Betterment rating

Betterment Review: Fees, Rating, IRA Accounts, and Investing Cost


Betterment brokerage firm fees, IRA accounts, pros and cons. Is Betterment good? Betterment's Vanguard ETFs, account costs, minimums, investments, and problems 2017.


What is Betterment.com?


Betterment.com (member of SIPC) offers investors - from novice to well-seasoned - the opportunity to make their money work for them in the current market with a minimal amount of effort. Much of the direction a typical investor would pay to receive from a financial planner is managed automatically by Betterment’s software at no extra charge. According to their statistics, a Betterment investment account would have done better than an average advised account in nearly every time period over the last decade: 50% better in a portfolio with a 70% stock allocation from last ten years. Let's explore what the firm offers customers in our 2017 Betterment review.


What Betterment.com Offers?


Betterment is a smooth front-end for investing in Vanguard ETFs, which are regarded by some as the easiest, most reliable entry into investing in exchange-traded funds (ETFs). There are currently 12 different ETFs offered: 6 stock ETFs and 6 bond ETFs.

Betterment accounts can be set up as retirement (traditional and Roth IRAs) as well as non-retirement and trusts.

Within an individual account, Betterment investors can designate various goals and receive a suggested allocation of stocks and bonds based on the timeframe of that goal. For example, a non-retirement investment account may have separate goals for a Safety Net, Wealth Building, Home Down Payment, or College Fund, each with a different timeframe and thus a different investment strategy and allocation. For each goal, Betterment users can see projected returns for above-average, normal, and below-average markets and make deposits accordingly.


Is Betterment Safe?


The New York City based Betterment is an SEC (Securities and Exchange Commission) registered investment advisor, and Betterment Securities is a broker-dealer regulated by FINRA and the SEC. The securities in customer accounts are protected up to $500,000 by SIPC, with a limit of $250,000 for claims of uninvested cash balances.

While your Betterment account is as easy to use as an online savings account with a bank, there are a few main differences. Although most bank accounts are guaranteed not to lose value, there is a possibility that your investment at Betterment could lose value depending on market conditions. At the same time, a Betterment account has a possibility receive much higher returns than a savings account. The amount of risk you want to take is up to you, and is controlled by setting your allocation between a higher-return Stock Market Portfolio and an ultra-safe Treasury Bond Portfolio.

If Betterment goes public or is acquired, you would maintain complete control of your brokerage account. All the underlying securities in your Betterment portfolio are owned by you - you would be free to add or withdraw money at any time.

In the unlikely event that Betterment was to close, your money would remain safe, and you would just have to find a new home for it. Betterment's money is completely separate from your money, and Betterment is not allowed to use your money to pay for its operations. You own all the underlying securities in your Betterment portfolio, and in the event of closure your money will be transferred back to your linked checking account.


Commissions, Fees, and Minimum Deposit


Plan Minimum Annual Fee Included
Digital $0 0.25%
  • Automated portfolio management
  • Tax efficient management features
  • Advice across your investments
  • Award winning customer support
Plus $100,000 0.40%
  • All benefits of Digital plan
  • Annual call with team of CFP professionals ans licensed financial experts
  • Additional account monitoring by a team of licensed financial experts
Premium $100,000 0.50%
  • All benefits of Digital plan
  • Unlimited call with team of CFP professionals ans licensed financial experts
  • Additional account monitoring by a team of licensed financial experts


Betterment charges a management fee which is a percentage of your balance. It is prorated across the entire year and is charged at the end of each calendar quarter (every three months). If you withdraw all of your money before the end of the quarter you are charged a prorated fee only for the days your money was managed by Betterment.

There are no fees charged for trades or transactions, transfers, rebalancing, advice, account administration, etc. And there is no minimum investment or account balance required. List of all Betterment fees is located here.


Betterment Review

Betterment Review: Pros


With Betterment’s automatic rebalancing, every deposit into the account - dividends, monthly deposits, etc. - is used to manage the drift within the account, bringing it back towards the various allocations specified for the portfolio. This drift is tracked within each goal, and investors can see at any time the percentage of drift within that goal as well as how much they could deposit to mitigate that drift, if they would rather not wait until scheduled future deposits or reinvestments of dividends occur.

At the $50,000 level and beyond, Betterment offers Tax Loss Harvesting+, whereby securities are sold at a loss to minimize taxes on capital gains within the portfolio. When enabled by the investor, this process happens automatically and at no cost.

Because Betterment supports fractional shares - being able to purchase a percentage of a share rather than having to buy whole shares only - every cent can be invested rather than held for a future purchase. This is typically not accessible to individual investors trading on the exchange or those using brokers. Betterment investors can purchase shares as small as 1/1,000,000th of a full share.

The ability to establish multiple goals or “buckets” within an account gives investors an easy way to save for different purposes using strategies appropriate to each goal while tracking the entire portfolio in one place. For example, parents who have separate college savings goals for each child can see at a glance if they are on track to reach those goals, while still having the freedom to change the goals’ parameters at any time - including using the funds for another purpose if Johnny decides not to attend college after all. From a psychological perspective, it also helps investors stick to their goals as it is typically easier to take money out of a generic savings account for an impulse buy than to touch “Johnny’s College Fund.”


Betterment Review: Cons


For investors looking at ETFs outside of the 12 offered by the company or at individual stocks, mutual funds, or bonds, Betterment would not meet their needs. Additionally, Betterment currently offers only Vanguard’s total spectrum ETFs with significant categories missing (e.g. REIT-based funds).

Because of the ease of access to accounts and the lack of fees, investors may be tempted to get overly involved in the daily ups-and-downs rather than allowing their accounts to average out over time and following more of a “buy it and forget about it” strategy.

Because Betterment is what is sometimes termed a “robo-advisor”, investors do not receive a comprehensive approach to their personal situations - wealth management, tax strategy, life and other insurance, and so forth - that would traditionally be included as part of a package with a flesh-and-blood advisor or financial planner.

Some investors have expressed frustration with Betterment’s reports at tax time, especially if they are preparing their own taxes rather than using a professional. However, Betterment does allow users’ tax information to be imported directly into popular tax software programs such as TurboTax and HRBlock."


Helpful Features


Betterment allows easy access to live help via email, phone, or online chat both for setting up accounts and for managing invested funds - at no cost to the investor.

Betterment is easily connected with services like Mint.com for users who choose to track their consolidated financial picture.


Competitors


Betterment's main competitor, TD Ameritrade Essential Portfolios, charges 0.30% rate, and has $5,000 minimum to open an account.

Betterment's other 5-star rated competitor, M1 Finance charges 0.25% fee per year to use the service on balances from $1,000 to $100,000; and 0.15% fee per year on balances $100,000+. Client's first $1,000 is managed absolutely free.


Betterment Review Summary


To summarize Betterment review: the company offers very easy online investing solution to clients who are looking for simplicity and don't want to put much time and effort into investing. If you are not in that category there are other online investing firms to consider.



Betterment.com reviewed by Brokerage-Review.com on . Rating: 4



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