In relatively recent times, robo-advisors have become increasingly popular. Both experienced and beginner investors are gravitating towards these convenient automated investment platforms.
But it isn’t just convenience that pulls people to robo-advisors. These platforms have so much more to offer investors.
Of the growing number of automated investment platforms, Wealthfront and Betterment are two of the first and most popular.
While these two robo-advisors are quite similar, they have various distinguishing features that make them better suited to people with slightly different requirements – whatever those may be.
One of the most prominent distinguishing features between the two robo-advisors is that Betterment offers the option of interacting with a human financial professional, for a fee.
Wealthfront doesn’t offer this option. Beyond basic customer service options, Wealthfront’s financial services are solely digital.
Comparison: Wealthfront VS. Betterment
Fees & Charges
Services offered by both Betterment and Wealthfront are offered at very low rates. The two companies have a starter annual fee set at 0.25%.
Very few other robo-advisors can compete with such low rates while offering similar quality and range of service as these two firms.
However, in both companies, additional management fees may be charged. Most often, these fees are associated with ETFs and could increase the amount you’re being charged by about 0.10%
Wealthfront
There are two types of accounts to choose from with Wealthfront; the investment account and the cash account.
The cash account requires a minimum balance of $1 and the investment account requires a minimum of $500. The accounts attract a steady annual advisory fee of 0.25%.
Wealthfront accounts don’t charge other fees such as account closing fees.
Betterment
Betterment offers two plans: The Digital Plan and the Premium Plan. The Digital Plan requires a minimum of $0 and attracts an annual fee of 0.25%.
The Premium Plan requires a minimum balance of $100,000 and attracts an annual fee of 0.40%.
Betterment doesn’t charge other fees such as account closing fees. They also reimburse ATM fees and foreign transaction fees placed on transactions carried out with checking accounts.
Security
As expected of any financial firm, both Wealthfront and Betterment have very tight security on their websites as well as on their mobile apps.
They employ security measures such as biometric logins, two-factor authentication, and other basic security measures
Betterment
Because Betterment clients aren't performing high-risk trades, or any such thing, sophisticated insurance such as that from the Securities Investor Protection Corporation (SIPC) may not exactly be necessary.
Betterment clears their trade through Apex Clearing, a firm that provides wealth management solutions.
Money in their checking accounts is insured by FDIC – Federal Deposit Insurance Corporation. This insurance covers deposits of up to $1 million. Check-in accounts also come with free unlimited transfers.
Betterment also has security features accessible through their mobile app. For instance, through the Betterment app, you can lock your card if it has been stolen or misplaced without having to call a customer service rep.
Wealthfront
The Securities Investor Protection Corporation (SIPC) insurance protects the accounts of Wealthfront clients up to a maximum of $500,000.
As for their trades, these are cleared at RBC Correspondent Services, Canadian wealth management, and financial advisory firm.
Wealthfront Cash accounts require just $1 to open and deposits in these accounts are covered by the FIDC up to $1 million.
Portfolio Mix
Both Betterment and Wealthfront use the Modern Portfolio Theory (MPT) to construct portfolios in an effort to minimize risk to a reasonable extent.
Wealthfront
Wealthfront Portfolios generally consist of a combination of 6 to 8 different ETFs from a selection of 11 asset classes.
Portfolios that contain over $100,000 are given the option of going in for the Wealthfront Risk Parity Fund (WFRPX), also known simply as the “Fund”.
The Wealthfront Risk Parity Fund gives investors the chance to benefit from a long-term total return which consists of not just income, but also capital appreciation.
Furthermore, these portfolios worth over $100,000 is also eligible for stock-level tax-loss harvesting.
With this, there is room for customization. Individual stocks can be excluded or added at will, regardless of the reason.
When a portfolio contains over $500,000, it becomes eligible for smart beta.
Betterment
Five different portfolio types are offered by Betterment, all based to a reasonable extent on MPT. These portfolios offered are:
- Betterment Core: this is a standard portfolio containing diversified stock and bond ETFs. It uses ETFs from 13 asset classes.
- Betterment Socially Responsible Investing Portfolio: This portfolio is designed to contain holdings that have high environmental and social impact.
- Goldman Sachs Smart Beta Portfolio
- Blackrock Target Income contains only bonds and consists of BlackRock ETFs.
- Betterment Flexible Portfolio is built like the Betterment Core Portfolio but is customized to meet the user’s preferences
Betterment has quite a diversified portfolio which is usually a good thing because it gives investors options from which they can pick one which best suits their desires.
Types Of Accounts Supported
Wealthfront
- Individual and joint non-retirement accounts.
- Trusts
- High Yield Cash Accounts
- 529 accounts for college savings
- Simplified Employee Pension (SEP), Roth, traditional, and rollover IRA’s (Individual Retirement Accounts).
Betterment
- Individual and joint non-retirement accounts
- Trusts
- High Yield Cash/Savings Accounts
- Simplified Employee Pension (SEP), Roth, traditional, and rollover IRA’s (Individual Retirement Accounts).
While these two robo-advisors offer you similar options when it comes to account types, there is one significant difference you should note.
Unlike Wealthfront, Betterment doesn’t offer the option of saving towards college in a 529 account.
While, of course, there may be a chance that Betterment may offer that service sometime in the future, for now, that is not the case.
However, Betterment does give users the ability to receive personalized financial advice on external accounts. For this, users have to link the external accounts to their Betterment account.
Both Betterment and Wealthfront don’t charge management fees on their high yield savings accounts.
Both robo-advisors offer automatic rebalancing for free, regardless of the amount of money present in the accounts.
Tax Strategy
The methodologies used by Betterment and Wealthfront are similar.
Wealthfront
- Free daily tax-loss harvesting for all taxable accounts
- Users of TurboTax – a software package used for preparing income tax returns – can import tax-loss harvesting data straight from Wealthfront.
- All accounts that are worth over $100,000 are eligible for stock level tax-loss harvesting (direct indexing).
Betterment
- Tax-loss harvesting
- Tax-coordinated Portfolio tool
- A tool for charitable giving
- Tax impact Preview tool
One major difference between the two automated investment platforms is that Wealthfront provides a complete whitepaper that explains in considerable detail, how they deal with taxable events whereas Betterment does not.
Professional Financial Advice (Human)
Betterment
Customers with the Betterment Premium Account have access to unlimited communication – via phone calls and emails to a team of certified professional financial planners.
Those with the Betterment Digital account don’t have access to such financial advice.
However, Betterment offers the option of buying an advice package that includes a consultation with a financial advisor.
This offer is open to the public such that anyone can purchase this package, whether they have a Betterment account or not.
When it comes to general customer support, Betterment offers phone support for checking and cash reserve inquiries as well as investing and general inquiries.
This support runs from Mondays to Fridays between the hours of 9 a.m. to 6 p.m. Eastern time. They also accept inquiries and feedback and provide customer support through email. Betterment also has social media accounts where it engages customers and provides customer support.
Wealthfront
Wealthfront doesn’t offer any human financial advisory services whatsoever. Their financial services are completely digital and their customers interact only with the advanced financial software.
When it comes to general basic customer support, Wealthfront has licensed product specialists that can provide expert support or information on their products via phone.
Wealthfront also provides support and answers to customers and others via their social media pages.
Phone support is also available between 8 a.m. and 5 p.m. Pacific time from Monday to Friday.
In Summary
When it comes to making a choice, Wealthfront vs. Betterment, both companies have great, high-quality robo-advisors.
However, they do have some key differences which you now know about.
For investors that are just starting out, Betterment may prove to be the best option.
This is because you don’t need a large sum of money as an initial investment.
Wealthfront doesn’t offer financial advice from humans. Investors who are already well-versed in all the intricacies won’t struggle with the thought of not being able to access human advice when facing an investment dilemma.
In addition, Wealthfront also provides its methodologies. A relatively experienced investor may find this even more helpful than a human advisor. A beginner, on the other hand, may find such robust information intimidating.
As a beginner investor, if you find that you prefer the features that Wealthfront offers as more attractive to you, you could have the best of both worlds.
You can place your investment with Wealthfront and if you feel the need for professional financial advice from a human, you could always purchase one of the advisory packages.
Both have something valuable to offer, but now you have a much stronger understanding of which one suits your needs.
