Robo-adviser Betterment raises $60 million, led by Francisco Partners

By Jed Horowitz

By Jed Horowitz

NEW YORK (Reuters) - Betterment LLC raised $60 million (£39 million) from private equity firm Francisco Partners and other investors, the company said on Tuesday, the latest vote of confidence in the ability of so-called robo-advisers to take on traditional brokers.

New York-based Betterment, which uses algorithms to design portfolios of exchange-traded funds based on questionnaires filled out by clients, has raised a total of $105 million in four rounds of funding since its founding in 2009.

"We didn't really need more but we are growing so fast and getting such demand from investors that we took advantage of it while we could," Jon Stein, founder and chief executive of Betterment, said in a phone interview. The firm still had about $20 million from its last funding round in April, he said.

Robo-advisers such as Betterment, Wealthfront Inc. and Personal Capital raised $290 million in venture capital funding in 2014, according to CB Insights, and the turf is becoming competitive.

Charles Schwab Corp will launch a free robo-service next month for people who make about $100,000 annually, while Fidelity Investments, TD Ameritrade and other discount brokers are referring some independent investment advisers who use their services to Betterment or its rivals.

About 90 such advisers are exploring whether Betterment's cut-rate services are appropriate for potential clients they usually ignore because they do not meet their minimum net worth requirements, Stein said.

Most money transferred into Betterment accounts comes from online brokerages that appeal to do-it-yourself investors, Stein said.

Robo-advisers are significantly less expensive than investment advisers and brokerage firms that typically charge 1 percent or more of the assets they manage in advisory accounts. Clients with less than $10,000 at Betterment pay $3 a month (unless they regularly deposit $100 monthly) while those with $100,000 are charged 0.15 percent of the total.

Betterment will deploy some of its $80 million of cash to hire 30 more people this year - about half of whom will be engineers and analysts and the rest customer services representatives, Stein said. The firm, which now has about 90 employees, also plans to upgrade its system for moving customer funds from outside brokers and to enhance online planning features to help customers set retirement and other goals.

Betterment's typical customer is 36 with a liquid net worth of $200,000, belying the stereotype that robo-advisers appeal to first-time Millennial investors, Stein said. About 25 percent of assets at the firm, he added, are from people over age 50.

Stein would not discuss Betterment's valuation, revenue or profitability.

(Reporting By Jed Horowitz; Editing by Christian Plumb)

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