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Betterment and Wealthfront are not only the pioneers of the robo-advisor industry, but also the most popular players. They offer many similar offerings, such as software-guided portfolio optimization using low-cost ETFs, but have some differences that might be important to you.
Which one is right for you?
Here is a quick comparison of Betterment and Wealthfront.
Quick Comparison of Betterment and Wealthfront
- 0.25% for Betterment Digital
- 0.40% for Betterment Premium
- $0 for Betterment Digital
- $0 for savings / checking accounts
- $100,000 for Betterment Premium
- $500 for investment accounts
- $1 for cash account
- Investors who want to speak with financial advisors
- Socially conscious investors
- Goal planning approach
- Advanced investors who want to tweak portfolio weights
- College saving
- General investing
- Hands-off approach
- Excellent financial planning tools
- College saving
- General investing
What is the cost?
|Betterment ||Wealthfront |
|Management fee|| || |
|Account minimum|| || |
|Account fees|| || |
|Best for|| || |
Both cost the same for the robo-advising, with Betterment offering a fee discount for high balances. Betterment also offers a higher fee option for those who want unlimited human financial advising.
Same fee for robo-advising
The management fee, 0.25% per year, is the same for Betterment and Wealthfront for the robo-advising component. This includes automatically setting up a portfolio for your investment based on your needs.
Betterment offers unlimited human advising at a higher price
Investors who are interested in in unlimited interactions with human financial advisors might be interested in Betterment’s Premium offering, which costs 0.40% and has a $100,000 minimum balance. If you want to speak with financial advisors only a handful of times, you do not need to upgrade to this option. You can simply pay per session.
Betterment has a discount for high balances
For high balances of more than $2 million, Betterment offers a 0.10% fee discount on amounts above $2 million.
What are the main features?
Betterment and Wealthfront offer similar advising and are typical robo-advisors. Both offer low management fees, tax optimization, financial planning, general investing accounts, retirement accounts, college saving accounts, and cash accounts.
Let’s look at some of the features that they offer.
|Socially responsible investing option|
|Ability to change portfolio weights|
|Alternative portfolio options|
|Advanced portfolio tuning|
|High yield savings/cash account|
|Stock-based tax-loss harvesting|
|Asset location optimization|
|Tax impact preview|
|Human financial advising|
|Line of credit|
|Ability to link external financial accounts|
Betterment and Wealthfront at a Glance
What’s great about Wealthfront
Wealthfront is one of the most popular online, automated investment advisors. It was launched in 2011 and is based in Palo Alto, California. It has grown to over $23 billion in assets under management.
Backed by eminent Princeton professor
The Chief Investment Officer of Wealthfront is Burton Malkiel, famed economics professor at Princeton and author of the very popular investment book A Random Walk Down Wall Street, which helped launch the low-cost investing phenomenon. Professor Malkiel is a big proponent of helping the little guys win in the stock market. He graduated from Harvard and Princeton.
Excellent financial planning tools
Wealthfront offers excellent financial planning tools for free that you can use without needing to deposit money into Wealthfront. These tools help with planning for home purchase, vacations, college, retirement, and major purchases.
You can also link your external financial accounts to see a more holistic picture of your financial situation.
Wealthfront offers various levels of tax optimization based on your minimum balance. If your investments are declining in value, Wealthfront will sell those to capture a loss. It will take this loss and offset it against your gains for a tax benefit. To rebalance the portfolio, Wealthfront will then purchase a very similar investment in your portfolio.
All accounts are provided with daily tax-loss harvesting for no additional value.
Accounts with at least $100,000 will have stock-level tax-loss harvesting, rather than just index-level tax-loss harvesting.
Smart Beta is an advanced tuning of the weightings of the assets in your portfolio based on more recent economic theory. It is available for accounts with at least $500,000. Smart Beta takes into account a company’s value, momentum in the stock, dividend yield, market beta, and volatility.
Smart Beta is available for accounts with minimum balances of $500,000 at no additional cost.
What’s great about Betterment
Betterment was launched in 2010 and was the first robo-advisor. Based in New York City, it currently has over $16 billion in assets under management, 245 employees, and over 542,000 users.
No minimum balance
Unlike Wealthfront which has a minimum balance of $500, Betterment has no minimum balance for its popular Betterment Digital investing offering.
The upgraded premium option, Betterment Premium, offers unlimited access to financial advisors and has a $100,000 minimum balance across all your investing accounts at Betterment (e.g. retirement accounts, taxable accounts, etc.).
If you like setting financial goals — for retirement, vacations, buying a house, purchasing a car, and more — Betterment is a great choice. You can add as many goals as you want.
Based on your target dollar amount and time horizon, Betterment will create an optimized portfolio that automatically self-adjusts its portfolio weightings over time.
Betterment also allows you to automatically put away say $10 or $200 every month or every week towards your financial goals. This is an excellent way to set a financial goal and then forget about it.
Human financial advising available
Unlike Wealthfront, Betterment provides access to human financial advisors who can advise you on how to use Betterment and on your financial situation.
There are two advising options. The first is a pay per call. The price ranges from $199 to $299 for a 45 to 60 minute call.
For unlimited access to financial advisors, you can upgrade to Betterment Premium which charges 0.40% per year and requires a minimum balance of $100,000.
Ability to tweak your portfolio
Once Betterment creates your optimized portfolio, you can go into the portfolio and adjust the weights. This is a great option for the advanced investor who has particular market view.
Want to have your portfolio have more US value stocks? You can do that in Betterment.
Socially conscious investing option
Betterment offers a socially conscious investing strategy that you can choose in lieu of the default Betterment strategy.
How are Betterment and Wealthfront the same?
Wealthfront and Betterment are very similar in many ways.
Low management fees
Both offer low management fees of 0.25% for their automated investing services.
Betterment offers a premium option, Betterment Premium, that charges 0.40% and allows unlimited calls with human advisors.
Easy to use
Both are quick and simple to set up and take less than 15 minutes to create an account. Desktop and mobile interfaces are clean and easy to use.
Backed by decades of academic research
Modern Portfolio Theory
The ‘science’ behind both is very similar. Both are based on Modern Portfolio Theory, a decades old economic theory that won its creator a Nobel Prize in Economics. Modern Portfolio Theory is a theory on how risk-averse investors can maximize their portfolios. It emphasizes the idea that to get higher rewards, one generally needs to take higher risks.
Both are proponents of passive investing, where you buy and hold investments over a long period, rather than frequently trading in and out of stocks.
Many well known investors, such as Warren Buffet and Jack Bogle, are supporters of the buy and hold strategy. It’s a great strategy that works, reduces transaction costs, and has tax benefits.
Use of ETFs
To reduce costs, Wealthfront and Betterment both use Exchanged Traded Funds (ETFs) which track various indexes as investment vehicle in your portfolio. ETFs are low-cost and that low-cost is in turn passed along to you.
Your portfolios are automatically rebalanced for deposits, withdrawals, and dividends.
Both Betterment and Wealthfront offer tax optimization strategies. Tax-loss harvesting is offered on your accounts at no additional cost.
Both offer similar investing accounts, including:
- General investing (taxable accounts)
- Retirement accounts (IRA, Roth IRA, SEP IRA, rollovers)
- College saving
High yield saving/cash accounts
Both also offer a high yield savings account with similar yields.
Socially responsible investing
Investors interested in socially responsible investing can use either Wealthfront or Betterment. The implementation each company takes a slightly different.
Betterment offers a separate socially responsible portfolio that you can choose.
At Wealthfront, you need to let Wealthfront know which stocks you want to exclude from your portfolio.
Link external accounts
You can pull in your external financial accounts to see a more holistic view of your financial situation.
Your money at Betterment and Wealthfront is pretty safe. Both have SIPC (Securities Investor Protector Corporation) protection for your investments, and your money in the savings accounts are FDIC (U.S. Federal Deposit Insurance Corporation) insured.
Where do Betterment and Wealthfront differ?
Betterment and Wealthfront have some slight differences, such as minimum balances, tax strategy, portfolio construction, line of credit, human advising, and fractional shares.
Human financial advising option
The biggest difference between Betterment and Wealthfront is the ability to speak with a human financial advisor. Wealthfront is a purely digital investing strategy.
Betterment lets you speak with financial experts. You can pay per sessions ($199-299 for a 45-60 minute call) or you can pay a higher annual fee of 0.40% for unlimited access to financial experts.
For basic robo-advising, Wealthfront requires a minimum balance of $500, while Betterment does not require a minimum balance.
If you are interested in unlimited calls with a human financial advisor, Betterment requires a minimum balance of $100,000.
The annual annual fees for essentially the same automated investing product is the same at both Betterment and Wealthfront. It is 0.25%.
Betterment’s upgraded version, which allows unlimited calls with a human financial advisor, has a higher fee of 0.40%.
Betterment also offers a 0.10% fee discount on accounts with over $2 million.
While both Wealthfront and Betterment offer tax-loss harvesting, only Wealthfront offers this at the stock-level basis for accounts with $100,000 and above for no additional fee.
Rather than owning just the ETFs, you will own the individual stocks in the ETFs and these will be used for tax-loss harvesting. This allows for more granular tax optimization.
On the other hand, Betterment offers asset location optimization, where tax-friendly assets will be places in your taxable investment accounts and assets with higher tax rates will be held by your tax-advantaged retirement accounts.
Both Wealthfront and Betterment construct your portfolio using Modern Portfolio Theory, which takes into account your risk level and investment time horizon. Both construct a portfolio comprised primarily of stocks and bonds.
However, there are some small differences in how they construct your portfolio.
Inputs from you to construct the portfolio
Wealthfront requires one input from you to construct the portfolio that that is your risk tolerance. This is on a 0.5 to 10.0 scale. 0.5 is not willing to take any risk and 10.0 is willing to take a lot of risk.
Betterment asks you how long you want to invest for. For example, if you are saving for a car, you might want to invest for 3 years. If you are saving for a house, you might want to invest for 8 years. Based on the length of time of investment, Betterment constructs your portfolio.
It also takes risk into account, but does this indirectly. Betterment assumes that if your investment horizon is longer, then you are more willing to take risk, and if your investment horizon is shorter, then you are less willing to take risk.
Betterment tilts your portfolio more towards small cap stocks and value stocks. Small cap stocks are stocks with smaller market capitalization — basically, smaller companies. Value stocks are those priced relatively cheaply for their earnings.
Wealthfront includes real estate and natural resource exposure in your portfolio, while Betterment does not.
Betterment will be launching a checking account, along with a Visa debit card. Wealthfront does not offer a checking account.
Ability to adjust your portfolio
In Betterment, if you don’t like the weights of each asset in your portfolio, you can make your own adjustments. Wealthfront does not allow this.
Betterment and Wealthfront both use their default core strategy to construct your portfolio.
Betterment lets you choose among a few alternate strategies if you prefer not to use the default Betterment strategy. These include a:
- Socially Responsible Investing portfolio strategy
- BlackRock Target Income portfolio strategy, and
- Goldman Sachs’ Smart Beta portfolio strategy
Line of credit
Wealthfront allows you to take out a line of credit against your portfolio. You can access cash for up to 30% of the value of your account. Interest rates are lower than that for credit cards. This is available for accounts with at least $25,000.
Betterment does not offer this.
Betterment allows for fractional shares, while Wealthfront does not. Fractional shares are when you can purchase a partial share of a stock or an ETF, rather than a single share.
When is this useful? This is great when the price of the ETF or the stock is greater than the cash you have. Let’s say a share of ABC costs $100 but you only have $50. With fractional shares, you can purchase 0.5 shares of ABC.
This is great for those with lower balances. More of your cash can be invested.
Should you use Betterment or Wealthfront?
Wealthfront and Betterment are both great robo-advisor choices. They have been around for a long time and manage a sizable amount of assets. Both offer a set it and forget it investing strategy at a low cost.
Betterment has a great goals-oriented investing approach, no minimum balance, the ability to tweak your portfolio, and access to financial experts. It’s great for those who want a human touch.
Wealthfront offers a line of credit, great financial planning tools, and a more finely tuned portfolio and tax strategy at higher balances.
Both are excellent choices.