Betterment Broker Review

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Betterment is different to other investment brokers as it belongs to a subset of firms that manage portfolios on behalf of investors, rather than offering opportunities for individual, hands on trading. The company has two plans to help investors get started: Digital and Premium.

Betterment is a leading robo-advisor, which means it provides automated investment advice tailored to individual investors. Like other robo-advisors it bases its investment philosophy on modern portfolio theory (MPT). This means the company emphasises the benefits of diversification and removing emotional factors from  investment decisions.  Betterment uses exchange-traded funds (ETFs) that represent up to 12 asset classes. The firm assesses clients’ level of risk tolerance and factors in their goals, so that portfolios are automatically rebalanced as needed.

Betterment is the largest independent robo-advisor, and it has succeeded in attracting new customers as well as assets at an impressive rate. Retirement investors in particular seem to appreciate the company’s goal-oriented tools and the comparatively inexpensive costs of human advice.

Betterment features two plans, each attracting different broker fees and commission. These are Betterment Digital, which has no minimum deposit requirement, and Betterment Premium, which requires a minimum deposit of $100,000. The company offer includes financial planning packages targeted to focus on specific life events. For example, clients can buy a ‘college planning’ package, that includes an hour-long phone consultation with a certified financial planner. There are five packages available and they come at a range of prices from about $150 to $400. Topics include retirement planning and phone consultation sessions vary in length depending on the package. 

Products and trade offers

The Digital Plan is Betterment’s legacy offering, providing digital advice and an array of investing tools. Clients have access to in-app messaging with the company’s financial advisors, which are responded to within 24 hours. With a Betterment Premium Plan, clients can access a team of financial advisors to monitor their account, as well as benefitting from an unlimited number of phone calls and emails.

Investors can also select from three other portfolio strategies that might match their investing views:

  • Betterment SRI, the firm’s socially responsible portfolio strategy
  • Goldman Sachs Smart Beta, a factor-based portfolio strategy
  • BlackRock Target Income portfolios, five different bond portfolios targeting cash income.

Betterment offers financial planning packages that are targeted to specific life events for their clients, including retirement planning. The amount of time clients can spend with an advisor vary according to the individual packages, as does the advisor’s expertise. This is important to note as although in most cases investors can consult with a certified financial planner, two of the packages offer only licensed advisors, who tend to be less experienced.

The types of accounts available include individual and joint non-retirement accounts, Roth, traditional, simplified employee pension plans (SEPs) and rollover IRAs and Trusts.

New clients at Betterment go through a sign-up process that involves setting goals, according to age and the level of current annual income. The results are converted to a series of suggested targets based on the answers. Generally, there is an inbuilt ‘safety net’ comprising approximately three to six months of expenses plus a recommended target for retirement savings and a general investing goal. 

To achieve these goals Betterment supplies recommendations for an asset allocation, which clients are free to adjust. They can also add other, personalised goals that will inform the types of account that can be used and the way in which their money is invested. Investors can proceed to set up auto-deposits to meet each goal, if they wish. For example, with each of their clients’ financial goals, Betterment recommends a specific stock-to-bond allocation from their recommended portfolio strategy. This strategy is designed to reflect the total world market to help optimise expected returns while reducing or minimising risk. 

Smart Saver is an account that Betterment offers as a replacement for cash a customer has in a savings account, where the level of interest tends to be very low. The Smart Saver account invests the savings in a low-risk bond portfolio. Betterment says 80% of these are Short-Term U.S. Treasury Bonds and 20% are Short-Term Investment Grade Bonds. So, if rates rise—as they have for the past several years—so does the yield from the account. 

Betterment says the current expected return is about 2%, which drops to about 1.8% after fees for clients with the Digital account, and about 1.6% after fees for people with Premium accounts. It’s always worth comparing Betterment’s current rate to what online savings accounts are offering. Customers should bear in mind that Smart Saver accounts aren’t FDIC insured, and the return isn’t guaranteed and may fluctuate.

Broker Commissions Rate

Originally pegged at just 0.15% on balance of $100,000 or more, Betterment’s Digital Plan today is available for a 0.25% management fee, which is still inexpensive compared with that of many other robo-advisors. Clients also now benefit from the addition of consultations via messaging with financial advisors. Similarly, the fee for the Betterment Premium Plan seems reasonable given that clients obtain access to human advice. 

Several other broker owned robo-advisors such as Vanguard Personal Advisor Services, Fidelity Go and Charles Schwab Intelligent Portfolios are able to supplement management fees by using their own funds, however Betterment is not in a position to do this. It should also be noted that the advice offered by the Premium Plan is precisely at the same level as that available via messaging in the Digital Plan. The only difference is that the Premium advisors are available by phone.

Once an account balance exceeds $2 million, Betterment Digital costs customers 0.15% and Premium costs 0.30%, however clients who funded their accounts before September 18th, 2018, will continue to get free management on their balance over $2 million.

Betterment is considered to be excellent value for money, offering up to 12 months of free management depending on the sums deposited. For instance, deposits of more than $15,000 and up to $99,999 get one month free. Clients who deposit $100,000 to $249,999 get six months free and those who are investing more than $250,000 get one-year free management. Clients who refer a friend, also get one month free while their friend will get three months of free management.

What Others Say

“If you aren’t interested in tinkering with your investments, Betterment provides a straightforward approach to successful investing that requires very little time, money, or energy.”

The Betterment broker review by CashCowCouple.co.uk pinpoints one of the best things about the company, in that it is a reasonably priced alternative to dabbling in hands on trading. Betterment delivers expertise and a great deal of knowledge to help its clients make the most of their funds, according to their preferences and needs.

“What makes Betterment so unique from other brokerages is that you do not trade individual stocks or mutual funds, but you invest in a bucket of Exchange Traded Funds (ETFs) that are personalized to your specific goals.”

At frugalrules.com the Betterment broker review highlights the fact that the company is a robo-advisor, so it will not feature in any regular Forex broker reviews alongside companies such as Forex.com or Interactive Brokers. ETFs are marketable securities that track a stock index, a commodity, bonds, or a basket of assets. 

“With Betterment, you are always diversified, balancing risk and reward.”

The Betterment broker review by moneysmartguides.com focuses on the diversification that is at the heart of the Betterment offer. The philosophy followed by Betterment is a classic one where diversification is key, reflecting MPT. Also known as mean-variance analysis, modern portfolio theory is a mathematical framework for assembling a portfolio of assets. The aim is to maximise the expected return for a given level of risk.  By owning different kinds of financial assets, the portfolio is considered to be less risky than if it contained only one type. 

Customer service

Customer service at Betterment varies with the type of account clients hold. The Digital Plan allows access to in-app messaging with the company’s financial advisors, which are responded to within 24 hours. The Premium Plan allows access to a team of financial advisors and an unlimited number of phone calls and emails.

Telephone contact is available from 9am to 6pm (Eastern Standard Time), Monday to Friday; 11am-6pm Saturday and Sunday.

Platforms and tools

The Betterment trading platform is known for its ease of use, and the online user dashboard is both intuitive and easy to understand.

Betterment’s sign-up process takes clients through a goal-setting exercise, asking for their age and current annual income. It then suggests a series of goals based on the answers, which generally includes a ‘safety net’ of three to six months of expenses and a retirement savings target. Clients can add other investing goals and customise the recommended targets and assets allocation. Client goals determine the types of account that will be used and the way the money is invested. Investors can also set up automatic deposits into each goal.

Betterment Interfaces

Daily tax-loss harvesting is a feature of all taxable accounts, while a Tax-Coordinated Portfolio tool allocates assets across tax-advantaged and taxable accounts according to tax impact. Betterment additionally has a Charitable giving tool that makes it easy to donate appreciated assets.

SmartDeposit is an optional tool that harvests unneeded cash out of a client’s current account and adds to their investments. This is controlled directly by clients who can set a maximum amount they need in their current account — say, sufficient to cover a couple of months of expenses plus a little extra in case of emergencies — and SmartDeposit monitors the account weekly and pulls out any excess. Clients can set the maximum amount they want Betterment to take out at any one time and opt to skip any SmartDeposit before it happens. This tool functions in addition to any automatic deposits the investor has set up.

RetireGuide: Betterment’s Retire Guide lets you link your non-Betterment accounts, including 401(k)s, giving a full picture of all your savings and investment accounts. With this information, the tool can offer comprehensive retirement planning advice. 

Retire Guide

RetireGuide compares current savings levels to your desired spending levels in retirement, answering questions about whether you’re saving enough money when you’ll be able to retire, and if you’re using the correct savings vehicles and investments. It updates and syncs to outside accounts on a daily basis and allows for Social Security data uploads.

Mobile Trading

Betterment customers do not gain access to individual trading; however, they can access the company’s mobile app to use on a personal device such as a smartphone or tablet.  Whilst offering a lot of the required functionality some reviewers mention that the mobile service does not currently match the desktop offering to a granular level.

Robo trading

The company uses robo-advisors to devise investment strategies, which clients can adjust to suit their preferences, however these do not provide the capacity for robo trading by customers.

Regulatory details

Betterment offers advice as a fiduciary, helping clients to manage their money. The company has two legal entities which are regulated by securities and exchange commission (SEC) —Betterment, LLC, which is an SEC-registered investment advisor, and Betterment Securities, an SEC-registered broker-dealer, regulated by the financial industry regulatory authority (FINRA). Clients’ funds are protected through Betterment Securities’ membership in the securities investor protection corporation (SIPC), insureing investors up to $500,000 (including $250,000 in claims for cash). It’s important to be aware that SIPC insurance does not protect against market changes in a client account. 

Betterment ProsBetterment Cons
Great for hands off investorsNo direct indexing tools
Robust CompanyRecommended 40% safety net
One years free management
Attractive to retirement investors
Comfortable for low balance investors
Free automatic rebalancing
No account fees
Only Socially responsible investing
Goals based tools

Conclusions

Betterment is a viable option for investors who are keen on automated investing and who are looking for portfolio allocation customized and re-balanced according to their individual circumstances. Certainly, Betterment has some innovative automatic deposit solutions and investors with a minimum of $100,000 undoubtedly will save money on management fees by choosing Betterment rather than its competitors. 

The company builds very efficient portfolios for clients comprised of widely diversified, low cost ETFs. Beyond providing this low-cost, diversified portfolio, Betterment also delivers sound financial planning, tax-advantaged rebalancing, tax-loss harvesting and a host of other valuable services for reasonable annual fees.

Brian Ducey

Brian graduated from Chaminade High School and the University Of Vermont Kalkin School Of Business with a concentration in Finance. He began his career with Knight Capital Markets, working his way to market maker. Brian later expanded his market repertoire, working with various sell-side research brokerage firms, such as Sidoti & Co., and William O’Neill & Co., as an Account Executive. With over 20 years-experience in the financial industry, Brian has built a unique perspective into “market intelligence” understanding an ability to read the tape and apply second level thinking in a fast paced environment. Brian also carried several market licenses, including the series 7, 24, 55, 65, and 63 licenses as well as previously passing The Connecticut Life and Health Insurance Exam