Registered investment advisors on the Betterment for Advisors platform now have access to thousands of mutual funds from firms including Vanguard, Fidelity and Pimco for their custom model portfolios, the custodian announced last week.

The decision to increase access to mutual funds came as the platform, which traditionally exclusively offered exchange-traded funds, saw an increased demand for the asset class, Tom Moore, head of Betterment for Advisors, told FA-IQ. The custodian in 2019 announced it was making mutual funds from Dimensional Fund Advisors available to certain eligible advisors.

"We've really started to focus on working with third-party financial advisors, and these are the customers where we are really hearing loud and clear that they would like the ability to manage portfolios using both [exchange-traded funds] and mutual funds," said Moore. "Adding mutual funds to that program helps us work with these folks in a lot more meaningful way."

Moore said the increased access to mutual funds will allow Betterment advisors to use the custody platform — which targets RIAs with less than $250 million under management — for a larger part of their book of business and offer users more customization.

The launch of Betterment's mutual fund capability, which coincided with the 100th anniversary of mutual funds, comes as the investment vehicle continues to lose ground to ETFs, which are gaining popularity. Roughly 90.1% of advisors said they currently use and/or recommend ETFs to clients, compared to 63.9% who said they currently use non-wrap mutual funds, according to a 2023 survey conducted by the Journal of Financial Planning and the Financial Planning Association.

While 49.7% of respondents said they planned to increase their use and recommendations of ETFs, only 14.1% of respondents said the same for non-wrap mutual funds, according to the survey.

The survey, which was fielded between February 2023 and April 2023, queried roughly 191 respondents, 53% of which identified themselves as RIAs.

Brendan Powers, director of product development at Cerulli Associates, said that ETFs serve as a popular alternative to mutual funds because they are typically lower cost and more tax efficient.

He added that mutual funds also compete with the appeal of separately managed accounts, which "open up the door for personalization" for affluent and high-net-worth investors.

But despite their dwindling popularity, Powers says that mutual funds aren't "dead in the water" just yet.

"It's the most broadly adopted vehicle by client segment from end investors to advisors to institutions because of that breadth and depth of use and historical legacy," Powers said. "It's not going away soon."

Joel Bruckenstein, publisher of Technology Tools for Today (T3), noted that increased access to mutual funds will be valuable in the many instances in which mutual funds are a "better choice" for advisors.

"For dollar cost averaging, funds are generally more convenient than ETFs," said Bruckenstein, adding that there are also more actively managed mutual funds compared to ETFs.

For Betterment, the launch of mutual funds will also help "expand their addressable market" to advisors who prefer them, said Timothy Welsh, president of San Francisco–based consulting firm Nexus Strategy. Welsh added that Betterment could also tap another potential revenue source as mutual funds can revenue-share with custodians.

Moore said Betterment will continue adding mutual funds to its custom model portfolio tool and launch additional updates to its Betterment for Advisors platform.

"We are really taking a hard look at the advisor experience and looking to see how we can continue to amplify it," said Moore. "I don't think anything is off limits."

Betterment, a robo-advisor founded in 2010, says it supports more than 850,000 customers and has more than $45 billion under management. It launched its custodian arm in 2014.