The wealth management industry continues its gradual embrace of digital assets, with Betterment becoming the latest company to buy its way into the market.
The digital advice startup announced it would acquire Makara, a cryptocurrency portfolio management fintech that has previously billed itself as a sort of “Betterment for crypto.” Both retail customers and financial advisors on the Betterment for Advisors platform will be able to invest in a diversified crypto portfolio alongside their existing investment portfolios.
It’s Betterment’s first acquisition since
The acquisition also marks somewhat of a shift in Betterment’s investment philosophy. Even as its main competitor, Wealthfront, launched proprietary investment funds,
The company did introduce Flexible Portfolios in 2018 to let clients tweak asset weight classes, select SRI portfolios or build some custom models. Now, clients can add a historically volatile asset class to portfolios, and Betterment does not have plans to limit how much cryptocurrency retail investors can put in their portfolios, said Betterment Director of Communications Danielle Shechtman.
“What you will continue to see from Betterment is we are incorporating a lot more choice into the platform,” Shechtman said. “Not all the way on the other end of the spectrum like Robinhood, but we do want our clients at the end of the day to decide what to do with their money.”
Betterment is planning to provide education, guidance and advice around cryptocurrency — the company has
“If a customer wants to put 100% of their portfolio in crypto, we will likely tell them not to do that, but we don’t want to stop them altogether from making that selection,” Shechtman said.
Though Betterment describes Maraka’s portfolios as expertly built and managed, some wonder how an algorithmic portfolio construction software determines the correct asset allocation for something as new as cryptocurrency. How will the rest of a client’s portfolio be adjusted to account for the risk added by cryptocurrency, asked Charles Rotblut, a vice president at the American Association of Individual Investors.
“If a client is heavily weighted in crypto assets, that has an influence on how much risk they should take in the rest of the portfolio,” Rotblut said. “When it comes to cryptocurrency, because it’s such a new asset class, we really don’t have a lot of evidence on how it's going to perform, or if it’s even going to be in existence 10 or 20 years from now.”
Some of the details are still getting ironed out, said Jon Mauney, head of Betterment for Advisors. Makara is an SEC-registered investment advisor, like Betterment, and the eventual integration, which is planned for later in 2022, will be compliant, he said.
“First and foremost, it’s an entirely optional product,” Mauney said. “We won’t be funneling clients into this.
“From an actual RIA, fiduciary standpoint, we are still building our opinions around that on the retail side of things,” Mauney added.
Crypto for advisors
Betterment also sees opportunity for the rapidly growing business of providing infrastructure for human RIAs to advise on digital assets. In addition to demand from retail investors, RIAs on the Betterment for Advisors platform want to be able to advise on crypto positions clients already have, Mauney said.
The robo will utilize Makara’s existing relationships with cryptocurrency custodian Gemini to hold digital assets, and advisors will get access to Makara’s investment model portfolios.
The offering brings Betterment for Advisors into competition with other crypto-for-advisors companies, such as Onramp Invest and the MassMutual-owned Flourish Crypto.
“We’ve had very close conversations with Betterment before this announcement about their plans to roll out crypto. We are still in discussions around some type of education offering for their advisors,” Onramp CEO Tyrone Ross said in an email. “I’m a huge fan of their team and excited they’ve found a solution that fits their model.”
Onramp, meanwhile, has created a 55-page report that it will submit to the CFP Board for how cryptocurrency can be added to CFP’s existing curriculum. The document includes suggestions for how advisors can incorporate digital assets “diligently and appropriately” into their practices but is based primarily on education rather than advocacy, said Caitlin Cook, vice president of operations for Onramp Academy.
“With crypto being such a retail-driven trend, it’s very likely that their clients are curious about it or own it,” Cook said. By incorporating it into the “gold standard” of certification, advisors can “be a true fiduciary” with recommendations on fiduciary assets, she said.
“Its like any other asset class — you may not like high-yield [alternatives], you may not like gold, and you may firmly believe your client should not invest in them, but if your client comes through the door to ask you about it, you should be ready to have an answer,” Cook said.
The CFP Board does not currently have plans to initiate an update to its codes and standards, nor would a review be likely to include digital assets, according to General Counsel Leo Rydzewski. The fiduciary duty is broad enough to cover all types of assets and doesn’t single out products like mutual funds, IRAs or 401(k) plan accounts, Rydzewski said in a statement.
Cryptocurrency is also included in several sections of its current curriculum, added John Loper, the CFP Board’s managing director of professional practice.
“Non-traditional assets will always be a part of the investment landscape, and the emergence of digital assets requires CFP Board to stay apprised of its development,” Loper said in an email. “It is understandable that Onramp would like to see digital assets more specifically integrated into the CFP. However, no changes are required to our exam at this time.”
Regardless of direct-to-retail products like Betterment’s, it’s important for advisors to be aware of and educated about digital assets, said Rotblut.
“If investors have questions about those things, then advisors should have the knowledge to have an intelligent discussion with them,” he said.
