Betterment RoboAdvisor Review: Pros and Cons

Written By
Jacob Wade
Reviewed By
Mark Herman, CFP

Betterment is the original, full-featured robo advisor which offers low-fee asset management, $0 minimums, and access to actual human Certified Financial Planners (CFP®).

Betterment
 
Rating: 4.4 out of 5 stars

Betterment delivers high-quality investing services at a fraction of the cost of traditional financial advisory firms. They have two main offerings, Betterment Digital and Betterment Premium.

Betterment Digital is their robo advisor which has no minimum account balance and charges 0.25% of assets under management. Betterment Premium has a minimum account balance of $100,00 and gives you unlimited phone and email access to CFPs. Betterment Premium charges 0.40% of assets under management.

Highlights
  • $0 account minimum for Betterment Digital and Cash accounts

  • 0.25% management fee for Betterment Digital

  • 0.40% management fee for Betterment Premium

  • Betterment Premium gives you unlimited access to CFPs

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InvestingAnswers’ Expert Take on Betterment

Betterment is our favorite service for beginner investors, offering $0 accounts minimums, tax-efficient investing options, and a low 0.25% management fee for their Betterment Digital robo advisory service. 

Throw in a Premium plan that gives you access to a CFP® professional for only 0.40% and Betterment is a true, full-service financial planning firm.

Expert take on Betterment Investing

Overall Score: 4.4 / 5

Full Betterment Review

Betterment delivers high-quality investing services at a fraction of the cost of traditional financial advisory firms. They have two main offerings:

Betterment Digital

This automated robo advisor service provides access to pre-selected and customized portfolios for a flat fee of 0.25% of assets under management (AUM). Tax loss harvesting and automatic rebalancing come standard, and access to ETFs across 14 asset classes gives investors instant diversification.

Betterment Premium

This plan provides unlimited phone access to certified financial planners to help build a customized portfolio for a 0.40% AUM fee. A $100,000 minimum investment required.

Pros and Cons of Betterment

Betterment does a lot of things right, but not everything. Here are the pros and cons of their service:

Pros

  • No account minimums
  • Detailed goal-setting features for all investment accounts
  • Access to multiple portfolios and customization (including socially responsible portfolios)
  • Low-fee management, inexpensive ETFs
  • Tax-loss harvesting and automatic rebalancing
  • Access to fractional shares to keep all your cash invested

Cons

  • Betterment Digital plan charges $299 - $399 (per call) for access to Certified Financial PlannerTM advice
  • No access to REITs

Betterment Overview

Betterment overview

Betterment’s Best Features

Here’s what makes Betterment one of the top robo advisors for beginners:

Investment Options

Betterment invests solely using ETFs, diversified across 14 different asset classes. These ETFs are allocated based on your chosen portfolio. 

Here are the asset classes:

  • US Total Stock Market
  • US Value Stocks - Large Cap
  • US Value Stocks - Mid Cap
  • US Value Stocks - Small Cap
  • International Developed Market Stocks
  • International Emerging Market Stocks
  • US High Quality Bonds
  • US Municipal Bonds
  • US Inflation-Protected Bonds
  • US High-Yield Corporate Bonds
  • US Short-Term Treasury Bonds
  • US Short-Term Investment-Grade Bonds
  • International Developed Market Bonds
  • International Emerging Market Bonds

Portfolio Options

Using these funds, Betterment has put together several different types of portfolios for investors to choose from: 

  • Betterment Core - Their standard offering built with a mix of stock and bond ETFs
  • Goldman Sachs Smart Beta - A portfolio that uses multi-factor weightings to try and beat the market over the long-term
  • Blackrock Target Income - 100% bond allocation designed as an income-producing portfolio for retirees
  • Betterment Cash - Not an investment portfolio but a high-yield savings account

Betterment also has 3 different Socially Responsible Investing (SRI) Portfolios to choose from: 

  • Broad Impact - Stock portfolio of ETFs that have high ESG (Environmental, Social, Governance) ratings
  • Climate Impact -  Climate-conscious ETFs with low carbon footprint
  • Social Impact - Two ETFs (NACP and SHE) supporting minority empowerment and gender diversity

Betterment also provides an option to make your own asset allocation using their Flexible Portfolio option. You can choose (or exclude) the weightings of different asset classes to fit your needs.

Management Fees

Betterment offers a low 0.25% management fee for Betterment Digital and a 0.40% management fee for Betterment Premium. These are both low costs compared to their traditional investment firm counterparts.

Betterment even offers a discount for clients with high balances. This brings the management fee for Betterment Digital down to 0.15% (on amounts over $2 million) and Betterment Premium down to 0.30% (on amounts over $2 million).

In addition, if a customer refers up to 5 friends to Betterment Digital, they can receive up to 17 months of management for free.

There are no fees for their Betterment Cash offerings, including checking and savings accounts.

Checking and Savings Accounts

Betterment offers both a checking and high-yield savings account that’s backed by multiple banks.

The Betterment Cash Reserve savings account offers a high-yield variable interest rate and $1 million in FDIC insurance ($2 million for joint accounts). This account has no minimums, fees, or withdrawal limits.

Within your Betterment savings account, you can set up “Cash Goals” to separate and view your cash savings in different buckets, like emergency funds, house down payments, and vacations.

The Betterment Cash checking account is a standard checking account with $250,000 in FDIC insurance. It comes with reimbursable ATM fees worldwide and no minimum balance, overdraft, or maintenance fees. It does not, however, come with paper checks.

Betterment also offers a “two-way sweep”, which automatically moves unused money (as determined by Betterment) into your savings account. It will also automatically shift funds to your checking account when your balance runs low.

Goal Setting

Betterment is built on goal-based investing. The Betterment app guides you through investing in order to  hit your financial goals (e.g. retirement, mortgage, vacation). 

Every account you open with them asks you to choose a specific goal you are working toward. Each goal has a “target date” for when you’d like to achieve it. Then Betterment shows you exactly how much you’ll need to invest each month to get there.

They have even built-in goals to their savings account product, further helping customers specify their financial goals.

Tax Optimization

Betterment has built-in tax-loss harvesting, automatic rebalancing, and even a few tools that allow you to optimize tax strategies. 

Their tax-loss harvesting feature is based on “portfolio drift” and will automatically rebalance if your asset allocation drifts by 3% or more. This is evaluated on a daily basis.

The Tax-Coordinated portfolio tool allocates tax-heavy funds into retirement accounts and tax-efficient funds into taxable accounts, allowing for an optimal tax strategy between multiple accounts. Note: This requires both a taxable and tax-advantaged retirement account with Betterment.

The tax impact preview tool allows customers to project the tax implications of any portfolio adjustments.

Access to Certified Financial Planners

Betterment provides access to Certified Financial PlannersTM for financial advice. If you’re a Betterment Digital customer, you can book a 45- or 60-minute consultation (for $299 and $399, respectively). If you’re a Betterment Premium customer, you’ll get unlimited access to the CFP® experts.

If you’re just getting started and are looking to move at least $100,000 in assets to Betterment, book a complimentary “exploratory” call with a CFP® to help you see if Betterment is a good fit.

No Account Minimums

Betterment is one of the only robo advisors with no account minimums. You can open a retirement account, standard brokerage account, or cash account without being required to deposit any funds.

Betterment Premium, however, requires a $100,000 minimum investment to qualify.

External Account Sync

Betterment allows you to sync your external (i.e. non-Betterment) accounts to help provide you with holistic financial advice. Linking your checking, savings and other investment accounts allows Betterment to set goals based on your total financial picture.

Areas Betterment Can Improve

There are, however, a few places where Betterment falls short:

No Stock-Level Tax Loss Harvesting

Betterment does not invest in individual stocks, only buying and selling of ETFs to harvest tax losses. Their biggest competitor, Wealthfront, offers a service that invests in individual stocks within an ETF, allowing them to capture tax losses at a more granular level.

No Borrowing Options

Betterment doesn’t offer margin lending or other borrowing options against your portfolio. Wealthfront, for example, has a portfolio line of credit that allows you to borrow up to 30% of your taxable portfolio with no credit check needed (though a minimum $25,000 balance is required).

No REITs or Commodities

Betterment invests in globally diversified ETFs, but they don’t offer REITs or other commodities (e.g. natural resources). This limits your options to stocks, bonds and cash.

Betterment vs. Wealthfront

Currently, Wealthfront is Betterment’s biggest competitor in the robo advisor space. Both offer a low 0.25% fee for digital management of your portfolio, access to low cost ETFs, and include advanced investing tools such as tax-loss harvesting and automatic portfolio rebalancing.

There are, however, a few distinct features that set Betterment and Wealthfront apart from each other:

Betterment Unique Features

  • No account minimum
  • Direct access to financial planners (included with Premium plan)
  • Multiple portfolio models to choose from
  • Customizable investment with Flexible Portfolio option

Wealthfront Unique Features

  • Account minimum: $500
  • 529 college savings account
  • Portfolio line of credit (minimum $25,000 in a taxable account)
  • Free financial planning and goal-setting app “Path”

For beginner investors, Betterment’s no up-front costs are great. Wealthfront provides access to more in-depth planning tools for investors who want an all-in-one investing service.

Betterment vs. Vanguard

Though Vanguard is one of the largest investment firms in the world, Vanguard Digital Advisor is a relative newcomer to the robo advisor space. While Betterment and Vanguard offer low fees for digital management of your portfolio – and have access to low cost ETFs – there are unique features that set them apart from each other:

Betterment Unique Features

  • No account minimum
  • Direct access to financial planners (included with Premium plan)
  • Multiple portfolio models to choose from
  • Customizable investment with Flexible Portfolio option
  • Socially Responsible Investment (SRI) options

Vanguard DIgital Advisor Unique Features

  • Account minimum: $3,000
  • No tax-loss harvesting
  • 0.15% management fee

Betterment is great for beginner investors who want access to a broadly diversified portfolio. Vanguard Digital Advisor, however, provides access to low-cost management and Vanguard ETFs for simple long-term investing.

Betterment vs. Acorns

Acorns is a micro-investing app, allowing users to round-up their purchases to invest small amounts. They have access to ETFs in 7 different asset classes, while Betterment has access to 14 asset classes. Acorns charges a monthly dollar amount while Betterment charges 0.25% of a customer’s total balance.

Both Betterment and Acorns offer $0 account minimums, access to low-cost ETFs, and they encourage investors to start investing small. Each app has a few unique features:

Betterment Unique Features

  • Direct access to financial planners (included with Premium plan)
  • Goal-based investing
  • Tax-loss harvesting
  • Socially Responsible Investment (SRI) options

Acorns Unique Features

  • Ability to “round-up” your purchases and invest your spare change
  • Use cash-back rewards to invest
  • Monthly fee either $1, $3, or $5, not based on assets under management
  • No fees for college students

Betterment is a more advanced investment service, with tax-efficient investing options, access to 14 asset classes, and more investing flexibility. Acorns is great for college students and beginner investors that want to start investing small amounts of money.

Here's our full article comparing Betterment to Personal Capital

How Does Betterment Work?

To sign up for Betterment, you’ll provide your name, email, address, phone number (for two-factor authentication), and your social security number.

After you sign up, Betterment will ask you what you’re hoping to accomplish through investing.

Betterment signup

Betterment builds your portfolio around your goals, so it’s important to select the right goal so your financial advice is tailored to your specific situation.

After selecting the type of account you want to open, you’ll be asked what you’re saving for.

Investing goals

After selecting your goal, choose a specific investment account to open. For example, if you want to open a retirement account, Betterment offers several options:

Types of investment accounts

Betterment will recommend a portfolio depending on your intended goal, but you can change this at any time. The app also has automatic rebalancing enabled, but you can turn this off and adjust your asset allocation yourself.

Betterment portfolio selection

Once you’ve opened your account, you can connect your external bank accounts to fund your account – and help Betterment understand your complete financial picture.

Betterment link accounts

If, for any reason, you choose to close your Betterment account, you can simply go to “Transfer or Rollover > Withdraw” to remove your money at no additional cost. This typically takes 4-5 business days to process.

Note: Withdrawing or transferring your funds from a retirement account or other investment account may have tax penalties or associated costs. Always consult with a licensed tax professional before moving your funds.

How Does Betterment Manage Investments? 

Betterment utilizes financial goals as the basis of your investment portfolio and will recommend one of their portfolio mixes based on your desired goals. Through their Flexible Portfolio option, Betterment also allows you to customize your portfolio and turn off automatic rebalancing.

Like many robo advisors, Betterment subscribes to Modern Portfolio Theory (MPT) which optimizes portfolios across a broad set of asset classes (up to 14).

Betterment also optimizes your returns using strategies such as tax-loss harvesting, automatic rebalancing, and putting less tax-efficient investments into tax-advantage retirement accounts.

Betterment also appeals to the socially conscious investor, with 3 portfolios specifically focused on SRI investing.

Betterment is not as transparent about historical performance, only giving benchmarks of how returns are calculated. While they no longer show you Betterment’s returns over time, they do always show your personal historical returns within your account.

What Is the Pricing Breakdown for All Betterment Features?

Betterment has incredibly low fees for all of their products. And – at only 0.25% on assets under management – their investment services are also competitive.

If you want access to a real, live financial advisor, you can pay a one-time fee (for Betterment Digital customers). If your balance is more than $100,000, Betterment Premium customers can pay a slightly higher management fee of 0.40%. 

As a bonus for balances greater than $2 million, Betterment offers a discount of 0.10% on both services.

Here’s a quick breakdown of how much it costs to use Betterment:

Betterment pricing

Is Betterment Right For You?

If you’re a beginner investor looking to maximize your returns with tax-efficient tools, Betterment Digital is a great choice. If you have $100,000 to invest (or more) and are looking for access to an actual human to talk to about your investing goals, Betterment Premium is an excellent option.

A powerhouse in the robo advisor space, Betterment continues to impress with their investment flexibility and low fees. 

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Highlights
  • $0 account minimum for Betterment Digital and Cash accounts

  • 0.25% management fee for Betterment Digital

  • 0.40% management fee for Betterment Premium

  • Betterment Premium gives you unlimited access to CFPs

Visit Website
Learn More
 
Betterment can be a good fit whether you are looking for a robo-advisor or access to a CFP. Click the green button to learn more.
Highlights
  • $0 account minimum for Betterment Digital and Cash accounts

  • 0.25% management fee for Betterment Digital

  • 0.40% management fee for Betterment Premium

  • Betterment Premium gives you unlimited access to CFPs

Visit Website

Editorial Disclosure

All of the opinions expressed herein are the author's alone, and not those of any bank, brokerage, credit card issuer, lender, insurance company, outside financial institution, or any other entity. This content has not been reviewed, approved or otherwise endorsed by any of the entities included within the post or any other third parties.