Betterment is one of the first robo-advisors to hit the market in 2010. While they’ve grown into offering more hybrid-style plans that merge their automated investment platform with human advisors, their original plan is still available. It’s made for people who want a “set it and forget it” approach to their investments, while still accessing robust account options for a variety of life goals.
How It Works
As a robo-advisor, Betterment makes recommendations and does all of the trading and portfolio rebalancing on your behalf. It also incorporates automated tax-loss harvesting to reduce your tax liability on gains. Plus you get the ability to sync your external accounts to view your entire financial outlook in one location.
Most investment options through Betterment are based on ETFs. The hands-off investment process starts with answering a few questions about yourself and your financial goals. You’ll receive instant recommendations on how to invest your money to achieve those goals for both retirement and personal objectives. Your portfolio is then automatically managed and rebalanced to stay on track with your selected investment strategy.
For general investments, you can open a personal taxable investment account through Betterment. Opt for an individual account or a joint account to share with your partner or spouse. Trust accounts are also available to help with your estate planning. You can create goals for each beneficiary and schedule automatic cash transfers as you choose.
Investment accounts do not get any special tax treatment so you pay taxes on your earnings each year. These accounts are best for long-term savings or for augmenting other tax-advantaged retirement accounts.
Tax-Advantaged Retirement Accounts
If you don’t have an employer-sponsored plan or simply want to save for retirement on top of your 401(k), Betterment offers multiple options for retirement accounts. You can also rollover 401(k)s or 403(b)s from former employers. Here is the full listing of retirement accounts you can open with Betterment:
- Traditional IRA
- Roth IRA
- SEP IRA
- 401(k) and 403(b) rollovers
Each of these accounts is taxed differently, but you’ll see savings either on your contributions or your withdrawals depending on which one you choose. Rolling over old 401(k) and 403(b) accounts allows you to keep investing in those accounts without incurring any withdrawal penalties.
Betterment Everyday: Checking and Savings Platform
Betterment currently offers the Everyday Savings account and plans to roll out an integrated checking account later this year. You can earn up to 2.44% APY in the savings account and enjoy no fees, including monthly maintenance fees, overdraft fees, or minimum balances. The account is also FDIC-insured up to $1 million and links to your Betterment investment accounts.
The checking account option will offer similar perks, with your deposits FDIC-insured up to $250,000. You can sign up to get on the waitlist so you’ll be notified as soon as Everyday Checking becomes available.
0.25% (Digital Plan)
0.40% (Premium Plan)
Digital Plan Features
Betterment’s Digital Plan is the more basic subscription option for an account. There’s no minimum balance, making it an easy starting place for beginning investors. The annual management fee is 0.25% of your assets. If you invest $10,000 you’ll pay $25 per year in fees.
As you grow your investments and your portfolio assets exceed $2 million, you’ll get a 0.10% discount for any funds over that threshold. While the Digital Plan strictly offers robo-advisor services, customer service is available seven days a week in case you need technical support. You can also purchase add-on packages for a one-time advice session with a financial planner.
Premium Plan Features
The Premium Plan comes with a higher fee and a higher minimum balance of $100,000. While you do pay an annual 0.40% management fee, this comes with unlimited access to Betterment’s team of CFPs to help you plan for life events. Plus, you can get advice on investments outside of Betterment, including 401(k)s, real estate, and individual stocks.
This option is designed for individuals who want guidance to manage a fairly more complex slate of financial products. If your portfolio assets exceed $2 million, you receive the same 0.10% discount for anything above that amount.
Advisor Network Features
Betterment offers an Advisor Network, which partners you with a vetted advisor firm and gives you access to a dedicated certified financial planner. This way you have one person involved in your financial planning rather than talking to a different CFP each time you need advice, as you would with the Premium Plan.
It’s ideal for people with more complex financial planning needs. You’ll get started by answering a few questions in Betterment’s platform. You can then pick from two to three recommended advisors.
Fees and minimum balances vary by each advisor firm. Expect your annual fee to range between 0.80% and 1.50%. The minimum balance at this tier starts at $100,000 but could be more. While you receive the personal support of a dedicated advisor with this feature, you still get to leverage Betterment’s tax-advantaged investing platform, including the tax-loss harvesting features.
One key feature that sets Betterment apart from other robo-advisors is that you can add on advice packages even to your Digital Plan. You may not need financial planning advice on a regular basis, but it’s a great card to have in your back pocket at certain points in your life.
For example, you may want to rethink your retirement strategy or account type after you get married. Once you have kids, you may want professional advice on the best way to plan for their higher education needs. If retirement is on the horizon, it’s typically smart to review your investment strategy with a real person to make sure you’re on track. These advice packages from Betterment range between $199 and $299.
Betterment also offers a satisfaction guarantee for all of their plans. If you’re not satisfied with your account, you could get your management fees waived for up to 90 days.
One of the biggest advantages of choosing Betterment is the low-cost annual fee on top of no trade or transaction fees as your portfolio needs change. Unlike some other robo-advisors, Betterment also allows for fractional shares. This ensures you don’t have excessive uninvested cash in your investment accounts.
Users also like the goal-setting aspect for the overall savings plan. You can craft a strategy based on micro-goals in your life, like buying a house or saving up for your emergency fund rather than just creating a generalized investment account.
If you choose to sign up for the Everyday Savings account, you also get an interesting feature called Two-Way Sweep. This process automates your cash management and sweeps “excessive” checking funds directly into your savings account.
It does so by analyzing your checking account to maintain between 21 and 35 days of cash needs. If you exceed that threshold, a “sweep” is performed and transfers the extra money into your Betterment Everyday Savings account. If your checking account goes under the 21-day horizon for your cash flow needs, you’ll have money transferred from your savings account to your checking so you can avoid any potential shortages.
One downside of investing with Betterment is that it takes a high balance in order to get a discount on your annual management fee. Plus, the rate drop only applies to your assets above the $2 million mark, not the first $2 million in your Betterment accounts.
You may also dislike the limited ETFs to choose from, with no direct indexing available for your portfolio. This newer strategy allows for greater customization and better tax-loss harvesting opportunities but is currently not available at Betterment.
Who It’s Best For
Betterment caters to a wider range of investors than many other robo-advisor platforms. It’s great for newer investors who want automated guidance on the best way to manage their retirement and general investment accounts.
However, unlike many other robo-advisors, Betterment also appeals to investors who need more sophisticated financial planning support. With new tiers giving you access to human advisors, you have the option to truly craft a robust plan with both personalized advice and the perks of automated portfolio management.
The Bottom Line
If you’re looking for a robo-advisor with the ability to get custom advice when you need it, Betterment gives you the flexibility to do so. While most robo-advisors allow you to import all of your financial accounts to help you see the big picture, you can also take advantage of an in-house high yield savings account and soon-to-be checking account. If you love the Betterment experience, you may prefer to house as many financial tools as possible under their virtual roof.
It’s always smart to compare your options before making a decision on where and how to invest your savings. But if you’re looking for a customer-centric digital platform with smart tax-loss harvesting capabilities, Betterment might be the right choice for you.