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In this review, I will do a head-to-head comparison of Betterment vs Wealthfront.
These two robo-advisors are two of the biggest out there. If you’re thinking about opening an account with one or both of them, you’re in the right place.
Let’s get started.
What are Robo-Advisors?
Robo-advisors are web and app-based platforms that provide automated financial planning and investment management services based on algorithms with little or no human intervention.
Robo-advisors have been in use by financial professionals since the early 2000s. The technology was only made public in 2008 during the financial crisis. Due in large part to the public’s dire need to manage their assets.
How Do Robo-Advisors Work?
Upon sign up, a Robo-advisor asks you questions to establish your risk profile. Based on that data, the Robo-advisor creates a diversified exchange-traded fund (ETF) portfolio for you and personalized financial advice.
Their role is to manage your ETF portfolio and rebalance it as regularly as needed to ensure it remains consistent. Their investment process relies on the Modern Portfolio Theory (MPT), which favors proper asset allocation over individual selection.
How To Join
You can sign up on the Robo-advisor’s website or via their respective apps. You pay the digital advisors a fee that can be structured monthly or annually or as a percentage of your assets.
Monthly Robo-advisor fees range from $15 to $200, while asset percentage fees range from 0.15% to 0.50% per annum.
These platforms are ideal for a wide range of investors, including beginners and pros that don’t want to hire a financial advisor or risk it alone.
Betterment vs Wealthfront Business Models
This platform was founded in 2008 by Jon Stein and Eli Broverman, and is considered to be the pioneer Robo-advisor.
The platform creates a portfolio from your risk tolerance and allocates you exchange-traded funds (ETFs) that align with your risk tolerance. Betterment has no account minimum requirements, and you are not charged a fee for a $0 balance account.
Wealthfront originally started in 2008, but its present iteration only dates back to 2011. This automated financial platform aims to provide all solutions in one place.
This Robo-advisor operates on the MTP theory just like Betterment, but on top of financial planning and investment, they also provide lending services.
Wealthfront requires a minimum of $500 to open an account.
Betterment vs Wealthfront Account Types
Betterment supports several accounts including:
- Individual accounts
- Roth IRAs
- Traditional IRAs
- SEP IRAs
- Inherited IRAs
- Trust accounts
- Joint accounts
- Taxable accounts
Compared to Betterment, Wealthfront offers a broader array of account types including:
- Taxable accounts (joint, personal, trust and corporate)
- Traditional IRAs accounts
- SEP-IRA accounts specifically for small businesses
- IRA transfers
- 401(k) rollovers
- 529 college savings plan accounts
Betterment vs Wealthfront Fees
With this robo-advisor you can sign up on either of its two plans. Digital or Premium.
The Digital plan has an annual fee, which is 0.25%, with a 0% minimum balance requirement.
The Premium account, will cost a 0.40% yearly rate, plus require a $100,000 minimum balance. The Premium plan entails financial advice on assets and life events outside of Betterment.
There is only one plan with Wealthfront, with an annual fee of 0.25% plus a minimum balance of $500.
Investors with accounts exceeding $100,000 can qualify for a stock-level tax-loss harvesting service.
In contrast, those with accounts of more than $500,000 can get into the Smart Beta program, which rebalances your assets using Wealthfront’s patented system.
Betterment vs Wealthfront Portfolios and Assets
With Betterment, your account is rebalanced dynamically whenever assets deviate from the targeted allocation goals.
The goal of automatic rebalancing is to lock in gains and avoid losses as you move closer to your target date.
The automated processes save investors the time and the challenging complexities involved in implementing the techniques.
Betterment Portfolio types include:
- Betterment SRI (socially responsible investing)
- Goldman Sachs Smart Beta
- BlackRock Target Income
Wealthfront’s portfolio includes stocks and bonds, plus real estate and natural resources.
The platform also boasts the proprietary mutual funds known as the Risk Parity Fund. This fund is used for higher risk exposures and has an ER ratio of 0.25% with an estimated yearly benefit of 0.24%.
If you have a taxable account of more than $100,000, you can choose to have up to 20% of your portfolio allocated to WRPF.
Betterment vs Wealthfront Tax-loss Harvesting
Both Betterment and Wealthfront enable tax-advantaged investing through tax-loss harvesting. Their methods for tax harvesting are similar, involving selling assets that have generated losses and then buying related ones (of similar exposure) to replace them.
Tax-loss harvesting increases your return, but it doesn’t remove your tax liability. It merely defers it. Consequently, having more money in your account improves the gains you can earn on your balance.
The two platforms also use index funds, which give investors a tax advantage. However, your exposure to short term capital gains, in this case, will remain low given the minimal turnover in the funds.
Betterment’s tax advantage features are available to all taxable accounts with no minimum requirements.
One of the platform’s advanced tax advantage features is the Tax-Coordinated service, which maximizes your tax efficiency through smart asset allocation.
Wealthfront offers additional tax advantage features that are not available on Betterment. You can get PassivePlus if you have more than $100,000 invested in a taxable account.
PassivePlus includes Tax-Loss Harvesting at Stock Level, which identifies movements in individual stocks to gather more tax losses and lower your tax bill.
Wealthfront’s other advanced tax harvesting features include Smart Beta and Risk Parity.
Betterment vs Wealthfront Goal Setting
Betterment’s goal setting is good, but not as sophisticated as Wealthfront’s. They allow you to work with 4 different investment goals, including:
- General investing
- Major purchase
- Safety net
The process of setting goals is simplified, and you can monitor progress for each one separately.
You can customize the names of each goal to your specific personal purpose. The dashboard shows asset allocation for each goal with different shades for equities and fixed income.
Betterment will notify you if you are falling behind on achieving a target, and encourage you to save more.
Goal setting on Wealthfront is far better refined than with other Robo-advisors.
You can define your specific financial needs, such as ‘buy a home’ or ‘buy a car,’ and then they use third-party applications such as Zillow or Redfin, to estimate the exact cost.
You similarly have college planning on the app, with features for forecasting tuition fees at various Universities across the States.
Your assets and liabilities are clearly listed on the dashboard. It’s easy to see how far or how close you are to achieving your goals.
Betterment gathers in-depth information about your retirement, including your retirement goals and the amount of savings you want to have for retirement in all your retirement accounts.
With this data, Betterment plans your retirement income and designs a strategy to get there.
This automated financial advisor, will notify you when it’s prudent to save money or move it around to cut down on fees.
When you get close to retirement, the platform will prompt the changes that can help to enhance your savings.
Premium Betterment customers often have unlimited access to certified financial planners, while basic digital customers can part with up to $299 for CFP consultations.
With Wealthfront, the retirement planning involves consolidating your IRAs, 401(k)s, and other financial investments.
The platform shows you a projection of your current state and your progress towards your retirement goals.
Unlike Betterment, retirement planning and advice with Wealthfront can be done without human consultation.
With the Path planning algorithm, one can benchmark their current spending habits against their retirement goals to get a clear picture of the adjustments needed to attain those goals.
Both Betterment and Wealthfront have tightened security on their web and app platforms. These Robo-advisors use two-factor authentication and biometric logins on the apps.
Betterment also gives users the option of creating a read-only secondary password when integrating to online services such as Personal Capital.
In case the password gets compromised, an attacker will not be able to change anything on your account. They will have read-only access.
Betterment’s trades are cleared through Apex Clearing for improved risk management. For investors with accounts exceeding $500,000, $250,000 is held in cash in a Betterment Cash Reserve account that the firm provides.
Aside from site security, Wealthfront goes a step further to secure your investment. Accounts are insured by the Securities Investor Protection Corporation (SIPC) to a maximum of $500,000 in total value and $250,000 in cash per entity.
This insurance doesn’t cover market losses, but instead shields customers from the risk of broker failure.
Betterment’s customer service is more refined compared to Wealthfront. This is in part due to their online chat feature.
Wealthfront doesn’t have a customer service phone line. Nonetheless, the firm responds promptly to customer questions posted on Twitter.
With Betterment’s automated customer service, you can get assistance from 9 a.m. to 6 p.m. on weekdays and 11 a.m. to 6 p.m. on weekends.
There is professional help available from financial planners at a fee of between $199 and $299 for basic account holders.
Website and Features
Both Betterment and Wealthfront run on intuitive sites that are easy to understand and navigate.
Their offerings in terms of features are almost similar and standard to all Robo-advisor designs. On both these platforms, you get free and automatic portfolio rebalancing, low-cost ETF portfolios, and tax-loss harvesting.
In both cases, you can integrate outside accounts to get a clear picture of your financial scope.
Here are some features unique to Betterment:
1) Human consultation
You can get access to professional financial advisors if you are a Premium member.
If the annual rate of 0.40% plus $100,000 minimum is too much for you, you can still consult a financial advisor by buying one of the service packages for different life events and investment decisions.
2) Charitable giving
Investors have the option of giving to charity directly through Betterment and achieving tax efficiency in the process.
3) Smart Deposit
This tool monitors and gathers unneeded money from your checking account. Users decide how much money they need in their checking accounts at a given time, and if the balance exceeds the stated amount, Betterment scoops the rest into an account you designate.
You get a notification with an option to opt-out every time before Smart Deposit is initiated.
When it comes to advanced features, Wealthfront has not been left behind.
Its Path algorithm provides all types of financial advice with just a few clicks. No personal consultation is needed in this case.
The path can allow you to run simulations of your possible financial outlook in the future, giving you further insight on how to better save and invest.
Other features of Wealthfront include:
1) College savings
The platform offers the 529 college savings and investment plan with fees not exceeding 0.46%. This account has tax advantages that can help you preserve more of your savings, much like a retirement account.
2) Wealthfront Cash Account
This option is for users looking for a secure banking option with a chance to earn interest. The account provides a free savings option and a 1.82% interest rate.
The Wealthfront bank account is secured by up to $1 million in FDIC coverage, and your amount in such an account is not subject to investment risks.
Betterment does not deal with any hard assets. Wealthfront, on the other, has Real Estate for its IRA portfolio and Natural Resources for its Standard portfolio.
These hard assets can be beneficial in inflation protection. Additionally, hard assets are usually poorly correlated with stocks and are therefore efficient in diversification.
Pros and Cons of Betterment
- Low-cost portfolio management
- Professional financial investment/advice features
- No minimum balance requirement
- Retirement accounts
- Socially responsible investing
- Access to human, financial advisors
- Faster customer service Tax efficiency
- You cannot make market timing moves
- No hard assets such as real estate
Pros and Cons of Wealthfront
- Low-cost portfolio management
- Wealthfront leverages hot investment opportunities such as real estate
- 529 Savings for college
- Path algorithm eliminates the need for human, financial advisors
- Professional financial investment/advice features
- Minimum balance required
- No fractional shares
Wealthfront appeals more to experienced investors with its planning tools, the diversified hands-off portfolios, and advanced tax optimization strategies. Users like the platform for its superior financial tools and college savings accounts.
Betterment appeals mostly to beginners and mid-level investors with its goal-oriented tools and human advisors. Users like the fact that the platform has no account minimums and provides phone access to customer service.
Ultimately, your needs will dictate which one of these robo-advisors you choose. Hopefully this review was able to lay out some valuable points that will help you in your decision.