Not all retail investors have the time or inclination to manage their own portfolio of stocks and bonds. In addition, paying a professional to assess their needs and guide them as they buy and sell securities may not be the best choice either. For such folk, using a robo-advisor offers a middle ground between the DIY and pay-a-professional approach. Betterment and Wealthfront are two of the top robo-advisors on the market. Learn which could be best for you by comparing their features and pros and cons.
Similar at First Glance
Both Betterment and Wealthfront started in 2008 and currently charge a .25% annual advisory fee for digital portfolio management. More importantly, they both have a variety of similar, high-quality services that are worth going over before we discuss which is best for which type of investor.
They are both registered with the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC), but neither are FDIC insured. However, both companies are members of the Securities Investor Protection Corporation (SIPC), which protects up to $500,000 (including $250,000 for claims for cash).
Their products are managed by teams of professional investors working to earn their clients the highest return on investment. They both follow Modern Portfolio Theory to create diversified portfolios of low-cost ETFs.
Other similar or overlapping features include:
- Automatic re-balancing
- Tax-loss harvesting
- Retirement tools
- Customized portfolios
- Automated deposits
- Goal-setting
You can get many different kinds of accounts from either service, including IRAs, Roth IRAs, SEP IRAs, Rollover IRAs, individual investments, joint investments and trust investments. Both Betterment and Wealthfront also have savings account options or the equivalent.
Betterment
Management Fees
Management fees at Betterment range from .25% to .40%. For ordinary digital portfolio management, Betterment costs .25%, like Wealthfront. However, Betterment Premium has a management fee of .40%. Betterment also offers 30 days of free management for each additional referral you bring in, and a full year of free management if you bring in three new users.
Account Minimum
Betterment has no minimum deposit requirement for their digital portfolio management, but they have a minimum investment of $100,000 for Betterment Premium.
Savings Account Option
Betterment used to just have a savings account it called “Smart Saver.” It is a low-risk bond portfolio with a current expected return of around 2.44%. However, it is subject to management fees because it is technically an investment account. In July 2019, it launched a traditional savings account that pays 2.69% interest.
Goal Setting
Betterment has some simple steps that you can follow to set a goal, and each can be monitored separately. Your asset allocation is shown in a ring with equities in shades of green and fixed income in shades of blue. If you start to fall behind on meeting one of your goals, you’re encouraged to put more aside to catch up with that goal.
Portfolio Options
Betterment offers five portfolio types based on Modern Portfolio Theory investment themes and principles.
- Standard portfolio of globally diversified stock and bond ETFs
- Income-focused all-bond portfolio of BlackRock ETFs
- “Flexible Portfolio” is made out of the standard portfolio’s asset classes but weighted according to user preferences
- Goldman Sachs Smart Beta portfolio is designed to outperform the market
- SRI: Socially responsible portfolio made up of holdings that score well on environmental and social impact. However, investments may not meet standard requirements for this theme.
Retirement Planning
Betterment prompts you to connect external accounts, like your bank and brokerage holdings, to your account so you can have a complete picture of your assets. It also makes cash transfers into your investment portfolio easier. Every goal you set can be invested in a different strategy, so your shorter-term goals, like funding a down payment on a house, will be lower risk than your longer-term goals, like retirement.
Access to Human Advice
Betterment offers a second tier called Betterment Premium for those who want to interact with human advisors. If you sign up for Betterment Premium, you’ll have access to a team of financial advisors available by phone and email. It will cost you a management fee of .40% and has a minimum investment of $100,000.
If you can’t afford or don’t want Betterment Premium, you can still talk with a financial advisor by purchasing an advice package targeted to specific life events, such as marriage or retirement. Betterment’s packages include a phone call with an advisor as well as an action plan with recommendations. Package prices range from $199 to $299.
| Fees | 0.25% |
| Minimum | $0 |
| Best For | Low-maintenance, goal-based investors |
Wealthfront
Management Fees
Wealthfront’s digital portfolio management fees are .25%. However, Wealthfront has fund fees of between 0.07% and 0.16%. In addition, the first $5,000 is managed without a fee if you sign up through a referral. You also get an extra $5,000 worth of free management for every additional referral you bring in.
Account Minimum
Wealthfront has a $500 account minimum.
Savings Account Option
Wealthfront offers a true savings account with a 2.24% APY.
Goal Setting
Wealthfront offers very specific ways to forecast your financial needs. For example, if one of your goals is to buy a house, Wealthfront uses third-party sources like Zillow and Redfin to estimate what your house will cost. College planning includes forecasts of tuition and costs at thousands of United States universities from the Department of Education. Wealthfront shows you all of your assets and liabilities, which gives you a visual check-in on how likely you are to achieve your goals. There is even the option of figuring out how long you can take a sabbatical from work and still achieve your financial goals.
Portfolio Options
In order to determine the portfolio you should invest in, Wealthfront asks you questions about your attitude toward risk and when you might need the money. Although you’re shown the exact portfolio prior to funding your account, you cannot customize the pre-set portfolio at all. However, you can put some companies on a restricted list if you’d rather not invest in them. In addition, if you have more than $100,000 in your Wealthfront investing account, you can choose a stock portfolio rather than portfolios of ETFs.
Retirement Planning
Wealthfront offers retirement planning that includes Social Security projections. After all of your financial accounts are entered, like IRAs and 401(k)s, and any other investments you might have, Wealthfront shows you a picture of your current situation and your progress toward retirement. This can all be done without talking to anyone. Wealthfront’s Path planning tool helps you compare your projected retirement income with your current spending habits so you can figure out if and how you can maintain your current lifestyle in retirement.
| Fees | 0.25% |
| Minimum | $500 |
| Best For | DIY investors looking for cheap fees |
Which Is Best for You?
It depends on your priorities. Wealthfront offers a 529 college savings account, which is rare among robo-advisors, although fees are slightly higher because the plans include an administrative fee. Wealthfront also offers stock-level tax-loss harvesting. Betterment offers neither of these advantages.
However, Betterment offers financial-advice packages, the option to speak to a human advisor and the option of socially responsible investment portfolios. They are both excellent options, depending on your priorities.
The Bottom Line
Both Wealthfront and Betterment are excellent choices if you’re looking for a robo-advisor. They both offer low, ongoing management fees, automatic rebalancing and low-cost, diversified ETF portfolios.
Tips for Investing
- If you have a complex financial situation or you want to ensure you work with a human, a traditional financial advisor might be a better fit. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Robo-advisors make investing affordable for the average person. However, it’s even more affordable to manage your portfolio yourself if you have some time to learn about investing. Experts often advise that new investors put their money into index funds or ETFs, which most robo-advisors do. If you’re just beginning to invest, you might want to learn about trying to use those funds for your own portfolio and manage it yourself.
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