One of the big, young roboadvisors is making headlines again, this time for targeting a market that its forefathers first went after about 20 years ago.

Jon Stein Betterment Chief Executive Officer, Founder

On Friday New York City-based Betterment unveiled its plans to launch a bundled 401(k) service, and oodles of publications rushed to trumpet the news. Yet for fundsters familiar with the 401(k) space, the whole story may feel like deja vu all over again.

Here's the take of our sister publication, 401kWire.

Five-year-old Betterment now manages more than $2.6 billion for more 100,000 retail investors, translating into an average account balance of $26,000. Betterment for Business combine its online advice and models built out of ETFs with recordkeeping and administration. The idea is to launch the service in the first quarter of 2016.

Yet despite all the press roboadvisors have been getting in recent years, the first ones actually launched in the 1990s, and they went after the same market that Betterment has its sights set on: 401(k)s. The surviving first-generation roboadvisors are Morningstar and Financial Engines, both of which offer their advice and portfolio-building services to 401(k) plan participants by reaching plan sponsors. That business is one of many different business lines at Morningstar, but it's the core offering of Financial Engines, which in 19 years has transformed into a publicly-traded company with a market cap of $1.57 billion.

Like the early first-generation roboadvisors, Betterment and the other new roboadvisors have largely built out retail brands and gone after individual investors directly. The new service would give Betterment the opportunity to gain a different kind of distribution scale, leveraging winning over plan sponsors into winning over many participants in each plan. And unlike Financial Engines or Morningstar, or indeed other roboadvisors, Betterment is making a play to own the whole relationship by being the plan recordkeeper and TPA, not just the advice provider.

Oh, and Betterment is also throwing barbs at the entire existing 401(k) industry, too.

"Current 401(k) offerings — and we have examined them all — have poor user experiences, high costs, and a clear lack of advice. Not anymore. Betterment for Business will bring our smarter technology to the workplace and the millions of Americans who badly need it to meet their retirement needs," states Jon Stein, founder and CEO of Betterment. "It's time that all Americans have low-cost, unconflicted advice and smarted technology for retirement planning."

On the flip side, even reaching plan sponsors direct is tough, and given those comments Stein may not find lots of existing 401(k) industry players rushing to help Betterment get in on the action. Many 401(k) providers built out gigantic wholesaling forces to reach sponsors, yet part of the roboadvisor pitch is about the efficiency of doing things online, without a lot of human capital. But even reaching tens of thousands of plan sponsors is easier than building out a salesforce to directly reach millions of individual investors.

Another tidbit worth pondering is pricing. Outside of the largest employers, 401(k) plans are largely sold with help from a financial advisor or payroll provider. BfB will charge no startup fee for plans with more than $1 million in assets and will charge an asset-based fee of 10 to 60 basis points. Since Betterment isn't Paychex, FAs would be its main option for distribution to small and medium-sized employees, yet it's not clear how FAs would get paid under such a pricing model.

Here are a just of the headlines Betterment's move has already landed:

"'Robo' Betterment Will Roll Out ETF-Only 401(k)", Barron's;

"Betterment takes aim at 401(k) market", BenefitsPro;

"'Robo' adviser aims to cut retirement-plan costs", CBS MoneyWatch;

"Betterment Brings ETFs to 401(k) Plans", ETF Trends;

"Betterment Enters 401(k) Space", Financial Planning;

"Robo-Retirement: Betterment Launches Managed 401(k)s, Employer Services", Forbes;

"Betterment To Launch All ETF 401(k) Plan", Fund Action;

"In 401(k) Play, Betterment Faces Thin Margins", Ignites;

"Betterment to become first major robo-adviser to offer 401(k) plans to employers", InvestmentNews;

"Betterment for Business takes robo-advisors into $5T defined contribution market", the New York Business Journal;

"Simpler, Less Expensive 401(k) Options Emerge for Small Businesses", the New York Times;

"Robo-Advisor Offers Integrated Recordkeeping and Advice Platform", PlanSponsor;

"Betterment jumps headlong into the 401(k) business -- spurred by a conviction that even Vanguard Group is unfriendly to invesetors in this arena", RIABiz;

"Tackling A $5.5 Trillion Market, Betterment Enters The 401(k) World", TechCrunch;

"Betterment Launches Robo-401(k) Platform", ThinkAdvisor;

"Betterment to Offer ETF-Only, Online 401(k) Plan", the Wall Street Journal;

"Betterment to Provide 401(k) Plans", WealthManagement.com; and

"Get Ready to Entrust Your Retirement to a Robot", Wired. 

Edited by: Neil Anderson, Managing Editor


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