Dan Egan, Director of Behavioral Finance at Betterment, discusses research conducted by Betterment analyst Michael Campos comparing savings rates to active manager alpha.
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“He basically found that for that person, in order to, if that person went with finding out how to, you know, save more or invest more, rather than pick the better manager, they would need to save something like 33 more dollars per month. So, that's the trade-off, is like, if you know that you can save a little bit more, that's effectively more powerful than getting a manager who delivers one percent alpha.”
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Insight
Egan: Telling panicking investors to do nothing is the worst strategy
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“They might want to implement some of these insights from behavioral finance, but unless you control the technology, it's very hard for you to do that.”
Egan: Searching for manager alpha is only worthwhile with millions in assets
“However many hours you spend trying to find the right manager, or trying to find the right strategy and understand what this stuff is doing, is not well spent unless you already have a very, very large asset base. I'm talking in the millions, at least.”
Egan: Betterment employs human advisors primarily to study and automate their jobs
“In the longer term, to be clear, We are going to keep automating a large part of that. So it is not simply a matter of, oh, we hit some brick wall and we had, you know, we ended up having to use advisors. Every single financial planner or licensed expert on ou…”
Egan: Betterment Aims to Be First Fiduciary Advisor to IPO
“I think that's, in the long run, what we see ourselves as being, is The first company that goes public off the back of being a fiduciary advisor rather than a broker or mutual fund company.”
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