Born in the peak of the Financial Crisis in 2008, Betterment has gone a long way to become what it is today – the leader among robo-advisors.
With more than $14 billion in assets under management and 380 000 customers, Betterment is surely a company that has caught your attention while searching for the best investment app and robo-advisor.
In the following Betterment review, you will find out why Betterment is considered the best solution on the market, as well as answer the common question: Is Betterment safe? But first of all, let’s find out…
What is Betterment?
Betterment is an online financial advisor that employs automated strategies to manage client’s money. The platform is built with the main idea to provide users with a professional solution, focused on bringing world-class investing strategies, brought by industry’s best and brightest and applying them to achieve their client’s goals.
The platform recommends smart investment choices, based on a portfolio of well-diversified ETFs. All portfolio-related operations, such as rebalancing, dividend reinvesting and tax-loss harvesting are entirely automated so that the user does not have to do anything.
The platform offers one of the best services in terms of value-for-money. The advanced features that users can take advantage of when using Betterment are hard-to-find in other robo-advisors, at least for the fees and commissions that they are charged with.
Is Betterment Safe?
The first and most reasonable question before handing your money to the robo-advisor, of course, is: Is Betterment Safe? The answer is: yes, it is. The good thing about Betterment is that it offers advice from the position of a fiduciary.
The company has established two different entities – an investment advisor and a broker-dealer, both of which are SEC-registered (regulated by FINRA). Apart from that, Betterment Securities (the broker-dealer entity) is a member of SIPC which means that all clients’ funds up to $500 000 (including $250 000 in cash) are insured.
This basically means that even if the company goes bust, investors’ money won’t be lost (more info on the coverage is available in the official SIPC explanatory brochure).
Betterment Investment Strategy
Betterment’s investment strategy is no different from the one of Wealthfront, Personal Capital, WiseBanyan, M1 Finance and all the other robo-advisories. However, due to the fact that Betterment was one of the first automated investment companies, it is worth saying that it has been something like a pioneer in passive investing through ETFs.
Unlike other robo-advisors that don’t get in too many details why they prefer index investing, Betterment has done a great job in explaining to their investors why they follow such a strategy. In a special section of their website, they provide a series of researches (part of which are Nobel-winning) on why passive investment is better than the active one in terms of portfolio performance.
Betterment’s investment solutions build portfolios from a wide variety of ETFs. The robo-advisor is entirely transparent when it comes to the performance of its investment ideas. On this page of their website, there is a useful interactive chart that tracks the historical gains of their investments to help you find out whether their services are worth it.
Betterment claims that their approach to long-term investing helps their users earn 2.66% more on average each year when compared to a regular investor. The result, the company says, is achieved through lowering taxes, lowering fees and diversification.
Apart from individually-tailored solutions, the robo-advisor offers also pre-defined strategies, such as “Socially Responsible Investing”, “Goldman Sachs Smart Beta” and “BlackRock Target Income”. Betterment’s strategy also involves an automated rebalancing feature to retain its users’ portfolios on the efficient frontier.
All this, combined with their tax-loss harvesting tools, makes Betterment one of the most complete robo-advising solutions on the market. For accounts over $100 000, Betterment offers self-adjustments of the weights of each asset included in an investor’s portfolio.
Betterment Fee Structure
Betterment offers a reasonable fee structure, although it is not the best on the market with free-of-charge solutions like WiseBanyan and M1 Finance. The fee structure is as follows:
- Basic service fee – 0.25% per year
- Minimum account balance – $0
- Advice from Betterment’s team of CFP® experts – 0.40% per year
- Minimum account balance to qualify for a professional consultation – $100 000
The 0.25% fee for basic accounts is reasonable, considering that it includes access to an automated investment management service, all transactions, transfers and trades costs, as well as the automatic rebalancing of your portfolio.
Apart from that, users are entitled to the common expense ratios, typical for ETF instruments. Additional pricing information is available on their website.
Who is Betterment Best for?
With the massive number of users and assets under management, Betterment has already proved that it is a suitable solution for the whole market, no matter of age, profile, goals and investment horizon.
The fact that the robo-advisor have managed to provide a wide portfolio of services and features tailored to the needs of different types of investors makes it suitable for:
- Individuals with comfortable retirement as their main goal
- Demanding investors with bigger portfolios who want a professional consultation
- Clients with small capital who seek an easy way to invest
- Long-term investors who do not have the time to manage their portfolios
How to Create an Account with Betterment?
Betterment offers the following types of accounts:
- Basic account (personal taxable account)
- Joint accounts (for partners)
- IRA accounts (Traditional IRA, Roth IRA, SEP IRA)
- Trust accounts
Like other robo-advisors, in order to open an account with Betterment, you will have to be a U.S. citizen with a permanent address, a Social Security Number and a checking account from a U.S. bank. Setting an account is a pretty straightforward procedure:
- Questionnaire – the first step is to answer a few questions regarding your goals and investment profile
- Building a portfolio – after the platform is familiar with your goals, it will suggest you personalized portfolios that suit your goals
- Funding the account – Betterment will suggest you how much to deposit initially and on an ongoing basis, in order for you to keep in track with your goals
That’s it – the platform is now ready to start investing on your behalf and take care of your portfolio on an ongoing basis.
Betterment is often compared to similar robo-advisors like M1 Finance, Wealthfront, WiseBanyan and Personal Capital. It is safe to say that in terms of diversity of offered services and overall costs, Betterment surely is one of the best solutions.
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Considering the fact that Betterment charges you $25 for each $10 000 invested, it is safe to say that it is worth it.
Betterment Review Summary
As the largest independent robo-advisor, Betterment remains truthful to its core business model – to provide accessible and multi-functional investment services to all types of investors. With the pace of its development in the recent years and constantly-growing user base, Betterment proves that is hard to distinguish any major downsides in its service.
The no account minimum requirement and the small management fee, alongside with all the features that the platform offers, makes it one of the industry’s best solutions. If you like to mix your long-term conservative investing with trading and short term investments, then have a look at Webulls brand new trading app.
- No account minimum
- Highly-functional platform
- Great value-for-money
- Free portfolio rebalancing
- Does not offer a solo 401(k) account