Many of our robo-advisor showdowns are between similar services that are different in slight but important ways. In this case, however, M1 Finance and Betterment are so different that there is little risk of confusing one for the other. Betterment is one of the most highly rated robo-advisors, thanks in part to the attention the platform puts into guidance and goal setting. M1 Finance, by contrast, is not here to hold your hand. There's no series of questions at M1 Finance assessing your appetite for risk or your target date. What you get with M1 Finance, however, is an incredibly flexible investing automation platform. We’ll look at both of these services to help you decide which approach works best for you.
- Account Minimum: $100 ($500 minimum for retirement accounts)
- Fee: 0%
- Good for self-directed investors who feel comfortable managing pre-built and customized portfolios
- Ideal for clients seeking socially conscious investments or other unique customizations within a robo-advisor service
- There are no trading fees or asset management fees, and you can borrow against the value of your portfolio
- Account Minimum: $0
- Fees: 0.25% (annual) for digital plan, 0.40% (annual) for the premium plan
- Ideal for people looking for simplicity above all else
- Great for those looking for full transparency before the funding decision is made
- Aimed at people who want a goal-based approach in their portfolios
- The Premium plan offers people access to a real financial advisor
Betterment far exceeds M1 Finance in terms of goal setting. M1 is not an advisory service registered with the SEC and clients cannot interact with a human or digital advisor. It is, however, an automated investing platform built around portfolio management and automation. As such, it doesn’t have many tools for setting goals beyond several dozen articles about retirement savings. Money is not “bucketed” for specific goals but rather for overall growth of assets.
In contrast, 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 in reaction to those parameters. 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 by Betterment to put more aside to catch up.
Here again, Betterment’s focus on guidance shines while M1 Finance isn’t really playing the same game.
M1 Finance has useful retirement-focused articles, but otherwise clients must educate themselves about their retirement needs. Those investing for retirement can invest in a target-date portfolio made up of ETFs.
In order to assist you in retirement planning, Betterment prompts you to connect external accounts, such as bank and brokerage holdings, to your account to provide a complete picture of your assets. This also makes 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.
Betterment and M1 Finance offer a similar range of accounts. Neither supports 529 plans, but the accounts an average investor will use are all available.
M1 Finance account types:
- Taxable accounts (individual and joint)
- Traditional IRA accounts
- SEP-IRA accounts
- Trust accounts
Betterment account types:
- Individual taxable accounts
- Joint taxable accounts
- Traditional IRA accounts
- Roth IRA accounts
- Trust accounts
- High-interest cash accounts
Features and Accessibility
In terms of features, M1 Finance and Betterment again differ due to the markets they are looking to pursue. M1 allows you to borrow against your portfolio, which is something that appeals more to the risk tolerant crowd. On the other hand, Betterment’s account intake and analysis is clearly aimed at less experienced investors who could benefit from more help with their finances. That said, the features battle should always come down to what you will actually use on a given platform.
- Socially-responsible investing: Clients can build socially responsible portfolios through a Nuveen partnership.
- Impressive portfolios and platform: Clients can choose from over 80 expert portfolios constructed from an extensive ETF and stock list. These can be broken into “pies” that allow tremendous customization, including pies built from other pies.
- Borrow against accounts: Clients can take a loan that’s limited to 35% of account value at a relatively low-interest rate through the M1 Borrow feature.
- Transparent: The firm is extremely transparent about how it generates revenue since it charges no management fee.
- 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 roll out starting in Fall 2019.
Betterment doesn’t lose the fee battle very often, but this is one of those times. M1 Finance charges no management fee to build portfolios from an extensive list of stocks and ETFs with low expense ratios that average between 0.06% and 0.20%. Moreover, there are no trading fees. M1 is ready to launch a $125 per year premium option with higher checking and savings interest, cash-back, more investing options, and lower lending rates. Accounts with less than $20 and no trading activity for 90 days are charged a maintenance fee. M1 is very transparent about where it does make its money, and you can read up on it to better understand their business model.
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.
While M1 Finance has a very reasonable $100 minimum for taxable accounts and $500 for retirement accounts, Betterment is the clear winner in this category with a minimum deposit of exactly $0.
- M1 Finance: $100 (taxable accounts), $500 (retirement accounts)
- Betterment: $0
M1 Finance offers a unique combination of automated investing with a high level of customization, allowing clients to create a portfolio tailored to their exact specifications. You can create portfolios containing low-cost ETFs or use individual stocks – or both. M1’s target customer has a long-term focus and may have used a traditional online brokerage to invest in stocks and ETFs but wants a lower-cost alternative that allows fractional share transactions to personalize a portfolio. M1 Finance expert portfolios combine elements of Modern Portfolio Theory (MPT) and thematic investing to generate a laundry list of options. They place trades just once per day during a “trading window,” putting transaction timing out of the account holder’s control.
M1 Finance portfolios are rebalanced at least once a month and clients can force a rebalance at any time. Each stock and ETF is displayed as a slice of a pie representing the portion of the portfolio. If a stock or ETF has shrunk compared to the desired allocation, that slice looks like it has shrunk, whereas a stock or ETF that is outperforming the rest of the pie appears as though it has outgrown its original area. When you make a deposit, the shrunken slices are shored up. In taxable accounts, withdrawals are managed in a way to limit your tax bill.
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.
Both M1 Finance and Betterment offer some tax minimization. M1’s algorithms consider the impact of capital losses and wash sale rules before the sale of securities in taxable accounts. All Betterment accounts are eligible for tax-loss harvesting and this feature is turned on automatically. Betterment’s methodology is quite robust and even considers wash sales between taxable and IRA accounts.
Both Betterment and M1 Finance utilize heavy-duty encryption. Moreover, fingerprint, face recognition, and two-factor authentication are available on mobile devices. Apex Clearing Corp handles client funds at M1 Finance and Betterment, providing access to Securities Investors Protection Corporation (SIPC) insurance and private excess insurance. Checking accounts at M1 Finance are insured through the FDIC.
M1 Finance's customer support is provided over the phone or via email. There are very detailed FAQs available that answer the majority of customer queries. Some of the FAQs include video walkthroughs of a particular feature.
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. - 6 p.m. Eastern time, Monday through Friday, and 11 a.m. - 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.
M1 Finance and Betterment are both among our highest rated robo-advisors overall, but they find themselves in that position for very different reasons. M1 Finance scores high on fees, portfolio flexibility, and account services, while Betterment scores high on goal planning, customer service, and account setup, while still delivering it all at a very competitive price. That said, choosing between the two depends much more on what type of investor you are rather than which service is technically better in a particular area.
If you are an experienced investor looking to automate the management of your portfolio at a low cost, then M1 Finance is a natural choice. Betterment isn’t really going after the beginner investor at all, targeting instead investors who would usually open self-directed accounts at online brokerages. If you aren’t that confident in your investing knowledge and weren’t excited at the mention of an ETF and stock screener, however, then Betterment is probably a better fit.
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Every robo-advisor we reviewed was asked to fill out a 50-point survey about their platform that we used in our evaluation. Many of the robo-advisors also provided us with in-person demonstrations of their platforms.
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