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Betterment Review: A Popular Robo-Advisor for Good Reason

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Betterment was one of the first brokerages to automate the investment process. Simply put, these services -- known as robo-advisors -- consider your risk tolerance and investment goals to automatically invest your money in a portfolio custom-tailored for you. Robo-advisors give investors access to some of the perks of hiring a financial advisor, but for a fraction of the cost. In our Betterment review, we'll take a closer look at how the company's robo-investing service works, its pros and cons, and how to tell if this is the best robo-advisor for you.

Ratings Methodology

Full Betterment review

This robo-advisor is a good fit for: Passive investors seeking a low-cost option to put their investments on cruise control. Betterment also offers great cash management features with a high APY.

Pros
  • Low cost
  • Great cash management features
  • No minimum balance
  • Tax-loss harvesting
  • Great mobile app

Cons

  • No access to human advisors
  • Limited account types

Top perks

Low management fee

Betterment's basic Digital investing service charges a 0.25% management fee, among the lowest in the industry, especially considering the other features of the platform. For a slightly higher fee of 0.40%, Betterment also offers a Premium plan that gives customers unlimited access to financial advisors (all CFP® professionals) by phone.

Automatic rebalancing

When your portfolio's asset allocation no longer fits your target risk profile, Betterment automatically rebalances your investments. This has become a standard feature at most robo-advisors but is still worth mentioning.

Integrated cash management

Betterment offers a cash account with a variable APY, currently 0.10%. It also offers a valuable no-fee checking account. Combined, these cash management accounts let investors keep all of their finances in the same place.

Tax-loss harvesting

Betterment is one of the few robo-advisors that don't require a minimum balance to provide clients with automatic tax-loss harvesting. In a nutshell, when one of your underlying investment funds declines in value, Betterment may choose to sell it at a loss and reinvest in a similar fund in order to lock in the potential tax savings that come with investment losses.

Fractional shares

Betterment allows its customers to buy fractional shares of their underlying investment funds. This is a common feature among robo-advisors with no minimum balance, as it allows investors to put their entire deposit to work for them, instead of leaving some of their investment funds in cash.

No minimum balance

Unlike many of its competitors, Betterment doesn't require a minimum account balance, making it a good stock broker for beginners. However, you need to deposit at least $10 to start investing. In contrast, many competitors have minimums of $500 or more.

Mobile app

The apps design and feature-rich capabilities mean you can manage all of your day-to-day needs on the go. Betterment's real customers agree, as evidenced by its high ratings in both the iOS and Google Play app stores. Simply put, it's one of the best investing apps from a robo-advisor.

  • iOS rating: 4.8/5 stars
  • Android rating: 4.6/5 stars

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What could be improved

Human advisor availability

Betterment offers unlimited access to Certified Financial Planners® only to its Premium members. However, Premium accounts are available only to clients with at least $100,000 in invested assets. Unlike some of its competitors, Betterment doesn't grant lower-balance customers access to a human advisor unless they pay for a financial advice package with a price tag of $299 or more.

Account types

Betterment doesn't offer custodial accounts, Coverdells, 529 savings plans, or SIMPLE IRAs.

Alternatives to consider

If you want a robo-advisor with access to human advisors as well: SoFi Automated Investing offers the best of both worlds, automated investments along with access to human advisors. Importantly, SoFi Automated Investing also offers some of the lowest costs.

RELATED: See The Ascent's complete comparison of Betterment vs Robinhood.

LEARN MORE: Best robo-advisors for beginners

If you want a full-featured broker and robo-advisor in one: TD Ameritrade offers one of the deepest bench of offerings in the market, including access to most investment vehicles under the sun, a well-regarded trading platform, and a it's robo-advisor offering, TD Ameritrade Essentials Portfolio.

How Betterment works

Like most robo-advisors, Betterment starts the investment process by asking clients a series of questions about your age, investment goals, and other topics that help Betterment to assess your risk tolerance. Based on your answers, Betterment automatically builds a personalized investment portfolio, which you can modify.

Also, depending on your investment goals, Betterment can tell you how much you need to deposit initially as well as ongoing.

Services offered

In addition to the standard portfolio allocation service offered by every robo-advisor, Betterment offers some services that help it stand out from the competition.

For example, instead of rebalancing client accounts once per year or quarter to maintain the desired asset allocation, Betterment rebalances whenever necessary. And Betterment is one of the only robo-advisors that provides an automatic tax-loss harvesting feature with all accounts, regardless of balance.

Betterment also offers a Premium version of its robo-advisor service, available only to clients with at least $100,000 in their accounts. It comes with a higher 0.40% management fee. However, the Premium plan has unlimited access to human CFP® professionals to provide financial advice on life events, retirement, and even investments held outside Betterment.

Pricing and fees

It's important to understand the difference between investing in a brokerage account and with a robo-advisor. There are two main types of fees involved with investing through a robo-advisor. First, most robo-advisors charge an account management fee, which is a percentage of invested assets expressed on an annualized basis. Betterment charges a 0.25% management fee for its basic service, which it calls Betterment Digital, or 0.40% for its Premium offering. This translates to $25 or $40, respectively, for every $10,000 in your account.

In addition, the individual investment funds Betterment selects for your portfolio have their own investment fees, known as expense ratios. Like the management fee, these are also annualized percentages of invested assets. The combination of your management fees and the expense ratios of your investment funds are collectively referred to as the "all-in" cost of a particular robo-advisor.

It's worth mentioning that most of Betterment's preferred ETFs are toward the lower end of the investment fund fee range. This is certainly a competitive cost structure in the robo-advisory industry, especially when you consider Betterment's list of account features. (Note: While Betterment's ETFs have fees that average 0.11%, that number is on the lower end of that spectrum.)

Service/Item Betterment Cost
Account management fee 0.25%
Investment fund fees 0.11% average
Premium advice 0.40% ($100k min. balance)

Customer service and support

There are two types of support that clients of a robo-advisor could need: investment advice from a human being and help with technical issues. So let's take a look at how Betterment stacks up.

When it comes to access to a human financial advisor, Betterment provides unlimited access -- if you have a Premium membership. This means that you must have at least $100,000 in your account and pay the higher 0.40% management fee. To be clear, this is certainly cheaper than hiring a financial advisor on your own.

Customer support for account-related issues is available by phone and email from 9 a.m. to 6 p.m. EST on weekdays, which is good, but not the most convenient in the business. Several competing robo-advisors offer 24/7 customer support.

Betterment is right for you if:

  • You don't have a ton of money to get started.
  • You want to open a standard brokerage account, traditional or Roth IRA, SEP IRA, or trust.
  • You want a cash account and a checking account that can integrate with your investment account.
  • You're concerned with the tax implications of your investments.
  • You aren't worried about access to human financial advisors, or are willing to pay a little more for the privilege.

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