Is Betterment a Real Brokerage Firm?
Betterment.com is an online investing platform in the internet brokerage field. Started in 2010, the firm offers portfolio management and guidance. Betterment
employs software and automated processes to lower expenses and improve efficiency.
It is the biggest independent so-called "robo-advisor" in the country. In other
words, the company behaves like a financial advisor without the personal meetings that an investor would get with a human advisor. By using simple questionnaires,
algorithms, and specialized software programs to automate as many parts of investing, administration, record keeping, and portfolio monitoring as possible, the company
claims it provides a low-cost way for any investor to benefit from professional portfolio oversight.
Betterment's main idea is creating custom portfolios for users based on their targets, risk level, and schedule using ten indexed Exchange Traded Funds (ETFs). It rebalances from time to time to keep the investor’s chosen asset mix. Auto monthly investing is available along with automatic reinvesting of spare cash and quick rebalancing when the account gets new deposits or dividends.
Another feature Betterment provides is its automated Tax Loss Harvesting+ (TLH+) system, which tries to improve total performance by selling certain ETFs at a loss. This can offset taxes on gains and income from other ETFs.
All of this automation is promoted by Betterment to improve total returns for every client, even those with smaller balances. According to the site, "Betterment customers can expect 4.30% higher returns than a typical DIY investor." Betterment credits this advantage to smart rebalancing, global diversity, avoiding market mistakes, and avoiding pricey investments.
Is Betterment Scam?
Betterment is definitely not a scam. The company makes money by charging clients a yearly management fee, which is a percentage of
the entire value of the account. The rate is 0.25% of the account balance
(Charles Schwab charges nothing for the same service).
The robo-advisor fee compares favorably to fees often charged by many in-person financial advisors. Those typically average around 1% annually,
but can reach 2% or more.
Is Betterment Insured and Regulated?
Betterment.com does not provide accounts insured by the FDIC. It’s a brokerage, so there is a chance of losing money just like with any other investment firm. Betterment Securities is registered with the SEC (Securities Exchange Commission). The firm is also part of the
Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation
(SIPC).
Betterment’s involvement with these organizations means they follow all rules in the investment sector. The only risk to a client is if Betterment fails and liquidates. In that case, SIPC insurance covers client accounts up to $500,000 (including $250,000 in cash).
Betterment is part of a new wave of technology-driven investing that seeks to make things easier and produce strong returns for investors, even those who aren’t very knowledgeable. By limiting their selection to only 13 index ETFs, it may appear restrictive, but many people find that fewer choices can be helpful. This approach is appealing to many investors who want a straightforward, reliable option.
Betterment BBB Rating and Complaints
The Better Business Bureau shows that Betterment has a BBB rating of F. There
are 97 resolved Betterment complaints on the site – click here to see.
Betterment Complaints: Business Model Problem
Taking a closer look at Betterment’s investing model does raise certain concerns. Ten of the 13 ETFs used
by Betterment to build portfolios come from Vanguard. A Charles Schwab
account holder can buy these Vanguard ETFs at no commission. The other three ETFs are iShares funds
from BlackRock, and all of them may also be purchased without commissions
at Charles Schwab. Moreover, Vanguard ETFs could easily replace the three
iShares ETFs. Hence, Betterment’s portfolio selections are inherently inexpensive. Any person could build a diverse ETF set themselves
and skip the annual management charge. That is one big complaint about Betterment.
This means that Betterment’s biggest selling points are convenience, a single platform, and automated portfolio balancing and investing, which removes a lot of emotion from trading. Emotions often cause investors to make bad trades—one thing Betterment tries to prevent by avoiding the urge to time markets.
Even so, many online brokerages and finance software tools allow people to set their investments a certain way and keep track so
they can do rebalancing themselves. But if an investor prefers the discipline and automated help of a robo-advisor like Betterment, then a
small yearly fee might be worth paying.
Betterment Pricing
One of Betterment’s major appeals is straightforward fees. Many new or hands-off investors don’t pay enough attention to fees. But it can be surprising how much
money can be lost or saved by a rate of just 0.25%.
As shown on Betterment’s site, many normal mutual fund costs can be close to 1%. Betterment states that a typical 70/30 stock portfolio of cheap ETFs could cost about 0.31% total. If you are new to investing, rates of 0.3%, 0.4%, or 0.5% might not look like much, but over time they can have a major impact. Betterment’s website shows an example of this below.
In this example, for around $10,000, the difference between a 1% account fee
and a 0.25% fee might save you up to $5K after 20 years. With $100K, you might save $55K, and with $500K, savings can near $280K.
Betterment’s fees break down into management fees and fund fees.
Fund Fees
All of the ETF funds that make up Betterment’s index portfolio carry an expense ratio around 0.09% - 0.17%. This is a cost you would pay anywhere, not just at Betterment.
Betterment Hidden Fees
Betterment does not impose any hidden charges.
Find a Financial Advisor
If you are looking for a professional money management service in your area, you can
find a Financial Advisor on the Wiser Advisor
(or read
Wiser Advisor review).
Visit Wiser Advisor
Is Betterment Safe: Take Away
Rest easy — Betterment is not a scam. The firm brings expert, low-cost, broadly-diversified passive strategies to typical people. The service is always available online, both on desktop
and mobile. The interface is user-friendly. Key investing questions can be answered swiftly. Costs are clear and very
competitive.
The portfolio setups are neutral and powered by proven market algorithms, making it one of the top robo-advisors
for investors. Of course, there are certain Betterment criticisms to think about, and a
major competitor that charges nothing for a better service.
Betterment Review: Investing Service
Betterment helped to start robo accounts, which supply automated investing in stocks and bonds. Under this setup, a program chooses investments for customers and makes the trades. Almost 20 years after establishing this approach, Betterment still provides automated accounts. It does not provide standard brokerage accounts.
In its managed accounts, Betterment invests in exchange-traded funds (ETFs) that have low expense ratios. Examples include:
- VWO (Vanguard Emerging Markets Stock Index Fund)
- SPSM (SPDR Portfolio S&P 600 Small Cap ETF)
- AGG (iShares Core US Aggregate Bond ETF)
Betterment’s automated system does tax-loss harvesting in taxable accounts. Some extra features are also offered. Here are some examples:
- Broad Impact (ESG portfolio)
- Goldman Sachs Tax-Smart Bonds
- BlackRock Target Income
- Climate Impact (has companies with lower carbon output)
- Innovative Technology
- Social Impact
- Crypto
- Value Tilt (focuses on value stocks)
A Premium option is offered (at extra cost) for Betterment clients who want more assistance. This includes priority customer support, 20% off trust and will creation, and access to a team of Certified Financial Planners.
Margin
Since there are no standard brokerage accounts, it’s not surprising that Betterment doesn’t provide margin trading. There is also no program for borrowing against securities.
Cost
So far, Betterment hasn’t offered many features. Even so, a robo account is $4 a month. This monthly fee can be changed to 0.25% of assets if one of these is met:
- Total assets of at least $20,000
- Scheduled deposits of $250 or higher
Multiple accounts can be combined to reach the $20,000 amount.
Premium users have tighter rules. They must hold $100,000 overall, and their annual fee becomes 0.65%.
Website
Betterment’s site, which is for simple account tasks, has a vertical menu on the left side. Here are some of the tabs:
- Home
- Open new account
- Performance
- Activity
- Transfers
- Documents
- Talk to an advisor
- Earn rewards
- Settings
The Performance area shows how an account has done over time. You’ll see balance details there, too.
The Transfers area is used to move money or investments. There is also a way to donate stocks to charity.
On the Home page, there’s a Learn section near the bottom. If you scroll down, you’ll find many articles about topics that can help both novices and experienced investors (there’s more at Education). We found articles like:
- When’s the best time to invest for retirement? Now.
- U.S. stocks have been doing well, so why invest outside the U.S.?
- The advantage of figuring out your tax bracket for investing
Because Betterment doesn’t allow any direct trading, there are no trading tools at all.
If you ever get stuck or need help, there’s a chat box in the lower-right corner. It starts with a bot but can be switched to a human rep.
Mobile App
Betterment users can also try the company’s mobile app, which runs on both Android and iOS. You open the main menu by tapping the hamburger icon (☰) in the top-left corner. It has the same menu items as the website. There’s an extra one, Help, which has the chat tool from the website.
Bonus Services
DRIP Service: Dividends from ETFs in Betterment’s managed accounts are automatically put back in.
Extended-Hours Trading: Not offered. Betterment clients can’t trade in normal market hours, either.
Initial Public Offerings: Not offered.
Fully-Paid Securities Lending Program: Not offered.
Individual Retirement Accounts: Roth, Traditional, SEP, and Inherited IRAs are available.
Fractional-share Trading: Betterment’s system buys fractional ETF shares when needed.
Betterment Review Conclusion
Betterment does a reasonable job offering planning and investment advice. Smaller balances and people who want to trade on their own may have to go elsewhere, though.
Updated on 2/27/2025.
Chad Morris is a financial writer with more than 20 years experience
as both an English teacher and an avid trader. When he isn’t writing
expert content for Brokerage-Review.com, Chad can usually be found
managing his portfolio or building a new home computer.
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