Marketing and UI/UX would be my guess. Just as Robinhood was aimed at a younger cohort (smartphone only, slick interface, social media hype through a waitlist, etc.) some of these Robo services will be tailored to the differing needs of a younger crowd...even if ultimately, the fees on these new services are a few tenths of a percent higher than the Vanguard/Charles Schwab funds. They'll also probably play up the anti-big bank, overthrow the established financial order, "we are new fintech" factor to build hype around their funds and services.

II) Nonetheless, incumbents sometimes lose new markets, or allow new entrants to achieve success. Ironically, Vanguard and Schwab are great examples of companies that more recently found openings in the personal finance space and prospered as a result. It's not a stretch to say that Vanguard was the Betterment of its day, or that Schwab was the Wealthfront of its day.

III) Some other thoughts as to why anyone would choose to invest with a pure-play robo-advisor:

- "The Schwab Intelligent Portfolios service is free—it earns revenue in part by investing clients’ money in Schwab-managed ETFs." That would turn me off, as it feels like a built-in conflict of interest. I'd be worried that there is incentive for this conflict to grow, and not in my favor.

- "Customers need at least $50,000 invested at Vanguard to participate, but only those with at least $500,000 to invest get a dedicated adviser." Most Americans have less than $50k saved for retirement, IIRC. Vanguard is saying they don't want most people in this offering. Betterment and Wealthfront do not have account minimums, so they are positioned to start with people in their 20s and stick with them over the decades.

I'm sure there are a bunch of other reasons around technology, etc., but these are the most obvious reasons presented in the article.

Wealthfront has a minimum of $500, which is admittedly less than $50k, but it is still a minimum.

Wealthfront also will not provide certain services until you have an account balance of $100k.

For comparison, I rolled over quite a bit of money from a Vanguard fund into Betterment in part because the interaction with my money was more difficult in Vanguard, and I pretty much had to use the website. I also have a work plan with Fidelity invested in a target retirement fund with very low fees, but again the app and how I interact with my money is terrible in comparison.

I understand Betterment is doing less, which is probably why everything is so easy to find, but for someone like me who wants to have their money 100% in equity assets and diversified with an easy dashboard, Betterment is far and away the simplest. A nice bonus is that I can crank my allocation up to 100% stocks 0% bonds which it seems none of the target date retirement funds will allow (I have stable assets invested elsewhere and don't need the exposure in my Betterment accounts).

Of course target-date funds don't have that, that's the point.

Also if you want 100% stocks and 0% bonds you can buy VTSAX or VTI (that's US equities, if you want international ex-US there's VTIAX / VXUS).

I'll probably switch over to a strictly Vanguard portfolio when that harvesting isn't saving me money any longer, but until then, I think I'll stick with Betterment.

Tax loss harvesting isn't a feature that you can differentiate yourself with.

I've implemented it several times over for the hedge funds I've worked at. Its a well understood tool that's been in use by funds for as far back as I remember.

A more realistic estimate is probably 6 people for 2 years. Plus increased support costs. Large financial companies are often ridiculously slow to roll things out, but as a customer you want risk aversion not bugs.

A good example of how estimates in software are usually off by large factors. Determining the best exit point to harvest a loss at, for example, would probably take more than a week. And that is just one small piece of the model.

I suppose you could do something like that within a sector - trading an Amazon for an Apple in tech, or a Shell for an ExxonMobil in oil - but that's betting on a lot of independent factors besides the performance of the commodity or sector as a whole.

In fact, I'm not even sure how Vanguard could do this in any manner that would be customer facing.

I can buy whatever companies ETF I want with my Vanguard account. Why would it be illegal?

http://www.investopedia.com/exam-guide/series-7/investment-r...

I suppose you could think of it as an interest-free loan (by getting your deduction now rather than lower taxes later), so maybe it does make sense. Personally, I'd much rather pay my taxes now, while I'm earning an income, and maximize the amount of my retirement savings that I'll actually get to spend without having a mysterious tax bill hanging over my head. I prefer Roth IRA to traditional for the same reason.

> $3500 in realized losses... $1500 deduction

Someone please correct me if I'm wrong, but it seems silly to harvest more losses than the capital loss deduction limit ($1500)! That's $2000 worth of higher cost basis that were basically "thrown away" rather than saving you ($2000 * ~15%) on your eventual gains taxes, no?

Currently you can deduct up to $3000 of short term capital losses per year against other types of income (e.g. regular employment income), and any remaining balance can be carried forward indefinitely.

*Edit: or, as cbhl points out below, OP is married filing separately, in which case the deduction limit is $1500/year (multiplied by marginal tax rate to yield actual tax savings).

> $1500 in deductions

Do you mean $1500 in credit? why wouldn't all $3500 be deductions?

> Well worth the ~$250 in fees I paid them this year.

Will this work every year, even in bull markets?

https://www.irs.gov/uac/Ten-Important-Facts-About-Capital-Ga...

Frankly, I'm not sure. I did it through Turbotax a week ago and didn't look closely at it.

> Will this work every year, even in bull year?

As long as you have a security that you can sell at a loss with a comparable security to replace it - yes.

I don't think that this really counters any of your points, only justifies why I think some people might want to use services like Wealthfront and Betterment.

Putting your money into Vanguard requires more investing knowledge (picking which ETF, how to spread investment) and is not nearly as easy, nice to use as betterment. Betterment is a tech company and they seem to be good at building tech around ETFs in order to make it a better experience. iOS enough to fork over a couple of hundred dollars a year in fees. I don't Hinkie Vanguard will ever provide an experience as nice as betterment.

Also, their tax-loss harvesting feature could actually save you money in the long run if you don't have a retirement account.

If you want to understand the basics of passive investing, The Bogleheads Guide To Investing is a brilliant book.

You could also just pick a couple of already-well-diversified index funds. In the end, the additional knowledge that Betterment offers you is only a benefit if they have higher returns than a simple portfolio of index funds after fees.

Totally unsolicited, but I have an account with Wise Banyan and I'm really pleased so far.

* AUM $3B as of 11/2015

* Average account size is ~$30,000 from what I can gather

* That means 100,000 users

* At Betterment pricing, they make $6/mo per user

* That's $7.2m/year

Betterment has 149 employees on LinkedIn. I would assume the true number is closer to 180. Assuming an average fully loaded (salary, taxes, benefits and perks, etc) cost of $100,000 per employee, that is $18m in headcount costs alone.

I also wouldn't be surprised if the CAC is over $100, which means at least $10m to acquire those 100,000 customers.

Lastly, $7.2m in revenue is likely over stated for 2 reasons: 1) There are tons of free accounts that drag the average down and don't pay anything, 2) Which means some of the larger accounts that have substantially more fall into lower price tiers and result in lower revenue (per dollar invested)

They're dealing with people's money and they're growing. Doesn't seem too absurd. They're not just building a rinky dinky dumb interface between a user and a Vanguard fund. Also, they have an institutional product outside of the scope of the consumer product.

I get all that. I don't get how that kind of head count works for a company that only has about 100,000 customers and $3 billion in assets, considering the value proposition for this company is supposed to be intelligent passive investing.

> They're dealing with people's money and they're growing. Doesn't seem too absurd. They're not just building a rinky dinky dumb interface between a user and a Vanguard fund.

Prop shops and hedge funds run leaner than they are, and those places are employing lots of people for actively developing trading strategies and maintaining large, sophisticated backend systems. Betterment is supposed to reduce the risk and cost of investing by using algorithms to build index funds and cutting all that active management crap, thus I would expect them to be running leaner than those other places.

As for growth, they have been in business for almost eight years. I don't think the growth rate justifies the current head count. I worry that they are pulling a Twitter and hiring a bunch of people they don't actually need yet as part of a talent war.

On their institutional product, LinkedIn gives me the impression that it is run as a quasi-separate entity. I don't know if the 180 people referred to here have much to do with that part of the business.