Betterment vs Fidelity, TD Ameritrade, Etrade, Charles Schwab, Ally Invest, and Vanguard



Betterment vs TD Ameritrade, Charles Schwab, Fidelity, and Vanguard: Chart


Broker Fees Stock/ETF
Commission
Mutual Fund
Commission
Options
Commission
Maintenance
Fee
Annual IRA
Fee
TD Ameritrade $6.95 $49.95 $6.95 + $0.75 per contract $0 $0
Ally Invest $4.95 $9.95 $4.95 + $0.65 per contract $0 $0
Etrade $6.95 $19.95 $6.95 + $0.75 per contract $0 $0
Fidelity $4.95 $49.95 ($75 for some funds) $4.95 + $0.65 per contract $0 $0
Charles Schwab $4.95 $76 ($0 to sell) $4.95 + $0.65 per contract $0 $0
Vanguard $7-$20 $8-$35 $30 + $1.50 per contract $20* see
Betterment na na na 0.25% annual 0.25% annual


Broker Review Cost Investment Products Trading Tools Customer Service Research Overall Rating
TD Ameritrade
Ally Invest
Fidelity
Charles Schwab
Etrade
Betterment
Vanguard


Promotions

TD Ameritrade: Trade free for 60 days + get up to $600.

Ally Invest: Up to $3,500 cash bonus + commission free trades for new accounts.

Betterment: Get 1 month free of Betterment service if you invest $5,000 – $24,999.

Charles Schwab: Make $100,000 deposit and get 500 commission-free online equity and options trades.

Fidelity Investments: Get 500 free trades with $100,000+ deposit.

E*trade: At E*TRADE, get $6.95 trades + 65₵ per options contract.



Betterment Introduction


Robo-advisors are an increasingly popular investment vehicle for busy investors, and Betterment is a best-in-class solution in this category. Compared to competitors in this space, Betterment has few barriers to entry, low management fees, and flexible investment options that make it a solid choice for either entry-level investors or those who are looking for a better return than the average savings account.

Betterment bills itself as “the smarter way to invest,” but a better descriptor could be “the simpler way to invest.” It claims that customers will earn, on average, a 2.9% higher return on an annual basis, but its more attractive attribute is simplicity: Betterment’s streamlined platform makes it easy for anyone to get started.


Platform Basics


As customers sign up for Betterment, they are asked to set a primary goal for their investment—enabling the platform to provide customized advice to better match customer preferences. Goals include retirement, major purchase, education, or safety net, but undecided investors can always select general investing. Betterment provides access to 13 stock and bond ETFs from Vanguard and iShares that offer access to a diverse investment portfolio—including everything from small-cap value stocks to municipal tax-free bonds—however, investors are not asked to choose a specific portfolio.

Once customers choose their goal, they are offered a suggested allocation between stocks and bonds, as well as a time horizon for reaching their goal and automatic monthly. Customers are free to tailor these options to best fit their financial needs, and to invest more conservatively or aggressively over time if their circumstances change. Throughout, Betterment provides an estimated return in real time as these options are adjusted. This allows customers to see the projected impact of their decisions over time, and react accordingly. With these decisions made, the Betterment algorithm takes care of the rest—purchasing a set of stocks and bonds across its ETF portfolio to match the customer’s preferences.

It’s easy for customers to keep track of their investments through Betterment’s portfolio interface, as well as to withdraw funds (in any amount) as needed within 4-5 business days. One competitor, Wealthfront, restricts the amount customers can withdraw to a minimum of $250, which can result in taking out (and thus selling) more funds than required. This provision makes Betterment an attractive option as an alternate savings account for customers, so long as they are comfortable with not having immediate access to their funds.





Tiers and Pricing


Betterment offers several tiers of service, but its base digital offering is likely to appeal to most consumers. Betterment Digital—unlike other robo-advisors—does not require a minimum investment, which may appeal to entry-level or low-impact investors. This stands in contrast to competitors such as Wealthfront ($500 minimum) and Charles Schwab’s Intelligent Portfolios ($5,000 minimum). Fees are minimal compared to other investment solutions on the market—Digital has a 0.25% annual fee, after a 0% fee for the first six months—and like many other robo-advisors, Betterment does not charge any fees for trades, transfers, or rebalancing made on its customers’ behalf.

For wealthier investors, Betterment offers upgraded Plus and Premier tiers. Plus requires that investors keep a minimum balance of $100,000, and pay a slightly higher annual fee (0.40%), but provides an annual call with Betterment’s financial experts to help better match customer goals with their investment allocation. This contrasts with Digital customers, who only have access to Betterment’s email and live chat customer support teams. Premier goes one step further by offering unlimited conversations with these financial experts, while requiring a minimum balance of $250,000 and a 0.50% annual fee.





Key Differentiators


Aside from its low fees and low barrier to entry, Betterment has two key differentiators compared to its competitors: SmartDeposit and RetireGuide.

After signing up, Betterment customers are prompted to automate, and optimize, their deposits. Auto-depositing ensures an continuous flow of funds into the account, similar to several investment services, but Betterment takes this a step further with SmartDeposit. Once a customer opts into SmartDeposit, Betterment automatically scans their primary bank account once per week and auto-deposits surplus funds (up to a maximum amount set in advance). As a result, customers can feel more confident that their funds are working for them, rather than being tied up in low-interest savings accounts. This contrasts with other robo-advisor solutions which only offer a blind auto-deposit, not taking customers’ actual cash flow into account.

Similarly, other investment services may allow a birds-eye view of just investments through their own site, which can make advice given by those services less useful. Betterment goes further with RetireGuide: a service that enables customers to sync Betterment with their other 401k and IRA accounts to allow for holistic retirement advice and feedback. By combining this birds-eye view with the information that the algorithm already has on hand, Betterment can provide more customized feedback on customer investments and allocations.





Key Drawbacks


Although Betterment has plenty of benefits, it is not without drawbacks. For one, Betterment is not the place for those who want more customization and choice in their investment portfolio. Betterment’s suite of ETFs are the only investments that customers have access to, and they may not specifically choose from among them. The service considers its streamlined allocation process to be a feature, but active investors may see it as too restrictive. That said, this is not a Betterment-specific drawback—robo-advisors in general are likely not an ideal investment vehicle for these investors at all.

Additionally, Betterment’s tax reporting can be problematic. Tax preparation can be cumbersome in the best circumstances, and Betterment, by its nature as an automated investing platform, does not make this process much easier. The algorithm makes trades constantly—as part of its automatic rebalancing feature—to make sure portfolios will always match the target allocation set by each customer. At the end of the year, this can amount to hundreds of trades which can be difficult to record and file manually. Thankfully, Betterment enables automatic uploads to tax preparing software such as Intuit’s TurboTax to take out some of that manual labor, but properly recording capital gains and interest between asset types and jurisdictions remains an added step in the tax preparation process that would not necessarily be incurred using a traditional brokerage.


Best Robo Advisor For Beginners Conclusion


Overall, Betterment is top rated robo advisor for beginner investor to add to their portfolio. Its low-fee structure ensures that funds are working for customers, and its drawbacks are manageable, and its features ensure that Betterment can be useful as either a primary investment vehicle for hands-off investors or a backup excess cash-investment vehicle for more active investors.


Updated on 2/9/2018.