Compare Vanguard vs Betterment


Betterment vs Vanguard for online investing. Compare cost, brokerage fees, IRA accounts, and differences. Which firm is better?



Overview of Betterment and Vanguard


Vanguard and Betterment are two brokerage firms with not much in common with each other. They cater to different types of investors, and as a result, they have very different characteristics. Let’s take a look at these two companies and see how they compare to each other.


Financial Advice and Portfolio Management


Betterment is primarily a robo-advisor for the Millennial generation, whereas Vanguard caters to traditional long-term buy-and-hold fund investors. Nevertheless, Vanguard does provide managed accounts. The broker offers Personal Advisor Services, which are human-managed accounts. Vanguard clients pay 0.30% for the service. There is a rather steep $50,000 deposit requirement to begin the management. Nevertheless, Vanguard clients receive a custom financial plan from a human financial advisor based on their own unique goals and risk tolerance. The financial advisor also periodically rebalances client portfolios.

At Betterment, a software program buys and sells low-cost ETF’s (the Vanguard service includes stock and bond trading). While some investors may have reservations about the robo model, Betterment offers attractive advantages over Vanguard. First, Betterment charges just 0.25% annually for its service, 5 basis points lower than Vanguard. The brokerage firm also requires no minimum balance requirement, which is in stark contrast to Vanguard’s $50,000 prerequisite.

Betterment customers can have one phone call per year with a Certified Financial Planner by paying an extra 15 basis points annually. However, this package requires a $100,000 account balance. Paying 0.50% qualifies for unlimited calls with the broker’s human advisors. Betterment promises “additional monitoring” by its certified advisors with the more expensive plans, but both of them are managed by the company’s robot.

Betterment has the more attractive package for investors who want the lowest cost with any balance. Vanguard offers the more traditional service of one-on-one consulting with a human advisor. And it does it at a very competitive price.


Self-Directed Accounts


Vanguard also offers competitive services for self-directed investors. Brokerage customers have access to one of the largest selections of mutual funds in the industry. All Vanguard mutual funds and ETF’s are completely free to trade. This is about 300 and 70, respectively. Security research tools are also available to all Vanguard clients.

Because Betterment doesn’t offer self-directed accounts, Vanguard will obviously be the better choice in this category. Besides the great funds Vanguard offers, self-directed clients can also buy and sell CD’s and other fixed-income products, ADR’s, option contracts, and stocks.


Pricing


The cost of account ownership also varies between the two firms. Vanguard, for example, charges an annual fee of $20 for most trading accounts. Betterment has no annual fee other than its management fee. Vanguard’s yearly charge can be eliminated by signing up for electronic delivery of account documents, or investing at least $10,000 in Vanguard funds.

Vanguard’s commission schedule for self-directed accounts is rather complicated, with lower prices for higher balances. Investors who want a simple pricing schedule would be better off with Betterment.


Technology and Website


Because Betterment offers only managed accounts, the broker doesn’t provide any trading tools. Its website does have information about the company and its offerings. There is also a login where clients can access their account and check their balance.





Vanguard provides a more detailed website with resources for self-directed accounts. These include the ability to place trades on-line along with security profiles for stocks and funds. There are free stock reports from Argus and MarketGrader. The Vanguard website has basic charting, including technical indicators and comparisons. The chart for IBM goes back to 1978. Betterment’s website has no charting.

Both brokers offer mobile apps. Betterment’s can be used on devices running Apple iOS or Android. The Vanguard platform can be used on Amazon’s Kindle in addition to Apple and Android devices. Both apps offer funds transfer and balance information. Betterment also has a platform for Apple Watch, whereas Vanguard does not.


Fund Availability


Because Betterment only trades low-cost ETF’s, there are no mutual funds available through the broker. Vanguard clients have access to around 16,000 funds, one of the largest selections among on-line brokers. Without mutual funds, Betterment customers lose a huge segment of the securities market. Also by trading only low-cost ETF’s, Betterment will inevitably miss an exchange-traded fund or two that will demonstrate outperformance with an above-average expense ratio. Vanguard is able to capture a large segment of the investment world by not limiting itself to just one trading model.



Large Accounts


For clients with deep pockets, Vanguard provides extra account protection via London Company Insurers and Lloyd’s of London. SIPC, the standard insurance in the U.S. for brokerage accounts, only provides $500,000 of coverage per account. Every Vanguard account is protected up to $49.5 million, with $1.75 million of that amount applicable to cash balances. The total amount of insurance that Vanguard has purchased is $250,000,000. This is the maximum amount that the broker’s private insurers would pay in the event of a catastrophe.

Betterment does not provide any insurance beyond SIPC coverage. It does offer a rebate on its management fee for account balances above $2 million. The broker charges 0% for all funds above that level. This policy would reduce the effective management fee charged to wealthy clients.


Customer Support


Betterment offers customer service 7 days a week. Phone service is available Monday through Friday. The hours are 9 am until 8 pm, EST (6 pm on Fridays). The broker’s on-line chat function is available during the week and on Saturday and Sunday.

Vanguard only provides customer service Monday through Friday, and it does not provide an on-line chat function. Neither firm has a network of local branches.


Promotions


Betterment: Get up to 6 months of Betterment service for free.

Vanguard: no promotion at this time.



Vanguard vs Betterment - Final Thoughts


Vanguard (read review) and Betterment (read review) are very different brokers that try to serve different types of clients. Knowing what the differences are before choosing one can help you make the right choice.



Updated on 6/23/2017.




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