Betterment's Pricing Blunder

Betterment is an automated financial investment service, often called a "robo-advisor." They have a progressive philosophy, a wonderful product, and beautiful user interfaces. And I'll write all about the reasons I'm a Betterment believer in another post, but that's not why I'm writing now.

Betterment screwed up.

They made four major mistakes:

  1. They automatically upgraded people to more expensive plans for new, possibly unwanted features.
  2. They didn't allow people to opt out of these features.
  3. They hid behind a weak guarantee.
  4. Their support team did not make it right.

Our Experience

I'll share our experience with Betterment's 2017 pricing change, fully acknowledging that this is all colored by my own probably-wacky notions of customer services and justice.

You'll also learn about how much Catie and I have saved for retirement, as a prerequisite for understanding our particular beef with Betterment. Sure, that makes me a little uncomfortable but hey, whatever.

The Upgrade

On January 31st, Betterment sent an email with the subject line, "New Betterment service plans for 2017." I'm including the entire body of the email below:

Dear Stephen,

Since we launched Betterment in 2010, we have worked every day to empower investors like you to do what's best for you and your money, so you can live better. I hope that you feel we've been living up to that aspiration.

A critical element of doing what is best for you is transparency—including providing a straightforward view of our services and fees. With that in mind, I am writing to highlight an adjustment to our pricing plans we are making.

After listening to our customers, we realized our pricing could be even more straightforward. Your current plan will continue to be 0.25% per year of your average balance. In addition, we're eliminating our monthly minimum fee, and eliminating our fees on all balances above $2 million.

You'll continue to enjoy Tax Loss Harvesting+™, Tax-Coordinated Portfolio™, award-winning customer service, and more. As always, there are no trading fees and no transaction fees—and now, no minimum fees.

At Betterment, we do not have any of our own investment products to push on you, which means we'll continue to offer you an unbiased portfolio. We believe this approach allows us to give the least biased financial advice, and helps you achieve the highest expected returns.

I appreciate your trust in us to help you reach your financial goals.

Thank you for being a Betterment customer,

Jon Stein

CEO and Founder of Betterment

Seemed pretty innocuous to me. I read "Your current plan will continue to be 0.25% per year" and figured that nothing much had changed, but I was just heading out the door for work so I decided to give Betterment a call just to make sure I wasn't missing anything.

I'm glad I called.

Here's Betterment's annual pricing based on amount invested, before and after this email:

Assets Before After
$0–10K $36 0.25% ($0–25)
$10K–100K 0.25% 0.25%
$100K–250K 0.15% 0.40%
$250K–2MM 0.15% 0.50%
$2MM+ 0.15% ($3,000+) $10,000

When all is said and done, you'd pay less in fees if you either have less than $10K or more than $6.7MM invested. Anywhere else in the middle there, you'd pay more. And in some cases, significantly more!

When I received this email, we had just over $10K in assets invested. You can see why the email didn't jump out at me; our pricing wouldn't change at all. The wrinkle is that weeks earlier, we'd started a transfer of just over $100K to Betterment from our previous financial advisor and those funds were set to clear at any moment. That transfer would bump us up to the $100K+ tier.

Before the email, I was excited about the bump because it meant we'd hit a breakpoint. Typically, a financial advisor (robo or otherwise) wants to incentivize you to invest more and more by giving you small pricing breaks as you do. You can see these breakpoints at $10K and $100K in the "Before" column.

The bizarre twist is that Betterment's new pricing did quite the opposite. After $10K, pricing got worse and worse until finally they stopped the bleeding once you had $2MM invested. That's $2,000,000. I don't know about you, but that number is still a long way off for us.

The Trap

This all came to light during my phone call with Betterment's support on my way to work.

Side Note: My first call was accidentally disconnected. When I called back, their phone system recognized my number as one that had probably just been disconnected. I was put at the top of the queue and I was talking with a real person within seconds. That's how phone support should always work. I'm looking at you, Comcast.

The explanation given to me for the pricing increase was that the extra fees give me access to their "team of CFP® professionals and licensed financial experts." Between $100K-250K in assets, we'd get one phone call per year with somebody on this team. That comes to between $250–625 in extra fees for that phone call. Between $250K–2MM in assets, we'd get unlimited phone calls, but we'd pay between $625–10K for that privilege.

But wait, I don't want your team of experts. I'm here for the robots!

Surely, I could opt out. A huge part of Betterment's appeal has been their mission of leveraging technology to provide the lowest fees possible. To my disappointment, there was no way out. Betterment's only suggestion was to not call their team of financial advisors. Yes, the suggestion was to pay for the call… and not to call.

They also mentioned their Satisfaction Guarantee.

The Guarantee

Betterment has a Satisfaction Guarantee. As of this writing, it's as follows:

At Betterment, we are committed to providing our customers with a great investing experience. If, for any reason, you are not completely satisfied with your Betterment account, we will do everything we can to make it right, up to and including waiving Betterment's management fees for the next 90 days.

Let's do the math.

At this point, Betterment has given me the ol' bait and switch to the tune of 0.25% in extra fees. For round numbers, let's assume assets of $100K.

Under their original pricing, we'd pay $150 in fees annually.

With their new pricing, we'd pay $400.

Even if we were to cash in on the Betterment Satisfaction Guarantee, we'd still pay $300 after the three-month credit.

It's a weak guarantee that still doubles your prices.

The Support

My call with Betterment support ended just as I pulled into work.

They suggested calling again after our transfer was complete to see about being grandfathered into the old pricing. Although I was frustrated with the pricing change and our lack of options, I was hopeful their support team would still make it right.

On the short walk from my car to the office, I received this email from the support person I'd just talked to:

Hi Stephen,

We just spoke and I wanted to let you know that you will be grandfathered in at the .15% annual plan when your rollover completes, but you should always feel free to call us when those funds arrive to confirm your pricing.

As always, please don’t hesitate to let us know if you have any additional questions and we’ll be happy to assist you. Thanks for being a Betterment customer and have a great day.

Good. They made it right.

Not So Fast

Six days later on February 6th, I sent the following email:

It seems as though my account *did* move to the 0.15% fee tier but has since reverted somehow to the 0.25% tier. Could you please look into this for me? Thank you!

Two days later, I received this reply:

Hi Steve,

Thanks for following up on that — we’ve manually adjusted that fee tier for you so you will be at that .15% rate until the shift on June 1st.

As always, please don’t hesitate to let us know if you have any additional questions and we’ll be happy to assist you. Thanks for being a Betterment customer and have a great day.

Wait, wait, wait… "shift"? What shift? June 1st? Huh?

A quick Google of "betterment june 1" took me to the pricing section of their FAQ page. I read through this page back on January 31st when the pricing changes were first announced, but now it was different. Here are a couple of the questions and answers that were added on February 1st, the day after my phone conversation with Betterment support:

My fee was lower before the pricing update. Will I keep my lower rate?

If you had a balance of $100k to $3.3MM as of Jan. 31 and were on the 0.15% pricing plan, the price change will not go into effect until June 1. On June 1, your fee will go up to 0.25%.

For balances above $2MM, your fee will be 0.25% on the first $2MM. We will waive fees on the balance over $2MM.

Before the pricing update, I was planning to reach a balance of $100,000+ soon. If I reach that soon, will my fee be 0.15% or 0.25%?

If your Betterment balance increases to more than $100,000 by March 3, we will reduce your fee to 0.15% from March 3 until June 1. On June 1, your fee will increase to 0.25%.

From my perspective, it looks like the pricing change on January 31st might have caused enough of an outcry that they softened the impact by delaying the effective date to June 1st.

Also new to the pricing FAQ was a change to make access to their team of professionals an opt-in feature. The new, new pricing structure looks like this:

Assets Old New New, New
$0–10K $36 0.25% ($0–25) 0.25% ($0–25)
$10K–100K 0.25% 0.25% 0.25%
$100K–250K 0.15% 0.40% 0.25%
$250K–2MM 0.15% 0.50% 0.25%
$2MM+ 0.15% ($3,000+) $10,000 $5,000

It's a big improvement and most importantly, they removed the feature trap.

But there's the still the issue of what I was told originally by Betterment's support team:

I wanted to let you know that you will be grandfathered in at the .15% annual plan

However, the message I'm getting now is much different. This last email makes it sound as though I'll be moved into the new, higher pricing tier on June 1st. That's not my definition of being "grandfathered in."

The Solution

It's simple.

There's far more value in an actively promoting customer paying 0.15% than there is in an actively detracting former customer paying 0.00% for life.

Betterment should honor their word and preserve their existing customers' pricing.

Update (February 13)

Rather than firing off a frustrated reply to the latest support email, I asked to speak with my support person's supervisor. That conversation happened today.

I told the story of our experience and asked specifically to be grandfathered into the 0.15% pricing tier, as promised. Betterment's representative denied the request, reiterating that we would be moved to the 0.25% tier on June 1st and that I'm free to exercise my "satisfaction" guarantee.

While I'm still a believer in Betterment's investment platform, I'm frustrated by the apparent powerlessness of their support team to solve customer problems, especially problems they caused.

The Plan

We plan to revisit our research into where we'll invest our retirement savings. It may be that Betterment is still the right choice, but I'd be surprised. This frustration would have to subside quite a bit in order for us to warm up to that possibility.

And even then, now that we know how comfortable Betterment is with pulling the rug from under their customers, what confidence do we have that this won't happen again?

We'll be giving Wealthfront some serious consideration.

Steve Richert

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