Online financial adviser Betterment, which offers low-cost investment management direct to investors, on Wednesday officially launched a new part of its business: teaming up with other financial advisers who will offer Betterment’s service to their clients.  An initial 25 advisory firms started using Betterment’s service with clients in the last month, says Jon Stein, Betterment’s founder and chief executive.  Also on Wednesday, Betterment announced a collaboration with Fidelity Investments, under which Fidelity will offer Betterment’s service to the 3,000 financial advisers who use Fidelity as the custodian and clearing agent for their clients’ investments. Fidelity will get a one-time asset-based fee from Betterment for new clients that come to Betterment by way of an adviser that Fidelity introduced to it, says Betterment. The fee wasn’t disclosed.  Betterment amassed $875 million of client assets under management over the last few years by beating traditional advisers at their own game, at least when it comes to lowering the cost of investing. With the Betterment Institutional division, it is joining them.  At so-called robo advisers like Betterment, customers typically fill out online questionnaires, and the firms use the answers to direct clients’ dollars into baskets of low-fee exchange-traded funds calibrated to their individual goals and risk tolerances.  Betterment charges 0.15% annually on an account of $500,000, increasing to 0.25% for accounts below $100,000.  The robo advisers’ fees are a fraction of what a traditional adviser charges, and the firms will accept much smaller accounts than most traditional advisers are looking to manage.  Low-cost automated portfolio management has gotten so popular that old-school financial-services firms are trying to get in on the action. Vanguard Group, the grandfather of index investing, quietly rolled out its Personal Advisor Services unit over the last year, and Charles Schwab is working on its own all-digital portfolio-management model.  The advisers who use Fidelity’s brokerage platform have an average of $150 million of assets under management. They charge a median 1% annually on accounts of $500,000 or less, according to a Fidelity study.  With the Betterment option, advisers would be able to offer a lower-cost product for smaller account sizes, allowing them to potentially reach a new segment of the investing public, says David Canter, an executive vice president at Fidelity. That could be a lure for the type of younger investors who have driven the rapid growth of firms like Betterment for the last few years.  Some advisers “see it as a threat, and some see it as an opportunity to serve the clients of tomorrow,” Mr. Canter says.  Betterment’s Mr. Stein says his firm isn’t out to kill the traditional adviser model, which also includes “higher order” advice beyond strict portfolio management. “We have always had a lot of respect for the work of advisers,” he says. “What we do well is provide technology solutions for routine investment management.”
Online financial adviser Betterment has started teaming up with traditional firms, and Fidelity Investments is helping make introductions.