Dear Jon, Don’t Get It Twisted.

Jon Stein, CEO of Betterment, recently called me out in his Forbes article, “Advisors Who Protest Too Much Are Probably Charging Too Much.” Here’s my reply.

Dear Jon, Don’t get it twisted.

I’m the CEO of MyGDP you reference. And if you read my post (Et Tu, Betterment?) you can see the entire message about why I think you’ve missed the mark.

Or you can read my assessment of the entire online financial advice effort. Which has raised $80 million in VC money to raise approximately $80 million in assets under management.

Or you can read my post on the 3 reasons I think online is going to revolutionize the Financial Advisory Industry.

There is a good reason for why I said “Et Tu Betterment”; I don’t like your approach. Sure some of your solutions are part of a better future, but your approach is also still part of the problem.

Low fees are a great start, and being passive makes sense sometimes (not all the time), but your site has done a few things really poorly:

1. You sell return, instead of discussing risk — the portfolio you highlight on your site earning 7.86%, yet at Betterment it would have lost 42% 2008-2009. That’s probably something someone should know up-front, before giving you money. Don’t you think? Or maybe a good real adviser would tell a client that.

2. You talk about not needing an advisor but for big accounts you offer your own personal services as an advisor to customize things, which is a bit hypocritical.

3. You originally sold yourselves as an alternative to a savings account, which I cannot fathom how or why that seemed wise or ethical, or prudent. And then you denied ever saying such a thing in the comments section of your recent Tech Crunch announcement. You personally deny ever touting Betterment as an alternative to savings account. Yet that message is exactly what you launched with.

4. Your article, “Financial Advisors Are Bad For Your Wealth”, was careless with words casting wide aspersions about an entire profession. And then you half-stepped, saying we didn’t really mean “everyone”, just the bad ones. Your post also includes this gem, “we don’t think you should pay for advice…” which is just kind of dumb, since people are paying your firm for advice.

Look Jon, I think fees matter, I think low fees are important & making things simple is good. As it is, our buy&hold approach is about to begin offering a declining fee schedule on the assets we manage, meaning, as we grow, all of our clients fees go lower. Which also means someday we may be even cheaper than your offering. And, right now we offer a DIY feature which is already cheaper than your solution for people with larger amounts of money. So as it is, we’re both less expensive than most. That’s not the reason I protest.

I don’t protest because of your low fees and online approach or your evangelical devotion to passive investing. I protest because I don’t like your approach in getting attention. It seems cheap & thoughtless at the expense of others. Don’t get it twisted.

And by the way, your average account balance is $3,400. And if a client doesn’t contribute another $1200 a year on that $3,400 you charged $3 a month, or about 1%… is that really low-cost? Maybe your clients should just invest in a good balanced index fund at Vanguard and save that fee.

Truly yours,

Hugs and Kisses,

Ex-Cog

  • rwohlner

    Second visit to your site, this post is even better than last Betterment post which at the time was the best financial blog post that I had read in quite awhile.  Keep it up!

  • Random_observer

    It appears Betterment has picked a fight with the wrong guys.   If this were an NBA playoff game,  you and Reformed Broker would be up 30 at this point. 

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  • http://www.tradestreaming.com Tradestreaming

    it’s funny — last month with the advisor as pig pic/article and now you bashing them Scott, Betterment’s got a boatload of press off of all this. 

    From what they’ve said, they’ve also opened a lot more of those $3400 accounts since I interviewed them: http://www.tradestreaming.com/2012/02/06/making-investing-simpler-with-jon-stein/Cheaper than a PR firm — what do they say, ‘Any press is good press’?

  • iheartWallSt

    I’m not sure what I’m saying to “bash” them here??

    I have no problem with success, I just don’t like how they’re going about it. I’m done with this topic, trust me. And, I know any press is good press, so I suppose the fact that you’re reading this is also good for your site & my firm as well, right? ;)

  • http://www.tradestreaming.com Tradestreaming

    I agree and also took aim at their comparison to a savings account in their early literature (time to hire a compliance officer). I just think at the end of the day, we’re all selling something.

    Love you, man.

  • iheartWallSt

    I love you too, man. It’s all good.

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  • rwohlner

    I agree that this issue is getting old.  My issue with Betterment is one of trust.  I don’t trust them and can’t ever fathom suggesting them as an alternative for small investors or others for whom my services are not a good fit.  That’s sad to me becasue I wanted to “like” them.  Marketing and success are great, but ethics are also important.