If it seems that more and more people talk about robots managing their money, there’s a good reason for it. There are several worthy robo-advisors these days and comparing Betterment vs. Wealthfront will help you choose the best one to fit your needs.
According to Statista, assets under management (AUM) by robo advisors around the world have soared 64% year-over-year to $401.2 billion. AUM among robo-advisors worldwide is estimated to experience a compounded annual growth rate of 34% through the year 2022. At this time, Statista forecasts over $1.4 trillion of capital will be under robo advisor firms’ control.
Rising from the hot ashes of the Great Recession, Betterment was the first robo advisor widely available in which the public could invest. Launched in 2008, Betterment sought to change the financial services industry by exploiting its many bottlenecks. For years, the industry has been plagued with unethical business practices, ultra-high management fees, and below average performance.
Betterment understands the many worries and frustrations that come out of choosing an advisor, which is why the minimum balance for the basic plan is $0. To start, the firm will offer you a free 15-minute call to get you acquainted with its professionals. You’ll need to report your age and annual income to suggest possible allocations that may fit your interest.
For the most part, Betterment suggest allocations that ascertain to the rule of thumb: (100-Age=Equity allocation, 100-Equity=Fixed Income allocation). Betterment will also present two plan options. The basic plan allows you to invest in low-cost funds and ETFs all around the world while taking advantage of automatic portfolio rebalancing and daily tax-loss harvesting for tax-conscious investors.
In addition, the firm also hhttps://www.benzinga.com/money/best-brokers-for-etfs/osts a few options for retirement accounts, such as traditional, Roth and SEP IRAs. The basic plan is perfect for passive investors who want their money to grow, especially for the small management fee of 0.25%, or $25 for every $10,000 of capital invested.
Betterment Premium offers you the luxury of all the same account features, plus outside investment advice on managing individual stocks, real estate, and 401(k) accounts. Upgrade to the premium service, and you’ll get unlimited discussions with the firm’s certified financial planners and tax professionals. The added investment advice will cost you 40 basis points instead of 25. There is also a minimum account requirement of $100,000 when deciding to upgrade.
The major adversary to Betterment, Wealthfront found its way into the market by offering more account options and by introducing a business model that increases its quality of services, depending on your account balance. Interestingly, the firm’s passive index investing strategy is rooted in academia. The firm employs economist, Dr. Burton Malkiel, as its chief investment officer. Today, Wealthfront offers a broad suite of services fully automated in software including free financial planning, investment management and short-term cash management.
Wealthfront has an easy-to-understand fee structure, a simple 25 basis points charged on all assets under management. If you choose to open a 529 account to save for your child’s education, you’ll notice slightly higher fees of 0.42-0.46% per year. Referring friends or relatives to Wealthfront will give you the opportunity to subtract fees on $5,000 of capital, per referral.
Wealthfront launched free financial planning in December 2018, powered by its automated advice engine, Path. Now, when you download the Wealthfront mobile app, you can choose to get started by building a financial plan before opening an investment account and get instant answers to over 10,000 financial questions.
Wealthfront does not offer stock-level tax-loss harvesting benefits to its clients unless you have a balance of over $100,000. However, they do offer tax-loss harvesting services similar to Betterment for those under $100,000. Their PassivePlus investment suite offers services for account balances of over $100,000 and $500,000. Daily Tax-Loss Harvesting is available for no extra cost to all taxable investment accounts, and Stock-Level Tax-Loss Harvesting is available at a balance over $100,000. Stock-level Tax-Loss Harvesting is an enhanced form of Tax-Loss Harvesting that looks for movements in individual stocks within the US stock index to harvest more tax losses and lower your tax bill even more.
At an account balance of $500,000, Wealthfront offers Smart Beta. This strategy optimizes returns by investing in stocks according to weight based on a multitude of factors, including market capitalization, dividend yield, beta, and volatility.
The Smart Beta Portfolio also employs stock-level tax loss harvesting for no extra fees. Wealthfront also has a Cash Account that currently has a 2.51% APY with a $1 minimum that is FDIC-insured up to $1 million with no fees. They also offer a Portfolio Line of Credit that allows you easier and faster access to borrow on your long-term investments.
Similarities between Betterment and Wealthfront
The two platforms have a few similarities, other than their super competitive management fee of 25 basis points:
- They both have mobile apps, ideal for taking a daily glance at your financial future.
- Both firms offer some sort of retirement account that all clients can take advantage of, as well as 401(k) accounts.
- It seems to be a common practice among robo advisors to associate account balances with additional services. The two register investment advising firms do this but are structured differently.
Differences between Betterment and Wealthfront
Notable differences in the two companies include:
- Types of accounts provided
- Investment strategies
- Betterment does not offer 529 accounts to save for college or private school
- While both firms offer options for ultra low account minimums, Betterment charges a premium for many of the services Wealthfront already performs.
- Wealthfront does not allow you to buy fractional shares, which would ensure that 100% of your capital is being invested at all times.
- For investors who love robo-advisors and passive investing might take interest in Wealthfront’s unique offering of the Smart Beta, so long as they have $500,000 to spare.
- Wealthfront Cash Account is a high-yield cash savings account with a 2.51% APY, up to $1 million in FDIC insurance, no fees and a $1 minimum. Betterment offers Smart Saver, which is a low-risk bond portfolio with a 2.18% APY and a 0.25% fee. Smart Saver is subject to market risk and is not FDIC insured.
Compare Betterment and Wealthfront
|Broker||Best For||Commissions||Account Minimum||Choose your platform|
||0.25% annual fee for accounts 0.4% Premium Plan with additional features annual fee for accounts more than $100,000||$0||
Get started securely through Betterment's website
1 Minute Review
Offering personalized investment strategies, Betterment tailors customer portfolios based on a host of factors such as goal type, risk tolerance, account type, time horizon etc. The firm focuses on tax-efficient investing at all stages, which is its unique selling proposition.
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||0.25% annual fee||$500||
Get started securely through Wealthfront's website
1 Minute Review
Wealthfront offers automated investment services, customized according to the risk tolerance and investment goals of every investor. For assessing clients basic financial health, Wealthfront has designed a free financial planning solution, powered by its automated financial advice engine called Path. If you link all your accounts, Path can analyze your financial habits and help you determine where are your habits going to lead you in the future. Wealthfront also offers a high-yield cash account with a 2.51% APY, FDIC insurance up to $1M, and no fees. Investors who wish to invest their savings can use its automatic investing suite called PassivePlus at low cost. It offers the following strategies: Tax-Loss Harvesting, Stock-level Tax-Loss Harvesting, Smart Beta and Risk Parity.
None at this time
Whichever robo advisor you decide to let manage your savings, make sure you understand the key differences. Know each company’s advantages and what you prefer in terms of value propositions. All in all, it’s clear robo advisors aim to pave the way in streamlined investment strategies with enhanced transparency and lower fees.