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Is Safe and Legitimate? Is Betterment Scam? Betterment Complaints and BBB Rating in 2021

Is Betterment Legitimate Brokerage Firm? is a robo-advisor in the financial service sector. Founded in 2010, the company offers one-stop investment management services and advice. Betterment uses technology and automation to reduce investment costs and maximize efficiency.

It is the largest independent so-called "robo-advisor" in the country. In other words, the company acts as a financial advisor without the one-on-one interaction that an investor would get from a human financial advisor. By using questionnaires, algorithms, and specialized software programs to automate as much of the investing, administering, record keeping, and portfolio monitoring as possible, the company claims to offer a low-cost way for any investor to benefit from professional portfolio management.

Betterment's basic premise is constructing individualized portfolios for customers based on their goals, risk tolerance, and time frame using ten indexed, Exchange Traded Funds (ETF) and rebalancing periodically to maintain the client's desired asset allocation. Automatic monthly investing is offered along with automatic reinvesting of excess cash and immediate rebalancing of the portfolio when deposits or dividends are received in the account.

Another feature Betterment offers is utilizing their automated Tax Loss Harvesting+ (TLH+) program in order to improve total return by selling certain ETFs at a loss in order to offset taxes on capital gains and income from other ETFs.

All this automation is touted by Betterment to improve total return for all investors, even those with small accounts. According to Betterment's website, "Betterment customers can expect 4.30% higher returns than a typical DIY (do-it-yourself) investor." Betterment breaks down this amount into gains from smart rebalancing, global diversification, avoiding market mistiming, and avoiding expensive investments.

Is Betterment Scam?

Betterment is definitely not a scam. The company earns money by charging clients an annual management fee which is a percentage of the total value of the portfolio. This fee is 0.25% of entire account balance (M1 Finance charges nothing for the same service).

The robo-advisor management fees compare favorably to fees charged by most human financial advisors. Those average about 1% per year, but could go as high as 2% or more.

Is Betterment Insured and Regulated? does not offer accounts that are federally insured by the FDIC. It's a broker so there is a risk of losing principal as with any other brokerage firm. Betterment Securities is a registered broker-dealer with the SEC (Securities Exchange Commission). The firm is also a member of the Financial Industry Regulatory Authority (FINRA) as well as the Securities Investor Protection Corporation (SIPC).

Betterment's membership with these three agencies means that they comply with all the rules and regulations governing the investing industry. The only risk for an investor is if Betterment fails and has to liquidate its assets. In this case SIPC insurance guarantees investors' accounts of up to $500,000 (including $250,000 in cash).

Betterment represents a new wave of investing that combines technology with personal service to make investing easier for unsophisticated investors as well as giving them investment returns that are better than returns they might expect from constructing their own portfolios. Confining one's investment universe to only 13 index ETFs seems limiting. Investors can easily be overwhelmed by the thousands of investment options available, so simplifying investing the way Betterment does is a safe and attractive choice for many investors.

Betterment BBB Rating and Complaints

The investigation on the Better Business Bureau web-site shows that Betterment BBB rating is A. There are 10 closed Betterment complaints on the website - click here to see.

Betterment Review

Read full, detailed Betterment Review »

Betterment Complaints: Business Model Problem

A closer look at Betterment's investment model does raise some questions. Ten of the 13 ETFs used by Betterment to construct portfolios are Vanguard ETFs. The other three ETFs are iShares funds brokered by BlackRock. All these may be purchased commission-free for customers of TD Ameritrade and from any other online broker for whatever their commission is on ETFs. However, Vanguard ETFs could easily be substituted for the three iShares ETFs. Therefore, Betterment's portfolio options are low-cost or no-cost to begin with. Any investor could construct a diversified portfolio of ETFs themselves and save the annual management fee. This is one huge complaint Betterment has to deal with!

This means that Betterment's strongest selling points are convenience, one-stop service, and automatic portfolio rebalancing and investing, which does help remove the emotion from investing. Emotions tend to spur investors to make poor investment decisions—one of Betterment's keys to avoiding poor returns due to mistiming the markets. Even so, many online brokers and financial management software programs allow investors to allocate their investments a certain way and monitor portfolio changes so they can do their own periodic rebalancing. However, if investors prefer the investing discipline and automated services of a robo-advisor such as Betterment, then a small annual fee may be well worth the extra cost.

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Betterment Pricing

One of Betterment’s major selling propositions is its ability to provide fee transparency. Fees are something often overlooked by beginner and hands-off investors. What often comes as a surprise though is how much money can actually be saved or lost by just 0.25% of account balance.

According to Betterment’s website, many typical mutual fund fees can come close to a 1% of the total portfolio. Betterment advertises a total cost for a typical 70/30 stock portfolio of low-cost ETFs to run close to 0.31%. To a new investor, fees of 0.3%, 0.4% or 0.5% may not seem like much, but when factored against time they have a dramatic impact over the life of an investment. In the next figure, Betterment’s web site helps visualize this point.

Betterment Scam

In this example, for a modest investment of about $10,000, the difference between a 1% account fee and a 0.25% fee can save an investor up to $5K over 20 years. For a $100K investment, up to $55K can be saved, and a $500K investment can see savings close to $280K.

Betterment’s fees can be broken down into management fees and fund fees.

Fund Fees

Each of the ETF funds that make up the Betterment index-fund portfolio have an expense ratio that is typically between 0.09% - 0.17%. This is a cost that an investor would pay regardless of which brokerage the fund was purchased through.

Betterment Hidden Fees

Betterment does not charge any hidden fees.

Index Fund Portfolio

Betterment’s investment portfolio consists of 12 index tracking exchange traded funds (ETFs). The goal is to maximize diversification while keeping fund costs low and investor assets highly liquid.

This basic set of 12 funds can seem quite limited compared to a traditional brokerage that offers hundreds of investment vehicles to choose from. Certainly this can be a con for those investors who want to be more hands-on. But Betterment is able to combine these 12 funds to provide the appropriate asset allocation for an investor’s calculated risk and potential return.

Again Betterment makes it easy to visualize this. Take the example of John P. again. As shown in the next figure, the Betterment advice tab is showing 90/10, stock/bond portfolio mix, set at a moderate risk level, giving John a decent shot at making his goal of $1.5M by age 75. In seconds John can see his portfolio allocation.

Even though there are only 12 funds, this portfolio is highly diversified. Additionally, each fund is highly-liquid, and the fees are very competitive. Though not for everyone perhaps, sometimes simple is better.

Is Betterment safe?

External Account Linking

Continuing on the theme of advice, another Betterment feature that investors may find helpful is the ability to link with existing external investment accounts. Once the linking process is complete, Betterment can provide some insight into two important factors:

1. Total fees per year, and whether a move to Betterment could improve the investment

2. Amount of idle cash in the account and how this is affecting account performance

Once linked, at the top of the external account web page Betterment will summarize any improvements that can be made, and provides a streamlined process to start the transfer or rollover process.

Is Betterment Safe Take Away

Rest assured - Betterment is not a scam. The firm brings sophisticated, low-cost, highly-diversified passive income strategies to the average person. The service is online 24 x 7, available on both desktop and mobile. The user interface is simple, clean and elegant. Important investment questions can be answered within minutes. Fees are transparent and highly competitive.

Portfolio allocations are objective and backed by solid investment algorithms that have been around for years making it one of the best robo advisor companies for investors. Of course, there are a number of Betterment complaints to consider, and a major competitor that charges nothing for a better service.