Is Betterment Really a Better Idea?

Betterment is an online investing service. Betterment touts its service as “Simple to Use. Sophisticated Investing.” They also say you can “Invest like an expert without the hassle.” Low fees ranging from 0.15% to 0.35% of net assets certainly seem attractive.

Here’s where it gets a little “less better.” For whatever reason, Betterment has seen fit to declare war on financial advisors. For the record I don’t view Betterment as my competition, but rather I resent what I see as misleading attacks that confuse the investing public.

Betterment also saw fit to quote a flawed study of brokers (mislabeled as financial advisors) by NBER as proof that Financial Advisors are Bad for Your Wealth. This post from their blog is in my opinion so full of holes that it could double as a piece of Swiss Cheese.

Don’t take my word for it, check out Mike Alfred’s post in Forbes Why Betterment, Wealthfront, and Other Online Investment Firms are Wrong about Financial Advisors. Or check out this post by Josh Brown who blogs as the reformed Broker Taking Betterment to School. Lastly this excellent post from Scott Bell at I heart Wall Street Et Tu, Betterment? says it all.

Sour grapes. Not at all. From my perspective say what you want about me or about financial advisors. Just be accurate. The folks at Betterment were anything but accurate in their broad brush approach to lumping financial advisors and brokers together.

They claim they were trying to call out bad advisors and toxic practices. In reality their approach was in my opinion a toxic practice. I suggested to them via Twitter that they consider a post discussing the differences between advisors and financial sales people. Perhaps they could educate people on how to determine if working with a financial advisor is right for them and if so how to choose one that fits their needs.

Online services like Betterment are clearly part of the changing landscape that will shape the future of the delivery of financial advice. I really want to like Betterment so that I can suggest it as an alternative to younger investors and to others for whom this type of service might be a good fit.

What troubles me though is that Betterment went ahead and published a post that was so full of inaccuracies. Was this a cheap attempt to bash advisors in order to drive business their way? Did they truly not understand why their post was inaccurate? Were they unaware of the flaws in the NBER study?

If the answer is yes to any of these questions it raises doubts in my mind as to the business maturity of the Betterment management team. Maybe their model is wonderful and they are a “better mousetrap.” At the end of the day, however, this episode will forever make them suspect in my mind.