Betterment Wants To Be Your New, Higher-Yield Savings Account

Betterment, a new startup that is launching today at TechCrunch Disrupt, is looking to become the “replacement for your savings account” — it earns you more money than a standard savings account while offering more flexibility than you’d get from higher yield accounts. And, unlike most financial services, Betterment is designed so that anyone can use it, regardless of their knowledge about the market and financial products.

The site has established two portfolios, one of which consists of numerous stocks and another of ‘ultra-safe’ bonds. After linking your bank account with the service you use a slider to adjust how much risk you want to take, which determines how much money is allocated into each portfolio. The site cuts out as many steps as possible — as soon as you’ve put in your money and determined how you want to split your money between the stock market and bonds, you’re basically done (at least if you want to be).

There are plenty of other options for users who want to do a deeper dive. If you want advice on how to determine this allocation, you can look at what your peers have done. There’s an interface to adjust age ranges, income range, etc — and it shows you how risky other people in a similar situation are. An analysis section allows you to watch percent returns over time, or the dollar changes in your accounts, and your account balance.

The site may be dealing with financial information, but like TC50 winner Mint, Betterment has clearly put a lot of time into making its graphs look slick and attractive,

Betterment charges a 0.9% fee.  The company  is registered with FINRA and the SEC — they’ve built their own financial infrastructure for the service (it isn’t just a nice frontend on a different investment platform).

The site goes live tonight (May 24).

Chi-hua Chien: The question is, are consumers going to feel they have enough control. At the end of the day customers think they can outsmart the market. How do you ride against that wave?
A: We do see those as the problem, we’re not the only ones with that Jim Cramer style investment advice. We’ve seen a trend of people moving toward investment advisors and self-managed accounts.
A2: Also, most people aren’t doing any of that. They know they should be doing more. They open Etrade and don’t know what to do. We’re trying to replace the savings account. This is where you place excess money, “here’s where I’m willing to take risk”. It feels more like a savings account than an investment account.
Chien: I do think you have to be more transparent..
A: It is completely transparent. We put every ETF on your statement. We break out every individual security. It’s completely transparent. We’re not hiding anything. It’s just a simpler investment product.
Don Dodge: I like it a lot. I was a judge at TC50 when Mint was on stage, told them it’s a huge market, you only need a tiny piece. I think that’s true for you. I would focus on 401k market. Millions of people forced to be investors through 401k. Many of them are totally clueless.
A: We totally agree..
Bijan Sabet: Don’s right. I have noticed a lot of people who manage 401ks offer these age adjusted program that are black boxes. Start with savings, add additional services.
Chris Sacca: I worry that it’s too simple. People don’t always trust it. People expect a little bewilderment that gives it credibility. This starts to feel a little like a toy.
A: It’s not a toy, it feels more like a savings account. Only difference is that you have to choose this allocation.
Vardi: People like to invest in institutions they feel confident in like Lehman Brothers and Bear Stearns

Round 2 Business Presentation
Betterment was one of the companies chosen to proceed to round two of the TechCrunch Disrupt Startup Battlefield, where they talked about their business model. Here are my notes from that presentation:

There are $300 billion in online only accounts. Overall market is $4.4 trillion. We’re content to focus on the $300 billion market. First we’ll go with traditional marketing – Facebook ads, AdWords, display. A lot of that. Second, intermediated financial channels. People who have existing relationships with customers we want to reach. Referrals. ING Direct gets 40% of customers this way. We’ll also do Media outreach.

Sabet: I Think you need to focus on a market. Word of mouth is something you can focus on later.
A: When I talk about referrals, I mean rewarded referrals which has worked very well for ING Direct.

Sacca– I think they’re going after a real problem. But I think people expect some complexity in these kinds of services. Distribution problems become the complex frontend.

Betterment’s presentation is at 1:05:45 in the session one video: