Betterment was founded in 2008 and since then has staked its claim as the leading robo-advisor with competitive fees, low investment minimums, and tools galore.
TD Ameritrade Essential Portfolios is the robo-advisor service offered by its namesake company and has rock bottom fees, billions in assets under management, and tax-loss harvesting features to optimize investor returns after paying Uncle Sam.
No clear winner exists between these two top robo-advisors at first glance so we researched key factors like management fees, expense ratios, deposit minimums, tax impact, and automatic portfolio rebalancing to help you uncover which is best.
As you will see, it’s a close call when we compare Betterment vs TD Ameritrade, but is there a winner? Read on to find out.
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Table of Contents
- TD Ameritrade vs Betterment
- Fees Comparison
- Betterment vs TD Ameritrade: Investment Minimums
- Tax Impact
- TD Ameritrade vs Betterment: Investment Strategy
- Overall Winner
- Betterment vs TD Ameritrade Comparison
TD Ameritrade vs Betterment
Despite following in Betterment’s footsteps many years after Betterment got its start, TD Ameritrade competes aggressively on cost and service level.
What Is Betterment?
At last count, Betterment had amassed $13.5 billion in assets under management, making it one of the largest and most successful robo-advisors.
Its two primary services are Betterment Digital and Betterment Premium.
What is TD Ameritrade?
TD Ameritrade offers customers banking services, brokerage services (see: thinkorswim review), and via Essential Portfolios it also provides robo-advisor services.
Essential Portfolios is a low-cost robo-advisor service that features diversified portfolios with few exchange-traded funds.
It is ideal for investors who prefer a hands-off approach and are price-sensitive.
Betterment vs Essential Portfolios
Betterment fees vary depending on the level of service you require. For its basic service, Digital, Betterment charges 0.25% of assets managed.
Betterment Premium, the higher tier service, comes at a higher cost of 0.40% which reflects the added value: unlimited access to certified financial professionals.
Essential Portfolios offers just one service level for everyone and charges a flat 0.30% rate per year.
Expense Ratio Fees
In addition to management fees, expense ratio charges apply to your portfolio when Betterment or Essential Portfolios allocates your money to new exchange-traded funds or mutual funds.
The fees range from 0.06% → 0.08% at TD Ameritrade Essential Portfolios compared to an average of 0.13% at Betterment.
|Robo-Advisor||Management Fees||Expense Ratios|
|Essential Portfolios||0.30%||0.06% → 0.08%|
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Betterment vs TD Ameritrade:
Betterment Investment Minimum
Betterment minimums are either very low or very high depending on which service tier you choose.
The entry-level service, Betterment Digital, has no minimum investment requirements to sign up.
However, you will need to pony up $100,000 to gain access to Betterment Premium, which includes unlimited phone access to financial advisors.
TD Ameritrade Essential Portfolios Investment Minimum
A higher minimum is required to sign up to Essential Portfolios. You will need to contribute at least $5,000 to open an account at TD Ameritrade’s robo-advisor service.
TD Ameritrade vs Betterment
Both TD Ameritrade and Betterment shine when it comes to portfolio tax implications.
Free Tax-loss harvesting is offered by both robo-advisors. The aim of this service is to lower the tax impact of your overall portfolio by selling losing positions and replacing them with similar holdings in order to maintain a diversified portfolio while lowering capital gains taxes.
While tax-loss harvesting makes sense in taxable accounts, it isn’t required in retirement accounts, which already benefit from tax-deferred gains.
However, Betterment recognizes that you should allocate smartly between taxable and retirement accounts to ensure that higher-taxed positions are placed in retirement accounts and lower-tax impact holdings are placed in taxable accounts.
This process of optimizing your overall portfolios to maximize after-tax returns is labeled tax-coordinated portfolios at Betterment. No equivalent offering is available at Essential Portfolios.
TD Ameritrade vs Betterment:
A key selling point of robo-advisors compared to traditional financial advisors is the promise of keeping client portfolios diversified.
The process of allocating money to various investments to spread risk intelligently across asset classes and holdings on an ongoing basis is called automatic portfolio rebalancing.
Both TD Ameritrade and Betterment provide free automatic rebalancing services so that portfolios remain diversified not just on day one when they are first built but ongoing into the future.
In addition to automatic rebalancing, Betterment ensures portfolios are diversified by selecting a mix of ETFs from up to 12 asset classes.
Whether investors are seeking income, smart beta, or socially responsible portfolios, Betterment supports them all.
Betterment Premium clients can even adjust the percentages of each holding in an existing portfolio.
TD Ameritrade has a much simpler offering by comparison. Only 5 ETFs are used to build portfolios, which is comparatively few when examining other robo-advisors.
iShares and Vanguard ETFs are used to keep costs rock bottom.
For clients who want a more diversified portfolio, TD Ameritrade Selective Portfolios may be a better fit. This service includes human advice with the benefits of algorithmic investing, and features more asset classes.
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Betterment vs TD Ameritrade
|Betterment Wins||TD Ameritrade Wins|
|✅ Management Fees: The fees to manage assets start at a lower price of just 0.25% compared to 0.30% at Essential Portfolios.||✅ Expense Ratios: The ETFs available to clients of Essential Portfolios have expense ratios that range from 0.06% → 0.08% compared to an average 0.13% at Betterment.|
|✅ Investment Minimum: Betterment requires no investment to sign up to its Digital service, however a $100,000 capital commitment is required to its higher tier Premium service. TD Ameritrade requires a $5,000 commitment to open an account.||✅ Account Types: TD Ameritrade supports a wide range of account types including:|
|✅ Tax Implications: While both robo-advisors feature tax-loss harvesting, only Betterment offers tax-coordinated portfolios at no cost to ensure returns are optimized net of taxes across standard and retirement accounts.|
|✅ Socially Responsible Portfolios: Investors who wish to align their investment dollars with their values can select socially responsible portfolios at Betterment.|
|✅ Selection of Asset Classes: Only five ETFs are available at Essential Portfolios versus 12 asset classes at Betterment.|
Betterment vs TD Ameritrade
TD Ameritrade fanatics who already love the company’s banking and brokerage services may find it a natural fit to select Essential Portfolios.
For most everyone else, Betterment is the superior choice because of its many bells and whistles.
For example, Betterment goes further than TD Ameritrade in optimizing after-tax returns so you keep more and pay Uncle Sam less. Beyond tax-loss harvesting which is common to both robo-advisors, Betterment includes tax-coordinated portfolios free in both its service levels.
Arguably, Betterment provides more diversified portfolios because up to twelve asset classes are incorporated versus just five exchange-traded funds at Essential Portfolios.
And the investment minimum to get started at Betterment is zero versus $5,000 at TD Ameritrade.
Only the most price-savvy customers may find TD Ameritrade has the edge when summing up management fees and expense ratios but the difference is so slight it’s hard to justify selecting it in favor of Betterment’s extensive services.
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