Robo advisors are increasingly growing in popularity, and these automated services are threatening to take huge amounts of business away from traditional financial advisors.
Multiple different segments of the investing public have already taken advantage of robo advisors for a variety of reasons. Many traditional financial advisors have decided to work cooperatively with robo advisors rather than try to compete with them directly, and this strategy has helped streamline the process and reduce costs.
Millennials use robo advisors because they remove the perceived “guess work” out of investing, which provides a measure of comfort to hesitant millennial investors. And often, robo advisors offer cheaper fees than human advisors, which also makes them attractive to this group.
And retirees and high net worth individuals can often test robo advisors because they have more disposable income.
But which robo advisor should you use?
To help you narrow down the choices, BI Intelligence, Business Insider’s premium research service, has decided to review some of the most popular robo advisors on the market to help you make the most informed decision.
In this article, we’ll cover Betterment.
- Betterment Review Summary
- Fees & Pricing
- AUM, Returns, & Portfolio Performance
- Services Provided
- More Information
Betterment Review Summary
Betterment is far and away the leader in the robo advisor space. With no minimum account balance, low fees, and a slew of helpful features, Betterment has emerged as the king of automated investing.
- Assets Under Management (AUM): $ 10 billion
- Minimum Account Balance: $ 0
- Fee Range: 0.25% to 0.40%
- Account Types: Individual Accounts, Joint Accounts, Traditional IRA, Roth IRA, Rollover IRA, SEP IRAs, Non-Profit, SRI Portfolios, and Trusts
- Services: Automatic rebalancing, Tax-loss harvesting, Human advisors (only for accounts greater than $ 100,000), Single stock diversification, Fractional shares, Mobile App
Betterment Fees & Pricing
One of the biggest changes Betterment made at the end of last year was combining its Plus and Premium plans into one new Premium plan.
Here’s how the updated fees break down:
No Minimum Balance
|$ 100k Minimum Balance
Note: The Digital Plan is available for all customers, regardless of balance. The Premium Plan is optional. Those with $ 100k+ balances are not automatically upgraded.
These fees compare mostly favorably to other robo advisors, such as Schwab Intelligent Portfolio, which charges 0.08% for conservative portfolios, 0.19% for moderate-risk portfolios, and 0.24% for aggressive portfolios. Wealthfront has a 0.25% management fee and Personal Capital has a range of 0.49% to 0.89%.
Betterment AUM, Returns, & Portfolio Performance
Betterment has approximately $ 10 billion in assets under management, and it uses those assets for a specific investing strategy that aims to maximize return while minimizing risk. The company calls this Modern Portfolio Theory, or MPT. This approach places the investor’s funds into a diverse asset pool in order to collectively reduce risk while stabilizing returns in the long term.
However, returns are not guaranteed and are subject to typical market risk because Betterment is not FDIC insured. Therefore, your investment could lose principal.
Betterment places your funds into ETFs rather than individual stocks or bonds, and these ETFs own pieces of the market through indexing. The robo advisor makes sure that your funds are distributed relatively evenly and not weighted too heavily in one sector or even one country.
Arguably Betterment’s greatest strength is its slew of features and services. Here’s a quick rundown of the robo advisor’s features:
- SmartDeposit: You can automatically make deposits into your Betterment account if your bank balance goes over a certain amount.
- Customization: Betterment will customize your account based on your risk tolerance and account type (taxable or tax-deferred).
- Retirement Calculator: You can link to your existing retirement accounts to let Betterment help you plan for the future.
- Tax-Coordinated Portfolio: Betterment will distribute your assets to maximize efficiency between your taxable and tax-deferred accounts.
- Two-Factor Authentication: Add extra security to your account through text message or an authentication app.
- Passwords: You can grant permission to personal finance services (such as TurboTax, Personal Capital, and Mint) to view your information in read-only mode without giving them your password.
- Socially Responsible Investing (SRI) Portfolio: You can choose funds that align with your personal and social values.
Betterment also has an excellent tax loss harvesting feature, a complex selling process that essentially turns losing investments into a way to lower your tax bill. This tax loss harvesting process helps Betterment enhance your after-tax returns by using your investment losses.
At an initial investment of $ 50,000, a 70% stock allocation, and bimonthly $ 750 deposits, Betterment demonstrated a 0.77% increase in returns and nearly $ 45,000 in gains with tax loss harvesting compared to a portfolio without it.
Betterment may be the cream of the crop, but it still has some stiff competition on the robo advisor market. Despite this, it stacks up well against its peers in almost every regard. Betterment’s $ 0 minimum deposit is a major selling point, but Hedgeable and Wisebanyan offer the same rate.
Furthermore, Betterment offers tax loss harvesting, fractional shares, human advisors, single stock diversification, taxable accounts, 401K plans, and a variety of IRA accounts. None of its competitors offer this variety.
More to Learn
Betterment is just one of the many robo advisors on the market, and each has its own strengths and weaknesses.
That’s why BI Intelligence spent months putting together the greatest and most exhaustive guide on robo advisors entitled The Robo-Advising Report: Market forecasts, key growth drivers, and how automated asset management will change the advisory industry.
To get your copy of this invaluable guide to the payments industry, choose one of these options:
- Subscribe to an ALL-ACCESS Membership with BI Intelligence and gain immediate access to this report AND over 100 other expertly researched deep-dive reports, subscriptions to all of our daily newsletters, and much more. >> START A MEMBERSHIP
- Purchase the Complete Robo-Advisor Research Collection, which contains 5 in-depth reports, slide decks, and appendices. >> BUY THE BUNDLE
- Purchase the report and download it immediately from our research store. >> BUY THE REPORT
The choice is yours. But however you decide to acquire this report, you’ve given yourself a powerful advantage in your understanding of the fast-moving world of robo advisors.
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