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.
$0 per trade, management fee 0.25%
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.
Betterment’s basic Digital service charges a 0.25% management fee, which is 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 by phone.
When your portfolio's asset allocation no longer fits your target risk profile, Betterment will automatically rebalance your investments. This has become a standard feature at most robo-advisors but is still worth mentioning.
Betterment also offers a high yield cash account with a 0.40% APY. It also offers a valuable no-fee checking account. Combined, these cash management accounts allow investors to keep all of their finances in the same place.
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.
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.
Unlike many of its competitors, Betterment doesn't require a minimum account balance, making it a good stock broker for beginners. However, you'll need to deposit at least $10 to get started. In contrast, many competitors have minimums of $500 or more.
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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 $199 or more.
Betterment doesn't offer custodial accounts, Coverdells, 529 savings plans, or SIMPLE IRAs.
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 in the robo-advisor market.
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 will automatically build a personalized investment portfolio, which you can choose to modify if you want to.
Also, depending on your investment goals, Betterment can tell you how much you'll need to deposit initially as well as on a continuing basis.
In addition to the standard portfolio allocation service offered by every robo-advisor, Betterment offers some services that help it to 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 to all accounts, regardless of balance.
Betterment also offers a Premium version of its robo-advisor service, which is available only to clients with at least $100,000 in their accounts and 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.
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 all 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 ranging from 0.03% to 0.39%, it's worth pointing out that most are on the lower end of that spectrum.)
|Account management fee||0.25%|
|Investment fund fees||0.03%-0.50%|
|Premium advice||0.40% ($100k min. balance)|
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.-6 p.m. EST on weekdays, which is pretty good but not the most convenient in the business. In fact, several competing robo-advisors offer 24/7 customer support.
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