Is Wealthfront CEO’s Bad Behavior A Sign Of Trouble Ahead?
A few days ago, I found myself in the middle of a PR scuffle on Twitter between two leading investment robo-advisor startups, Wealthfront & Betterment. It all started with an inflammatory article written by Wealthfront’s CEO, Adam Nash:
Today, Wealthfront dropped our investment account minimum to just $500. This post is intended to explain why, and to…medium.com
This article contained some pretty bombastic assertions about Betterment, including that:
Betterment has decided to build their business preying on those who can least afford it.
Making Betterment out to be the Kardashian Pre-Paid Debit Card of investment advisers is dangerous territory for a company that originally charged 1.25% annually to help you mimic an expert’s investment strategy!
Adam Nash’s criticism focused on Betterment’s $3 monthly fee for accounts of less than $10,000 that are not set up for monthly auto-deposits of additional funds. Sure, that fee would suck if you had $500 in a Betterment account and never added more money, but spinning this unrealistic edge-case into a full-throated attack on Betterment’s ethics was hyperbolic. I decided to set the record straight on Twitter.
To my surprise, Adam responded, continuing his attack on Betterment’s “outrageous” fees.
From a behavioral economist’s perspective, this $3 fee is a fantastic way to incentivize customers to adopt a dollar-cost-averaging investing strategy of regular periodic deposits, a highly-regarded investing approach.
Mr. Nash’s campaign amounts to a PR stunt, misleading the investing public for the sake of company profits. Off the top of my head, I can’t think of any other tech CEO directly attacking its competition with this type of vindictive bomb-throwing.
Is Adam Nash simply following a well-tread plan of attack in a rapidly growing new market? While the market-by-market battle between Uber and Lyft is an example of “startup” competition run amok, with tales of sabotage, driver-stealing and even litigation, there is a critical difference between the car-hire industry and investment services — one has strong network effects and the other does not.
In the Uber/Lyft universe, with each new driver a service signs up, the more valuable the service is to all customers. Betterment and Wealthfront don’t exist in an industry with any network effects. I don’t care above some basic reputation threshold whether my wealth manager has $2 billion or $200 billion under management.
Since the market for investing services is not winner-take-all, Mr. Nash’s remarks make me wonder about Wealthfront’s performance. This Silicon Valley-based company must be under some serious pressure to resort to slash and burn tactics against its competitors to gain attention. Just visit the Wealthfront website and you will find that you are re-targeted with their ads on every website you visit thereafter. My digital marketing gut is telling me that they must be paying big for growth right now — probably in a way that is not yielding great returns.
Based on public sources, both Wealthfront and Betterment manage approximately the same amount of money, but Wealthfront has about a third the number of accounts. My understanding is that Wealthfront’s core customer is the Silicon Valley elite. If this customer base is tapped out, it looks like Wealthfront may be struggling to appeal to investors outside the Silicon Valley bubble.
I hope the strategy of belligerence and disingenuous attacks for the sake of grabbing attention at the expense of the investing public does not succeed for Mr. Nash. While he may have succeeded in getting his name out, Betterment keeps the focus on product innovation (see video for example).
At the end of the day, product always wins over PR games. That’s why I am going to stick with Betterment. With their generous referral program, I won’t be worrying about fees anytime soon.