Betterment vs Wealthfront: Which Is The Better Robo-Advisor In 2020?

Robo advisory looks the way it does today because of investment companies like Betterment and Wealthfront

If you’re looking for Robo advisory service, you can’t go wrong with either one of them.

Betterment and Wealthfront have similar investing platforms. They both create personalized portfolios with Robo advisors based on your financial goals.

Although both investment management companies follow similar paths, up close they differ from one another. 

 Deciding the right online broker will come down to your financial goals and investment planning. 

If you want an investment management company that has human advisory available, Betterment might be for you. If you want to invest with 100% digital advisory, Wealthfront is your best choice. 

Of course, there are further points to take into consideration when choosing a broker.

In this article, we are going to point out the main differences between Betterment and Wealthfront. Let us show you how to choose the right Robo advisor for your style of investing.

Quick Glance

Betterment

Account Minimum: $0 USD

Fees: 0.25%- Digital (basic) plan, 0.40%- Premium plan

Betterment is Great For:

  • Best for those with a small amount of investing cash
  • Investors who have specific financial goals such as retirement or purchasing a home
  • Those who want the option of a service update  

Available Human advisors

  • Yes

Wealthfront 

Account Minimum: $500 USD

Fees: 0.25% for most accounts- no commissions on trades or fees for withdrawals

Wealthfront is Great For:

  • Investors who want to connect all financial accounts and see the big picture
  • Anyone who interested in a line of credit
  • Best for investors who want to save money for college

Available Human advisors

  • No

Now that we understand the makeup of these two, let’s break them down!

Betterment & Wealthfront: Overview

Betterment and Wealthfront are very similar because they are both online wealth management firms. 

Both brokers assess your risk tolerance and investment goals. They then take that information to place you in specific exchange-traded funds (ETFs).

This algorithmic process uses the Modern Portfolio Theory, or MPT for short. MPT, in simple terms, constructs a portfolio that seeks to maximize return for a low level of risk. 

Supporters of modern portfolio theory believe that what you invest in isn’t necessarily important, but rather how you allocate and diversify your investments across various asset classes.

The benefit to you as an investor is that this investment strategy provides a very hands-off, passive approach. If you’re a new investor or simply want a low maintenance portfolio, you will surely be happy.

Account Overview

Betterment and Wealthfront have similar savings/investment vehicles. Although they are alike, there are important differences to pay attention to.

For the most part, Wealthfront has more account options to choose from. On the other hand, Betterment offers human advisory (with the premium plan).

Betterment 

  • Taxable accounts (individual, joint, and trust)
  • Traditional IRA accounts
  • Roth IRA accounts
  • SEP IRA accounts (for the self-employed and small businesses)
  • 401(k) rollovers

Wealthfront 

  • Taxable accounts (individual, joint, and trust)
  • Traditional IRA accounts
  • Roth IRA accounts
  • SEP IRA accounts (for the self-employed and small businesses)
  • IRA transfers
  • 401(k) rollovers
  • 529 college savings plan account
  • High-interest cash accounts (individual, joint, trust)

As mentioned before, Wealthfront has a wider range of accounts to choose from. If you’re looking for an investment firm to save for college, Wealthfront is definitely for you. 

Features 

In one sense, you really can’t go wrong with either of the two brokers. Both of these Robo-advisors provide a variety of helpful wealth management features that help new and passive investors alike.

Although both firms have similar business models, Betterment and Wealthfront offer different features. 

Betterment Wealthfront
Human Advisors

Cash accounts

Automatic Rebalancing 

Tax-loss harvesting

Fractional shares

Charitable service

Line of credit

Socially responsible investing portfolio

College savings account

Retirement tools

Betterment and Wealthfront hand-picked features to help investors get an edge and reach their financial goals faster.

Let’s see a few of their main features!

Betterment

  • Human advice: The premium plan offers unlimited access to human financial advisors
    • 0.40% annual fee- $100,000 account minimum
    • There are many packages to choose from
  • Charitable service: Investors can directly give charity
    • Tax smart giving- investors can donate shares 
    • Betterment takes care of the donation and charitable benefits that you receive
  • Savings and checking account: High yield cash 
    • Cash reserve account- 0.30% APY
    • No minimum balance (FDIC insurance up to $1 million)
  • Portfolio management: Automatic and consistent monitoring of portfolio
    • SmartDeposits- automatically deposits money in your bank account if balance goes over the requested amount
    • Rebalancing- constant rebalancing to maintain asset allocation

Wealthfront

  • Wealthfront Cash Account: A high-interest cash account
    • Earn 0.26% APY (no fees)
    • $1 minimum to open cash account  (FDIC insurance up to $1 million)
  • 529 College Savings: A savings account to get ahead of college bills
    • Tax advantages that help you save
    • This money can be used for tuition, room, board, etc 
  • Portfolio Line of Credit: Once you have $25,000 in your account you have access to credit
    • 3.9%-5.15% annual interest rate (rates change frequently)
    • Investors can borrow up to 30% of account
  • PassvePlus: Wealthfront’s investment strategy set
    • Set of tools to maximize investment yields 
    • Beta Smart- a service that helps investors strategically weigh stocks in personal portfolio (for investors with $500,000 and up)

Betterment and Wealthfront both offer automatic rebalancing, tax-loss harvesting, and portfolios composed of low-cost ETFs.

As you can see, Betterment and Wealthfront focus on different “investors” offering specialized tools.

Portfolios

The sign-up process for Betterment and Wealthfront is relatively simple. You need to answer a handful of questions before opening an account. These questions help them understand your risk tolerance and financial goals

Let’s Check out Betterment first:

Betterment 

Betterment tailer fits a portfolio to your risk tolerance and financial goals. As mentioned above, there will be a few questions that you have to answer. This will help Betterment design your personal portfolio.

Betterment builds a portfolio made of ETFs. The ETFs are taken from the following asset 

Classes:

Stocks/Equities

  • U.S total stock market
  • U.S large-cap stocks
  • U.S mid-cap stocks
  • U.S small-cap stocks
  • International developed market stocks
  • International emerging market stocks

Bonds/ Fixed Income

  • U.S high-quality bonds
  • U.S municipal bonds
  • U.S inflation-protected bonds
  • U.S high yield corporate bonds
  • U.S short term treasury bonds
  • U.S short term investment-grade bonds
  • International developed market bonds
  • International emerging market bonds

If you’re interested in a specific portfolio, Betterment just recently added “ready to go” portfolios:

  • Goldman Sachs Smart Beta Portfolio
    • Uses smart beta to choose investments 
  • Socially Responsible Investment Portfolio (SRI)
    • A portfolio that invests in socially and environmentally responsible companies
  • BlackRock Target Income Portfolio
    •  A low-risk investment vehicle that only invests in bonds  

Wealthfront

Wealthfont will present you with your portfolio only after they understand your attitude towards investing. Similar to Betterment, Wealthfront asks investors general questions to better understand their situation.

Wealthfront customizes a portfolio based on the investor’s age, investment capital, risk tolerance, and goals. They manage clients’ portfolios made up of carefully selected ETFs. 

The ETFs are very diverse stretching across numerous asses classes

Below are the following asset classes:

Stocks

  • U.S stocks
  • Emerging market stocks
  • Dividend stocks
  • Foreign stocks

Bonds

  • U.S government bonds
  • Municipal bonds
  • Corporate bonds
  • Treasury inflation-protected securities
  • Emerging market bonds

Alternatives

  • Real estate 
  • Natural resources 

Retirement Planning

If you’re planning on saving for the future, you can’t go wrong with either of these two giants. Betterment and Wealthfront have simple tools that make retirement planning easy.

A few of the retirement accounts Betterment and Wealthfront have to offer are below:

  • Traditional IRAs
  • Roth IRAs
  • SEP IRAs
  • 401(k) rollovers 

Betterment 

Betterment takes retirement seriously. They stand by goal-based investing and help you reach your goal.

Betterment allows you to connect external accounts to help you see the “whole” picture. They also offer many retirement accounts. You can choose one or a few, they will help you reach your retirement goals. 

At Betterment, they offer an in-depth retirement plan based on your goals. They have a projected spending tool that can help you understand how much you’ll be able to spend in your golden years.

Wealthfront 

Wealthfront has an all in one retirement planning platform. They use math and algorithms to estimate net worth at retirement. This is derived from your financial goals and current income levels.

Wealthfront takes your life situation into consideration and when things change, so does your plan. With their tools, they will direct you to a free-living comfortable retirement.

Minimum Investment  

Betterment and Wealthfront are two different investment companies and it is likely that they will be different in many ways. They do contrast one another in minimum deposit, but not my much.

Betterment: $0 USD

Wealthfront:  $500 USD

Annual Fees 

All brokerages charge fees one way or another. Over a lifetime those fees can turn into hundreds of thousands of dollars.

Betterment and Wealthfront are Robo- advisors. They provide custom individual investment portfolios for a very low fee. 

Let’s see how they compare against one another. 

Betterment

Betterment offers two main investment options: Digital and Premium.  

The Digital plan contains personal Robo-advisory services, automatic rebalancing, and tax loss harvesting strategies. The cost is 0.25% of assets annually- no minimum balance is required. 

The Premium plan offers everything the digital plan received plus human advisory and guidance towards reaching personal financial goals.  This plan has an annual fee of 0.40% and you must have a minimum balance of $100,000.

Wealthfront 

Wealthfront has a single plan. Similar to Betterment, they offer Robo-advisory services, automatic rebalancing, and tax loss harvesting to their clients. The cost is 0.25% annually but you must have a minimum balance of $500. 

Accounts up to $500,000 can invest with the Smart Beta program. This is a program that strategically and intelligently weighs the investments in your portfolio. 

There are no fees for signing up, closing an account, account transfers, or withdrawal. 

Tax Advantages 

A comparison of Betterment vs. Wealthfront would not be complete without diving into taxes. Taxes play a critical role in investing. 

Both Betterment and Wealthfront take advantage of tax-loss harvesting. 

What is Tax-Loss Harvesting?

Tax-loss harvesting is the practice of selling a security that experiences a loss, then buying a highly correlated security in its place.

You can use that loss to offset your taxable income. Tax-loss harvesting keeps you exposed to the market while obtains a “loss”. That loss will give you a bigger tax savings when you cash in and pay capital gains tax. 

Wealthfront has an edge on Betterment offering a feature known as Direct Indexing. Through Direct Indexing, you harvest losses with individual stocks in the S&P 500. 

It is important to point out that investors must have at least $100,000 in their Wealthfront account to take advantage of this feature. 

Security

Betterment and Wealtfront have top levels of security. They offer two-factor authentication and are insured from many angles.   

Betterment 

The Securities Investor Protection Corporation (SIPC) provides insurance to investors with Betterment accounts. This insurance covers up to $500,000 (per account) of missing assets.

Betterment also protected cash accounts. The FDIC insures Betterment checking accounts up to $1 million dollars. 

Wealthfront

Wealthfront maximizes the protection of investors with the same protection. Your cash accounts are insured but the FDIC and your investments are insured but the SIPC.

Customer Service

Betterment and Wealthfront understand the importance of quality customer service and act accordingly. 

Betterment 

Betterment has great customer service and is there to help you out. There are two main ways to get in touch with Betterments customer service. 

You can call them directly or send an email. Their support team is available from 9 AM- 6 PM Eastern time. Unfortunately, Betterment doesn’t have an online chat. 

If you opt for the premium plan, you can get help from a human financial advisor, just make an appointment. We must remind you that there is a higher annual fee with the premium package. 

Wealthfront 

Like Betterment, Wealthfront doesn’t have an online chat, but they do have a great support team.

They are open from Monday through Friday, 7 AM-5 PM Pacific time. Wealthfront is also active on twitter. They frequently offer suggestions and customer support tips.

Our Verdict 

The comparison of Betterment vs Wealthfront is not an easy one to answer. Both firms have low fee structures, excellent features, tax-friendly strategies, and great customer service. 

While Betterment and Wealthfront have a lot in common traits, each broker also delivers unique features.

The final decision on choosing Betterment or Wealthfront is really up to you and your investment style. Your personal financial needs, goals, and preferences will help detect the online broker that’s right for you.

You can’t go wrong with either investment firm.