The Modest Wallet is a free digital publication delivering its readers simple personal finance solutions. We regularly partner with brands that have products and services that will help our readers. Some of the links in this post are from our partners. How we make money.
With more than $16 billion in assets under management (AUM) and thousands of satisfied customers who enjoy the platform’s wide range of services, Betterment is one of the robo-advisor leaders in the United States.
The company prides itself on being able to provide tailored financial advice beyond cold algorithms and automated responses by introducing a human touch — its team of Certified Financial Planners (CFPs). Betterment was created to serve the full range of investors — from beginners to experienced. Beyond its robo-advisor investment services, Betterment offers investors a variety of features to help them reach their financial goals.
The following Betterment review covers everything you should know about Betterment to help you determine if it’s right for you.
Quick Summary: Betterment is one of the robo-advisor leaders in the United States with over $16 billion in Assets Under Management (AUM). Their goal is to take sophisticated investing strategies and design a portfolio just for you with the aid of AI.
What is Betterment?
Betterment is a New-York based investment platform that offers money management services, including an investment advisory service that operates through artificial intelligence. This basically means that the advice provided to each customer is determined by an algorithm the firm has cleverly designed.
Betterment’s value proposition is that they help people manage their money wisely by providing cash management, investment, and retirement planning advisory services, and they achieve this goal by collecting certain essential information from each user that allows the robo-advisor to determine the best course of action.
How Does Betterment Work?
Betterment offers a number of products and services that can work for you, depending on what you’re looking for in a robo-advisor.
When it comes to investment accounts, Betterment offers personal and joint (spouse or partner) taxable accounts, but you can also invest for existing trusts.
If you’re interested in retirement accounts, you can select any of the following: Roth IRAs, Traditional IRAs and SEP IRAs.
Robo-Advisor Investment Accounts
As a robo-advisor, investment accounts with Betterment work through artificial intelligence. This means that an algorithm designs your portfolio based on certain personal information you provide upon registration, and the company charges a 0.25% annual fee on your invested balance while covering all trading costs involved.
Additionally, no transaction fees are charged to users, while the funds your portfolio is invested in have an expense ratio between 0.03% and 0.50% of the total amount invested.
If you need guidance, Betterment also offers a Premium Advice investment account for a 0.40% flat annual fee on the amount invested. This service gives the user unlimited access to the firm’s team of Certified Financial Planners via phone call.
An important note: While opening a standard account doesn’t require a minimum balance, the Premium Advice account requires a minimum of $100,000 in assets.
Betterment offers both IRA and 401(k) accounts, and they can be rolled over from other providers if a user decides to do so.
Once the assets are received, the platform charges a 0.25% annual management fee.
Opening an Account
Signing up with Betterment can be done online, and the process should take no longer than a few minutes. Registration only requires providing some basic information and filling out a brief questionnaire that will be used by the robo-advisor to provide investment advice. It also creates a custom-made portfolio based on your individual goals and risk profile.
After that, your checking account will be linked to the Betterment investment account and automatic deposits can be set for your account (or you can also set them up manually).
There’s no minimum deposit required to open an account with Betterment (except for accounts that opt for the Premium Advice service, which requires a minimum balance of $100,000 to be eligible).
Betterment is definitely one of the most advanced and comprehensive robo-advisors in the United States, offering an array of useful features.
|Fees||0.25% Annual Fee (Digital) and 0.40% Annual Fee (Premium)|
|Account Types||Joint, Taxable, Traditional IRA, Roth IRA, Rollover IRA, SEP IRA and Trusts|
|Platform||Mobile (iOS / Android) and Website|
|Assets Under Management||Over $16 billion|
|Promotion||Get up to 1 year managed free|
|Socially Responsible Investing|
|Support||Live Chat, Phone and Email|
Custom Asset Allocations
Betterment’s robo-advisor analyzes each investor’s goals and risk profile to determine the optimal asset allocation for them (how much money will be invested into which asset class) and this allocation will be executed by using financial vehicles called exchange-traded funds (ETFs).
The custom asset allocation feature calculates the percentage of the investor’s portfolio that will go into each asset class. The calculation is based on the information provided and the portfolio will be rebalanced periodically to maintain the percentage of each asset class that was defined when the portfolio was first created.
Tax-Loss Harvesting (TLH)
Betterment’s Tax-Loss Harvesting (TLH) feature is automatically triggered by the robo-advisor when a loss in a security has been identified.
The point of this feature is to offset taxes on both gains and income by realizing or “harvesting” a loss. Once the security that has experienced a loss is sold, it is replaced by a similar one, while maintaining an optimal allocation and expected returns.
Socially Responsible Investing (SRI)
Socially Responsible Investing (SRI) is a portfolio designed by Betterment for investors who consider themselves socially-conscious and wish to invest in companies that meet certain social, environmental, and corporate governance criteria.
As of this writing, the SRI portfolio has only identified viable substitutes for traditional US large-cap stocks, emerging market stocks, and developed market stocks, as no other socially-responsible ETFs are available for other asset classes like growth or value stocks, or small-cap companies.
Goldman Sachs Smart Beta
The Goldman Sachs Smart Beta portfolio is designed to achieve above-market returns while maintaining the tax-efficient and low-cost approach that characterizes Betterment’s investment offerings.
This portfolio is designed by the renowned global investment bank Goldman Sachs, and the additional returns are achieved by increasing the systematic risk of the portfolio.
It is considered a more actively managed portfolio than the rest of the alternatives offered by Betterment, as asset classes may vary depending on their potential to produce higher returns over time.
It is perhaps the most suitable choice for investors who are willing to take on some extra risk to achieve higher returns to meet certain specific (and possibly more ambitious) financial goals.
BlackRock Target Income
Blackrock’s Target Income portfolio is a choice suited for investors seeking to generate fixed income from their invested funds, as it is essentially a 100% bond portfolio that produces periodic cash inflows from interest payments.
It is usually a popular choice for retirees or for investors who want to receive a steady stream of income to cover their living expenses.
The BTI portfolio is a low-risk alternative, as the bonds included within the portfolio are usually highly rated, which means the probability of a default is fairly low, while the expense ratio of the ETFs that comprise this portfolio is a bit higher than that of stock ETFs — between 0.21% and 0.38%, depending on the target income level.
A Flexible Portfolio allows the investor to get a say in what the robo-advisor is recommending, which means that the weight of the different asset classes within the portfolio can be modified at any given point in time.
This portfolio is perhaps more suitable for those who have their own views about how certain assets may perform over time. This flexibility could also be used to increase the risk associated with the portfolio at some point if the investor seeks to increase his returns as well.
The good news is that those who choose the Flexible Portfolio will continue to enjoy the tax-savings features offered by Betterment (Tax Loss Harvesting and Tax Coordination) even though they will not be following the robo-advisor’s recommendation strictly.
These portfolios are initially constructed by using the robo-advisor’s initial recommendation, and then the weight of each class can be modified through the platform’s user-friendly interface.
Smart Tax Strategies
Betterment’s portfolio and investment strategies were conceived based on a tax-efficient approach. This means that the robo-advisor’s recommendations take into account not only the risk/return of the ETFs included within the portfolio, but also the tax implications of the asset classes selected.
By doing this, Betterment claims that you can increase the value of your portfolio by around 15% (approximately 0.48% extra return per year) over a 30-year period by reinvesting the taxes you save back into the portfolio using their strategies.
They achieve this by investing in ETFs, which are considered to be more tax-efficient than other investment vehicles. They include certain tax-exempt securities, such as municipal bonds, to gain from their tax advantage.
Additionally, they use retirement accounts (which allow for tax deferrals) include high-tax assets within these accounts, while including the tax-exempt assets into your other taxable investment accounts to achieve a lower tax bill.
Finally, Betterment also achieves tax savings by selling assets in a certain order if you need to withdraw money from your account, taking into consideration the tax implications of selling those assets and liquidating the ones that will add fewer taxes to your annual returns first.
Financial Planning Package
Along with its popular selection of portfolios designed by the robo-advisor, Betterment also provides financial planning packages for users who may be seeking a personal touch.
These packages consist of one-on-one interactions with financial experts via pre-scheduled calls, and there are various packages available for users, starting with the Getting Started Package, which consists of a 45-minute phone call with a Certified Financial Planner (CFP) who can provide step-by-step guidance on how to manage your money wisely.
The second alternative is a Financial Checkup Package, which also consists of a 60-minute call with a CFP. During the call, you’ll receive expert advice based on an analysis of your current financial situation.
There are also certain “situational” financial planning packages, like the Marriage Planning Package, the College Planning Package, and the Retirement Planning Package, all of which consist of a 60-minute call with a CFP where the user will receive guidance on certain financial aspects involved in each of these life-changing situations.
The Getting Started Package costs $199, while the rest of the packages cost $299. Calls can be easily scheduled through Betterment’s website or mobile app.
Betterment offers checking accounts to help users manage their expenses, and their customer checking accounts are provided by a third-party financial institution (the NBKC bank, as of this writing).
The account is insured by the FDIC for up to $250,000 and comes with a Visa Debit Card. Additionally, the account offers reimbursements on ATM and foreign fees, and doesn’t charge any monthly maintenance or account fees.
Both individual and joint checking accounts are available. Betterment also offers mobile banking services so account holders can check balances and movements in real time.
Betterment Cash Reserve
Betterment Cash Reserve is Betterment’s savings account option. It was launched as an alternative to traditional savings accounts, highlighting the fact that it produces an Annual Percentage Yield (APY) that’s six times higher than the national average.
This account is FDIC-insured as well, with coverage of up to $2 million. Moreover, withdrawing money from Cash Reserve accounts usually takes between 1 and 2 business days.
The minimum deposit required to open a Cash Reserve account is $10, and funds deposited into this account may be held by one of the following third-party institutions (Betterment is not a bank):
- The Bancorp Bank
- Barclays Bank Delaware
- Citibank, N.A.
- Cross River Bank
- HSBC Bank USA, N.A.
- State Street Bank and Trust Company
- Wells Fargo Bank, N.A.
Betterment allows users to set up auto-deposits for their accounts, which means that a certain amount will either be periodically withdrawn from one of the bank accounts registered within the platform, or money will be transferred from one of Betterment’s checking accounts into the investment account held by the user.
This feature is particularly useful for investors who may be less disciplined when it comes to depositing money into their retirement or investment accounts, because it eliminates the need for executing a manual deposit on a weekly or monthly basis.
Additionally, it is a good alternative for people who follow the dollar-cost-averaging investment approach, which means that the investor purchases securities periodically instead of all at once, as temporary market fluctuations in the portfolio can be smoothed over time by using this method.
Even small deposits can be used by Betterment to increase portfolio holdings via fractional shares (which are smaller portions of the ETFs your portfolio is invested in).
Betterment recently improved its mobile app to incorporate a significantly higher number of features that could previously only be accessed via the web app.
The previous version focused on the value of the investment portfolios held by the user — and according to Betterment, it produced a high level of stress for users during times of market volatility.
Now, Betterment has incorporated other indicators, like the degree of progress the user has made towards his or her financial goals.
Betterment has also incorporated all of the financial goals available in the web-based version into the mobile app, and, as a result, users can now set up new portfolios as needed by using their smartphones.
Deposits and withdrawals can also easily be made using the app’s interface. The app also provides a set of useful reports designed to inform the user about how a portfolio has behaved over time, the fees paid, dividends received, withdrawals made, and other similar information.
Betterment Pricing & Fees
Following is a summary of how much Betterment charges for each of the services they provide:
- Cash Reserve Savings Account — No fees are charged on the balance of your account. Betterment is compensated by program banks (as stated on the Betterment website).
- Checking Accounts — No monthly maintenance or account fees are charged, and the 1% Visa Debit Card fees are reimbursed to the account holder.
- Investment Accounts — Betterment charges a 0.25% fee on the amount invested per year for its standard investment accounts, while the Premium Advice accounts generate a 0.40% annual fee. The premium alternative requires a minimum balance of $100,000.
- Retirement Accounts — Betterment charges a 0.25% annual management fee on the amount invested in IRA and 401(k) accounts.
- Financial Planning Packages — All packages offered by Betterment cost $299 for a 60-minute consultation, except for the Getting Started Package, which costs $199, and entitles the user to a 45-minute call with a CFP.
- User-friendly and quick online registration process.
- No minimum balance required to open an investment account.
- One of the cheapest checking accounts available in the US market.
- Low-cost, professionally managed investment accounts.
- Decent selection of portfolios for users to pick from.
- Straightforward fees and expense ratios.
- It’s a one-stop shop for people seeking to handle their finances with a single provider.
- FDIC-insured bank accounts.
- Portfolio allocations are determined based on financial goals.
- Investment accounts are protected by SIPC for up to $500,000 if Betterment is liquidated.
- Portfolios are constructed by using ETFs only instead of individually chosen stocks or bonds.
- Robo-advisors may be a bit impersonal for some users.
- Users can’t trade individual stocks or ETFs of their choosing; the platform only allows for modifications in asset allocation percentages.
Betterment offers great features, but there are a few alternatives you may want to consider before making your decision. A few things to consider are security features, fees, education and customer support.
Wealthsimple is a robo-advisor that offers products and services similar to the ones offered by Betterment. However, Wealthsimple extends the asset classes included in its portfolios to incorporate REITs and natural resources ETFs.
As for pricing, Wealthsimple charges higher fees than Betterment. The management fee for accounts with balances between $0 to $100,000 is 0.50%, and 0.40% if your balance is greater than $100,000.
Check out our Wealthsimple review.
Wealthfront is a robo advisor in the United States offering competitive management fees for as low as 0.25% per year. They also offer to manage your account for free if you have a balance of $5,000 of less.
Wealthfront requires a minimum investment of $500 and does not offer fractional shares. Other than that, they pretty much offer all features you would expect from a good robo-advisor.
Overall, Wealthfront is a great alternative to Betterment. If you are a young investor, this robo-advisor is something you should look at.
Who Should Sign Up with Betterment? Who Should Avoid Betterment?
Betterment is a good choice for investors seeking a hands-off approach for their investments, as the simplicity of Betterment’s portfolios and the user-friendliness of their platforms make investing as easy as it gets.
Other robo-advisors offer similar value propositions, but the platform’s wide range of extra features makes it an interesting choice. Plus, the fees Betterment charges for managing portfolios are on the low end for the industry.
But Betterment may not be the best choice for investors who want to have a say on what they do with their funds, as the portfolios only allow for modifications to the percentage of assets allocated to each asset class, but not to the individual ETFs included.
Additionally, individual stocks are out of the picture, and no DIY portfolios can be built, either.
We’ve found some of the most frequently asked questions with regards to Betterment, here are our answers.
How Does Betterment Make Money?
For checking accounts, Betterment makes money on the interchange fees generated when holders use their debit card with different merchants. They also get a small portion of the net interest margin from the volume of deposits received on the accounts.
For savings accounts, Betterment expects to receive annual revenues higher than 0% of the average volume of deposits held with program banks (banks that provide the actual accounts for Betterment customers), but they also put a cap of 0.25% on these revenues.
For investment portfolios, Betterment earns 0.25% per year on the total amount users invest using their platform, and 0.40% for Premium Advice investors.
Additionally, Betterment receives compensation from the 45-minute and 60-minute consultations provided as part of their Financial Planning Packages, which cost between $199 and $299 per consultation.
How is Betterment Different from Other Robo-Advisors?
Betterment services are fairly similar to those provided by other robo-advisors like Wealthsimple or Wealthfront However, compared to Wealthfront, Betterment comes up on top as you are not required to have a minimum investment.
On the other hand, when compared to Wealthsimple, Betterment limits the asset classes incorporated in their portfolios to stocks and bonds, while its competitor also includes real estate and natural resources assets.
Finally, Betterment does not allow users to set up DIY portfolios, which may make it more interesting for investors who have a more hands-off approach when it comes to managing their money.
How Does Betterment Protect My Money?
Checking and savings accounts offered by Betterment are insured by the Federal Deposit Insurance Company (FDIC) for up to $250,000 and $2,000,000 per account, respectively.
Meanwhile, investment accounts are protected by SIPC for up to $500,000 per legal account. This protection does not cover market value fluctuations of your investment portfolio (as that is outside the scope of the program).
The SIPC protection was designed to protect investors from failed investment funds, which means that you will be compensated by the SIPC if Betterment is liquidated or goes out of business.
How Easy Is it to Make Withdrawals?
Withdrawing money from Betterment is fairly easy, and it can be done from the web app or the mobile app.
You can withdraw up to $500 per day from your checking account by using an ATM, and the fees involved in the transaction will be reimbursed. Point-of-Sale (PoS) transactions have a daily limit of $2,000.
For bank transfers, withdrawals take between 1 and 2 days to be credited, and the amount you can withdraw is unlimited, except for withdrawals made on your checking account, which have a $10,000 maximum limit.
Does Betterment Offer Human Advice?
Yes. The Premium Advice investment plan entitles the user to unlimited over-the-phone access to the company’s team of Certified Financial Planners (CFPs).
Additionally, investors can also sign up for one of the company’s financial planning packages described above, which entitle the customer to a 45-minute (Getting Started Package) or 60-minute consultation (for the rest of the packages) with a CFP for a fee that ranges between $199 and $299 per consultation.
If you are looking for a robo-advisor, Betterment is definitely one of the best available.
Their straightforward fees, user-friendly web-based and mobile platforms, easy-going approach, and customer-centric philosophy make this robo-advisor one of the best choices for investors in the United States.
Whether you are a hands-on or a hands-off investor, you can benefit from Betterment’s services.
You can use their robo-advisor to set up a specific portfolio to achieve simple financial goals, or you can rollover your entire balance to them, whether it includes IRAs, or individual investment accounts. Once you make your deposit, they will take it from there.
Finally, it is important to note that due to SEC regulations, Betterment does not offer its services to non-residents of the United States.
- M1 Finance vs. Betterment 2021: A Robo-Advisor Battle
- 12 Best Investment Apps: For Beginners & Pros
- 12 Best Robo-Advisors: Automate Your Investments
- 12 Best Online Brokers for Stock Trading
- 7 Best Micro-Investing Apps
Get our free Stock Market Playbook to learn how to invest your first $500 in the stock market.
Plus our best money tips delivered straight to your inbox.
Alejandro is a financial writer with 7 years of experience in financial management and financial analysis. He writes technical content about economics, finance, investments, and real estate and has also assisted financial businesses in building their digital marketing strategy. His favorite topics are value investing and financial analysis.