New and Notable Updates
On February 8, 2022, Betterment announced that it is acquiring crypto manager Makara. As a result of the acquisition, Betterment now gives retail investors and advisors the ability to invest in diversified crypto portfolios alongside their existing investments.
Betterment and Vanguard Personal Advisor Services are solid robo-advisor options, with both scoring among the top services in our robo-advisor reviews. While there are upsides to both services, the right one for you will depend on your digital-versus-human preference, the amount you have to invest, and your desire to fine-tune your portfolio.
- 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 people looking to avoid excessive taxes
- Premium plan is great for people who would like the access of a real financial advisor
- Account Minimum: $50,000
- Fee: 0.30% of assets under management (excluding cash) for up to $5 million; management fee tiers down to 0.05% for assets over $25 million
- Best for those with more money available to open an account with, as the minimum account size is $50,000
- Ample goal planning resources for those who would like to save for large goals like buying a home or paying for children's education
- Great for people who want some input from a human advisor–portfolios are reviewed by a human advisor at least once a year
- Not great for people looking for a quick entry point to investing, as the account setup is a cumbersome process and requires speaking with an advisor
Betterment offers the ability to work with four types of investing goals: retirement, safety net, general investing, and major purchase. The platform has very easy-to-follow steps for setting a goal, and each one can be monitored separately. It displays asset allocation for each goal 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 their longer-term goals.
At Vanguard Personal Advisor Services, the site provides ample goal planning resources that include checklists, how-to articles, and calculators. Clients can apply these tools to estimate their total costs of retirement, perform a top-down review of assets, and plan major life goals that include college savings, homeownership, or a rainy-day fund. Long-term forecasts and recommendations in the account interface coach clients on how to better meet investment objectives, based on life situations and goals outlined during the lengthy onboarding process. The client can make changes at any time by altering their risk profile.
Both Betterment and Vanguard Personal Advisor Services offer a few options for retirement accounts, including traditional and Roth IRAs, SEP IRAs, and 401(k) rollovers.
The Betterment platform collects a variety of information about your retirement—what your dream retirement looks like, how much you have saved, and what you’ve got in external accounts, which is important since many investors have multiple retirement accounts. The site then projects your retirement income and provides a plan to get there. Betterment will prompt you to save more or to move money around to save on fees when it’s advisable. As you near retirement, the platform will recommend changes you can make to optimize your savings. For retirement questions, basic Digital members can pay $199 to $299 for a one-time consultation with a certified financial planner, while Premium customers have unlimited access to CFP professionals.
Vanguard’s website features an impressive variety of tools and calculators to help clients figure out how much money needs to be set aside to reach goals (such as retirement) within realistic time frames. Like Betterment, Vanguard offers a snapshot of your outside investments as a part of your total portfolio and offers metrics on the likelihood of achieving your goal. But all Vanguard clients have access to certified financial planners for all their retirement questions, and an advisor reviews your portfolio on a regular basis.
Betterment account types:
- Taxable accounts (individual, joint, trust)
- Traditional IRA accounts
- Roth IRA accounts
- SEP IRAs (for self-employed customers or small business owners with no employees)
- IRA transfers
- 401(k) rollovers
- High-interest cash accounts
Vanguard Personal Advisory Services account types:
- Taxable accounts (individual, joint, trust)
- Traditional IRA accounts
- Roth IRA accounts
- SEP IRA accounts (for the self-employed and small businesses)
- IRA transfers
- 401(k) rollovers
Features and Accessibility
- Premium access to CFP professionals: If you bring a balance of at least $100,000 to the table, you can opt into Betterment’s Premium plan, which charges a higher annual fee (0.40%) and offers unlimited access to a team of CFPs for guidance. (That said, Vanguard charges 0.30% for the same access with a minimum investment of $50,000.)
- Educational resources: Betterment’s Resource Center includes dozens of informative and well-written articles about retirement planning and how to minimize your tax burden, plus a few videos to help you figure out how to use the platform. Betterment has also created a number of articles to help investors understand the portfolio compositions and how the company approaches negative market events like Brexit.
- Sync up external accounts: Basic account users can sync external accounts to individual goals, so you can see, for example, how your 401(k) is helping your retirement savings. Premium members have access to in-depth advice on outside investments.
- Smart Saver account. Betterment offers a “savings account alternative” that invests 80% of your cash with U.S. Treasuries and 20% with low-volatility corporate bonds.
Vanguard Personal Advisor Services:
- Dedicated advisor for large accounts: While accounts up to $500,000 are assigned to a group of advisors, accounts above that level get a dedicated advisor.
- Cross-company application: Some 80% to 90% of applicants to this advisor have other Vanguard accounts, and the $50,000 investment minimum can be applied across all Vanguard assets.
- Whole-picture advice: Although Vanguard Personal Advisor Services can’t include your other accounts (employee-sponsored retirement plans, college savings plans) under this advisor umbrella, planners will take those holdings into account when they design your portfolio and offer advice.
- Access to advisors: Although the on-ramp is slow, each client’s portfolio is designed by a certified financial planner (rather than auto-generated by your answers to a questionnaire), and it’s possible to reach a planner—during business hours—who can answer any questions you have. On this point, Vanguard considers itself a “hybrid” advice service, marrying robo-advising with the ongoing guidance of a human advisor.
Betterment offers two different fee options: Digital customers pay 0.25% of their portfolio annually, with the option to pay $199 to $299 per call to access a certified financial planner. Premium customers pay 0.40% annually with unlimited access to CFPs. The ETFs that make up most of the portfolios have annual management fees of .08%.
Vanguard Personal Advisor Services charges a competitive 0.30% advisory fee, paid quarterly, but hidden costs may add up since clients also pay transaction fees. The broker has also entered into payment for order flow deals with third-party mutual funds, and the client foots the bill for those fees as well. The average expense ratio of underlying investments is 0.11%.
- Betterment: $0
- Vanguard Personal Advisor Services: $50,000
Betterment boasts one of the easiest accounts to set up. Just input your age and retirement status, and answer a few questions about your income and investment goals. 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 adjust by changing the percentage of equity versus fixed income held in the portfolio. Betterment’s suggested portfolios are fully transparent prior to funding, including access to fund prospectuses. 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 more easily.
At Vanguard Personal Advisor Services, the up-front work is similar, but the timeline is lengthy. You’ll answer detailed questions regarding age, assets, retirement dates, risk tolerance, and market experience, generating a proposed portfolio allocation filled with Vanguard funds and “other securities.” Most of the heavy lifting is done by algorithms, but the new client must speak with a financial advisor to complete the customized plan, and the fine print states that the final investment plan will be created within “a few weeks” after the consult, marking a big negative compared to the rapid onboarding at rivals. The client must agree to the new plan via another consult before implementation, which can create further delays.
Betterment’s portfolios are constructed with ETFs from iShares and Vanguard. Betterment offers five portfolio types:
- A standard Betterment portfolio consisting of globally diversified stock and bond ETFs
- A Socially Responsible Investing (SRI) portfolio that reduces exposure to companies deemed to have a negative social impact
- A Goldman Sachs Smart Beta portfolio that attempts to outperform the market
- An income focused all-bond portfolio made up of BlackRock ETFs
- A Flexible Portfolio constructed from the same individual asset classes as the standard portfolio, but weighted according to the user’s preferences
Betterment accounts are evaluated regularly and rebalanced if they’ve shifted from their goal allocation. Betterment clients can switch strategies after a portfolio is funded, and the platform will alert you if there are 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 a funding a down payment on a house, can be allocated to the lower-risk ones.
While Betterment offers a fund geared toward socially responsible investors, the advisor’s focus on ETFs makes it difficult to achieve a full SRI mix. Outside of the ETFs invested in large-cap firms and an emerging market ESG fund, very little of the portfolio is invested in firms that meet “socially responsible” criteria.
Vanguard Personal Advisor Services Assets
Vanguard Personal Advisor Services offers a personalized portfolio of low-cost Vanguard index funds from a variety of market sectors and asset classes. The program has the flexibility to work with non-Vanguard assets, however, if a client is holding those assets in another account at Vanguard.
Vanguard reviews accounts quarterly and rebalances as needed. Vanguard’s methodology follows traditional Modern Portfolio Theory principles, emphasizing the benefits of low-cost securities, diversification, and indexing, driven by long-term financial goals. Stock and bond methodologies increase diversification by including equity funds at different capitalization and volatility levels as well as bond funds with different geographical, timing, and capital risks.
There are a variety of ways to efficiently invest money while avoiding excessive taxes. One such way, tax-loss harvesting, is used by many robo-advisors. Tax-loss harvesting is the selling of securities at a loss to offset a capital gains tax liability.
Betterment’s clients are eligible for tax-loss harvesting on all taxable in-house accounts, regardless of the balance. You must opt into the service in your account settings, and then it will be applied to all your portfolios within your Betterment account.
Vanguard Personal Advisor Services engages in tax-loss harvesting through the MinTax cost basis method, which identifies selective units or quantities—referred to as lots—of securities to sell in any sale transaction based on specific ordering rules. The MinTax cost basis method will minimize tax impact of transactions in many cases, but not necessarily every case. Clients must opt into MinTax.
Betterment’s security is sufficient. The website is encrypted, and the 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 aren’t 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.
Vanguard, on the other hand, holds client funds in the Vanguard Marketing Group, providing access to SIPC and excess insurance. Cash, however, is swept into money market funds that are not FDIC-insured. The site uses 256-bit SSL encryption and also provides two-factor authentication.
At Betterment, customer service is available by phone from 9 a.m. to 6 p.m.Eastern time Monday to Friday. There is no live chat on the website or mobile apps. You can get help from financial planners at any time with a Premium account, but you’ll pay a fee of $199 to $299 to consult with an advisor if you have a basic Digital account.
At Vanguard, clients can speak to a financial advisor at any time by scheduling an appointment during customer service hours, which are 8 a.m. to 8 p.m., Monday to Friday. Unscheduled contact attempts produced a variety of lengthy wait times, from over five minutes to more than 13 minutes. There is no live chat for prospective or current clients, and registration is required to send an email through the firm’s secure message application.
Choosing between Betterment and Vanguard Personal Advisor Services has as much to do with your net worth as it does with the features of each platform. If you have $50,000 to put in an automated portfolio, then Vanguard can offer you the goods plus access to a human advisor for less than Betterment’s Premium account would charge for the same account value.
If you are just starting out and you can’t meet the high account minimum, then Betterment is cheaper at Premium fees until your account balance is above $37,000. Of course, if you are willing to give up the human element, then Betterment’s Digital account will give you all the benefits of an automatically managed portfolio, plus many of Vanguard’s own ETFs, at a very affordable price regardless of your account balance. This, combined with excellent goal planning and tracking tools, make Betterment an ideal choice for younger investors looking to build wealth passively. In fact, Betterment is likely the right choice for investors of all ages, unless you are really looking for personal attention from a human advisor and want to tie yourself to the Vanguard brand.
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