Betterment and Charles Schwab are approaching the robo-advisory space from very different starting points. Betterment is one of the pioneering robo-advisors and has evolved to offer human advice rather than a firm, digital-only approach. In contrast, Charles Schwab is a storied financial firm that made its name providing advice to individual investors since the 1970s. It has become more digital-savvy over the years, of course, and is already a force in the online brokerage space. Charles Schwab Intelligent Portfolios is another step in that evolution. Both of these firms have created solid offerings, so picking between Betterment and Charles Schwab Intelligent Portfolios can be challenging. We’ll look at some of the key things to consider in deciding which is best for your investment dollars.
On November 25, 2019, Charles Schwab announced a buyout of TD Ameritrade’s online brokerage. The transaction itself is expected to close in the second half of 2020, and in the meantime, the two firms will operate autonomously. Schwab expects the merger of its platforms and services to take place within three years of the close of the deal.
- Account Minimum: $0
- Fees: 0.25% (annual) for digital plan, 0.40% (annual) for the premium plan
- Ideal for people looking to quickly and easily set up an account
- Those looking to track and monitor financial goals can do so easily
- Great tax-advantaged strategies for those looking to avoid excessive taxes
- Premium plan is great for people who would like access to a real financial advisor
- Minimum Account: $5,000
- Fees: $0, underlying ETFs average 0.08% to 0.15% management fees
- Those who are trying to avoid excessive costs will appreciate no management fees
- Newer investors will value their easy-to-use and intuitive website and app
- Great platform for beginners with Schwab's educational offerings and vast library of investing resources
- Investors looking for a large breadth of assets will enjoy more uncommon assets for robo-advisors like real estate investment trusts, high yield corporate bonds, and precious metals
Betterment's goal planning and tracking is more obvious than with Charles Schwab Intelligent Portfolios.
Betterment has very easy-to-follow steps for setting goals, and each one can be monitored separately. You can set up a variety of goals with different target dates, and the portfolios will vary considerably. Your 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, you’re encouraged to put more aside.
Schwab's offering has few goal-setting tools available besides a limited college expense lookup. Each account has a single pot of money, but you can have up to 10 accounts dedicated to different goals. Once you’ve defined your own goal, the what-if analysis capabilities let you stress-test the plan by changing your retirement age or monthly savings. You can also look at the potential impact of changes in market returns. The dashboard built into the website and mobile app offers a quick look at your performance to date. There are additional goal-setting capabilities for the premium product, including unlimited access to financial planners. The analysis capabilities and tools suggest that the logic is already there to allow interested clients to provide more detail and get a better targeted portfolio.
As part of the account setup, Betterment prompts you to connect external accounts, such as bank and brokerage holdings, to your account both to provide a complete picture of your assets and to make cash transfers into your investment portfolio easier. Each goal you’ve set can be invested in a different strategy, so your longer-term goals, such as retirement, can have higher risk than a shorter-term goal, such as funding a down payment on a house.
As mentioned, Schwab allows you to stress-test your retirement plan by raising or lowering your retirement age or your monthly savings. This type of scenario testing is very useful, particularly if more immediate financial concerns are eating away at your ability to plan for retirement. Once you're retired, the allocation is focused on fixed income, so you can still be accruing gains while withdrawing funds.
Charles Schwab Intelligent Portfolios has a slight edge over Betterment in terms of supported account types.
Betterment account types:
- Individual taxable accounts
- Joint taxable accounts
- Traditional IRA accounts
- Roth IRA accounts
- Trust accounts
- High-interest cash accounts
Schwab Intelligent Portfolios account types:
- Individual taxable accounts
- Joint taxable accounts
- Trust accounts
- Traditional IRA accounts
- Roth IRA accounts
- Rollover IRA
- SEP IRA
- SIMPLE IRA
Features and Accessibility
Charles Schwab Intelligent Portfolios and Betterment are fairly evenly matched in terms of features and accessibility.
- Free financial planning tools: The prospective client can get a free and comprehensive analysis of all their current investments prior to funding an account.
- Portfolio and goal flexibility: A mature platform provides coaching and other goal-planning resources while the account interface supports impressive portfolio flexibility.
- Premium plan: The client can speak with a financial advisor at any time for free on the premium plan, which charges a 0.40% management fee rather than the standard 0.25% fee.
- Savings and Checking: Betterment launched a savings account paying around 2% interest in September 2019, and their checking accounts will roll out in Fall 2019.
Charles Schwab Intelligent Portfolios:
- Easy-to-use platform: Schwab's desktop and mobile platforms are attractive and user-friendly.
- Daily monitoring: Schwab monitors user portfolios daily for drift, and rebalances when necessary.
- Moving up: A standard account holder can switch to the premium level once the account minimum has been attained.
- Talk to a pro: Clients have access to professionals who can help with a range of topics including client goals, risk tolerance, and portfolio allocation.
Against most robo-advisors, Betterment has the edge on fees. However, this is not the case against Charles Schwab Intelligent Portfolios.
Betterment has two plans available: a Digital plan, which assesses an annual fee of 0.25% with a $0 minimum balance, and a Premium plan, with a 0.40% annual fee and a $100,000 minimum balance. The Digital plan includes personalized advice, automatic rebalancing, and tax-saving strategies, while the Premium plan also offers advice on assets held outside Betterment, and guidance on life events such as getting married, having a child, or retiring.
Charles Schwab Intelligent Portfolios’ 0.0% management fee will attract younger investors, although the relatively high $5,000 minimum may prove a barrier for some. The portfolios include low-cost ETFs with management fees of 0.08%-0.2%, so this is effectively what you pay in terms of total fees. Schwab's premium service, with unlimited access to financial planners, charges a setup fee of $300 plus a monthly fee of $30 once you've attained the $25,000 minimum.
While Charles Schwab Intelligent Portfolios wins the battle of the fees, Betterment is the obvious winner in terms of minimum deposits. Intelligent Portfolios requires investors to deposit at least $5,000 while Betterment has no minimum deposit at all.
- Betterment: $0
- Charles Schwab: $5,000
Betterment offers five portfolio types based upon classic Modern Portfolio Theory (MPT) principles and/or specific investment themes:
- Standard portfolio of globally diversified stock and bond ETFs
- Socially responsible portfolio comprised of holdings that score well on environmental and social impact (Note: investments may not meet standard requirements for this theme)
- Goldman Sachs Smart Beta portfolio that seeks to outperform the market
- Income-focused all-bond portfolio made up of BlackRock ETFs
- "Flexible Portfolio" constructed from the standard portfolio’s asset classes but weighted according to user preferences
Betterment accounts are rebalanced dynamically when they deviate from their intended goal allocations. Portfolios get more conservative as the target date approaches, with the goal of locking-in gains and avoiding major losses.
Charles Schwab Intelligent Portfolios are made up of ETFs, the majority of which are managed by Schwab. Schwab does not offer a socially responsible portfolio option or any other customization beyond matching a portfolio to your risk tolerance and stated goals. The interesting thing about Intelligent Portfolios is that the asset classes reach beyond stocks and bonds and into real estate investment trusts, high yield corporate bonds, and precious metals. The inclusion of these riskier asset classes actually improves the true market diversification of the Intelligent Portfolios. Intelligent Portfolios are rebalanced by an algorithm that takes tax implications into account. A portfolio rebalance is triggered whenever the asset allocation drifts from its defined allocation. This could happen at any time depending on deposits, withdrawals, and market activity. Accounts are monitored daily for drift.
All Betterment accounts are eligible for tax-loss harvesting. At Schwab, tax-loss harvesting is available for clients with more than $50,000 in their Intelligent Portfolios account, and they must enroll in the service to enable it.
Betterment and Charles Schwab Intelligent Portfolios both have sufficient security. Betterment and Charles Schwab both utilize heavy-duty 256-bit SSL encryption on their websites. Fingerprint, face recognition, and two-factor authentication are available on mobile devices.
There is no excess SIPC insurance carried by Betterment, 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.
Schwab's accounts are insured by SIPC up to $500,000, with additional insurance provided up to an aggregate limit of $600,000,000.
Charles Schwab Intelligent Portfolios actually has the edge over Betterment in terms of customer service.
Betterment has online chat built into the mobile apps and the website for help whenever you need it. Customer service is available 9 a.m. to 6 p.m. Eastern time, Monday through Friday, and 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.
Schwab also has online chat available, and you can make an appointment to talk to a financial advisor at any time for a quick one-on-one. Clients of the premium product have additional access to financial advisors. Most importantly, technical support is available 24/7.
Betterment is around the very top of our robo-advisor rankings for good reason. It has an excellent account setup process, great goal planning, and an overall exceptional user experience. In that context, it is impressive that Charles Schwab Intelligent Portfolios is so competitive with Betterment in other areas. However, Intelligent Portfolios is hurt by its high account minimum of $5,000 at the same time as it is helped by its aggressive zero-fee approach. In the end, Betterment is the better choice for the average investor, but this will be a match to watch as both robo-advisors continue to evolve.
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