ETF Insights: Q&A With Jon Stein

by on September 27, 2012 | Updated December 4, 2012

Managing an investment portfolio is no easy chore for individuals who are also juggling a career and taking care of their family. While ETFs have undeniably democratized the investment process over the last several years, the towering lineup of more than 1,400 funds is likely too intimidating for someone who is just getting their feet wet. After seeing product after product that made the investing process more complicated than it ought to be, Jon Stein set out to create a broadly accessible investment company that would help investors achieve their biggest goals. In 2008, he founded; this one-stop-shop combines investing expertise and technology that allow people to easily, and cost-effectively, manage their personal investments.

ETF Database (ETFdb): Explain your idea behind creating Betterment.

Jon Stein (JS): I’ve always been passionate about fixing things and making them better. I spent years working as a consultant for big banks on Wall Street, and found that typical financial products were optimized for corporate profits, not for usability, convenience, or how we think about life and goals. I started Betterment to make life better.

How does Betterment do this? We streamline the investing process, handling everything from carefully selecting a diversified portfolio for our customers to reinvesting their dividends in a tax efficient way, keeping costs low throughout the whole process. We automate everything important, and guide our customers to better decisions. It’s an end-to-end solution that frees up time for other important things in life.

ETFdb: Who is Betterment targeted towards? Why does it make sense for them to utilize the Betterment platform?

JS: The typical Betterment customer comes to us after a major life event. Many have been investing on their own until a milestone convinces them it’s time to get serious. Perhaps they discover they’re going to have a baby, they might receive a promotion or major bonus at work, and many discover they’ve been overpaying for financial advice.

Betterment’s approach suits the majority of investors whether you have $10 million or $10,000 to invest. Our fee is the lowest you will find – which is a huge advantage for those with high balances, but we’re also extremely accessible for smaller investors because we don’t require a minimum balance.

Our investment strategy is the typical buy-and-hold approach coupled with behavioral guardrails in our product to help our customers make better decisions with their money. For example, by automating everything we ensure our customers consistently invest, no matter what the market is doing. Real time analysis helps our customers understand the impact of various decisions, which tends to make them better investors.

ETFdb: What is your approach to understanding your clients’ needs?

JS: Betterment’s advice is automated, yet tailored to each individual. We start with goals. Tell us what you’re investing toward and we’ll tell you how much you need to save to get there. Using real time feedback we show you the impact of your decisions, while behavioral guardrails keep you on track to achieving your goals.

The most unusual thing about Betterment, for a tech company at least, is that we welcome phone calls. The majority of our customers prefer to manage everything online, but in some instances only a phone call will do. All of our team takes these calls as it helps us remain focused on the customer. If you call in, you may even get me on the other end of the line!

Since we started Betterment, talking to customers has been an important part of my day. Even now, I dedicate an hour a day to communicating with customers.

ETFdb: Do you see ETFs as the preferred means for building diversified, low-cost, long-term portfolios?

JS: Betterment uses ETFs in both our stock and bond portfolios because of the liquidity, diversification, and low management fees they provide. No other fund allows us to achieve the level of sophistication and convenience for our customers that ETFs can.

ETFdb: Why do you think many financial advisors have generally been slow to embrace ETFs in their practice?

JS: The railroads were slow to embrace air travel. Adopting new technologies does not come easily in this industry. Many advisors have vested interests in mutual funds. By transitioning into ETFs these advisors would lose a rich source of fee-paying revenue. That said, there are great advisors out there.

ETFdb: What do you expect in terms of ETF adoption going forward? What types of investors have been slow to adopt or are potentially major beneficiaries of embracing ETFs?

JS: In my view, there’s virtually no advantage to mutual funds. ETFs use the pipes of the market, rather than one-off distributor agreements, so they are fundamentally more efficient.

Bottom Line: ETFs have made it possible for self-directed investors to tap into virtually any corner of the global market. With innovation also comes complexity however, and as such, Betterment seeks to ease the burden of personal investing by simplifying the research and planning process.

Follow me on Twitter @SBojinov

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Disclosure: No positions at time of writing.