This Startup Wants to Be a ‘Self-Driving Car’ for Your Money

by
Jeremy Quittner

@FortuneMagazine

September 23, 2016, 10:59 AM EDT

The typical consumer faces a dizzying array of choices when planning for retirement: Do they do it through 401(k)s and IRAs? Stocks, bonds or ETFs? To Roth or not to Roth?

Banking consultant Jon Stein knew there had to be a better way. In 2008, he launched Betterment, an online “robo-adviser” that uses algorithms to help customers construct and manage their portfolios at a fraction of the cost of a human financial expert.

Though he was told it would never work, the concept caught on. Betterment is now the largest startup in wealth management, managing $5.8 billion for more than 175,000 customers. A growing number of traditional firms have also gotten into robo-advice—Fidelity, Charles Schwab, and Vanguard among them.

Stein, who appears on this year’s Fortune’s 40 Under 40 list, sees Betterment becoming a sort of self-driving car, where investors can input their financial goals and let the service determine the best way to get there.

Check out the video above to hear Stein’s views on fintech and whether or not he’d ever be open to an acquisition.

Fortune Live for September 22, 2016: 40 Under 40 Special Edition

by
Jeremy Quittner

@FortuneMagazine

September 22, 2016, 10:33 AM EDT

We have a great lineup today for Fortune Live, our weekly business show hosted by Leigh Gallagher. This episode is all about this year’s 40 Under 40 list. Tune in to find out all about this year’s young business leaders that are innovating and engineering change around the world.

First up, Joel Gay, CEO of Energy Recovery and the youngest black executive to run a public company, explains his strategy behind a strong bottom line and how diversity is better for business.

Then, Payal Kadakia notched the 32^nd spot on our list. The Founder & CEO of fitness app, ClassPass shares some of her tips for time management.

Ryan Smith, co-founder and CEO of Qualtrics and no. 12 on the 40 under 40, then tells us how the company got its start and all about how he measures success.

Next, Jon Stein, the CEO behind the largest robo-advising firm, Betterment, explains how fintech is revolutionizing the financial planning industry. Fortune‘s Erin Griffith then joins Leigh to talk more about the future of fintech.

Katherine Power, co-founder and CEO of Clique Media Group sat down with Fortune’s Erin Griffith to discuss growing her media empire and launching a first-of-its-kind partnership with Target. Tune in to find out more!

Then, Scott Harrison, a 40 Under 40 alum joins us in the studio. The founder of Charity: Water talks tech, attracting donors, and the future of his non-profit.

To close our show, Fortune‘s Michal Lev-Ram chats with another 40 Under 40 alum, GoPro CEO Nick Woodman, about the launch of the company’s first drone.

You can go to fortune.com/fortunelive to watch the full show and individual segments on demand after the show concludes.

Uber’s Latest Perk for Drivers Is a Fancy Savings Management Service

by
Jeremy Quittner

@FortuneMagazine

August 24, 2016, 9:13 AM EDT

Uber doesn’t recognize its drivers as employees, but it wants to help them save for retirement.

On Wednesday, the ride-hailing company said it is partnering and making available to its drivers a service called Betterment, a so-called “robo-advisor” that uses algorithms to manage customer investments. Though it will first be available to drivers in Seattle, Chicago, Boston, and New Jersey, the companies say they plan to expand it nationally later this year.

“I think part of the mission when I started the company, from Day 1, was to serve as many people as possible,” Betterment CEO Jon Stein told Fortune of his company’s partnership with Uber.

Though Betterment has a service aimed at employers, providing them with a manageable 401(k) plan for employees, this is the first time the company is directly integrating its consumer-facing service into another company’s app. Uber drivers will be able to access Betterment’s service via the driver app.

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To make the service appealing, drivers won’t be charged any fees for the first year. Normally, Betterment charges customers various annual fees depending on their balance. If they have less than $10,000, they are charged 0.35% annually, so long as they make a deposit of at least $100 per month. The fees decrease as their account balance increases.

It appears that Uber will be paying the fees for that first year—and the company has “committed some resources,” according to Stein. He declined to elaborate further.

With that said, the new perk for drivers raises some questions. For one, Uber is still embroiled in a class action lawsuit over its classification of drivers as independent contractors instead of employees. Uber, as well as rival Lyft and several other “on-demand” services, have resorted to classifying their drivers or couriers as contractors, so as to skirt on the costs of employee benefits and other employers’ responsibilities.

As of last week, Uber had yet to settle the lawsuit, after a federal judge declined to approve a $100 million settlement proposal, calling it unfair and inadequate.

Moreover, the company has been criticized by drivers for slashing prices—and effectively, their earnings—at the beginning of the year. Though Uber has maintained that it does so seasonally to help boost demand for rides, and that it readjusts prices if the tactic doesn’t work, drivers maintain that their pay has been negatively impacted.

For drivers who say they now have to work more hours in order to make the same amount of money, saving and investing are likely to be challenging, if not nearly impossible.

Asked about that, Stein replied, “I’m not sure how they could be criticized for making an effort to help drivers save.” He added that his company’s service can work with any account balance size and customer income level.

Other perks Uber offers to its drivers include gas discounts and the ability to get paid instantly.

“Robo-advisor” Betterment raises $100 million

by
Jeremy Quittner

@FortuneMagazine

March 29, 2016, 8:19 AM EDT

Betterment, a digital investment startup based in New York, has raised $100 million in a Series E round venture funding led by Kinnevik, a Swedish investment firm. The firm previously raised $105 million in funding; existing investors Bessemer Venture Partners, Anthemis Group, Menlo Ventures, and Francisco Partners participated.

Including the funding, the deal values Betterment at $700 million, up from $450 million in 2015. In another sign of the new austerity in startup fundraising, CEO Jon Stein says he chose not to take a $1 billion “unicorn” valuation in lieu of better terms.

Back when Fortune put a unicorn on its cover, the status of a $1 billion or higher “unicorn” valuation was something to brag about – it helped startups recruit engineers, lure big clients, and get more press.

Investors offered Betterment deals at higher valuations, Stein says, but those offers had “unfriendly terms” including liquidation preferences, ratchets, and “all kinds of structure,” he says. “We have zero structure. The most clean, vanilla 1x preference.” As more startups go public or sell at valuations lower than their last round of private funding, it’s become clear that onerous funding terms hurt startup employees the most. Better terms now trump valuation, and not being a unicorn is the new unicorn.

Betterment is a leader in rising class of “robo-advisors” which use algorithms to help people invest their money while charging lower fees than traditional money management firms. (The company charges 15 to 20 basis points on average for small plans.) There are numerous players in the category, but with nearly $4 billion in assets under management and 150,000 clients, Betterment has emerged as a leader. Last year the company surpassed its top competitor, Wealthfront, which manages $3 billion worth of assets.

Now with $100 million in new capital, Betterment is also the most well-funded robo-advisor startup. The company plans to use new money to build out its two newest lines of business, both of which bring Betterment’s investing management software and financial advice to other businesses.

The first is a “white label” product that Betterment sells to institutional investors. The other is a product that helps companies and employees manage their 401k investments. The latter product launched in January and has 100 corporate customers including startups Boxed and Estimize.

The idea behind new line of business is to make it easier for Betterment’s retail customers to manage all of their financial needs with its software. Last month the company took a big step in that direction with a new aggregation tool that pulls all of a customer’s assets into one dashboard. “We want to be our customers’ central financial relationship,” Stein says.

This article has been updated to correct the price charged by Betterment.

The First Millennial ETF Is Perf For Investors

by
Jeremy Quittner

@FortuneMagazine

December 18, 2015, 12:35 PM EDT

Investors looking to hop on the bandwagon of the hottest companies among millennials can now put their money in the first millennial-focused ETF.

The Millennial Generation ETF is one of 12 new niche funds launched by Global X. The Millennial ETF tracks the performance of companies operating in the favorite sectors of those born between 1980 and 2000. This includes companies involved in social media, digital media and technology, e-commerce, mobile technology, healthy lifestyles, travel and leisure, and the “sharing economy,” according to the prospectus Global X filed with the SEC.

This presumably will include companies like Apple aapl , FitBit fit , Twitter twtr , and Netflix nflx . The Millennial Generation ETF has not yet been assigned a stock ticker although, as Bloomberg reported, LOL and WTF are available.

First noticed by ETF.com, the youth-based ETF is not the only demographically-focused fund. Global X also launched an Aging Population ETF, which targets companies that caters “to the oldest quartile of the population,” the prospectus states. Global X also offers a 3D Printing ETF, a Nanotechnology ETF, and an Urbanization & Smart Cities ETF.

The cohort of investors who may very well be the most interested in the Millennial Generation ETF, incidentally, are millennial investors themselves. Millennials account for 40% of investors who hold ETFs, almost twice the number of ETF-investing Gen-Xers, according to a study by market research group Cogent Reports.

As Fortune explained in a recent story on millennial investors, ETFs are increasingly popular among young traders because they are perceived as a low-risk entry point into the stock market. A new breed of financial apps, such as Betterment and Wealthfront offer ETFs as a primary foundation for users’ portfolios, and the majority of their customers are millennials.

This Bank Is Building a Robot that Gives Investment Advice

by
Jeremy Quittner

@FortuneMagazine

November 6, 2015, 9:41 AM EDT

Bank of America BAC is joining the ever-increasing club of robo-advisors by building its own proprietary automated investment platform, people with knowledge of the project told Bloomberg.

The prototype is being parked under Merrill Edge, the group’s online trading hub, and will target accounts under $250,000, Bloomberg says. The service is set to be launched next year.

This marks another big-firm entrant into the robo-advising field, an emerging, technology-driven area of the investment advice space that replaces human, face-to-face interaction with algorithms that provide advice online or through apps. These robo-advising platforms are especially popular among younger investors: Just 16% of millennials say they work with a financial advisor, according to a study done by Wells Fargo. By 2020, according to A.T. Kearney, robo-advisers could manage $2.2 trillion on behalf of investors.

Startups such as Betterment and Wealthfront have managed to pull early investors away from the traditional brokerages as well, as their robo-advising platforms offer the perks of low fees and a reduced barrier of entry when it comes to minimums. Wealthfront, one of the leaders in the field, reported $1.7 billion in customer assets last year, and almost 60% of its clients are under 35.

“The difference in cost to the consumer is so significant that it can’t be ignored,” Bob Hedges, a partner at consulting firm A.T. Kearney, said in an interview with Bloomberg.

This has prompted bigger banks to build their own robots in an effort to appeal to tech-savvy investors. Charles Schwab unveiled the Schwab Intelligent Portfolios earlier this year, and Vanguard Personal Advisor was launched in the middle of the year. There’s also some interlink between the old and new school: Wealthfront’s algorithms skew towards Vanguard ETFs, said a Wealthfront spokesperson, due to its low cost and higher liquidity.

Update: We earlier stated that Vanguard Group partnered with Wealthfront on their new platform, and that was incorrect. We’ve made a correction above to make the relationship clearer.

Acorns, the app that automatically invests your spare change, raises $23 million

by
Jeremy Quittner

@FortuneMagazine

April 15, 2015, 9:34 AM EDT

Opening and managing an investment account can be intimidating for a lot of people, but what if a simple smartphone app could take care of it all for you?

Acorns, a eight-month old smartphone app built for exactly that purpose, said Wednesday that it had raised $23 million in additional funding.

Acorns’ app was designed to help people, especially first-time investors, get started in investing with small automated investments into a portfolio of exchange-traded funds, or ETFs, that the company selects and balances. Users link their bank accounts to the app, which then automatically rounds up the cost of all transactions to the nearest dollar, withdraws that spare change and invests it. For example, if you buy a coffee for $2.40, Acorns will take an extra 60 cents and invest it in an exchange-traded fund.

“We wanted to connect it to something you’re already doing, which is spending,” Acorns co-founder and CEO Jeff Cruttenden told Fortune. “What we see is that once people get started, they get in” – as in investing and using the app frequently.

Acorns’ two-pronged approach to making investing approachable by automating the process and incorporating a smartphone app is paying off with younger users. Of Acorns’ 650,000 registered customers, 75% are under the age of 35, Cruttenden said.

He added that of the $100 users invest monthly on average, $55 comes from through automated withdrawals using the formula involving the rounding up the value of transactions. It shows that people are drawn to this type of hands-off approach, he said. The rest of the money is from users making voluntary lump-sum investments.

“People are really understanding that technology can help them make better investing decisions,” Cruttenden said.

Acorns’ six portfolio options are designed with different risk levels, and are regularly and automatically balanced based on their performance. In recent years, other automated investment tools such as Wealthfront and Betterment have surfaced to offer investment management with little to no contact with human investment advisors. And an Acorns clone, Lawnmower, which invests in Bitcoin, the popular digital currency, launched last week.

Although Acorns is looking into offering tax-advantaged accounts and possibly more investing options eventually, it plans to stick to investing in ETFs for the time being. When asked what he thought about similar apps for investing like Robinhood, which lets people track and invest in public stocks from their smartphones and without paying fees, Cruttenden said he doesn’t see them as competition. Acorns’ automation is what’s appealing to users, he said. The alternative is traditional brokerage firms, which can be intimidating and have high fees and minimum investment amounts — Acorns’ minimum is $5.

Currently, Acorns charges a $1 monthly fee for accounts with a balance under $5,000, and 0.25% per year for accounts larger than that.

Father-and-son team Jeff and Walter Cruttenden, Acorns’ executive chairman, founded the Newport Beach, Calif.-based company in 2012. With the latest funding, the company has raised a total of $32 million. Greycroft Partners and e.Ventures led the recent round, with Sound Ventures, Garland Capital, and MATH Venture Partners also participating.

But despite the company’s growth and momentum, it could still face challenges when we inevitably hit a down market, said Mark Terbeek, a venture capitalist with Greycroft Partners who led the investment in Acorns. And despite the sign-ups for the service, less than half of those registered users end up funding their accounts.

“This us maybe the first time these individuals have ever had money invested,” he said. “There could be this reaction of ‘hey, this isn’t fun anymore.’”

For more about innovative ideas in investing, watch this Fortune video:

(Correction: An earlier version of this story, in one reference, misidentified an investor in Acorns. It is Greycroft Partners)

Why women are better investors than men

by
Jeremy Quittner

@FortuneMagazine

April 10, 2015, 5:11 AM EDT

In her new Netflix special, Freezing Hot, comedian Iliza Shlesinger focuses on the things women rely on men to do for them … like finding the car in a crowded parking lot and giving them the weather report first thing in the morning. (“Babe, is it cold outside?,” Shlesinger asks.)

Here’s something men might want to rely on women for: money management advice. Two new pieces of research note that when it comes to both saving and investing, women are once again kicking butts and taking names.

First, women save more. Research from Fidelity Investments showed that while men save 7.9% of their salaries, women save 8.3%. That may not sound like a lot, but it adds up to hundreds of dollars a year and tens of thousands over a lifetime of saving.

Second, women are more successful investors. Terrance Odean and Brad Barber, who conducted the seminal piece of research on this phenomenon, showed women outperform men annually by about 1 percentage point. A study from Betterment, a computerized portfolio manager or “robo-advisor,” expands upon why. It looked at the accounts of around 60,000 investors, about one-quarter of them women. Female investors signed into their accounts 45% less frequently and changed their asset allocation 20% less frequently than male investors did.

So what’s the problem? Why is it we’re constantly reading stories of how behind women are when it comes to saving and investing for retirement? “When women do invest, they do better,” says Kathleen Murphy, President of Fidelity Personal Investing. “But too many women don’t.”

Male or female, here are a few suggestions:

Save more, save more, save more.

Do you need to hear that again? Nothing will make as big a difference in your retirement account balance as the amount you save. Even just adding an additional 1% can tip the scales significantly. A 35-year old earning $60,000 a year who puts an extra 1% (roughly $50 per month) into her retirement account will have an extra $3200 per year to live on in retirement (assuming a 7% rate of return and 1.5% raises.)

Don’t overcomplicate things.

“I listen to 20 hours of customer calls every month,” says Murphy. “Young people call and they’re trying to figure out what to do with their the money.” The answer – she says – is basic asset allocation often accomplished by putting with the help of a target date fund. “When things get more complicated they probably will want a financial advisor. But [at the start] let’s demystify it and if there is a simple investment solution focus on that. Betterment Data Scientist Sam Swift agrees. “We encourage people to be as passive as possible,” he says.

Investor, know thyself.

Betterment’s research found that in addition to taking a more hands-off approach, female investors were less likely to indulge in what Swift calls “erratic behavior,” meaning less likely to dump all of their stocks and go completely into bonds or vice versa. Although the majority of male investors in the study didn’t behave this way, men were nearly six times more likely than women to make this move.

Men were also significantly more likely to take more risk than the platform’s algorithms advises for them. Interestingly, the moves didn’t come as a reaction to one particular headline but the markets themselves. “We see people in general move toward stocks when stocks have been up the last 7 days – and toward bonds when stocks have been down the past 7 days,” Swift says, acknowledging that this is the antithesis of what investors should be doing. The key is to try to understand who you are and how you’ll react to market moves. Making an appointment to check your portfolio once a month rather than when the spirit strikes may be the better idea. “The more active you are, the more inclined you are to participate.”

And if you’re new to the table, bring a friend. Murphy has recently criss-crossed the country speaking to groups of women about their money. She notes that one thing that helps reluctant women get involved is to do it with a friend. Events where the invite has said “bring a friend” draw standing room-only crowds, she says. “Women love talking to each other about their experiences and once they get started they do very well. There’s an unwarranted confidence gap that doesn’t play out.”

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