Betterment review 2023
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Betterment: Best for
- Investors who need a human advisor
- Customizable portfolios
- New investors
Betterment continues to rank at the top of Bankrate’s list of top robo-advisors, and it’s little wonder, with all its benefits and features. Clients have a choice of two service tiers, including an option for human advisors, as well as a top cash management account and a highly customizable portfolio, including socially responsible funds and crypto funds. Regardless of which tier you choose, you’ll receive access to portfolio management, portfolio rebalancing, planning tools to help minimize the tax impact of your portfolio and premium features such as tax-loss harvesting. Add it all up, and Betterment makes a compelling case to be your robo-advisor – and it’s on offer at one of the best prices in the industry.
If access to a human advisor is a “must have,” then be sure to check out Schwab Intelligent Portfolios and Personal Capital. If you’re looking for a top-tier robo but don’t need that human touch, then Wealthfront is another pick that you’ll want to have a look at.
Betterment: In the details
Pros: Where Betterment stands out
Betterment has structured its robo-advisor so that you can set up multiple financial goals (a car next year, a house down payment in five years, and a retirement in 30 years, for example.) Then you’ll be able to create an investment strategy for each of them using various investment funds.
Betterment offers a wide selection of asset classes, 13 in all, across both stocks and bonds for its core portfolio. They’re used to construct a portfolio based on your risk tolerance and time horizon for your financial goal. Goals that are distant (like retirement) can have more aggressive allocations to stocks, while those in the near future will have safer allocations with more bonds.
You’ll also have a few other options when constructing your portfolio that gives it specialized allocations. These include:
- A smart beta fund that weights the stocks in the index according to different factors
- Socially responsible funds, including those that focus on climate change or social impact
- An all-cash strategy, which earns what Betterment’s cash management account pays
- An all-bond strategy, which focuses on income and minimizes volatility
- An innovative technology strategy, which focuses on clean energy, robots, virtual reality, blockchain and more.
- Cryptocurrency portfolios, at a 1 percent annual fee plus trading expenses.
In addition to these features, you can adjust the investment weights in your target portfolio, if you don’t want to invest in an area of the world, for example, or have too much of one kind of investment elsewhere and want more diversification.
The robo-advisor monitors your portfolio daily and automatically rebalances it if it moves more than 3-5 percent away from your target allocation. Betterment generally tries to avoid selling to rebalance and instead uses cash flows (deposits, for instance) to top off the lagging allocation. This approach helps minimize realized capital gains, helping keep your taxes lower.
Two service plans, including optional access to human advisors
If you’re looking for a robo-advisor to do all your investing or to do this core function with some extra human guidance along the way, Betterment has you covered on both counts. Betterment provides two service plans – a digital package and a premium package – each with its own pricing and features:
- Digital plan: This service gets you all the core functionality: portfolio management, automatic rebalancing, tax-loss harvesting and more. Cost: 0.25 percent annually, or $25 for every $10,000 you have invested. However, those with less than $20,000 will be charged a monthly fee (more below).
- Premium plan: This service ups the game and includes all the aspects of the digital plan as well as unlimited access to a team of fiduciary financial advisors who hold a certified financial planner (CFP) designation — and can advise on outside investments, too. Cost: 0.40 percent annually, or $40 for every $10,000 invested.
You can select the plan that better meets your needs, but the fundamental difference between them is access to human advisors tasked with looking out for your best interest as part of their CFP designation. But you’ll need to meet the premium plan’s $100,000 minimum to be able to gain access, a steep threshold for investors just starting out (more below).
Those on the digital plan can get started with no account minimum and may also add on a financial planning package à la carte. You’ll be able to meet with a CFP professional for 45 to 60 minutes (depending on the package) on a number of topics, including optimizing your Betterment account, planning for retirement, preparing your finances to pay for college, marriage planning or other less routine tasks.
The packages run between $299 and $399, and you can book them through the Betterment site.
Top-notch planning tools
Betterment brings a solid suite of tools to its highly functional app, and you’ll be able to plan your money moves with a variety of features:
- A tax-impact tool will help you understand how changes you make to your portfolio will affect your taxes, so you can get a better idea before you act.
- A charitable-giving tool allows you to donate securities directly through the app to your choice of charity, potentially netting you a tax benefit.
- A retirement-planning tool can take a comprehensive view of your financial life and offer suggestions for how to optimize your savings and portfolio to meet your goals.
- Betterment’s goal-planning tool suggests how you can organize and optimize your financial goals (emergency fund, retirement goal and wealth building).
And these tools are on top of other features such as the tax-coordinated portfolio and tax-loss harvesting. So the app offers you a lot more than just basic portfolio management.
Betterment offers fractional fund purchases, not something that every robo-advisor does, allowing you to put your whole deposit to work immediately rather than having it sit around until you can buy a full share or buying shares of only what you can afford. You’ll be able to buy in increments as small as one millionth of a share, so any amount will work here.
Since you can buy in smaller increments, fractional shares allow you to keep the allocations in your financial plan on track and can help make tax-loss harvesting more efficient, too.
If you’re looking for a low-cost robo-advisor, Betterment’s digital plan is a solid choice. With a management fee of 0.25 percent, the digital plan hits the industry standard and is still cheaper than a traditional human advisor (who often charges around 1 percent) while offering features (such as tax-loss harvesting) that these advisors would be hard-pressed to provide.
That said, Betterment instituted pricing changes for 2023 that effectively result in higher fees for clients with low balances. Accounts with less than $20,000 (across all accounts) will pay $4 per month, though a recurring deposit of $250 lets you escape this fee. For new investors with small balances, the fee looks steep. A $1,000 balance would incur costs of $48 per year, or 4.8 percent, while a $10,000 balance would still rack up a charge of $48, or 0.48 percent. That latter figure is still twice Betterment’s headline rate for digital accounts.
The premium plan charges 0.4 percent of assets, hardly unreasonable for its expanded features. Wealthier investors on either plan will see fees reduced by 0.1 percent on any money above $2 million with Betterment. So for the digital plan, fees on that excess amount would fall to 0.15 percent, while on the premium plan they would fall to 0.3 percent.
For its investment funds, Betterment chooses ETFs that charge low fees with Vanguard funds making up the primary stock funds for many of its core portfolios. Vanguard is a well-known leader in low-cost funds, and it offers some of the cheapest in the market.
Across the ETFs used in its portfolios, the fees range from 0.05 percent to 0.13 percent, or from $5 to $13 for every $10,000 managed. The average portfolio has a fee of around 0.07 percent. These fees go to the fund company, not Betterment, and you’ll pay them regardless of which robo-advisor you select. These fees are among the lowest you’ll find at robo-advisors.
Betterment offers a pair of strategies to help you minimize your taxes, and both should prove helpful in keeping more money in your wallet. These strategies are what Betterment calls its tax-coordinated portfolio and tax-loss harvesting+.
The tax-coordinated portfolio feature determines the best accounts to use to minimize taxes, so it looks at your accounts as a whole. Highly taxed investments might go into a tax-advantaged retirement account such as an IRA, while those taxed at a lower rate can go into standard taxable accounts. Betterment automatically factors in every deposit and dividend, directing them to where they’re most likely to minimize your taxes.
Betterment’s research says this feature improves after-tax returns by 0.48 percent annually – more than your management fee. It amounts to 15 percent more money over a 30-year period. So a $1 million portfolio could otherwise be worth about $1.15 million, based on these claims.
And Betterment’s tax-loss harvesting feature may also put more coin back into your wallet. Tax-loss harvesting is the process of selling losing investments to get a tax break, and if done smartly, it can save you real money. Betterment automates this process and checks regularly to see whether you could benefit and avoids incurring short-term capital gains, all at no additional cost.
Betterment estimates that its tax-loss harvesting feature boosts after-tax returns by about 0.77 percent per year. That may seem modest, but over time it can add up to tens of thousands of extra dollars.
Cash management account
Betterment’s cash management account, really two accounts, is among the best in the robo world. You’ll have the ability to save at some of the best interest rates on offer as well as the ability to spend with a checking account, fee-free ATMs, a debit card and more. As an individual, you’ll also have up to $2 million in FDIC insurance on any deposits, given how Betterment partners with banks, or $4 million for a joint account.
Cons: Where Betterment could improve
Account minimum and premium fee structure
Betterment’s $100,000 account minimum for its premium plan is steep in the robo-advisor world, where many clients are approaching investing for the first time. So this plan is inaccessible to smaller investors, though they do have the option of using the digital plan and then adding on a one-off financial planning package later if they decide they need it.
But how does Betterment compare to other high-minimum plans such as Personal Capital or Schwab Intelligent Portfolios Premium? Its management fee is much cheaper than Personal Capital, which charges 0.89 percent on the first $1 million and requires a similar $100,000 minimum.
The comparison against Schwab Intelligent Portfolios Premium is different, however, because of Schwab’s fee structure. Schwab requires a $25,000 minimum to get started with unlimited access to human advisors and charges $30 a month (after a one-time $300 setup fee). For someone with the minimum, that’s a hefty 1.44 percent fee. But the key is that it’s a fixed rate, so even as your assets grow, your fee remains capped at that monthly fee.
What would you pay with $100,000 of assets in the premium plans at each? At Betterment, you’d pay $400 annually, while Schwab’s plan would cost you $360 for similar access to human advisors. And from there the fee for Betterment Premium would keep rising as your assets grew.
Of course, to keep costs from rising you could downshift into Betterment’s digital plan and add on a one-off financial package for around $400, though that doesn’t compare well to Schwab’s all-access pass to human advisors, who also hold CFP designations.
No direct indexing
Betterment doesn’t use direct indexing in its clients’ portfolios, potentially limiting some upside when tax-loss harvesting. While many robo-advisors use only ETFs in constructing portfolios, some (notably Wealthfront) use direct indexing, owning the stocks directly rather than the ETF.
When using index funds, a robo-advisor only has one choice in tax-loss harvesting: sell the fund. But on any given day, many stocks in the fund have risen and many have fallen — so there are potential tax losses that could be realized from individual stocks.
By direct indexing, a robo-advisor has more options to capitalize on losses, selling stocks that are down and reinvesting the money, while still holding on to most of the stocks in the index. So that means direct indexing offers more potential for the practice of tax-loss harvesting.
Confusing set-up process
First, the good part of Betterment’s set-up process: You can gain access to the site in less than 30 seconds with only your name, a phone number and a valid email address. After that, you’re in the door and ready to create your plan. But as to how to create your plan, that’s where the process becomes muddier.
After you sign in, you’re on Betterment’s dashboard screen and may not be quite sure how to proceed. You’re presented with an array of options without an unambiguous direction of where to go, unlike the sign-up process at many robo-advisors where the account-opening process entails answering questions that construct your portfolio, and you simply follow along.
It would be much more helpful to have a clear checklist of steps to follow so that you could know you’re taking full advantage of what Betterment offers. An automated follow-up email does show up a few minutes later directing your attention to incomplete parts of your account, but a simple walkthrough on the site itself would ensure that you do it all on your first stop.
Axos Invest3.0 Bankrate Score
Axos Managed Portfolios offers a strong robo-advisor service with some premium features, all at a reasonable price. Clients also receive a wide choice of funds, including socially responsible funds, though the associated cash management account forces clients to jump through some hoops to receive what is only a mediocre interest rate.
Interactive Advisors4.5 Bankrate Score
Interactive Advisors has upped its game this year, with new features such as tax-loss harvesting that put it among the top robo-advisors. That’s on top of one of the widest range of investing choices, low-cost funds and low overall fees. As strong as all these features are, though, the robo-advisor doesn’t offer access to human advisors, not unusual among robo-advisors.
SigFig3.0 Bankrate Score
SigFig keeps costs low whether it’s account fees, fund fees or the annual management fee. You’ll also get access to human advisors and benefit from automatic rebalancing and tax-loss harvesting. But the lack of a cash management account and relatively high account minimums may cause some investors to look elsewhere.
E-Trade Core Portfolios3.5 Bankrate Score
E-Trade Core Portfolios offers a capable robo-advisor, one that may work best for customers looking to keep their accounts with the broker while having someone do the investing for them. Clients will get low-cost funds as well as less-common choices such as socially responsible funds, though the service doesn’t offer tax-loss harvesting or many tools.
Titan Invest3.0 Bankrate Score
Titan offers something unusual in the robo-advisor space: Titan combines its own actively managed investments with passively managed ETFs, something no other major robo-advisor does. It also hedges those portfolios, does not charge a management fee for the passive funds – a rarity among rivals – and has a low minimum, making it easy to get started.
Morgan Stanley Access Investing3.5 Bankrate Score
For younger investors looking to invest based on their values or certain themes, Morgan Stanley’s Access Investing provides a suitable option among robo-advisors. Investors can choose between impact portfolios that focus on environmental, social and corporate governance (ESG) issues, market-tracking portfolios that minimize fees and performance-based portfolios that attempt to outperform through active management.
J.P. Morgan Automated Investing3.0 Bankrate Score
J.P. Morgan Automated Investing provides portfolio management services with automatic rebalancing and may be a good fit for existing J.P. Morgan customers. But you’ll also pay above-average management fees and have limited account types to choose from. There’s also no tax strategy included in the offering.
Vanguard Digital Advisor3.0 Bankrate Score
Vanguard Digital Advisors keeps it simple: an investment portfolio comprised of four funds at a low all-in price, and then adds on helpful tools and educational components. The combination should do well for clients who don’t need a robo-advisor to provide everything under the sun but want competent investment management from a proven and knowledgeable leader.
Fidelity Go4.5 Bankrate Score
Fidelity Go offers a solid robo-advisor offering that beginning and cost-conscious investors will especially appreciate. However, investors looking for features such as tax-loss harvesting or comprehensive goal planning may be disappointed.
Personal Capital4.0 Bankrate Score
Personal Capital customers will get an experience that more closely resembles that of a traditional financial advisor than a robo-advisor, but you’ll need at least $100,000 to get started. You’ll also get a comprehensive tax strategy to help minimize what you owe to Uncle Sam. But this higher level of service does come at an above average cost compared to the rest of the robo-advisor industry.
Stash3.5 Bankrate Score
Stash’s managed portfolios might appeal to small investors who are looking to save as they spend, but the monthly fees can be high for investors who don’t have a large balance built up and there are only a few types of accounts available.
M1 Finance4.5 Bankrate Score
M1 Finance takes some of the best of what brokers and robo-advisors do and mixes it into a new service that provides automated investing in a fully customizable portfolio – all for no cost. If you want to take it up a notch, you can pay an additional fee and receive a host of upgraded features, including one of the best cash management accounts out there.
Wealthfront5.0 Bankrate Score
Wealthfront offers a strong lineup of features – sophisticated portfolio management using low-cost funds – that showcase why it’s one of the leading independent robo-advisors. It provides a strong cash management account, a robust planning tool and premium features such as tax-loss harvesting that may more than pay back your annual fee.
Ellevest3.5 Bankrate Score
Ellevest brings a competent and well-considered robo-advisor, pitching itself to women, whose financial needs are traditionally underserved. But don’t think it won’t work for anyone who needs nuanced investment management, since it offers low-cost funds, socially responsible funds and – unlike most rivals – a flat monthly fee, making it advantageous for those with more to invest.
Schwab Intelligent Portfolios5.0 Bankrate Score
Schwab Intelligent Portfolios provides a top robo-advisor experience that should be a good fit for many investors. The basic plan comes with no management fee and a low-cost portfolio, plus you’ll get Schwab’s top-notch customer support and easy-to-use platform. The premium plan comes with unlimited access to human financial advisors, but both plans come with above-average account minimums and tax-loss harvesting isn’t an option until you reach at least $50,000 in assets.
Acorns3.5 Bankrate Score
Acorns is a good choice for new investors who are starting with small sums of money, allowing customers to build a diversified portfolio with just a few dollars. However, the fees are above average for small account values, though they’ll decline as your portfolio grows, and you won’t find any tax strategy as part of the robo-advisor offering.
Wells Fargo Intuitive Investor4.0 Bankrate Score
Wells Fargo Intuitive Investor is a solid robo offering that gives customers easy access to human financial advisors at no additional cost along with tax-loss harvesting that can help you save on taxes. However, the management fee is above average unless you’re an existing Wells Fargo banking customer.
Ally Invest Managed Portfolios4.0 Bankrate Score
Ally Invest Robo Portfolios are a good option for new investors who pay particular attention to costs. Existing Ally clients may also appreciate having all their finances in one place. Unfortunately, Ally doesn’t offer tax-loss harvesting or provide human advisors to help with those especially difficult questions.
Merrill Guided Investing3.5 Bankrate Score
Merrill Guided Investing offers a credible investing service for Bank of America customers, but its high management fee makes it less attractive among a competitive field of robo-advisors. Merrill offers several positives, including access to human advisors and low-cost investment funds, but premium features such as tax-loss harvesting are missing.
SoFi Automated Investing4.0 Bankrate Score
SoFi Automated Investing gives cost-conscious investors a solid robo-advisor offering that comes with access to human financial advisors at no additional cost. But the lack of tax-loss harvesting and no socially responsible investing options may cause more sophisticated investors to look elsewhere.
Marcus Invest4.0 Bankrate Score
Marcus Invest offers the core feature of a robo-advisor – portfolio management – and then adds some twists, such as several portfolio types, all for a cost-competitive fee. It’s a great add-on for current Marcus customers, though some features of higher-end robo-advisors such as tax-loss harvesting and an expansive toolset are missing.