A Digital Personal Banker, for Everyone.

How Betterment.com brings personalized asset management to the masses.

As problems go, being tired from all these lunches with your private banker is one of the better ones to have. While private bankers offer high quality financial advice that enables their clients to successfully build wealth. They are only available to millionaires and even these privileged few pay high annual fees. The less fortunate are stuck with standardized financial services such as mutual funds or stock trackers. What if we could use software to make personalized investment decisions for us? Would it be a digital personal banker for the average Joe?

Enter Betterment.com, a so-called robo-adviser. Robo-advisers operate on the idea that a combination of web personalization, recommendation agents, and investment algorithms can provide a fully digitized alternative to human personal bankers. At a fraction of the costs (0.25% vs 1-3%), and with no minimum required capital deposits. In other words, Robo-advisers promise personalized asset management for the masses (finally).

Robo-advisers promise personalized asset management for the masses.


On a basic level, personal banking works by understanding an investor’s risk preferences and goals. These two elements are then translated into an investment portfolio. The creation of a portfolio is based on a set of advanced financial theories, yet the basics come down to simple farmer’s logic: “don’t put all of your eggs in one basket”.

It is quite a challenge to accurately determine an individual’s risk profile. And as you are going to invest this person’s money, it is very important to get it right. This is why human advisers have traditionally been important. Betterment cracked the problem, they can create a decent risk profile through a basic survey and they simplify goalsetting by using relatable terms.  Investors are asked to classify their goal, i.e. retirement or a safety net? Within these classes investors are again asked relatable questions such as the retirement date and target monthly payout. The robo-adviser then performs the necessary planning calculations and provides the investor with a clear roadmap towards their goal. Now the good part starts, robo-advisers don’t just advise. They can also actually invest your money for you and manage your portfolio in realtime until you have reached your goal.


Betterment outperformed the US market since it’s conception

In effect the survey and goal setting method serve as a feature based interface. The  calculations and many other complexities are hidden from the investor. Instead they are asked for desired outcomes and relevant limitations in terms that every investor can understand. If an investor does want more control, Betterment offers a parametric interface as well. In this interface more experienced investors can do things such as manually adjust the mix between stocks and bonds.


At this time Betterment is the robo-advisor market leader and has $3bn in assets under management, well over 60.000 clients. Analysts predict imitation by traditional wealth managers and strong future industry growth to $5-6 tr in assets under management by 2026. It does seem that the average Joe will get personalized asset management at last.




Randall, T., Terwiesch, C., & Ulrich, K.T. (2005). Principles for user design of customized products. California Management Review, 47(4), 68.

Accenture, (2015). Robo-advisors’ appeal to investors is based on more than price.

McKinsey, (2014). The Virtual Financial Advisor: Delivering Personalized Advice in the Digital Age.

WSJ Robo Advisers Seen Exploding in Popularity (2015)

Putting Robo Advisers to the Test






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