In the bewildering world of finance, lease, and fluctuating economy, massive FinTech platforms are also facing some financial discomfort. One such platform is the prominent FinTech Company called Betterment. Their mission is to provide investment opportunities that meet the specific financial needs of their users. However, there is a curious question about how they generate their revenue.
Despite the ups and downs of the economy, they manage to maintain their position, but how do they do it? Here, we will explore the primary question: how does Betterment make money? Discover the methods used by Betterment to generate revenue and uncover the secrets behind their success.
Insights of Betterment
Betterment is an American financial advisory company and has recently started as a FinTech company too. This company was initiated by two MBA graduates, Jon Stein and lawyer Eli Broverman in 2008.
They offer investment, retirement, and cash management services to investors. This financial advisory helps you save and build wealth for the life you want.
It has suitable services for hands-off, retail investors, businesses, entrepreneurs, scalable startups, senior citizens, and students. It offers top-notch expert cash management, guided investing, and retirement planning services.
Though these services betterment generates its revenue and makes money through flat-fee based on the total investment balance of its investors. There are other methods through which betterment makes money, read along to figure out the business revenue model of betterment.
How does Betterment Make Money?
Similar to other FinTech Companies like Acorns, Debthunch, Chime, and BandLab, Betterment makes money by offering attractive financial advice packages, cash reverse, and betterment for advisors.
Investment Plans
Betterment makes money by providing investment plans to its customers. These plans are mostly feasible, satisfying, and effective for the users’ needs. Let’s have a look at some of the remarkable investment plans betterment offers:
Digital Investment
This investment plan charges an annual fee of 0.25% of the account balance of its investors. As of November 2022, the pricing structure of betterment changed and those changes involved an addition in the fee of that account. It exceeded to charged fee of $4 on every $200,000 account balance of investors.
Premium plans
Betterment charges an annual fee of 0.40% of the users’ account balance. Betterment premium investment plans are suitable for those who have long-term investment or financial plans.
Funding
Funding is a great s source of income for this forum. Their master budget, client handling, future investment, financial planning, and risk management are all affected by the inflow of funding. Betterment successfully raised a total of $275 million during its venture capital funding round. The latest funding of betterment was initiated on Sep 29, 2021. This funding round was from Debt Financing and consisted of a total of ten rounds. Betterment managed to raise almost $435 M during these rounds.
The main investors who contributed to this funding were:
- Kinnevik,
- Bessemer,
- Menlo Ventures,
- Francisco Partners.
However, due to the reliance on valuation and funding from investors, Betterment has yet to become a profitable platform.
Advice Packages
Betterment put his expert advisors to good use and created its network of professionals called the Betterment Advisor Network. Their sole purpose is to make its common folks and users better understand how they can manage their finances and invest profitably. That’s another way for betterment to make money through consultation fees.
Estimated fee: $99- $299 (one-hour consultation).
Betterment for Business
Betterment earns money through offering irresistible offers to its customers and employees. They offer a custom-made 401(k) plan built in accordance to fulfill the financial hole of its related customers.
Their network of financial advisors is not only hunting for your financial resorts but also for their huge service charges. All of these services cost a lot, it’s like paying a platform to give you more resourceful ways of investing. Most of these payments are depending upon the following factors:
- Number of employees
- The monetary assets deployed
- Add-on features
- The chosen payroll system
Betterment charges for giving tailored advice and customized investment solutions for its users. Betterment for business is a significant way through which betterment makes money.
Betterment for Advisors
The initiation of SaaS applications is another tactic of betterment to make money. The main motive of this scheme is to strengthen the relationship between the company and financial advisors. This method enhances the iterative development of employees and also generates money for betterment.
This SaaS application assists financial advisors in managing their workload from the following perspectives:
- Keeping track of clients’ wealth.
- Account re-balancing options
- Tax-loss harvesting
- Asset locations
- Deposits, and withdrawals at any time
Simply, it provides a better way to analyze and interpret the results. Betterment makes money by charging for access to this application. The monthly fee is around $150(may differ), including a tiered fee from 0.12-0.20%.
Cash Reserve
This FinTech Company has attracted a lot of users with its high-interest, no-fee, and high-yield cash account. They are currently beating the national average annual yield amount by offering its users 0.40 percent (till this date). It is also providing PDIC insurance of up to $1 million locking the credibility of its users.
Betterment has partnered with multiple banks to earn commissions and engage customers. Listed below are the partner banks through which Betterment receives compensation:
- Citi
- Valley National Bank
- Seaside National Bank
- Georgia Banking Co.
- Barclays
Betterment makes money through gaining compensation from the banks. Let’s say banks invested the clients’ money into any profitable platform, what happens next? Betterment makes money through that investment by taking a decided amount as a commission.
Do People Make Money with Betterment?
This FinTech business strives to offer sustainable financial betterment to its investors and users by managing their money on their behalf. Compared to traditional financial advisors, they provide a more beneficial option by offering a long-term financial roadmap. There are numerous ways in which people can make money through the Betterment menu. A few of the ways through which people make money with Betterment:
Investing in the Long-Term
Investing in the long term can lead to financial freedom. Professionals reinvest the dividend amounts earned from their investments into better platforms, resulting in compound interest.
The Growth
People can make money by investing in stocks, ETFs, cryptocurrency, and bonds via betterment to avoid the risks of market fluctuation and facing loss alone. These assets can increase or decrease their value over time, resulting in more profits.
Digital Savings Accounts with Better APY
A good annual percentage yield (APY) is 4%. Betterment offers a higher APY of 4.75%, allowing you to save and earn more interest income from your savings.
Retaliating Against Losses
If you experience any losses in your investments, Betterment can help you recover. By finding an alternative ETF to cover your loss, Betterment can help you regain your financial footing. However, it should be noted that if the market drops, your investments may lose value, making it challenging for Betterment to cover all losses quickly.
Betterment is a companion for businesses, retail investors, and entrepreneurs, helping them build wealth. While Betterment charges consultation fees, it also provides opportunities for its customers to improve their finances.
Final Analysis – How Does Betterment Make Money?
Betterment is a financial service company offering investment, retirement, and cash management services to every business and individual. This has been in the industry since 2008, helping entrepreneurs, students, and businesses reach their financial goals. Despite its remarkable services, this FinTech Company does not disclose its revenue generation tactics to the public. However, their revenue generation model gives us a sneak peek at how they generate income. Betterment makes money through cash reserve, advice packages, digital & premium plans, and betterment for businesses, and advisors. This forum is thriving to generate more income streams and expand its horizon.
Disclaimers
Please note that the purpose of this blog is solely informational. It does not contain any advertisements or offers to subscribe to any particular company. Additionally, the information provided is not intended to encourage investment through any means. Please keep in mind that details such as charges may change over time and should not be relied upon as final facts.
Noor Al Ain is working in the Digital business consulting industry as a business analyst. She is an expert at providing innovative and impactful solutions for business problems. Most of her articles about business and technology issues have been published in most reputable medias.
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