Betterment acquired Rowboat Advisors for a quicker path to direct indexing and to "do it all"
A conversation with Betterment's president Mike Reust
Betterment is known for catalyzing the robo-advisor phenomenon
Their latest ADV (March 2025) shows > $56 billion in regulatory assets under management, including ~919,000 accounts (~900k individual ~$44k, 19k HNW ~$640k).
Long-known for their retail focus, they have expanded into banking and services for RIAs.
No direct indexing… until now
Scroll to the “Separately Managed Assets” section of Betterment’s page on ADVDB.co, and you’ll notice their managed assets are exclusively cash and investment companies (i.e. ETFs)1.
That’s about to change with Betterment’s acquisition of Rowboat Advisors.
Rowboat (a play on “robo” ~ “rowboat”), founded by Wealthfront alum Iraklis Kourtidis, has been building a reputation in the direct indexing world for nearly 10 years.
He caught my eye more than two years ago with this LinkedIn post.
Vanguard, BlackRock/Aperio, Morgan Stanley/Parametric, Fidelity, AQR, and… Rowboat.
wtf?
The paper “Direct Indexing with Tax-Loss Harvesting: The Importance of Held-Away Gains” is a great read.
Then, he and his business partner Stephen Anderson did it again: Parametric, AQR, Invesco, Neuberger, and… Rowboat.
“Enhancing Tax-Loss Harvesting Returns in Direct Indexing by Increasing Stock Dispersion” is still publicly available.
We hit it off. Here’s a webinar we did while he was boating up the California coast.
Iraklis was up to something interesting… and I wasn’t the only one who noticed.
Householding is the future
Betterment is adept at asset location, a cornerstone of householding, but individual equity securities and direct indexing were missing.
“We’re going vertical [by acquiring Rowboat] to accelerate direct indexing,” Mike Reust, Betterment’s president, told me last week, and to control the development queue.
But the broader vision - “the future,” as their marketing says - is much broader.
While most solutions manage direct indexing as a sleeve or occasionally part of a unified managed account (generally focusing on taxable accounts), householding takes financial advice to another level by incorporating all household accounts in wealth management and planning.
Even vendors managing household assets are beholden to upstream asset allocation decisions.
“We believe we can do it better by doing it all,” Reust explained.
“They liked the ‘knobbiness,’” Iraklis said, meaning the rich set of features Rowboat offers and the versatility.
Switching into engineering speak, Reust said “It’s a great instance of the open/closed principal,” which essentially means Rowboat’s software is easy to extend.
“It will be a gradual transition, but one year from today, we expect a significant portion of our core portfolio management software to be powered by Rowboat.”
From the Internet…
Happy Wednesday.
There was a crypto RIA acquisition years ago named Makara, but the assets don't seem to have materialized, or they may not be reported conventionally.