Jon Stein: “I’m loathe to play this game, but my PR team insisted that I set the record straight.”
“Since Citibank is an investor in Betterment, it might be inevitable that some of their tricks would seep into Betterment’s service. At $3 per month, an investor opening an account at $100 would be paying an annual management fee of 36% in the first year.
In fact, it would be even higher in the second year since the fee doesn’t drop as your account loses value. At $250, it would be 14.4%. At $500, it would be 7.2%.”
“In a marketing ploy designed to bait us to respond and thereby invite the press to pay attention to them, Wealthfront made knowingly inaccurate statements about Betterment. Some press love a good hatchet job, so much that they occasionally gloss over the facts — much like Wealthfront. I have faith that careful readers and reporters will see Wealthfront for what they are: spin artists. I’m loathe to play this game, but my PR team insisted that I set the record straight.”
“How many Betterment clients are now paying this outrageous fee? 10,000? 15,000? 20,000? Like Schwab, they seem happy to tell their investors one thing, and their clients, another. This is also why we refused to raise money from the traditional Wall Street firms. The acid seeps in. There is no reason that this new generation of companies has to succumb to this abhorrent temptation set forth by the old guard. It doesn’t have to be that way. Vanguard took the right path. It can be done.”
“The strategic mistake for this positioning, in my mind, is that investment management is not a winner-take-all market,” he writes.
“Quite the opposite, there are many firms managing trillions of dollars. So it is a marathon of building up credibility and brand in the marketplace, which is difficult to do at scale without having economics that work. And it is dissonant to cite Vanguard: comparing start-up companies backed by professional investors looking for billions-dollar exits with a non-profit makes little sense. I would certainly tip my hat if Wealthfront converted to a mutual structure, thereby focusing on mission over its cap table.” Nash went on: “Let this be an open call to all the FinTech startups out there. We can do better than this. We have to be better than this. Stop charging monthly fees for small investors.” “I do not think we should be taking Nash’s accusations at face value,” he writes in an email. “If Wealthfront had 1,000,000 clients today invested at $500 each, they would be losing massive amounts of money and looking for solutions to generate profit. There are hard fixed costs to trading, data, infrastructure and oversight. But they have deep venture backing and follow the Valley approach of focusing on market growth over revenue. So it is not surprising they would use Nash’s messaging, who has branded himself as a rogue vs. Schwab and Betterment, to draw attention to the launch of their differentiated feature. This branding probably appeals to many of their target clients.”
“I see this salvo as more as a shot across the bow of big players like Schwab and potential bank entrants such as Bank of the West, U.S. Bank, and even bigger ones, than a potshot at Betterment”
“Betterment has more than three times the customers of Wealthfront, and the gap is widening, according to recent public Form ADV filings,” he blogged.
The Betterment CEO also accused Nash of lying about his firm just to promote its new $500 account balance minimum.
“In a post timed to promote this policy change, Wealthfront’s CEO knowingly made inaccurate statements about Betterment. These misstatements are cited and rebutted with facts below.”
FINDrama!