Betterment vs. Wealthfront

September 14, 2018 — 3:28 PM EDT

Betterment and Wealthfront are two of the larger players in the robo-advisory space, and were both pioneers. Betterment was founded in 2008, and was the first to offer automated investing. Wealthfront launched its venture-capital backed service 2009 under the name KaChing, intending to appeal to younger investors, but they rebranded and relaunched as Wealthfront in 2010.

On the surface, there are many similarities. Both firms ask you a few questions when you first sign up to determine how many years you’ll be contributing to your account, and your attitude towards risk. The portfolios the platforms design are made up of low-cost exchange-traded funds (ETFs), and you are encouraged to ride out market turbulence by holding your assets no matter what. Both firms also employ tax-efficient strategies to minimize your capital gains bill, and both have plenty of calculators on their websites and mobile apps to keep you informed of your progress towards your goal. 

A Quick Look

 
 
 
 
 
 
 
 

 Products & Fees

 Products & Fees

  • Fees: Based on account balance
  • Account minimum: $0 for Digital account and $100,000 for Premium account
  • Fees: Annual advisory fee of 0.25% on all assets under management
  • Account minimum: $500

 Fast Facts

 Fast Facts

  • Asset and market diversification
  • $13.7 Billion assets under management
  • Founded in 2008
  • Broad range of diversification
  • $10 Billion assets under management
  • Research team of PhDs

 User Experience

 User Experience

  • Easy to view account performance
  • Management of settings is simple
  • Deposits and withdrawals are a snap
  • Intuitive web-based interface
  • Automated rebalancing
  • Tax efficient withdrawals
  • Differentiated asset location
  • Available on desktop and mobile

Education

Education

  • Retirement education
  • Investing advice teaches users how to leverage current trends
  • Blog page with various types of investing information
  • Research page that has information from different experts

Research & Insights

Research & Insights

  • 401(k) calculator
  • Portfolio analysis
  • Return Projections
  • Diversification Quiz
  • Blog page includes investing insights
  • Stocks Overview tallies the day’s price action

Customer Support

Customer Support

  • Customer support is a priority
  • Available Monday through Friday, 9 AM to 6 PM (FC: ET), and Saturday and Sunday, 11 AM to 6 PM (for chat only)
  • Decent support with multiple options to contact support
  • Phone support is available from Monday through Friday 11 AM to 8 PM

 

How Betterment Works

The two sites have different starting points for new clients. Betterment gives you four choices when you start the sign-up process.

The first choice guides you through opening and funding an account, and choosing an investment goal. The second starts out asking whether you are yet retired, and if not, your current age and annual income.  You’ll get three portfolio recommendations right away, displayed in order from most conservative to most risky: safety net, for “life’s hiccups,” retirement savings, and general investing.  If you choose, “See what we can do for you,” you’ll be asked why you want to invest and whether you’re already investing. The results screen displays all the benefits of investing with Betterment, which includes technology that keeps you on track, time savings, tax savings, boosted returns, one annual fee, and unlimited access to financial experts. The fourth choice walks you through your current investing strategy, and then creates a list of ways that Betterment can help you do better.

Betterment doesn’t give you a clear picture of the type of account they would create for you until you go through the process of opening an account, which includes verifying your identity.

How Wealthfront Works

Wealthfront’s new client experience starts out by asking you your primary reason for investing.

You choose one of these four and are then asked what you’d want from a financial advisor. You’re asked your age and your annual taxable income. The next question asks you what you would do if the market dropped 10% in a month, and then you’re assigned a risk score. Wealthfront then displays the overview of the investment plan that is recommended for you, with the allocation among asset classes spelled out. So Wealthfront shows you a little more of what you might get before you actually sign up for an account.

The main difference between the two during the pre-account opening process is that Betterment lets you know what great things they will do for you while Wealthfront actually spells out a possible portfolio.

Management Fees

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. 

Wealthfront has a single plan, which assesses an annual advisory fee of 0.25% with a minimum of $500. Larger accounts at Wealthfront qualify for additional services. Accounts over $100,000 are eligible for a stock-level tax loss harvesting service, and those over $500,000 can opt in to the Smart Beta program that reweights the holdings in your portfolio using Wealthfront’s proprietary system.

For both firms, there are management fees associated with the underlying ETFs, that add an additional 0.10%-0.25% to your costs.  These are invisible to you, though, as they are assessed by the ETF providers.

Features

Both firms have overall asset management features, which allow you to consolidate your assets and loans on a single screen.  This is a great way to get an overview of all of your assets and liabilities and to make sure you’re not overweighted in a particular sector, asset class, or geographical area. The websites and mobile apps for both firms offer great tools for keeping up to date on your investing goals. 

You can make automatic deposits with both firms as well. On the surface, there are a lot of similarities between Betterment and Wealthfront, so here are some major differences.

Wealthfront: Best for College Savings, Lines of Credit

Wealthfront supports 529 college savings accounts, which Betterment does not. The fees are slightly higher for 529 accounts since there is an additional management fee on top of the Wealthfront management fee.  Wealthfront says these fees range from 0.42%-0.46%. Still, this is lower than any other advisor-sold plan according to Morningstar.

Wealthfront has an intriguing feature called Portfolio Line of Credit that is not offered by Betterment. If your account is over $100,000, you have a line of credit that you can draw on from the website or the mobile app which totals 30% of your assets. Interest rates are much lower than credit card charges and are currently 4.25%-5.5%, depending on the amount borrowed. This is essentially a margin loan, and Wealthfront keeps your risk low by restricting the amount you can borrow to 30% of your account size.

Betterment: Best for Socially Responsible Investments

Betterment features a Socially Responsible Investing portfolio designed to reduce your exposure to companies that do not meet certain social, environmental and governance standards. Wealthfront allows you to block certain companies from your investments if you qualify for their premium services by holding more than $100,000 in your account.

Neither firm supports custodial accounts at present, though Wealthfront said in September 2018 that they plan to offer them in the future. 

Betterment and Wealthfront are both members of FINRA and are registered with the SEC.