm implement new tech strategies. Table of contents: The top-ranked RIA software features Common challenges RIAs face when buying software Three tips for minimizing RIA software buying challenges RIA software ranking tool The top-ranked RIA software features We found that advisors generally find all features at least somewhat important to their daily operations. This stresses the important role that technology plays in the success of independent RIAs. The Top 3 most important features that an RIA software provider could offer for advisors were billing (52%), financial planning software (51%), and performance reporting software (51%) In our RIA survey, we asked the question, “How important are each of the following types of technology/software to your daily operations?” Respondents ranked their selections on a five-point scale, from “Not important at all” to “Very important.” Billing Financial planning software RIA Performance reporting software Tax management tools Cash management solution CRM Model marketplace Risk analytics Digital account opening software Portfolio management software Common challenges RIAs face when buying software Many advisors know the value of technology but are unable to implement new tools effectively for various reasons. When asked about their biggest challenges in implementing technology at their firms, advisors highlighted poor customer service and time spent training their team on new tools. Three tips for minimizing RIA software buying challenges If your firm is in the market for new technology, keep the following tips in mind during your buying process. 1. Assess the strengths and weaknesses of your current tech stack Before you start implementing any new technology, it’s important to first make sure that you understand the ins and outs of your current system so that you know what to look for in the future. There are two important reasons for this: Setting expectations: Knowing details about your current tech stack will help you understand how easy (or difficult) system migrations could be. Depending on your current tech stack, certain tech vendors may be more challenging to migrate to or integrate with. Knowing this will help you map out realistic timelines and costs for your project. Finding unused features: A firm may think they need to migrate off of a certain piece of technology, but in reality, they simply are not aware of all the features that a tech platform offers. This could be the case if you have been using a tech vendor for years and have not explored their updated features. If you are considering changing tech providers because of feature limitations or issues, contact your current vendor and see if they have a solution. Once you have a solid understanding of your tech stack, you can map out a forward-looking strategy involving migrating to new vendors where needed. 2. Map out your firm’s tech strategy Before you start browsing new tech providers, you’ll want to document the strategy and goals you expect to achieve. Ask yourself questions like: Is a simple, easy-to-use interface most important to you? Or maybe, it’s having customizable features? Are you looking to consolidate vendors for ease of management or leverage multiple vendors for best-of-breed tech? Work backward from your strategy and goals to help understand what needs to be done and what type of tech provider you should partner with. There are usually tradeoffs with technology. For example, the easiest tech to implement and provide training on may not offer the most customizable solution. On the other hand, highly customizable tech may be more complex to manage and take longer to get up and running. 3. Create a change management plan Regardless of your tech strategy, having a change management plan will help your team transition to new technology. A strong change management plan will incorporate the following areas: Change management team: Establish a dedicated change management team, or at the very least one leader, who will oversee the implementation process and manage stakeholder engagement, communication, and training. Project plan: Develop a detailed project plan outlining key milestones, timelines, and resource allocations. This should include both technical and non-technical tasks, such as software installation, user testing, and change management activities. Risk assessment: Conduct a risk assessment to identify potential issues that may arise during the implementation process. Develop mitigation strategies to address these risks and ensure the successful adoption of the new technology. Stakeholder analysis: Identify key stakeholders who will be impacted by the new technology, such as employees, clients, and partners. Assess their interests, concerns, and potential resistance to the change. Communication plan: Develop a comprehensive communication strategy to inform and engage stakeholders throughout the implementation process. This may include emails, regular meetings, training sessions, and one-on-one discussions. Training and support: Provide training and support to employees (and clients if impacted) to ensure they understand the new technology and how touse it. This may include online tutorials, in-person training sessions, and ongoing support from technical experts. Monitoring and evaluation: Establish a system to monitor and evaluate the implementation process, including progress against milestones, stakeholder feedback, and performance metrics. Use this information to make adjustments and improvements as needed. RIA software ranking tool Creating a strategic plan of action for your tech stack doesn’t have to be complex. Using the ranking tool below, you can help guide your firm’s strategy in as little as 30 minutes. How to use the tool? As you think through your tech strategy, use the table below to rank each type of RIA software based on its importance to your firm’s goals and level of satisfaction with your current software. You can compare the level of importance to the level of satisfaction to help identify software that you may need to replace with an improved solution, or software that your firm wants to keep and invest in continuous improvements. Complete this ranking tool once or twice a year to help monitor your tech stack’s performance. Pro tip: Print out this chart to manually fill it out.

What’s new from Betterment Advisor Solutions Jan 6, 2025 10:49:41 AM Discover the latest products and features launched in Q4 2024, designed to enhance user experience, drive innovation, and meet the needs of financial advisors. From an expanded model marketplace and a new donor-advised fund to seamless integration management and improved user access, explore all the latest platform upgrades in Q4 2024. Read on for the highlights and more of what’s in store this year. Table of contents Expanded model marketplace Dimensional's Core Plus ETF Wealth Models Crypto ETF model Donor-advised fund (DAF) A new donor-advised fund New integrations Manage integrations in your dashboard Billing New 401(k) plan fee statements Advisor experience Enhanced controls for secondary users Manage beneficiaries Two-factor authentication Dimensional Fund Advisors: Core Plus Wealth We added new models from leading asset manager, Dimensional Fund Advisors, to our marketplace. Dimensional's Core Plus ETF Wealth Models are designed to pursue higher expected returns for clients, while maintaining broad diversification and managing costs. By combining Betterment’s technology with Dimensional’s consistent, process-driven investment approach, advisors can streamline investment management without sacrificing performance. This launch underlines our continued commitment to expanding our off-the-shelf offerings, which are designed to save time, compress costs, and help you do more for your clients. Take a closer look at Dimensional’s Core Plus Wealth Models. Crypto ETF portfolio Check out our new Crypto ETF portfolio, a new way to help your clients interested in crypto gain exposure to two of the largest and widely traded cryptocurrencies, Bitcoin and Ethereum. Unlike traditional exchange trading, Betterment provides clients with diversified market exposure that’s carefully vetted by our in-house investment analysts. With this automated portfolio, crypto can now serve as a diversified component of your clients’ broader investing strategy at Betterment. –Learn more– Help your clients make a donation—and an impact—with our first donor-advised fund provider, Daffy. This cost-effective, subscription-based DAF lets clients: Donate appreciated assets for immediate tax deductions. Avoid capital gains taxes and costly processing fees. Set annual, automated giving goals to support over 1.5 million charities. Advisors can manage donations, recommend charities, and easily access tax receipts through Daffy’s advisor portal. With this new DAF, you can help your clients maximize their impact and achieve their philanthropic goals, starting at just $3/month. –Learn more– Unify your tech stack We’ve made it even easier to manage your custodial feeds in one place. Connect, disconnect, and oversee all third-party integrations directly in the advisor dashboard. Our latest unlock helps you: Set up integrations with the rest of your tech stack even faster. Synchronize data and reduce workflow inefficiencies. Improve client planning decisions with better insights into client behaviors, market trends, and portfolio performance. Explore and subscribe to any of our existing feeds under dashboard Settings. You can also learn more about our full integration ecosystem and request new solutions here. You asked, we listened: Betterment will send fee statements for all 401(k) plans going forward. The revamped process will mirror how we manage fees for your wealth clients. Here’s what you can expect: A PDF statement and CSV report, detailing fees accrued during the billing period. Email notification to firm admins confirming when statements are available and how to access them in the advisor dashboard. This year, we will continue to improve our billing solution to give advisors more fee flexibility while staying compliant and building client trust. Stay tuned for future updates. Enhanced permissions for secondary advisors Secondary advisors now enjoy the same access to client activity as primary advisors. With the new and improved functionality: Secondary advisors can now be assigned to an account during onboarding to help manage the client or household. Advisors can filter client data based on whether they are the household’s primary or secondary relationship. Primary and secondary advisors can toggle between personal client and firm-wide client account data. –Explore your dashboard– Manage beneficiaries Advisors can now assign primary and contingent beneficiaries to all legal accounts in their clients’ portfolios. Clients can conveniently review and verify the designated beneficiaries as part of their onboarding experience. This new functionality streamlines the account setup process and helps advisors to support their clients in planning for effective wealth transfer. Increased security We’ve elevated platform security by introducing mandatory two-factor authentication (2FA) for advisor profiles. While 2FA has long been required on client profiles, advisors can now add 2FA to better protect client data and reduce risks of unauthorized access—adding an extra layer of security. Your clients trust you with their most sensitive information, and you can trust us to keep it safe. As always, we welcome your feedback. Read up on other updates you might have missed, and keep an eye on your inbox for more quarterly updates. We’ve got a busy roadmap for 2025 and will be sure to alert you to new products and features to come! If you’d like to take a look around with someone from our team, book a demo.

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.