Betterment vs. Wealthfront: Who They're Best For

Wealthfront and Betterment are well known in the robo-advisor space for a good reason. These two have a track record in the industry and pioneered many of the features that have become standard for robo-advisories. On the surface, Betterment and Wealthfront look very similar, but a deeper dive turns up some key differences that can help in deciding which one is a better fit for you.

  • Account Minimum: $500
  • Fees: 0.25% for most accounts, no trading commission or fees for withdrawals, minimums, or transfers. 0.42%–0.46% for 529 plans. Underlying portfolios of ETFs average 0.07%–0.16% management fee
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  • Great for those looking to connect all their financial accounts to see the bigger picture
  • Designed for people who would like to set and track their goals
  • Access to a portfolio line of credit for those interested in a loan 
  • If you have an account of $100,000 or more you get access to additional securities
  • Account Minimum: $0
  • Fees: 0.25% (annual) for digital plan, 0.40% (annual) for the premium plan 
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  • Perfect for people looking for simplicity and ease of use
  • Great for those who would like maximum transparency into the assets they are invested in
  • Aimed towards those looking to set and plan for financial goals such as purchasing a home
  • Premium plan is great for people who would like access to a real financial advisor

Goal Setting

Wealthfront’s goal planning is the best of all the services we reviewed this year, with very specific ways to forecast your financial needs. If one of your goals is to buy a house, Wealthfront uses third-party sources such as Redfin and Zillow to estimate what that will cost. College planning gets extremely granular, with forecasts of tuition and costs at thousands of U.S. universities from the Department of Education. Your dashboard shows all of your assets and liabilities, giving you a quick visual check-in on the likelihood of attaining your goals. You can even figure out how long you can take a sabbatical from work and travel, while still making your other goals work.  

Betterment has very easy-to-follow steps for setting a goal, and each one can be monitored separately. 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. These nudges can be particularly valuable for younger investors for whom retirement or buying a house is still far off and seemingly less of a financial priority.

Retirement Planning

Wealthfront’s retirement planning takes Social Security projections into account. Once all of your financial accounts are entered, such as IRAs and 401(k)s, and any other investments you might have, like a Coinbase wallet, Wealthfront shows you a picture of your current situation and your progress towards retirement. All of this can be done without talking to a human. Their Path planning tool helps you compare your projected retirement income against your current spending habits so you’ll be able to see whether you can maintain your lifestyle later. 

Betterment also 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.

Account Types

Wealthfront and Betterment both offer a range of accounts, including individual, joint and trust taxable accounts, and a range of retirement accounts. One area where they differ is in 401(k)s and 529 college savings plan accounts. Wealthfront offers 401(k) rollovers as well as 529 plans. Neither Wealthfront nor Betterment currently supports beneficiary IRAs or custodial accounts. 

Wealthfront account types:

  • Taxable accounts (individual, joint, and trust)
  • Traditional IRA accounts
  • Roth IRA accounts
  • SEP IRA accounts (for the self-employed and small businesses)
  • IRA transfers
  • 401(k) rollovers
  • 529 college savings plan accounts 
  • High-interest savings accounts

Betterment account types:

  • Individual taxable accounts
  • Joint taxable accounts
  • Traditional IRA accounts
  • Roth IRA accounts
  • Trust accounts
  • High-interest savings accounts
  • Checking account (starting in September 2019)

Features and Accessibility

Wealthfront and Betterment are well-matched in terms of features, but there are some important differences. As previously mentioned, Wealthfront has some additional account types that Betterment currently doesn’t support. That said, the biggest difference in features is the fact that Betterment offers you a human option (for a fee) while Wealthfront is digital-only beyond basic customer service. 

Wealthfront:

  • 529 college savings: These accounts are rare among robo-advisors. Fees are slightly higher because these plans include an administrative fee.
  • Wealthfront cash account: Wealthfront offers a high-interest cash account paying 2.07% APY with no fees, unlimited transfers, and FDIC insurance up to $1 million. The interest rate depends on the Federal Funds rate, and fluctuates accordingly.
  • Portfolio line of credit: Accounts with more than $25,000 have access to a line of credit at 4.75% to 6% interest. There’s no credit check or credit score impact, and you can borrow up to 30% of your account.
  • PassivePlus investing: Wealthfront’s rules-based investment strategies aim to maximize client investments using tax-loss harvesting. At higher asset levels ($100,000+), the company offers stock-level tax-loss harvesting and risk parity. At $500,000 and up, the strategy includes Smart Beta, which weights the stocks in your portfolio more intelligently.

Betterment:

  • 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: The 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 2.69% interest in July 2019, and their checking accounts will roll out starting in September 2019. 

Fees

When it comes to fees, both Betterment and Wealthfront start at the very affordable annual fee of 0.25%. It is important to remember just how competitive this rate is compared to what you would have paid a decade ago to have your portfolio managed. In the robo-advisor space, there are few services that can undercut these two on price while offering comparable service. 

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 into the Smart Beta program, which re-weights the holdings in your portfolio using Wealthfront’s proprietary system.

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

Minimum Deposit

When it comes to minimum deposits, Betterment clearly has an edge over Wealthfront. While you need a reasonable stake of $500 to get started with Wealthfront, Betterment has no account minimum. While $500 is still very low, Betterment may be a better option for young investors who don’t have that money on hand but want to start investing now. 

  • Wealthfront: $500
  • Betterment: $0

Portfolios

Wealthfront and Betterment both follow Modern Portfolio Theory (MPT) to populate a diversified portfolio of ETFs representing different asset classes.

At Wealthfront, to determine the portfolio you’ll invest in you’re asked a few questions about your attitude towards risk and when you might need the money. You’re shown the exact portfolio prior to funding your account, but you cannot customize the pre-set portfolio at all. If you have more than $100,000 in your Wealthfront investing account, you can choose a stock portfolio rather than portfolios of ETFs. You can also put some companies on a restricted list if you’d rather not invest in them.  

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 gets more conservative as the target date approaches, with the goal of locking in gains and avoiding major losses. Clients will appreciate this automated reallocation because most investors don’t have the time or dedication to implement these techniques on their own. 

Tax-Advantaged Investing

Wealthfront and Betterment both deal with trades in your taxable accounts through tax-loss harvesting. The methodologies are likely very similar, swapping in comparable assets for a loss to offset gains elsewhere. That said, Wealthfront provides a full whitepaper that shows how robust their methodology is in dealing with taxable events. Betterment’s explanation, and potentially the service, is more basic. 

Security

Both firms have tight security on their web platforms, and offer two-factor authentication as well as biometric logins on their mobile apps. 

Wealthfront is a member of the Securities Investor Protection Corporation (SIPC) and client accounts are protected up to a maximum of $500,000. The site actually has an article on why SIPC insurance doesn’t protect investors in the way they think it does, but the company still holds the coverage. Their trades are cleared at RBC Correspondent Services, a Canadian company which focuses on wealth management and financial advisors rather than clearing firms that serve broker/dealers with very active traders. 

Betterment doesn’t directly carry SIPC insurance, 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 if you hold more than $250,000 in cash in your Betterment Everyday Savings account, you might consider moving the excess to a firm with additional insurance.  

Customer Service

Betterment has the edge in customer service as Wealthfront does not have an online chat feature on its website or in its mobile apps. Wealthfront does offer a customer support phone line if you need help with a forgotten password. Most support questions posed on the Wealthfront Twitter account are answered relatively quickly, though we saw one that took more than a week before there was a response.  

In contrast, 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 also 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.  

Our Take

Wealthfront and Betterment were very close across our rankings. The key differences are the option of a human advisor for higher account fees through Betterment, the additional account types with Wealthfront, and a $500 difference in what it takes to start an account.

In general, Betterment is the best option for investors just starting out in that you don’t need much to get started and you can get human support at a still-low fee of 0.40%. Wealthfront, by contrast, seems like the better choice for investors who don’t feel the need for human hand-holding. Wealthfront’s methodologies are laid out extensively, so a relatively experienced investor can have a high degree of comfort giving up the human option. Moreover, the service improves as your assets under management grow, with additional layers of diversification and portfolio management kicking in automatically at $100,000 and $500,000, with no increase in fees.

So although Betterment may be the go-to if you are cash-strapped when you are starting out, Wealthfront is ultimately the superior service in the long run. 

Methodology

Investopedia is dedicated to providing investors with unbiased, comprehensive reviews and ratings of robo-advisors. Our 2019 reviews are the result of six months of evaluating all aspects of 32 robo-advisor platforms, including the user experience, goal setting capabilities, portfolio contents, costs and fees, security, mobile experience, and customer service. We collected over 300 data points that weighed into our scoring system.

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.

Our team of industry experts, led by Theresa W. Carey, conducted our reviews and developed this best-in-industry methodology for ranking robo-advisor platforms for investors at all levels. Click here to read our full methodology.