Betterment is one of the pioneers in the robo-advisory industry and is one of the first to use technology to recommend a portfolio and automate the investment process. Over the years since its founding in 2008, the firm has added additional asset classes, launching a savings product in July 2019. A checking account is rolling out this fall.
There are several ways to use Betterment: you can sync all of your financial accounts to get an overall picture of your assets without investing, you can invest in one of their portfolios, or you can create a Flexible Portfolio with some of your own specifications. Taxable accounts are designed to maximize after-tax returns using tax-loss harvesting, and portfolios are rebalanced when necessary. Betterment is very much a goal-based platform, and there are many planning tools available to users along with plenty of advice.
Quick and easy account setup
Portfolios are fully transparent prior to funding
You can sync external accounts to individual goals
Add a new goal at any time and track your progress with ease
Easily change portfolio risk or switch to a different type of portfolio
Users of the planning function are constantly nudged to fund a Betterment account
The standard plan incurs a charge of $199–$299 to talk to a financial planner
Socially Responsible portfolios are invested in exchange traded funds (ETFs)
There is no margin lending, secured loans, or borrowing options against your portfolio
Betterment boasts one of the easiest accounts to set up. Users enter their age, annual income, and a goal. There are none of the standard risk-related questions. Instead, Betterment presents you with an asset allocation suggestion and its associated risk, which you can change by adjusting the percentage of equity versus fixed income held in the portfolio.
You’re also prompted to connect external accounts—such as bank and brokerage holdings—to your Betterment account, both to provide a complete picture of your assets and to make cash transfers into a Betterment investment portfolio easier.
Users can open an individual or joint account, both Roth and traditional IRA accounts, and trust accounts. There are no college savings 529 plans, Uniform Gift to Minors Act (UGMA) accounts, or solo 401(k) accounts.
Betterment offers five portfolio types and clients can switch strategies after a portfolio is funded. The platform will even tell you if there are any tax implications prior to making a change. Each goal can be invested in a different strategy, so funds for longer-term goals like saving for retirement can be allocated to one of the higher-risk portfolios, while shorter-term goals, such as funding a down payment on a house, can be allocated to the lower-risk ones.
Betterment has very easy-to-follow steps for setting a goal, and each one can be monitored separately. The asset allocation is displayed in a ring, with equities in shades of green and fixed income in shades of blue. If you’re falling behind on meeting a goal you’ve set, Betterment will encourage you to put more aside. This can be a helpful prompt, particularly for young investors who may not yet feel the urgency to save for some of their longer-term goals.
You’re encouraged to set up automatic deposits, and once an account is linked during the initial account opening process, it’s easy to enable. There is no margin available and you cannot borrow against the assets held in your Betterment account. Betterment offers a “Smart Saver” account that is invested in high-yield bond ETFs, which is currently paying over 2% (as of Sept. 23, 2019).
Consolidating external accounts to provide a full picture of your assets is one of the strengths of this platform. Each outside account can have all of, or a portion of, its contents dedicated to one of your goals. This consolidated overview of assets can be quite valuable for investors, even if it comes at the price of being prompted to move more into the platform.
Betterment offers five portfolio types:
- The standard Betterment portfolio consisting of globally diversified stock and bond ETFs (iShares, Vanguard).
- The socially responsible portfolio that filters its holdings for stocks that are well-governed and score well on environmental and social impact.
- The Goldman Sachs Smart Beta portfolio that attempts to outperform the market.
- The income-focused all-bond portfolio made up of BlackRock ETFs.
- The Flexible Portfolio constructed from the same individual asset classes as the standard portfolio, but weighted according to the user’s preferences.
Socially responsible portfolios contain ETFs invested in large-cap firms, such as iShares MSCI KLD 400 Social ETF (DSI), and replace emerging market stock exposure with an emerging market environmental, social, and governance (ESG) fund. Outside of large-cap firms and emerging markets, though, very little of a portfolio that is called “socially responsible” is invested in firms that meet socially responsible criteria. You can choose to customize your own Flexible Portfolio, but it’s also invested in ETFs, which are seldom granular enough for those who want their investments focused solely on socially responsible investments.
Accounts are evaluated once a month and rebalanced if they have shifted from their goal allocation. As your target date nears, your portfolio gets more conservative with the goal of locking in gains and avoiding major losses. Having this automated risk reallocation is one of the primary reasons robo-advisors have become so popular. These are standard portfolio management techniques that most investors do not have the time or dedication to actually implement.
Betterment’s clients are eligible for tax-loss harvesting on all taxable in-house accounts, regardless of the balance. This is another key point of differentiation in favor of Betterment. Other robo-advisors require a certain balance, typically over $25,000 and often higher, to turn on this capability. Tax-loss harvesting is an option set at the account level, so if you turn it on, it will be applied to all of your portfolios within your Betterment account.
The native apps are designed to make all of the features available, though in some places there is a lot of scrolling to get to key features. Desktop and mobile capabilities are identical. You can set up all of your goals and investments on your mobile device, though there is quite a bit of data entry when you’re first opening an account. That might be better done on a desktop simply because of the typing involved.
Betterment does not offer a tablet-specific app, but its phone app resizes to use the additional screen space.
Betterment’s website is designed to guide you through the process of setting goals and tracking them. The process is logical and easy to follow to completion. When you access a question in their FAQs, the site maintains a list of the articles you’ve already read. Certain choices—such as clicking on the Support link—spawn a new tab, so you can wind up with a lot of open tabs after a while.
Online chat is built into mobile apps and the website for customers to access at any time. Customer service is available by email and phone from 9 a.m. to 6 p.m. Eastern time, Monday to Friday, and via email only from 11 a.m. to 6 p.m. Eastern time on Saturday and Sunday. You can get help from financial planners at any time with a premium account, but you’ll pay a fee of $199–$299 to consult a planner if you have a basic account.
Education & Security
Betterment’s Resource Center includes dozens of informative and well-written articles about retirement planning and how to minimize your tax burden. There are also a few videos to help you figure out how to use the platform. Betterment has also dedicated a number of articles to help investors understand the portfolio compositions and how the company approaches negative market events like Brexit.
Betterment’s security is sufficient. The website is encrypted, and mobile apps offer two-factor authentication. There is no excess Securities Investor Protection Corporation (SIPC) insurance carried by Betterment itself, but trades are cleared through Apex Clearing, which has risk management tools in place. Betterment clients are not placing risky trades and there is no margin lending offered, so it’s unlikely that there would be a need for additional SIPC coverage. Still, if your account has more than $500,000 in it or more than $250,000 in cash, you might consider moving the excess to a firm with additional insurance.
Commissions & Fees
Digital-only customers pay 0.25% per year in management fees, increasing to 0.40% per year for the premium plan. Betterment offers a discounted fee on assets over $2 million, dropping the digital fee to 0.15% per year on the portion of the balance that exceeds $2 million. In the premium plan, you will pay 0.30% on the balance above $2 million. The underlying ETFs incur management fees of 0.07%–0.15% per year.
You can use Betterment’s financial planning and account consolidation tools at no charge, but you will be frequently prodded to move some of your cash into an investing account.
- Monthly cost to manage a $5,000 portfolio: $1.04
- Monthly cost to manage a $25,000 portfolio: $5.21
- Monthly cost to manage a $100,000 portfolio: $20.83
Is Betterment a Good Fit for You?
Along with Wealthfront, Betterment is one of the early pioneers in robo-advisors. This early experience has led to a platform grounded in goal-setting and bolstered by the ability to pull in external accounts for a true, consolidated view of your progress towards those goals. Betterment is meant to be digital-only management, but it offers the escape hatch for those who want a human touch—for a price, of course. For the basic user, there is no account minimum and the fees are in-line with the industry.
Betterment is an excellent platform for people looking to manage their retirement portfolio, but it really shines when investors consolidate more of their financial goals into the platform. The ability to track progress can be a great motivator for young investors, and the tax and portfolio management tools take away the headaches of manually adjusting and monitoring a portfolio. Betterment also provides a fair number of portfolio choices and customizations, rather than locking you into one of three risk ratings. Betterment’s socially responsible portfolios and digital-first approach are signs that the younger investment crowd is the primary focus, and that is understandable. For older, more conservative investors, Betterment’s digital-first approach is the first barrier to adoption. However, if those investors can get beyond that, the rebalancing based on the investment time horizon, the lower fees and the tax-loss harvesting may actually provide better value than their current portfolio manager.
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