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Could US Robo Advice solutions, Betterment & WealthFront, fly in the UK?


Like many robo-advisors, Betterment uses Modern Portfolio Theory (MPT) as the basis for developing personalised investment strategies. However, unlike many robo-advisers, Betterment constructs these personalised investment plans and portfolios based on an individual’s particular financial goals.

In order to begin investing with Betterment, investors are taken through a goal-setting exercise, asking for their age and current annual income. A series of goals, based on the individual’s answers, are then proposed including a Safety Net goal of around three to six months of unplanned expenses, a Retirement Savings target in addition to a General Investing goal.

Underpinning each of these types of goals is a stock allocation glide path which provides a customised asset allocation mix based on the time horizon for each goal. Although investors do not have a choice as to which funds they can invest in, they can, if they so wish, adjust the recommended stock allocation to a more aggressive or more conservative profile for any goal. New personalised goals can also be added.

In 2015, Betterment launched RetireGuide, a tool designed to help investors with their retirement planning by taking into account any existing investments an individual may have so that they can get a complete picture of their financial situation. RetireGuide aims to closely project what an individual’s retirement will look like and enables investors to check when they will be able to retire and whether they are saving enough money for their future needs and circumstances.


Like Betterment, the basic idea behind WealthFront is to use MPT to create a suitable portfolio based on an individual’s risk tolerance.

In order to gauge an investor’s tolerance to risk, WealthFront asks several basic questions including:

When deciding how to invest your money, which do you care about more?

  • Maximising gains
  • Minimising Losses
  • Both Equally


The global stock market is often volatile. If your entire investment portfolio lost 10% of its value in a month during a market decline, what would you do?

  • Sell all of your investments
  • Sell some
  • Keep all
  • Buy more

Based on the investor’s answers, WealthFront proposes two possible portfolio options. The first shows a taxable investment mix and, the second, a retirement investment mix. Investors are able to alter the recommended weightings by either re-doing the questionnaire or by adjusting the evaluated risk score.

Like other robo-advisers, WealthFront also offers a free portfolio review service but, unlike that of Personal Capital’s, it only evaluates brokerage accounts. However, its review service is fully automated thereby enabling investors’ portfolios to be updated seamlessly based on its recommendations.

In summary

Betterment’s goal setting features are designed to make investing easy for individuals. Using an individual’s age, salary and financial objectives, Betterment customises the advice to build a personalised investment plan and portfolio for each goal. This personalised plan is based on a stock allocation glide path related to the time horizon for each goal. However, the lack of a comprehensive risk questionnaire means that this model would fail to comply with the FCA’s suitability requirements here in the UK. There is also no attempt to test capacity for loss or affordability – both key requirements for suitability.

WealthFront makes more effort to identify a customer’s attitude to risk with its limited risk questionnaire but this lacks sufficient questions to do the job reliably. As with Betterment there is no attempt to test capacity for loss or affordability. As a result, WealthFront’s model also falls a long way short of ensuring that suitable recommendations are made.

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