Betterment Vs Wealthfront: Review 2018

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Betterment vs Wealthfront is the proverbial clash of the robo-advisor titans. Both companies emerged in 2008 to provide technology-powered financial management with minimum human involvement at lower fees than those charged by traditional human advisors. Years later, Betterment and Wealthfront continue to lead the robo-advisor industry and have acquired billions of dollars each in managed assets. They have enjoyed so much success that major financial powerhouses, such as Schwab and Fidelity, have launched their own competing robo-advisor services.

Both Betterment and Wealthfront have remained true to their origins in providing low-fee automated portfolio management services but they have diverged a bit in other areas, namely tax and human advice. Wealthfront offers perhaps the best tax-optimized service in the robo-advisor industry while Betterment has added human advice to its service offerings.

When comparing Wealthfront vs Betterment, the devil is in the details, and the answer of which is best depends somewhat on the factors that matter most to you.

Wealthfront vs Betterment

wealthfront brokerage trading system robo advisor

betterment

Betterment and Wealthfront are very evenly matched across many key features. Both have low account minimums, offer free portfolio rebalancing, a wide range of account types, and automatic tax-loss harvesting. Each robo-advisor manages billions of dollars in client assets and charges a management fee of 0.25% for basic service levels.

Wealthfront shines when it comes to tax-optimized portfolios and the range of asset classes provided to create diversified portfolios while Betterment has the edge when it comes to providing access to human advisors and financial goal setting.

Betterment Fees
vs Wealthfront Fees

High net worth individuals receive a break on fees above $2,000,000 of managed assets at Betterment. No Wealthfront fees are charged to manage the first $10,000 but thereafter a flat-fee of 0.25% is charged to clients.

When investors compare robo-advisor fees, the focus tends to be on management fees, which are important, but they don’t tell the full story of costs. Another important fee to keep an eye on is the expense ratio, the annual fee that all ETFs and funds charge to their shareholders.

Thankfully for customers, Betterment and Wealthfront lean towards exchange-traded funds that have lower fees than actively managed mutual funds. Because expense ratios are low at both robo-advisors, management fees are the most important consideration when evaluating total fees.

Robo-Advisor $5,000 $10,000 $50,000 $100,000 Open Account
wealthfront brokerage trading system robo advisorREVIEW

0.0% 0.0% 0.25% 0.25%
bettermentREVIEW

0.25% 0.25% 0.25% 0.25%

Up to $10,000, Wealthfront manages your money at no cost and charges 0.25% thereafter. If you are just getting started investing or not keen to take the plunge with a larger investment amount, Wealthfront has more appeal. Betterment offers no equivalent fee break, so clients will be charged 0.25% for its basic service, Betterment Digital, from the first dollar invested. The fee break on the first $10,000 at Wealthfront means clients save $25 annually with Wealthfront compared to Betterment, so while it’s nice to keep the extra cash in your own pocket, it’s not a make-or-break reason to choose one advisor over the other.

Higher net worth clients receive a fee break at Betterment on amounts over $2,000,000. Above that threshold, Betterment charges no fees but fees are still charged on invested amounts up to that level. By charging no fees above $2,000,000 of managed assets, a high net worth client enjoys meaningful fee savings. For example, fees are almost 50% higher at Wealthfront compared to Betterment on a $3,000,000 portfolio.

Robo-Advisor $10,000 $100,000 $1,000,000 $3,000,000 Open Account
wealthfront brokerage trading system robo advisorMANAGEMENT FEES

$0 $225 $2,475 $7,475
bettermentMANAGEMENT FEES

$25 $250 $2,500 $5,000

Betterment Fees or Wealthfront Fees: Which Robo-Advisor Wins? High net worth investors will find Betterment more appealing because Betterment fees are waived on amounts over $2,000.000. Wealthfront is more attractive to investors depositing up to $10,000 because management fees are waived. Between $10,000 and $2,000,000, Wealthfront has slightly lower fees on account of waiving fees on the first $10,000 but it is pretty much a coin toss.

Human Financial Advisors

Wealthfront vs Betterment

Clients seeking a personal touch in their investing experience should look to Betterment, which provides a higher tier of service, Betterment Premium. The account minimum is $100,000 to avail of both of this service. Betterment Premium customers enjoy unlimited phone and email access to advisors. Wealthfront does not make available a team of human advisors.

When it comes to matters relating to the investment of your nest-egg, it is often nice to have the option to speak with a real person from time to time. On this feature, Betterment shines when compared to Wealthfront, which does not make financial advisors accessible to clients.

Betterment Premium is a step up from its purely automated investment management service, Betterment Digital. Clients of the Betterment Premium service are eligible for unlimited email and phone access to CFP professionals. Betterment Premium is only available to clients who meet the minimum account balance requirement of $100,000. And the personal touch comes at a slightly higher annual cost of 0.40% of managed assets.

Wealthfront Vs Betterment: Which is Better for Human Financial Advisors? Betterment is the only choice for clients who want access to human advice. Wealthfront does not offer a live advisors service.

wealthfront brokerage trading system robo advisor

betterment

Retirement Planning
& Financial Goals

Wealthfront vs Betterment

Betterment lets clients sweep unused cash into investment accounts to meet specific financial goals using a feature called Smart Deposit. It also offers a tool called RetireGuide to help with your retirement planning and financial goal setting by calculating the gap between your savings and retirement lifestyle needs. Wealthfront also offers a retirement planning tool called Path that calculates how much in savings you need to meet your retirement goals, and automatically adjusts the financial advice you receive.

Whether saving for retirement, tuition expenses, a home or a car, financial goals keep you focused on how much you need to save and help keep you on track. Betterment helps you to create financial goals right from the start when you sign up and answer some questions. Betterment will recommend financial goals for you and you can choose to add your own financial goals. For example, you may wish to create accounts that focus on retirement planning, saving for a new home or buying a car.

To help you meet your financial goals, Betterment makes a free tool available called Smart Deposit. You decide how much money you need to pay your bills and, above a certain threshold, excess cash is invested into the Betterment account you choose.

Another nice retirement planning feature that Betterment offers is called RetireGuide. This tool lets you see the shortfall or surplus savings needed to meet your retirement goals. You can easily link to outside financial accounts and RetireGuide does the calculations for you.

Wealthfront also offers a financial planning tool called Path. Path helps you to identify your projected net worth in retirement, whether you can live your current lifestyle in retirement and how much you should be saving today to meet your financial goals.

The way Path works is it looks at your transaction history and calculates a rolling 12-month average of how much you have been spending and saving. If you end up saving less because you are spending more on tuition costs for your kids, for example, Path identifies your spending pattern and automatically adjusts the financial advice it gives you.

Retirement Planning & Financial Goals: Should You Choose Wealthfront Or Betterment? Both Wealthfront and Betterment offer excellent financial tools to help your retirement planning and set financial goals. Betterment has a slight edge by automatically investing unused funds via its optional Smart Deposit feature.

Tax Loss Harvesting

Betterment vs Wealthfront

Wealthfront and Betterment include automatic tax loss harvesting as part of their core service offerings. However, Wealthfront provides the superior tax-optimized investing service through its Direct Indexing feature that it claims can amplify after-tax annual returns by as much as 2.03%.

You don’t have to worry about optimizing for taxes when investing in an IRA or 401(k) because earnings grow tax-deferred until distributions are made in retirement years. But if you buy and sell at the wrong time in a taxable account, you may end up paying higher taxes needlessly. Both Betterment and Wealthfront offer automatic tax-loss harvesting services, but Wealthfront shines a little brighter thanks to its tax-optimized direct indexing service.

Direct Indexing makes it easier to harvest tax losses because individual securities are held which mirror an index fund. If an index fund was held by a client it wouldn’t be possible to sell individual holdings within the fund to harvest tax losses. But through Direct Indexing, the diversification benefits of holding a collection of securities that mirror a fund are enjoyed and still tax loss harvesting opportunities can be cultivated to boost returns by as much as 2.03% annually according to Wealthfront. The feature is free on accounts at Wealthfront over $100,000.

Wealthfront vs Betterment: Tax Loss Harvesting? Betterment and Wealthfront include tax loss harvesting as part of their core services, but Wealthfront has the edge in providing tax-optimized portfolio management to taxable accounts through its Direct Indexing feature.

Account Types

Betterment vs Wealthfront

Wealthfront and Betterment both support an extensive range of taxable and retirement account types, including Trusts, IRAs, rollover IRAs, SEP IRAs, and Roth IRAs.

Wealthfront and Betterment offer an extensive range of account types, both taxable and retirement. Whether you are looking to set up an individual or joint non-retirement account or a Trust, both robo-advisors cater to your needs. Both support IRA, Roth IRA, rollover IRA, and SEP IRA accounts. Wealthfront has the slight edge in supporting 529 Plans which Betterment does not support.

Account Type betterment wealthfront brokerage trading system robo advisor
Individual Non-retirement YES YES
Joint Non-retirement YES YES
Roth IRA YES YES
Traditional IRA YES YES
Rollover IRA YES YES
Trusts YES YES
Custodial Accounts YES YES
SEP IRA YES YES
529 Plans NO YES
401(k) NO (but, will advise) NO (rollovers supported)

Asset Classes

Betterment vs Wealthfront

Wealthfront can support portfolio diversification across a slightly broader range of asset classes than Betterment offers.

The investment method underpinning portfolio construction at Betterment and Wealthfront is Modern Portfolio Theory, which is rooted in Nobel-prize winning financial research from Dr. Harry Markowitz.

The research shows that investors can build portfolios to optimize expected returns based on levels of risk. Invested monies are allocated across various asset classes to create diversified portfolios. Both Betterment and Wealthfront feature numerous asset classes but Wealthfront has a slightly broader range.

Betterment features US and foreign stocks, emerging markets, and TIPS as well as US, corporate, municipal, emerging market and international bonds. Wealthfront offers all these asset classes plus natural resources, real estate and dividend stocks.

Both invest client monies in exchange-traded funds, though Wealthfront will additionally mirror index funds through its Direct Indexing service to create more tax-efficient portfolios.

 

Asset Class Type betterment wealthfront brokerage trading system robo advisor
US stocks YES YES
Foreign stocks YES YES
Dividend stocks NO YES
US bonds YES YES
Corporate bonds YES YES
Municipal bonds YES YES
Emerging market bonds YES YES
Real estate NO YES
Natural resources NO YES
Emerging markets YES YES
TIPS YES YES

Overall Winner

Betterment vs Wealthfront

Management fees and expense ratios are almost identical at Betterment and Wealthfront. Wealthfront has the edge in building tax-optimized portfolios while Betterment is superior when it comes to human advice. Both feature good retirement planning tools, though Betterment goes a step further in offering goal setting features.

Wealthfront Wins Betterment Wins
Portfolio Management Fees: Wealthfront management fees are lower for clients who are investing smaller amounts. Fees on the first $10,000 managed are waived. Above $10,000 and up to $2,000,000 Wealthfront fees are slightly lower. Portfolio Management Fees: Higher net worth clients should look to Betterment, especially for amounts over $2,000,000, at which point Betterment fees quickly become a lot more competitive than those at Wealthfront.
Tax Loss Harvesting: Both Wealthfront and Betterment offer tax-loss harvesting though Wealthfront provides clients with over $100,000 free access to Direct Indexing, which is designed to mirror the performance of an index fund but allows for greater tax-loss harvesting opportunities to boost after-tax returns. Human Advisors: Betterment offers clients access to human advisors as part of its higher tier service, Betterment Premium. Wealthfront does not include a human advice service.
Retirement Planning: Wealthfront offers a tool called Path, which automatically adjusts the advice you receive based on your spending and savings  habits to better help you meet your retirement planning objectives. Goal Setting: Behavioral investing is a core tenet at Betterment and this philosophy shines through in its financial goals setting tools – you have the option to sweep unused cash into accounts dedicated to specific financial goals, such as saving to buy a new home or a car.
Asset Classes: Wealthfront offers a broader range of asset classes than Betterment. Real estate, natural resources and dividend stocks are featured in addition to those provided by Betterment. Retirement Planning: Betterment provides RetireGuide, a tool that links to outside accounts and calculates how your savings levels match your financial goals to make sure you’re on track.
Expense Ratios: Wealthfront expense ratios average 0.12% Expense Ratios: Betterment expense ratios range both higher and lower than Wealthfront’s from 0.09% to 0.17%
Account Types: Wealthfront and Betterment both feature an extensive range of non-retirement and retirement account types as well as Trusts, though Wealthfront gets the extra brownie point for catering to 529 Plans. Fractional Shares: Betterment supports fractional shares which ensures all your cash is allocated to investing and none is left idle. Wealthfront does not include this feature.

Which Robo-Advisor Is Best For You?

Wealthfront or Betterment

Betterment and Wealthfront stand virtually toe-to-toe across the board. Differences in management fees and expense ratios are minimal. Both support automatic portfolio rebalancing and tax-loss harvesting. And both robo-advisors cater to retirement planning needs.

Wealthfront has a slightly wider range of asset classes to allow for broader diversification while Betterment supports fractional shares to ensure cash is not left to sit idle.

To pick between them depends largely on what matters most to you. If you wish to optimize for after-tax returns, Wealthfront gets the nod. If you want the comfort of human advice, Betterment is the preferred choice.

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