Intro – Betterment vs. Wealthfront as the Best Robo-Investment Platform
Robo-investing and robo-advising has been on the rise for a few years, and it’s no wonder why. Robo-investment platforms charge incredible rates, especially when compared to their human financial advising counterparts.
Investing firms can charge hundreds of dollars a year, with each additional feature racking up more costs.
On the other hand, robo-investment platforms like Betterment and Wealthfront do everything for you, all at one drastically reduced price.
Image Source: Robo-investment platforms
The other appeal is the complete automation that comes with robo-investment. The stock market offers the greatest potential for returns, so investing is a great path to building some serious capital over time.
The catch, of course, is that not everyone is stock market-savvy. And the knowledge to do it yourself doesn’t eliminate the time commitment required.
There are plenty of other ways to spend one’s time, so why not let robo-investment software do the job for you?
There is not one “go-to” robo-investment software out there. The market has several valid choices–particularly when considering Betterment/Wealthfront– but how do you know which robo-investment firm to pick?
Two robo-advisors stand out in particular, so we’ll look at them in the scope of this article. Today’s matchup: Betterment vs. Wealthfront.
See Also: The Top Robo-Advisors (Reviews) | A Changing Trend in the Robo-Investment Field
First Things First – Why Betterment vs. Wealthfront?
Why is it Wealthfront vs. Betterment? What about the Wealthfront and Betterment alternatives? When it comes to assets under management (AUM), Betterment and Wealthfront have the lion’s share of the robo-investing market.
In 2016, Betterment was the first robo-advisor to reach $5 billion in AUM, and Wealthfront is close behind, reaching $5 billion in 2017.
Whether you pick Betterment or Wealthfront, you’ll be dealing with robo-investing software with powerfully high AUM values.
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Betterment vs. Wealthfront Comparison
There are plenty of ways to break down the Betterment vs. Wealthfront contest. To start, we will take a look at the inevitable fees associated with each account.
The bonus here is that, whether it’s Betterment or Wealthfront, it’ll cost you less than a traditional financial advisor.
Fees are an unavoidable part of getting assistance with your investing, but it’s not quite as simple as who charges less. Different robo-advisors charge different rates for different services.
Sometimes the rate will change based on the amount of money you have in your account. Let’s start with Wealthfront.
Image Source: Betterment vs. Wealthfront
Wealthfront Review: Fees
With an account minimum of $500, Wealthfront charges an annual advisory fee at 0.25% of your average account balance. Compared to a traditional advisor charging ~1%, there’s no contest.
If you’re new to investing and want a cost-effective way to begin, Wealthfront is a great option. A way to prolong that even further is to take advantage of the Wealthfront Invite Program.
Each new referral you send to Wealthfront means having $5,000 managed for free. They do not mention a limit to this. Even if it is capped at three people, you’ve more than doubled your free managing limit.
If you’ve already started saving, the $500 minimum account balance is an attainable starting point.
When it comes to Wealthfront vs. Betterment, who wins? We’ll take a look at the rates Betterment offers below.
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Betterment Review: Fees
Unlike Wealthfront, Betterment does not require an account minimum in order to get started. The amount you invest, however, can affect the amount of money you are charged annually for each type of investing service.
Digital
This basic account has no minimum balance requirements and an annual fee of 0.25%. Included with this fee is:
- Automated portfolio management
- Tax-efficient investing features
- Investment advice
- Award-winning customer support
Plus
Once you reach $100,000 in investments, you have the option to upgrade to a Plus account.
While the annual fee increases to 0.40%, this includes all the features of the Digital plan, plus access to an annual call with licensed financial experts and additional account monitoring.
Premium
For account balances at a minimum of $250,000, investors can upgrade to the Premium plan, with an annual fee of 0.50%.
Included in this fee structure are all the benefits of the Digital plan, plus unlimited calls with licensed financial experts and additional account monitoring.
Incentive Program
Like Wealthfront, Betterment offers an incentive program. For every referred investor, you will receive a free month of advising from Betterment.
If you manage to refer three people, you will receive your whole year entirely free. There is no apparent limit listed.
This could mean several years of free advising, depending on how many people you can refer to Betterment.
Overview of Wealthfront vs. Betterment Fees
As you can see, each option might lend itself better to certain situations. If you have $500 saved up, Wealthfront could be a great option.
You would meet the minimum balance they require, and their advising and management service is far below the national advisory fee average. For a younger account, Wealthfront makes a lot of sense.
That said, Betterment allows investors to choose what level of financial advisory services they prefer–advancing to another plan level is entirely up to you.
For an aged account, or for those who value the ability to have one-on-one discussions with licensed financial experts, Betterment eventually offers the better value, despite a higher rate.
Wealthfront vs. Betterment Fees: Additional Considerations
- Since Wealthfront requires a minimum balance, withdrawing all of your money from your account will close it.
- On the other hand, with Betterment they will keep your account open for free. They do not charge any annual fees for accounts with $0 dollar balances.
- For Wealthfront, you have to withdraw at least $250 dollars per transaction.
- Neither company charges for monetary withdrawals.
Related: Betterment vs. Wealthfront vs. Vanguard – Ranking & Review
Betterment vs. Wealthfront Offerings, Services & Features Comparison
Low fees are all well and good, but only if the service you’re paying for provides the account type you’re looking to open.
This is another area where the Wealthfront vs. Betterment contest ends in a tie. Here’s a look at the account types that you’ll have access to whether you go with Betterment or Wealthfront:
- Traditional IRAs
- Roth IRAs
- Rollover IRAs
- SEP IRAs
- Individual non-retirement accounts
- Joint non-retirement accounts
- Trusts
Image Source: Wealthfront vs. Betterment
Betterment Review: Goal-Oriented Planning
Since their account offerings are very similar, what else sets these two financial advising companies apart? Betterment offers a notable feature that some novice investors might find particularly enticing.
Goal-oriented financial planning lets investors pick their robo-investment account type and define personal savings goals for the robo-investing software to follow.
Goal-oriented saving can be the difference between consistently putting money into an account and putting it off until “next month,” especially with new investors who don’t have a system in place.
Betterment gives you three main goal recommendations when you set up your account:
- Safety Net
- Retirement
- General Investing
Each account coincides with an appropriate risk profile. The safety net account, for example, is typically a lower risk account than a general investing account.
Betterment also lets you pick more than one goal, and you can put whatever money you want toward each goal.
Photo courtesy of: Betterment
Wealthfront Review: Path
While our Betterment comparison highlighted goal-oriented investing, comparing Wealthfront vs. Betterment brings to light a new financial planning service, called Path.
Similar to budgeting software, Path allows investors to see a complete financial overview of all their accounts, providing current numbers and future projections to keep investors aligned with their financial goals.
Accessible via mobile app, Path allows all investors to stay on top of their investments, regardless of where they are.
The benefits of this investing software include:
- Links directly to accounts to see real-time spending data
- Keeps investors on track towards retirement goals relative to saving & spending
- Shows impact of adjusted savings towards retirement
- Allocates additional savings
Accessible to all Wealthfront investors, Path is a potentially powerful tool to help keep investors focused on achieving their retirement goals.
Betterment vs. Wealthfront Taxes Comparison
Another area where the Betterment/Wealthfront question gets asked is in the tax department. Both companies employ a practice called “tax-loss harvesting.”
Tax-loss harvesting is the act of selling a security in your portfolio after it has experienced a loss. A new, similar security is acquired to offset the absence of the sold one.
By “harvesting” the loss on that security, investors can offset the taxes on their gains.
The good news is that unlike Betterment or Wealthfront competitors, both companies provide this service for free. The robo-investing software for both takes a tax-minimizing approach, potentially saving thousands of dollars over the long-term.
Betterment Review: Tax Loss Harvesting
Betterment calls their service Tax Loss Harvesting+. This robo-investment software runs constantly throughout the day, looking for opportunities to harvest tax losses.
According to Betterment, their Tax Loss Harvesting+ can reduce taxable income by as much as $3,000 each year, providing keen value for their investors.
Wealthfront Review: Tax Loss Harvesting
Just like Betterment’s tax loss harvesting service, Wealthfront offers their own service free of charge to all investors.
Wealthfront research between 2010-2014 demonstrates that tax-loss harvesting can increase after-tax returns by as much as 1.55% each year.
Over the long term, this free service can add over $76,000 to a portfolio of $100,000.
Wealthfront vs. Betterment Taxes: Additional Considerations
While both robo-investment firms match each other in tax loss harvesting, the Wealthfront vs. Betterment tax-faceoff isn’t a complete wash.
There is a keen difference between the two– Wealthfront also offers what’s called tax-optimized direct indexing. It is a process that, when executed correctly, can enhance the tax-loss harvesting and also lower one’s investment costs.
This is a service that’s offered for free, but it only applies to accounts with over $100,000. Before Wealthfront, this process was only feasible to investors with multi-millions invested in the market.
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Betterment vs. Wealthfront Shares Comparison
Although there are many similarities between Wealthfront vs. Betterment, these robo-investing firms do display distinct differences when it comes to how they purchase shares.
Read on below to see the key distinction in share-purchasing within the Betterment vs. Wealthfront arena.
Wealthfront Review: Shares
When comparing Wealthfront vs. Betterment, Wealthfront uses only whole share purchasing practices.
This means that it’s possible for you to have a small amount of cash sitting, temporarily unused, in your account. When you have enough in your account to purchase another whole share, Wealthfront will do so.
Wealthfront does offer a feature called single stock diversification, or the Wealthfront Selling Plan.
For those who find that they have a significant portion of net worth invested into a single stock, this is a great way to boost stock market security with diversification options.
Betterment Review: Shares
When comparing Betterment vs. Wealthfront, Betterment uses fractional shares. Fractional shares aren’t buyable and sellable on the market.
However, the benefit to this is that Betterment investors won’t experience cash drag, which occurs when a partial balance is in cash or a cash-equivalent security, with no market exposure.
Ultimately, cash drag can weaken your portfolio over time. Fractional shares allow for all cash to be invested, resulting in optimum tax loss harvesting benefits and complete portfolio diversification.
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Conclusion – Final Breakdown of Betterment vs. Wealthfront
Wealthfront competitors and Betterment competitors will have a hard time competing with these two investing software powerhouses. It would be hard to make the “wrong” decision between the two.
Wealthfront has the $500 hurdle, but the better introductory rate. Their referral program makes the beginning rate even more enticing, especially if you know a few people in need of investing recommendations.
Betterment has no minimum, but does charge 0.25%- 0.50% per year, depending upon your total account balance. This can be offset with referrals as well.
Their goal-planning offerings and free retirement planning advice are enticing tools for people new to investing.
When considering Betterment vs. Wealthfront, they offer very comparable robo-investing services. The benefits of one are offset by the features or pricing of the other in various categories.
With sophisticated tax loss harvesting features, competitive rates, and helpful investment tools, Wealthfront and Betterment alternatives have their work cut out for them.
After going through our Wealthfront vs. Betterment comparison, there is no doubt that it’s easy to see why the Betterment/Wealthfront duo leads the pack in investing software companies.
Read More: Betterment Review – Returns, Fees, and All You Need to Know
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