Two of the biggest and most popular Robo-advisors are Betterment and Wealthfront. While the two may be identical at first glance, they are actually totally different from one another. Thus, this Betterment vs Wealthfront review to find out which between the two is better.
If you are familiar with the Robo-advisor industry, you surely have already heard about Betterment and Wealthfront. Well, that is not surprising at all because these two are actually the pioneers in this industry. No wonder why some people thought the two are just the same — when in reality, both have key differences, which we are going to tackle later on.
Just to give you an idea though, when deciding which among the two is best for you, you got to keep this in mind — if you want to work with a human, Betterment is the way to go. If you are only after digital advice then Wealthfront is the best option. As mentioned, in a while we are going to talk further about what we exactly mean about that.
For those who are new to this, when we talk about Robo-advisors, we are specifically referring to a group of financial advisers that provide financial advice or investment management online — with moderate to very minimal human intervention.
In an article by Investopedia, it says that according to a report by the Aite Group, they are expecting that the number of Americans who use Robo-advisory services will grow from an estimated 2 million in the year 2018 to 17 million by the year 2025. This was based on a survey conducted around mid-2018.
Furthermore, in a report shared by Statista, it says that “assets under management in the Robo-Advisors segment amounts to US$1,442,028m in 2020”. In addition, “assets under management are expected to show an annual growth rate (CAGR 2020-2023) of 21.0% resulting in the total amount of US$2,552,265m by 2023”.
These numbers only show that indeed, more and more American people are into getting Robo-advisory services.
Having said that, if you are considering getting Robo-advisory services, one of your concerns would be finding the right company or people to deal with, right? Good thing is, there are actually a lot of trusted names in this industry, and it’s just about finding the right one for you based on the kind of service you need.
Anyway, having said that, let’s move on to the real deal – a battle between two of the biggest names in the Robo-advisory industry – Betterment vs Wealthfront.
BETTERMENT VS WEALTHFRONT: BASIC INFORMATION
Before we dig deeper into each company and look into their similarities and difference, advantages and disadvantages, here’s a quick glance about the two:
|Ideal For||New investorsIntermediate investorsRetireesYoung investors low minimum smartphone users||Beginning investorsIntermediate investorsYoung investorsSmartphone usersIRA investorsGoal-oriented investors|
|Promotions||Up To 1 Year Free||First $5,000 Managed Free|
|Pricing and Fees||0.25%-0.40%||0.25%|
|Tax Loss Harvesting||Yes||Yes|
Later on, we will give you more detailed information to compare the two. Meanwhile, let’s proceed to our thorough review of these two well-known Robo-advisory companies.
Before we move on, in case you want to know more about Betterment vs Wealthfront, you may check out the below video by Ryan Scribner as he talks about which among the two platforms is better. Hit the play button to watch the whole thing.
BETTERMENT VS WEALTHFRONT: COMPANY BACKGROUND
First and foremost, let’s talk about what Betterment and Wealthfront are all about. As a client or customer, it is important that we get to know the companies first. It’s actually one of the deciding factors.
By knowing the company background. We get a glimpse of who they are, and what services they offer. Of course, it’s also a way to know how reputable they are and how great they are in what they do.
Betterment, as we have earlier mentioned is one of the pioneers in the Robo-advisory industry. In fact, they are known in the industry as the company that started it all.
Betterment was founded by two amazing men, Jon Stein and Eli Broverman back in 2008.
With Betterment, the idea is to create a portfolio based on your risk tolerance, and then put you into asset allocation of exchange-traded funds (ETFs) that equals your risk tolerance.
If you are someone who’s after getting fiduciary advice, then Betterment is ideal for you as it is an independent advisor — with no funds of its own to push.
What we like about Betterment is that it gives you peace of mind especially if you are someone who’s not much of a risk-taker when it comes to investments or money.
Anyway, with Betterment, their investment process is according to the Modern Portfolio Theory (MPT). This theory basically says that individual security selection is not practically as important as proper asset allocation.
Wealthfront is another popular name in the Robo-advisory industry. The company was founded in 2008 by Andy Rachleff and Dan Carroll, and was initially called, “KaChing!”. The idea of which was intended to mimic the portfolios of stock professionals but using your money.
Anyway, the company was renamed to what it is now back in 2011. Along with renaming and rebranding, the company also started molding it to be an all-in-one financial solutions provider for its users.
Fast-forward to now, the Wealthfront focuses on three automated services, which are: free financial planning, investment management, and lending.
Signing up with Wealthfront means allowing your money to be invested in a globally diversified portfolio of ETFs. Note, however, that your portfolio varies depending on if you open a tax-deferred or taxable account.
BETTERMENT VS WEALTHFRONT: SIMILARITIES
Earlier, we mentioned that at first glance the two companies seem alike, and that is because Betterment and Wealthfront do really have a lot of similarities when it comes to the features they offer. The most notable similarities of the two include:
|Investment Account Types|| Both companies offer the following: |
Trust investment accounts
|Automatic Rebalancing||Both allow you to rebalance your portfolio if it is out of alignment with the desired allocation.|
|Tax-Loss Harvesting||Both companies offer no minimum deposit for this service|
|Socially Responsible Investing||Both service providers let you align your beliefs and values with your investments through their Socially Responsible Investing (SRI). However, the two firms implement their respective SRI slightly differently.|
|SIPC Insured||SIPC is responsible in protecting against the loss of cash and securities — like stocks and bonds — held by a customer at a financially troubled SIPC-member brokerage firm. The limit of SIPC protection is $500,000, which includes $250,000 for cash.|
|Referral Program|| Both Betterment and Wealthfront offer a referral program, which means if you share a link with your family and friends, you get credit should they sign-up. The two firm’s referral differs though. As with Wealthfront, you get an additional $5,000 managed for free. |
Meanwhile, Betterment offers one free month for every referral and one free year for every three referrals.
Both Betterment and Wealthfront have no limit as to how much you can accrue.
BETTERMENT VS WEALTHFRONT: DIFFERENCES
While they may look the same, in reality, Betterment and Wealthfront are two different Robo-advisory firms. Let’s take a look at how different they are in the following key areas:
|Minimum Deposit||Betterment has no minimum requirement. As with, Wealthfront, the firm requires an account minimum of $500 to invest.|
|Annual Fees||Betterment: 0.15%-0.40% Wealthfront: 0.25%|
|529 Accounts||As of this writing, only Wealthfront supports 529 college savings accounts.|
|Fractional Shares||Currently, only Betterment offers fractional share investing.|
|Human Assistance||The biggest advantage of getting a Betterment Premium level membership is that you get access professional human assistance. |
Unfortunately, Wealthfront does not offer or provide human assistance. The firm only offers automated advice.
BETTERMENT VS WEALTHFRONT: FEATURES
What we noticed is that both Betterment and Wealthfront’s basic offerings are similar and that both fit the standard Robo-advisor mold.
The two firms include automatic (and free) portfolio rebalancing, tax-loss harvesting as well as portfolios of low-cost exchange-traded funds.
Also, Betterment and Wealthfront can both integrate sans to manage outside accounts, which allows you to get a glance at your finance all in one place.
Moving on, here are some of the key features that either both companies offer or not. This is also a good reference for you to decipher which among the two is better.
|Stock Level Tax-loss Harvesting||Yes|
|College Savings Management||Yes|
|Charitable Giving Assistance||Yes|
|Portfolio Line of Credit||Yes|
BETTERMENT VS WEALTHFRONT: NOTABLE FEATURES
Apart from the above-mentioned, we also want to emphasize the following very notable features of both Betterment and Wealthfront:
|Notable Feature||Brief Description/Explanation|
|SmartDeposits||This feature was created in response to microsavings services like Acorns. What happens is, if the balance goes over a specific amount, it will be deposited automatically deposited from your bank.|
|Tax-Loss Harvesting for Spouse||This is ideal for couples — obviously. Basically, this feature allows you to take full advantage of tax efficiency through the tax-loss harvesting (TLH+) service.|
|BlackRock Target Income Portfolio Strategy||This is a new feature, which was designed specifically for those in retirement or investors who want a low-risk portfolio. With this feature, the portfolio is 100% composed of bonds to give investors revenue with low risk.|
|Goldman Sachs Smart Beta Portfolio||This basically refers to Betterment’s implementation of Smart Beta with this feature/portfolio, hoping that this helps improve returns instead of using traditional indexing.|
|Flexible Portfolios||With this feature, you can now choose to have control over your asset allocation. But still, you will continue receiving suggestions from Betterment.|
|Personal Financial Advisor||If you want to speak with a CFP financial advisor who can help manage your retirement plan or other external accounts, you can now definitely do so by using this feature. However, this comes with an additional fee, which is 0.40% per year for Premium Plan holders.|
|Smart Saver with Cash Analysis and Two-Way Sweep||This features promises earning returns projected at 20% higher than your typical savings account. This particular feature/portfolio uses a portfolio that is composed mostly of U.S. government bonds for these low-risk earnings. Meanwhile, the Cash Analysis and Two-Way Sweep functionalities identify extra cash in your checking account and sweep it into your Smart Saver account.|
|Socially Responsible Investing Portfolio||This feature allows investors to take part in a portfolio with an SRI slant.|
|Charitable Giving||This feature allows investors to donate shares to the charities of their choice right directly from their accounts. By doing so, you can save on taxes as this means you no longer have to pay for capital gains taxes for donated shares.|
|External Account Analysis||This feature lets Betterment check your financial status entirely, considering both internal and external accounts. This also projects what your money could look like if you roll all you’re investing accounts over to the firm.|
|Financial Advice Packages||This is ideal for customers who want answers to their or any pressing financial questions. This feature is tailored to particular life events. It also includes personalized action plans, educational content, as well as one-on-one help from a certified financial planner or licensed financial expert.|
|Notable Feature||Brief Description/Explanation|
|College Planning||This one’s ideal for parents who want to ensure their child’s future. By choosing this feature, Wealthfront calculates how much financial aid you are eligible for. At the same time, it tells you if you are on the track of your savings.|
|Home Planning||Wealthfront also allows you to plan and save for your dream house. This feature includes receiving customized help and professional recommendations. Furthermore, the firm can also give you mortgage estimates so you can better assess if you can afford to buy a house. This feature also allows you to do “virtual house hunting” via Zillow, and of course, teach you the best ways to save for this particular purchase.|
|Smart Beta||This service helps enhance returns over the market indexes. However, to enable this feature, you need to at least have $500,000.|
|Portfolio Line of Credit||This one is for those with accounts bigger than $100,000. This feature allows you to take out a line of credit against the investments you have. Currently, loan rates are at 4.75-6.00% APR.|
|Risk Parity||This is a new service provided by Wealthfront. The main purpose of the service is to help address the practically non-existent downside risk protection among Robo-advisors. The Risk Parity feature uses the mutual funds to run and is available only for those with taxable accounts amounting to at least $100,000.|
|Cash Account||This feature, obviously, allows you to take advantage of a cash account that pays a 2.29% interest rate. This carries FDIC insurance of up to $1 million. To open, this feature requires as little as $1 only.|
Looking at the two tables, it’s pretty much obvious that we listed more notable features under Betterment as compared to Wealthfront. But if you study them closely, both offer very different things, and again, it will depend on you, the client/customer. Which one’s better will depend on what you want for your money. What your goals are for your money.
But we just have to say that both are pretty impressive with regards to what they can offer their clients.
BETTERMENT VS WEALTHFRONT: FEES AND DEPOSITS
This time around, let’s check on both Betterment and Wealthfront’s annual fees and minimum deposit requirement.
|Annual Fees – Deposit Amount:|
If you look at the above table, you’d see that both Betterment and Wealthfront has its respective advantage, which depends on what you need as a customer/client. While Betterment wins over Wealthfront when it comes to minimum deposit required, when it comes to annual fees, Wealthfront takes the lead.
By the way, please take note that the annual fees stated above are based on a basic-level, tax-deferred account (e.g., an IRA) only.
BETTERMENT VS WEALTHFRONT: PORTFOLIO
Whether you sign up for Betterment or Wealthfront, the Robo-advisor will surely ask you a series of questions to look into your investment need. After asking you questions, they will then set your risk tolerance based on your answers. While you can let the firms handle your money, both also allow you to have some control over the allocations in your portfolio.
Now, speaking of the portfolio, Betterment invests your money in a combination of 13 ETFs, which includes six stock funds and seven bond funds.
The ETFs in your portfolio will depend on your taxable vs. tax-deferred as well as your ratio of stocks to bonds.
Meanwhile, Wealthfront used a little fewer ETFs. Wealthfront only uses eleven possible asset classes for portfolio construction. The funds in a specific account will vary depending on the type of investment account, as well as your answers on Wealthfront’s questionnaire.
For a detailed list of Betterment and Wealthfront’s portfolio, you may opt to check their respective websites directly.
BETTERMENT VS WEALTHFRONT: THE VERDICT
According to the data we have presented all throughout the two Robo-advisory firms, we have to say that we favor Betterment over Wealthfront. But allow us to just say that both do offer very impressive and amazing services.
However, we have to give it to Betterment because it offers unlimited contact with a human advisor without additional charges.
If you are the type of client who prefers everything digital, well, obviously, Wealthfront is the best choice for you.
FINAL THOUGHTS ON BETTERMENT VS WEALTHFRONT
It’s nice knowing that these days, we are given so many options when it comes to saving/investing our money. Needless to say, there are firms like Betterment and Wealthfont that will guide us through it – especially if we are new to all of these.
Given our review, plus the information we have provided, have you decided already what is best for you between Betterment and Wealthfront?