Betterment vs. Wealthfront: Which Is Best For You?
Investment has become accessible to a broader pool of people, thanks to the emergence of robo-advisory platforms such as Betterment and Wealthfront.
Robo-advisory companies use artificial intelligence to facilitate investments so that people don’t need to rely on expensive wealth advisors.
It’s now possible to plan for a better future using just your smartphone. Two of the biggest firms in this space are Betterment and Wealthfront.
But what are the differences? Which should you choose?
What are Betterment and Wealthfront?
Betterment and Wealthfront are both platforms designed to help ordinary people invest their money more easily and cheaply. Previously, professional wealth advisors needed to create portfolios manually, but thanks to technology, this is no longer necessary.
Artificial Intelligence can identify the patterns in the market and your goals to make you a return. These apps are especially appealing to young people, who are less wealthy and more trusting of AI.
The two platforms share many similarities. They both include key features such as portfolio rebalancing, reinvestment of dividends, and tax loss harvesting. Furthermore, they both have low exchange-traded funds (ETFs), and they can integrate but not manage outside accounts.
However, over time, the two companies have started to differentiate themselves from each other.
Wealthfront vs Betterment Features
As already established, there are many similarities between Betterment and Wealthfront. They’re both easy to use and understand, and they make it easy to change asset allocations.
They also both offer tax-loss harvesting, which is why you can run into difficulties if you create an account with both, and automatic rebalancing of your portfolio to ensure it remains diversified.
However, there are some differences.
Wealthfront has a minimum deposit of $500, so it’s best-suited to committed investors. Unlike Betterment, you’ll be able to choose real estate investment trusts and commodities, which diversify your portfolio by giving you exposure to alternative asset classes.
However, there are no government bonds as they’re deemed too low-yield to be worth investing in.
Wealthfront also has some unique features. Path is an advice engine that helps you reach specific money goals like retirement and can project your future net worth given certain scenarios.
PassivePlus is a suite of portfolio-enhancing features you’ll be able to access, like stock level tax-loss harvesting and a tax-optimization service. Finally, you’ll be able to open a savings option that pays 2.07% interest.
Betterment has no minimum deposit and is slightly more user-friendly, so it’s ideal for new investors who don’t want to commit to investing a lot of their money. You’ll also be able to opt for US government bonds, a low-risk investment option, and fractional shares, which can reduce uninvested cash.
Betterment has many special features. One is the option to have Smart Deposits, which take ‘unneeded’ money from your savings account into your investment account. Another feature is the Two-Way Sweep, a more robust option that will return the money if your balances dip too low.
You could also opt for a high-yield savings account called Cash Reserve or a tax-coordinated portfolio, which will put your most tax-efficient assets in taxable accounts and tax-inefficient assets in an IRA.
Wealthfront vs. Betterment Pricing
There are two main considerations to compare the pricing of wealth investment platforms: the ETFs of trades and the management fee, which is charged as a percentage of your total. Both Betterment and Wealthfront have low ETFs, but their fees vary more.
Betterment fees are between 0.25%-0.40% of your assets, depending on the type of account you create.
If you opt for a Digital package (with only digital consultations included), your fee will be 0.25% of your asset, with no minimum balance required. However, if you opt for a Plus package (for access to CFP professionals and in-depth advice), you’ll need a balance of $100,000 or more and will pay a fee of 0.40%.
However, you could get up to one year – depending on the size of your portfolio – free with our special offer. This makes Betterment the cheaper option, at least for the first year.
The Wealthfront fees are 0.25% of your balance, regardless of your account type. Thanks to a current promotion, you’ll get the first $5,000 managed for free.
After you stop benefitting from Betterment’s initial promotion, Wealthfront is the cheaper option.
Signing Up for Betterment or Wealthfront
Both services are straightforward to start using.
Signing-up For Betterment
Betterment will set up a baseline account for you (the personal taxable account), and you’ll then be able to create different account types.
You can create various accounts for different investment goals. You’ll be able to move money into your account by either linking a bank account to make cash deposits or transferring investments from your previous account with a different firm.
Signing-up For Wealthfront
Wealthfront will first prompt you to fill out a questionnaire. This helps build your recommended portfolio and gives you a risk score; Wealthfront then invites you to open an account if you’re happy with the plan assigned.
Depending on your goals, options for different account types will appear.
Security of Betterment and Wealthfront
Betterment and Wealthfront both take pride in their security and offer two-factor verification.
Betterment guarantees strong browser encryption, stores their data on servers in a secure facility, and safeguards accounts from unauthorized activity to avoid fraud.
To keep your money safe, Wealthfront refrains from proprietary trading and only make trades on behalf of clients.
They also have SIPC insurance to protect securities of a value of up to $500,000.
Betterment vs. Wealthfront For Mobile
Both companies are suitable for smartphone users and have an app you can download.
Wealthfront strongly encourages customers to use their app from the start; before opening an account, they’ll prompt you to explore the information on your phone to understand your investment goals better.
Betterment also allows customers to manage your goals and investments from the app.
Customer Service and Support
A major difference between the two companies is the type of advisors you’ll have access to.
Betterment Customer Service & Support
Betterment gives you the option to talk to human advisors if you’re willing to pay extra, either through their premium package if you have a $100,000 investment with them or through a one-off package.
They also have a customer support team available seven days a week and support via phone, email, or messaging.
Wealthfront Customer Service & Support
With Wealthfront, all advisors are digital. That means consultation is easier and cheaper to access, but some may prefer to speak to a real person.
How Good is Wealthfront?
- Wider variety of accounts including SEP-IRA for small businesses and a 529 college savings plan account
- Lower fees for higher wealth investors
- High dividend yield ETFs make it better suited for dividend-paying stocks
- More tax-efficient investment
- Higher minimum assets required
- No human advisors
- You can’t invest ethically
- All advisors are digital (no human advisors)
Betterment be Trusted?
- No minimum deposit
- No starting balance required
- Allows you to choose socially responsible investment
- Better for portfolio rebalancing and retirement planning
- The option of charitable giving assistance (allows clients to gift appreciated shares to charity)
- Option to talk with human advisors
- More limited variety of accounts: just taxable accounts, SEP, Traditional and Roth IRA accounts, and 401(k)
- Less tax-efficient
- Less suited for dividend-paying stocks
Although Betterment and Wealthfront are great robo-advisory platforms suitable for most people, there are a few other alternatives for those with more specific needs.
Personal Capital offers a wide range of investment options, which is perfect for those who want a portfolio mix. Betterment and Wealthfront both have limitations since the former excludes real estate, and the latter excludes bonds.
Ally Invest is a good option for retirement or loyalty customers who want to have their managed account, trading account, and bank account all in the same place. Betterment and Wealthfront were designed for those who wish to have a managed portfolio, but Ally Invest allows for self-directed trading too.
Ellevest specializes in social responsibility investments that align with your values. It’s also marketed toward women since females statistically earn lower over their lifetime and live for longer, which impacts how they invest. However, men can use Ellevest too.
Can I have both Betterment and Wealthfront?
It might sound tempting to open an account with both firms so you can test them out and see which one works the best for you.
Technically it’s possible to do this, but in reality, it doesn’t make much sense, and you might find yourself running into difficulties.
One such problem concerns tax-loss harvesting. An advisor on one platform may tell you to purchase a particular asset for tax reasons-but if an advisor on a different platform gives you the same advice, you won’t be able to make the same gains twice.
It’s also more difficult for advisors to give you reliable advice as they’ll lack a holistic knowledge of your portfolio. It’s advisable to choose just one platform. But how do Betterment and Wealthfront compare?
Picking Between Wealthfront or Betterment
Betterment and Wealthfront are both great investment advisory platforms. They make investing far too easy and cheap for you to not get involved.
The platform you ultimately choose comes down to your investment needs and personal preferences. The size of your portfolio, your experience investing, and the types of portfolio you want are all important factors to consider when choosing between the two sites.
Generally, Betterment is a better option for new and low-asset investors, whereas Wealthfront is best-suited to those who have larger assets and more experience. However, ultimately, the choice is up to you.