October 16, 2022

Is Betterment Worth The Fee

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Betterment will manage your investments, but they charge a fee. Is Betterment worth the fee? Read on to answer all your questions.

Betterment is a popular choice for investors who want a robo-advisor to manage their money. But you can't escape their fees.

Betterment's fees are on the lower end of the spectrum for automated portfolios. But you could find a better fit with one of their competitors.

Learn everything you need to know about Betterment fees. And how they compare to similar platforms.

What is Betterment?

Betterment is an online financial platform for investing and cash management. They have 3 main services.

Robo-advisor investing: You choose the type of investing you're interested in, whether that's taxable or retirement accounts, socially responsible funds, or crypto. But these accounts come with fees, which you'll learn about below.

Checking and Cash Reserve accounts: Betterment wants to be your one-stop shop for your financials.

Financial planning: You can also work with a live human financial planner for less than what traditional brokerages charge. You will pay some fees, which you'll also learn about below.

Betterment was founded in 2008 and is known for leading the way in robo-advisor investing. They currently have:[1]

  • $33 billion assets under management
  • 730,000 customers

Who Is Betterment Best for?
Betterment is best for investors who want a "set it and forget it" approach to investing. If you want an investment portfolio built and managed by experts, it could be a great fit.

Betterment also offers advanced automated tools like tax-loss harvesting that will benefit high earners.

Betterment's Pros and Cons

Pros

  • Great for "set it and forget it" investors
  • Automated investments with low fees
  • Tax-loss harvesting
  • Socially responsible investing options
  • Accounts all in one place
  • Can track non-Betterment accounts in Dashboard

Cons

  • Only invests in ETFs
  • Won't work for active traders
  • You can do these services on your own for free

So how much is a Betterment account going to cost you?

Betterment's Fees To Look Out For

Betterment charges annual fees to cover the cost of their robo-advisor or financial planner. These fees are deducted at the end of each month based on your account's daily average balance.

You have two account options for automated investing. And each one charges a separate fee.[2]

  1. Digital investing: 0.25% annual fee. There is no minimum investment requirement. But you get tools like tax-loss harvesting.

  2. Premium investing: 0.40% annual fee. The minimum investment is $100,000. But you have unlimited access to a certified financial planner.

You'll also be charged fees for the ETFs that Betterment invests in. But all this money goes directly to the funds you invest in. These fees range from 0.07% to 0.15%.

Are Betterment's fees too high?

Well, most brokerages with a robo-advisor charge a fee to manage the investments. Betterment's robo-advisor fees are similar to some of its competitors like Wealthfront. E*TRADE has slightly higher annual fees. And M1 Finance has no fees for their basic service.

See the head-to-head comparisons below.

How to Get Started on Betterment

You can set up your account on Betterment in a few minutes.

  1. Start by adding your basic info like your name, email, and password.
  2. Input your financial profile: your social security number, employment, tax status, and more.
  3. Select your goal setup. You can select from general investing, education, major purchases, or safety net.
  4. Select your account type: individual taxable, joint taxable, or trust.
  5. Select your target $$$ amount.
  6. Select your account profile image.
  7. Select how you would like to invest.
    • Betterment Core Portfolio (Default): Choose your time horizon and risk level. Then Betterment will choose low-cost and tax-efficient funds.
    • Socially Responsible Portfolio: These ETFs are screened for environmental, social, and governance criteria.
  8. Confirm your goal details.

Once you've confirmed your portfolio and goals, Betterment will offer a few more options.

  • Betterment Cash Portfolio: Keep 100% of your funds in cash and earn a variable APY
  • Goldman Sachs Smart Beta: Seeks to increase returns between market cap strategy
  • BlackRock Target Income: Holds a 100% bond portfolio
  • Design a Flexible Portfolio: Select the asset classes you want to invest in

You can always change your portfolio later, which may affect your taxes. Betterment uses a Tax Impact Tool to help you understand the effects before you proceed.

You can also start multiple portfolios. Each portfolio is designed to have one goal. For example, if you want to increase your wealth over time and save to purchase a house, you'd want two separate portfolios.

You'd then select your risk level. The more risk you select, the more your portfolio will have stocks. Less risk would mean you're more allocated in bonds.

Then you can see:

  • Projections: It will share your projected returns based on your risk level.
  • Holdings: You can see the ETFs in your portfolio.
  • Allocation Over Time: This shows how Betterment will adjust your portfolio as you age (usually adding more bonds as you near the withdrawal date).

Finally, you can fill out your investing goals. Do you have children? When will you retire? Do you own a home?

Betterment will then recommend financial goals, such as having a cash net, retirement account, college fund, and more.

Because Betterment wants to be your primary financial platform, you'll find many financial services. You can also sync your non-Betterment accounts and track them in their dashboard.

How to Fund Your Account

You can easily add money to your Betterment account.

  • Select Make A Deposit. You'll need to have verified your email.
  • Select Connect Your Bank Account.
  • Authenticate your account by text or call.
  • Use Plaid to log in to your bank and connect it instantly.
  • Select Frequency. You can choose to deposit Once or Monthly. Betterment projects your balance into the future and lets you know if your Goal Status is On Track.

On a desktop, you can also transfer or roll over an existing IRA into Betterment.

Should you open up an account with Betterment? Or look at their competitors?

Betterment Alternatives

There are plenty of robo-advisor options. Some have lower fees than Betterment. But some cost more and have more services.

E*TRADE vs Betterment

With E*TRADE, you have more investment options. Stocks, ETFs, bonds, retirement accounts, and even mortgages are available.

E*TRADE's Core Portfolios are a robo-advisor service, similar to Betterment. But with an annual advisory fee of 0.30%,[3] slightly higher than Betterment's 0.25%.[4]

You need to invest at least $500 to open a Core Portfolio. Meanwhile, Betterment's robo-advisor has no minimum.

E*TRADE's Blend Portfolios give you access to a Financial Consultant if you have a minimum of $25,000 to invest. The annual advisor fee is 0.65%-0.90%.[5] While Betterment requires a minimum investment of $100,000 to work with a financial advisor, the fees are only 0.40%.

You also can't link external financial accounts in E*TRADE as you can in Betterment.

For investors who want to invest more than $25,000 with a financial advisor's help, E*TRADE could be the better option.

M1 Finance vs Betterment

M1 Finance lets you invest in expert-selected portfolios without any fees. You also have the option to choose your own stocks and ETFs.

M1 Finance will appeal to new investors who want to start investing without fees. Or investors who want to add specific stocks and ETFs to their portfolio.

But if you're seeking a platform with a range of financial services, Betterment is the better option. And high earners will appreciate Betterment's advanced tools like tax-loss harvesting.

Bottom Line: Is Betterment Worth the Fee?

Betterment's fee for the robo-advisor is fairly low. It's worth it for investors who want to set up their investments and trust they will grow independently.

Investors with a lot to invest will appreciate the advanced tools like tax-loss harvesting at such a low price. It's also one of the only financial platforms that let you manage other platforms' accounts from their dashboard.

Betterment could be the right brokerage for you for many years if this sounds like you.

References

  1. ^ Betterment. About, Retrieved 8/23/2022
  2. ^ Betterment. Pricing, Retrieved 8/23/2022
  3. ^ E*TRADE. Core Portfolios, Retrieved 8/23/2022
  4. ^ Betterment. Robo-advisor, Retrieved 8/23/2022
  5. ^ E*TRADE. Blend Portfolios, Retrieved 8/23/2022
M1 Finance

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M1 Finance allows investors the choice of ETFs and stocks. M1 charges no management fees or commission.

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With no minimum account balance and no minimum trade activity

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