Automation, Efficiency, and the Future of Custody with Thomas Moore

Appreciate you having me on. I'm a fan of the pod, as they say.

[00:00:31] Doug Heikkinen: Great. Let's start with your journey. What brought you to Betterment, where did you come from, and how has your experience shaped how you think about innovation and advisor support?

[00:00:42] Thomas Moore: Yeah, so I started with Betterment in 2018.

Prior to that, I worked at several large legacy financial institutions. Vanguard, SEI, and, Affiliated Managers group. And I was selling platforms and investment vehicles. But I was always working directly with financial advisors. A lot of RIAs, but kind of all advisors of all shapes and sizes.

So over that time I got to know the ins and outs of the financial advisor mindset. What they care about, what their challenges are, down to what their, intricately what their workflows were as we thought about how we could build and offer better products and services.

So I think a couple of, like my takeaways in that time before Betterment, were one, just understanding and learning how deeply these financial advisors cared about their clients. Doing well for their clients and about their fiduciary duty. And to understand like how enterprising and innovative these folks were and continuing to adapt how they served their investors.

So that, really, was a rewarding part of the job. And I felt like I was working with kind of cutting edge advisors, more modern tech forward advisors, throughout my career. But then I think on the other side of that, what I observed is how wealth tech was not really keeping pace with those more forward thinking folks, right? I think that was always a frustration. Now, no knock against Vanguard and SEI and Affiliated Managers Group. I think they're doing great things, but they're not, they're not innovating at the pace that I would expect. Especially compared to some of the FAs. So that's what really attracted me to Betterment in the beginning.

Betterment, from the time we started in 2010, has never really conformed to the traditional model. Or the traditional way that financial institutions do things and build their products and services. Betterment has always genuinely pushed to find a better way to do things. And so when they brought me in 2018, it was really the ground floor of our work with third party financial advisors and we were building a really cool platform.

It was different, and that really addressed a lot of the challenges that I saw advisors have in growing, starting and growing and scaling their practice. So that's what I've been doing now for the last seven years. And it's been super rewarding.

[00:03:40] Doug Heikkinen: Betterment has carved out a unique position in the RIA landscape.

What do you see as the biggest value the platform brings to advisors today?

[00:03:49] Thomas Moore: Yeah, so I'll start by addressing, you say we've carved out a unique position. I'll talk a little bit about what kind of position is, and then I can talk about how we've innovated there. Across all of Betterment's business lines, we've really strived to serve the underserved.

Whether it's end investors, small businesses, or financial advisors. And in my opinion, kind of the underserved community is that maybe smaller, but growing, scaling, RIA. And especially that kind of more tech forward modern advisor that was looking for a better way to do things. So how do we think about what a better way to do things is?

I think the core value of our platform is efficiency. And the way we drive efficiency for our advisors is one, by integrating a bunch of the core pieces, the traditionally like core pieces of an advisor tech stack into one, you could call it all in one custodial solution. So think custody as the foundation, but also portfolio management, billing, reporting. All of that built in-house, which eliminates a lot of the costs that advisors incur when they have to go out and they have to, contract with each of those solutions individually. But also it drives efficiency because of how tightly integrated all of those systems are. And that's how we really see our advisors having success in scaling and serving more customers.

So that bundled all in one platform is core to our value and our position. And then I think on top of that is what I would qualify as like modern custody. So custody is the sort of the foundation of that offering. We've improved on a lot of like the typical pain points that a lot of your legacy custodians have. The biggest of those being account opening, onboarding clients. So that was our first innovation, and that was a reason why a lot of our advisors came to us in the beginning is we were first to market with truly digital, paperless, onboarding. And we've continued to iterate on that even today, to just solve challenges for our FA community.

[00:06:15] Doug Heikkinen: With so many digital solutions available, some advisors worry about commoditization. How do you help advisors stand out and deepen relationships through your technology?

[00:06:25] Thomas Moore: Yeah. I'll make a couple comments on commoditization in general. We've been committed and we've been bought into the advisor value proposition since we started working with them in 2015.

That's always, we've always had a belief that this is a first and foremost a relationship business. And that money and financial security is ultimately too important to completely turn over the keys. We've always made an effort to insert the advisor and the advisors value proposition in everything we do.

I think to functionally answer your question on some of the things that we've done. Well, the easiest is that we've white labeled our offering. So we're very literally putting our advisors brand and logo front and center for their end client. And then, we've again tried to highlight their value proposition throughout our experience.

So we do things like, automated white labeled client communications, proactive communications about things that we're doing for clients, but we're always putting that advisor brand, that advisor voice and name at the forefront. And then I think on the backend, we're working closely, like our service teams and our sales teams are working closely with our advisor partners to enable them, to give them materials, content, and thought leadership to put in front of their clients, so that the clients are always feeling like there's a high level of a value that the advisors are bringing to the table.

[00:08:08] Doug Heikkinen: You've made some recent updates to the platform based upon advisor feedback. Can you walk us through some of those changes and how they align with what the advisors are asking for?

[00:08:18] Thomas Moore: Sure. Yeah. Since the beginning our roadmap has always, it has always reflected the most burning desires and needs of our advisor community.

We keep a pretty tight feedback loop with our advisors, so that's always how we've run product and iterated on our platform. This year has been super exciting, both for what we've already shipped and what we plan on shipping. In the first half we launched a bleeding edge solo 401k product.

I say bleeding edge because we improved on a lot of things that the industry has not done well with solo 401Ks. Think onboarding, think ongoing administration, and compliance. We made those super steamless and turnkey. but I think it's also a really important new account type that has become more and more popular with advisors because of the advantages that it brings in contribution limits. And then also just serving a population of solo practitioners that didn't have good solutions prior. So solo 401Ks were a huge launch. We also launched a lending product, a securities back line of credit, in partnership with the Bancorp, which just addresses a lot of our advisor's needs for lending solutions so that they don't have to liquidate client holdings and realize taxes.

So those are the big highlights in the last six months. We also recently acquired a trading platform called Rowboat Advisors. So this is important as we look forward, because as we integrate this new trading platform into our advisor experience, it'll unlock a lot of new portfolio management capabilities.

In the near future, more hands-on control of trading individual positions. Some really cool projection, tax projection tools to help advisors better manage taxes when trading in client accounts. And then as we look forward to 2026, it'll unlock things like direct indexing and even, like UMAs, unified managed accounts, for our advisor community that I think will be super cutting edge and innovative alongside our existing services.

[00:10:43] Doug Heikkinen: Custody is always a hot topic. There's new players entering the space and advisors are always reassessing their options. What's your take on how the custodian landscape is changing?

[00:10:55] Thomas Moore: Yeah, I think it's a, I think it's a really exciting time right now. A time with what feels like change.

I think just to take a step back, and many of the listeners are going to be plenty familiar with this, but custody has been dominated by a couple financial behemoths for so long, So we're talking about Schwab and Fidelity, used to be Schwab, Fidelity, and TD Ameritrade.

We all know that TD Ameritrade got gobbled up by Schwab a few years past. So there's been these incumbent custodians that have dominated the market for so long. And a big reason for that is that they were first to market. But at the same time, because they're built on this legacy infrastructure, there's, I don't know that any like advisors are out there are like, teaming with excitement about the level of innovation and new products and features that the Schwabs and the Fidelitys are bringing to market. So I think, more recently we see these like super exciting FinTech companies that are starting to break that mold.

And importantly, we're seeing the investors and the customers starting to adopt. So I think like a bellwether in that conversation, of course, is Robinhood. Here's a brokerage platform that is actually making real inroads against those sort of legacy, those legacy financial institutions, and I think they're doing it with modern design, they're doing it with an easy tech forward platform, but importantly, they're doing it because the customer base is evolving and their needs and their desires are evolving and they're, I think that they're ready for truly modern products and platforms. So I think that's all really exciting.

I think, when it comes to custody, there's a couple of other challenges in our space that are leading the charge and really innovating and bringing more tech forward products to market. And I think we're following suit. And so we're just, we're ready to ride that wave of the next generation of clients.

[00:13:10] Doug Heikkinen: I think we're getting a sense for why your offering is distinct. When you're talking to advisors about it, what are a couple things that they really light up about that's different than the more traditional providers?

[00:13:24] Thomas Moore: So we talked a little bit about what our core differentiation is, the bundled services, the modern custody, and account opening, and client onboarding.

But I think what makes us really different, even from the challengers, the other kind of tech forward custodial products, is our automation. Like we, in the beginning, Betterment served a smaller average customer than your average financial institution, which means we had to build our products and features to be super automated so that they scaled to a large number of clients.

And then we've expanded that automation to allow advisors to use it with their customers. And that's what really creates scalability. So things like our automated rebalancing, our automated tax loss harvesting, our automated asset location. Soon we'll add features like direct indexing and managed accounts.

These are where we're really different than I think anyone else in the market. And that's where advisors are realizing real efficiency and real leverage, and are able to scale much quicker than really anybody else in the market.

[00:14:35] Doug Heikkinen: With so much increased competition and consolidation in wealth management, what do you think are the biggest opportunities for advisors over the next year or two?

[00:14:44] Thomas Moore: So I've teased at this already in this conversation, but I really think that the big opportunity right now is in acquiring the millennial customer. I think in doing that, setting your firm up for the future, and I really do think the time is now, these millennial customers are accumulating wealth very quickly.

I think they're becoming a really good opportunity for advisors, and they're in need of better services and they have different expectations around the providers that they work with. So again, we talked about legacy versus the challengers. The millennial customer, think about the services they're used to using Uber, Netflix.

Do their financial, are their financial institutions keeping pace with the other products and services they're consuming? So I think that the advisors that adapt their products and services to reach this customer base are going to thrive. And I think we're seeing that now for the record, right?

Like we have, there's so much conversation that I chuckle to myself in the industry right now about how hard organic growth is, but we have modern tech forward advisors today that are growing hand over fist, right? They're bringing new clients in like crazy, even more so than they can handle, which is why they're working with Betterment.

I think the reason they're doing that is they've found a way to reach and resonate with this kind of next generation of customer.

[00:16:23] Doug Heikkinen: In such a fast moving FinTech environment, how do you balance innovation with simplicity to ensure that advisors aren't overwhelmed by everything coming at them?

[00:16:35] Thomas Moore: I think it's, I think what's one of the good things is that Betterment has always focused on that exact challenge. Balancing innovation and simplicity back to our origins, right?

The whole idea of Betterment retail was to bring institutional level asset management to the everyday investor. So I think our leg up versus some of these incumbents, these legacy institutions is that, innovating, but delivering it in a simplistic form is built into our DNA, and I think it has to be built into your DNA. Because I think what it boils down to is how you approach building new products and services. Are you looking for better ways to do things? Are you thinking about intelligent design? That's so important, which we see with a lot of kind of bleeding edge Fintechs is their relentless focus on intelligent design.

And then even from a B2B perspective, are you, are you able to distill down complex topics to make them easily communicated, not only to our advisor customers, but then also enable our advisor customers with that same material to help communicate complex topics to their clients to highlight value, but make it digestible.

So I, again, I think it is, it's ultimately just has to be ingrained in your business' DNA. But I think it really comes out when you think about how you're managing your engineering teams, your product teams, your design teams, and then ultimately how you're bringing this all to market through marketing and sales.

[00:18:19] Doug Heikkinen: All right. Last one for you. So what's next? What's next for Betterment? How are you positioning the platform to power the future of independent advice?

[00:18:28] Thomas Moore: We're going to continue to innovate is like the short answer, right? Again, it's in our DNA, it's what we've always done and we're going to continue to do it.

I think, going back to your question about the evolving world of custody, we see a ton of opportunity to continue to make inroads against kind of these legacy institutions. But what we need is we need more flexibility for advisors. We need to continue to innovate to bring better products to market.

And then we need to continue to focus on building strong relationships and elevating our level of service, right? Because we, those are the things that we think are will, more and more lack, at, at our competition over time. And so it's this combination of technology in a high level of service and strong relationship building, that I thinkwill make us more and more competitive as time goes on.

I think we're just getting the early inning still of this kind of new wave of platforms and products that I think advisors are going to adopt in droves. So super exciting, the road ahead and be on the lookout. I think there'll be a lot of announcements coming out of Betterment not only in our advisor platform, but across the entire organization in the next kind of six to 12 months.

[00:19:51] Doug Heikkinen: That's great. Tom, really interesting stuff. Thanks so much for joining us.

[00:19:56] Thomas Moore: Yeah, thanks for having me. This was great. Appreciate it, Doug.

[00:19:59] Doug Heikkinen: To learn more about Betterment, please visit betterment.com/advisors. We are on all social media platforms @Advisorpedia. Please give us a follow. For our producer Tory Miller and everyone at Advisorpedia, thank you for listening.