Betterment prices RIA custody for the account advisers keep beside Schwab and Fidelity

As Levy described the schedule to Financial Planning, a firm's total at Betterment's custodian sets its rate ^[1][2]. Read that way, a firm with $10 million there pays $20,000 a year ^[1], and a firm just over $10 million pays about $12,000 ^[2]. At 0.12%, the bill does not climb back to $20,000 until the balance reaches roughly $16.7 million ^[3]. If Betterment applies the rates as marginal breakpoints instead, the cliff disappears.

The cliff suits an adviser's second book. Betterment's website says, "We're a custodian typically used alongside Fidelity or Schwab for a subset of clients where time-saving automation can improve profitability" ^[13]. An adviser with $7 million of households at Betterment pays $14,000 a year. Move another $3.5 million over and the bill falls to $12,600 ^[5]. The main relationship at Schwab or Fidelity, the two firms that dominate custody ^[15], does not have to move for that to work, and Cerulli's count of multicustodial RIAs says most firms already run the setup the schedule assumes ^[4].

The schedule fits more than one plan. It may be what the website describes, a price for the secondary slot ^[13]. The negotiated tier above $100 million may be the real target ^[3]. Stephen Caruso, director of wealth management at Cerulli Associates, said upstarts including Betterment, Altruist and TradePMR by Robinhood are asking, "How do we scrape assets away from the legacy custodians?" at a time when some advisors "have become disillusioned" with their primary providers ^[14]. Or the reset may be mostly a retention price for current clients ^[10].

I think the first reading is right. The only published prices stop at $100 million ^[3]. The custodian also sits inside a company whose biggest business is its consumer robo adviser, with more than $70 billion under management across all its lines ^[16]. The counter-case is Caruso's disillusioned advisers. If they are ready to leave a primary custodian, that move would happen at a negotiated rate, out of public view.

Betterment earns more from a custody client than the platform fee. Like its larger competitors, it makes money from cash sweeps and lending, payments from fund companies, and payment for order flow through its trading and clearing partner, Apex Fintech Solutions ^[11]. Its only transaction fee is a charge for automated account transfers ^[12]. Each household moved over brings cash and trades along with the basis points. The gap between the two published tiers is 40% of the rate ^[4]; the article does not give the old rates, so the size of the cut itself is unknown. Levy said, "We are now profitable as a firm, and so, as a result, we have the flexibility to do what's right, both for the customers and for the business" ^[7].

The view is wrong if Betterment starts reporting RIAs that make it their primary custodian, or if firms above the $100 million line end up holding most of its custodial assets.