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Betterment Raises $32 Million To Disrupt Money Management

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Betterment, the online financial services firm pitching better investments through technology, has raised $32 million in its latest round of funding.

Consumer-focused financial services startups of all stripes have raised significant investments from venture capitalists in recent months, as companies try to tackle the morass of modern money management.

The financial services industry encompasses trillions of dollars of transactions and wealth management is increasingly critical in the U.S. because less than 25% of all Americans have access to a guaranteed retirement plan, according to a report by the Center for American Progress.

That means enlisting the aid of a money manager or mutual fund, and typically enrolling in a 401k, which, in turn, means paying fees that can be a drain on savings, according to the CAP report.

Enter technology companies like Betterment, WealthFront, Personal Capital, and SigFig which are looking to disrupt the money management market with lower fees and a more flexible, fully managed, technology-enabled approach to savings.

Betterment’s technology was able to attract new investments from Citi Ventures, Globespan Capital Partners and Northwestern Mutual, which co-led the company’s Series C round. Previous investors Bessemer Venture Partners, Menlo Ventures, and Anthemis Group also participated in the round.

The new investment will be used to expand the suite of products Betterment sells, according to chief executive Jon Stein.

Earlier this month Betterment rolled out a new product for retirees that connects with their existing accounts to automatically withdraw a set amount of money within their monthly spending limits.

With 20% of Betterment’s customers over 50, products and services geared toward retirement planning, estates and trusts are definitely on the roadmap, Stein said.

Since launching in 2010, Betterment has racked up 30,000 customers and currently has $500 million in assets under management.

The company charges roughly 0.34% in advisory fees and fund expenses for managing a customer’s portfolio of exchange traded funds. A typical mutual fund will charge roughly 1.4% and a managed exchange traded fund will charge 1.78% in fees, according to Betterment.

Over the years, Stein said he’s built his company from a basic broker dealer to a company that can now do fractional share trading and offers a full set of accounting tools for personal finance along with advice on investments.

Now Betterment is looking to partner with investment advisors in pilot projects to make its investment advisory technology available to industry professionals as a kind of white label service. “We see this as a bit of a land grab,” said Stein. “It’s a trillion-dollar kind of an industry, so we’re not really worried about tapping out the market.

Photo via Flickr user 401(k) 2012