Betterment is a growing financial company whose main product is a robo-advisor app you use to invest money in collections of investments called ETFs. The company uses a series of mathematical equations (algorithms) to adjust your investments as needed and keep them earning money.
What makes Betterment unique is that the company doesn’t focus only on their robo-advisor app. They also offer individual retirement accounts (IRAs), trusts, financial planning tools and an extensive learning section that helps you understand investing, saving, retirement and other personal finance topics.
Betterment started in 2008. Founder Jon Stein realized that he and other colleagues in the financial services world were great at managing clients’ money, but they were often at a loss when deciding what to do with their own money.
Over the years, Betterment’s products have continued to expand into what is, in many ways, a full-service financial firm.
Now, expansion and a nice story don’t always make a financial company a good fit. You have to look beyond the “Why” and explore what Betterment offers, what fees you have to pay to use their service and what other people are saying about their products.
Once you have a good sense of these different areas, you can make more informed decisions about who will manage your money.
Our goal is to make you an empowered consumer, which is why we’ve researched each of the areas we mentioned above.
In the next few minutes, we’ll cover what Betterment offers, what fees they charge and what other people are saying about them.
We’ll also include a quick section on what competing companies offer, and then end with a few general observations about why Betterment might or might not be a good fit for you.
Pro tip: No matter which investment option you choose, Betterment will invest your money in the same group of ETFs.
What Does Betterment Offer?
A robo-advisor app is just one part of what Betterment offers its clients. They also provide upgraded investment accounts, IRAs and a helpful series of tools on their website.
One of the things we learned from Jon Stein when we interviewed him for an article about robo-advisors is that people like you and me got real skeptical about financial institutions after the 2008 financial crisis.
As a result, we became more open to automated investing, which is a fancy way of saying “an app that takes your money and invests in and doesn’t charge you a lot to do it.”
This is where robo-advisors come into play. You put money into your Betterment account and they deposit it into one of 12 ETFs, which are collections of various types of investments (stocks, bonds, currency, etc.) designed to follow the latest profitable trends.
Which ETF you use is based on how much and how long you want to invest, the level of risk you can stand, as well as what your financial goals are.
Because profitable investments fluctuate all the time, those algorithms automatically tinker with your investments to put them in the most profitable position.
If you get any dividends (profit companies share with their investors), those amounts are reinvested so you can keep earning money.
All of these little tinkers and tweaks are called “rebalancing”. Betterment says their rebalancing is so efficient, you end up earning an additional 2.9% on your investments.
The IRS knows that investing has its ups and downs, so they let you deduct any money you lose through your investments (“capital losses”).
It can be hard to track and calculate this on your own, so Betterment features something called tax loss harvesting, which is a fancy way of saying, “We’ll keep track of your capital losses and include them in the tax forms we send you.”
How Does the Betterment Robo-Advisor Sign-Up Process Work?
Signing up for the Betterment robo-advisor is pretty easy. Download the app to your phone, choose the option for starting a new account and then select “individual” from the list of options they give you.
From there, you’ll give them your email address and password, as well as your contact information (you have to have a U.S. address to start an account).
Since Betterment is a financial institution, they’re required by law to ask for your social security number.
Once you give them all the necessary information, they’ll ask you for your employment status, your annual income and how much you think you can invest each month.
From there, it’s a series of questions about your dealings with other companies (most people will answer no) and a screen where you’ll be asked to select two security questions for your account.
All of this is pretty normal – the government has regulations in place that require financial companies to verify your identity and relationships to other financial firms.
Once you’ve completed this series of questions – it takes about five minutes – Betterment will send you a verification email.
After you’ve verified, you’ll link a bank account. At this point, you can either make a deposit or just go to your account page.
Betterment will assign you an investment strategy based on how much you earn from your work and how much you can invest each month. They assigned me the “Build Wealth” strategy when I signed up, which puts 90% of your money in stocks and 10% in bonds.
IRAs are a popular way for people to build a retirement fund. Many financial services companies provide IRAs for their customers, so Betterment’s IRAs are nothing out of the ordinary.
You can start an IRA from scratch, or you can “roll over” your existing 401(k) account to Betterment, which is financial talk for transferring funds from one investment account to another.
Betterment offers Traditional and Roth IRAs. Each one has its advantages – Traditional IRAs are taxed when you withdraw your funds in retirement, whereas Roth IRAs are taxed in the year you contribute to them.
The company also gives SEP IRAs, which are designed for the self-employed.
Choosing Betterment’s IRA option is part of an overall financial plan they provide based on your goals (you can have multiple ones) and income.
Betterment also offers trusts, which are investment accounts held by a third-party (Betterment) that are given to a person the investor chooses. For example, you can start a trust fund for your child.
Betterment’s Financial Planning and Resources
One of Betterment’s focuses is helping people like you and me understand how to build wealth through investments.
To meet that goal, they’ve got a pretty robust collection of financial articles that walk you through what investing means, why it’s an important to get an early start on investing and how you can build a comprehensive strategy for your retirement.
Their educational materials cover a variety of other financial topics, too.
Betterment also has a team of Certified Financial Planners to help you with your long-term financial goals, but this service comes with a fee, which is what we’ll talk about in the next section.
Betterment’s fee structure is split up into three tiers: Basic, Plus and Premium.
Basic is what you get when you sign up for Betterment services. The fee is 0.25% per year based on your balance.
Plus membership comes at a cost of 0.45% a year based on your balance, but is only available to customers who have a balance of at least $100,000. So, you’d pay $4,500 in fees per year for a balance of $100K.
This level of service gets you a yearly call with Betterment’s CFPs and licensed financial professionals, as well as more extensive oversight of your account.
Premier membership costs 0.5% per year and includes unlimited calls with Betterment’s CFPs and financial experts. Like Plus, it includes account monitoring by those financial experts.
Fees are automatically withdrawn from your Betterment account each year.
If you have to cancel your account, Betterment will pro-rate your fees. So, if your balance is $1,000 and you drop your account after six months, you’ll have to pay six months’ worth of fees, or about $12.
What Other People are Saying About Betterment
The consumer reviews about Betterment are few and far between – most of the praise for the company comes from financial websites.
We scanned three or four pages of Google results to get a good sense of what the financial writers are saying and, as the following list shows, the reviews are very positive:
- Investor Junkie: 5 stars
- Investment Zen: 5 stars
- Cash Cow Couple: 5 stars
- Modest Money: 5 stars
- Listen Money Matters: 5 stars
- Frugal Rules: 5 stars
- Stockbrokers.com: 4.5 stars
- 20something Finance: 4.9 stars
- The College Investor: 4 stars
Much of the praise from these sites focuses on ease-of-use, low fees for people with low net worth and the site’s great retirement planning tools.
Investment website Investment Junkie noted that Betterment’s fees for clients with balances higher than $100,000, and that you can’t use Betterment’s robo-advisor to manage non-Betterment accounts.
Contributor Larry Ludwig also pointed out that people with higher net worth who are more investment-savvy may want to find another asset management tool.
“For advanced investors or higher net worth individuals, Betterment might not be the perfect fit,” Ludwig wrote. “If you can roll your own asset allocation and know investment theory, there’s little need for using a service like Betterment.”
Aside from this criticism, there wasn’t much else in the way of negative comments about what Betterment offers.
How Betterment Compares to Other Robo-Advisors
Betterment isn’t the only robo-advisor on the market these days. As we said earlier, the robo-advisor niche is growing quickly. We’ve compared Betterment to two other robo-advisors – Stash, Wealthfront and Acorns – to help you know how it compares.
Educational Materials: Betterment
When compared to popular robo-advisors Wealthfront, Stash and Acorns, Betterment’s educational materials surpass the competition.
Types of Investments: Wealthfront (barely)
In terms of the types of investment opportunities they offer, Betterment and Wealthfront are similar. Both companies offer IRAs. The main difference between the two is that Wealthfront offers 529 college Savings Plans. Because of this, we’d rate Wealthfront just ahead of Betterment.
Betterment’s fee structure of 0.25%-0.50% is lower than the 3%-6% you can expect to pay a traditional financial firm. However, Wealthfront charges nothing for accounts with balances below $10,000 and 0.25% for everything over that.
The big difference between Betterment and Wealthfront is the consultations that Betterment Plus and Premier customers receive each year. Is that extra consultation worth the 0.15-0.25% extra you pay every year? It’s hard to say.
Acorns and Stash charge $1 a month for accounts under $5,000 and 0.25% after that.
Our Final Thoughts About Betterment
Betterment has made a name for itself because of the effort they’ve devoted not only to legitimizing robo-advising, but also to educate its customers with a comprehensive view of investing.
As we mentioned earlier, their website offers tremendous educational materials that help you learn about pretty much anything you wanted to know about saving up for retirement.
Betterment Could Replace a Financial Professional
In our opinion, Betterment is a great way for you to avoid the high fees of a financial professional and build up your knowledge about investing.
This doesn’t mean, however, that financial advisors aren’t worth the cost. If you prefer meeting with someone face-to-face, we think it’s a good idea to use a service like GuideVine to find a competent CPA or CFA in your area who can help you achieve your financial goals.
Remember to check up on our list of financial advisor red flags to make sure you weed out the people who can make your life miserable.
Betterment’s Fees and Products Are Near the Top
Our brief comparison of Betterment to other robo-advisors revealed that it matches up well against the competition, but that Wealthfront has the edge in fees and products. In our opinion, the advantages of using Wealthfront aren’t so great that we’d recommend it over Betterment.
In fact, if you want a comprehensive investment tool that makes investing easy and helps you understand the landscape of retirement and financial planning, we’d say Betterment is the best choice for you.
Do Some Research Before You Decide
With the popularity of robo-advisors rising every year, the average person might start to think that robo-advisors are the best way to invest.
However, that’s not always true. Your investments are part of a larger financial picture, and, in order to figure out how to build for your future, you need to take many other factors into account.
Because there are a lot of financial factors at play in your life now and in the future, read our guide on how to choose between a robo-advisor, financial planner and financial advisor.
The article walks you through the questions you should ask as you make this decision, and includes awesome insight from financial expert and GuideVine founder Raghav Sharma.