Betterment robo-advisor review: Fees, accounts and features
Betterment is one of the older robo-advisors in the space. The platform began offering automated portfolio management for people wanting hands-off investing. Betterment is no longer just a robo-advisor; it also offers self-directed investing, which some may find attractive. In this Betterment review, we’ll cover current managed investing costs, account options, automation, tax tools, protections, and other features for those who want help with their investing needs. Dig into our Betterment robo-advisor review to identify if the platform meets your needs.
How does Betterment’s robo-advisor work?
displayname is no longer just a platform that offers automated investing. It also offers accounts for self-directed investors. Understanding that is key, as pricing and tools vary between the two.
Managed investing vs. self-directed investing
An integral part of managed investing at Betterment is tailoring actions to achieve your investing goals. When you open an account, Betterment asks questions to gauge your goals, time horizon, and risk tolerance. Your answers guide the platform in how it acts to achieve your goals.
Via managed investing, Betterment trades ETFs on your behalf to personalize your portfolio, reinvest dividends, rebalance it, and adjust risk over time. In short, a managed Betterment portfolio may be a good fit for people who want a hands-off approach to investing.
This is different from the self-directed option. That offering is much closer to a traditional online brokerage, where you select stocks, ETFs, or mutual funds yourself. Comparing Betterment against the best robo-advisors is a wiser approach for people interested in the automated features rather than its self-directed offering.
Account types available for managed investing
There is a wealth of choices available for investors who want to use the Betterment robo-advisor. You can find standard accounts like individual and joint investing accounts.
Betterment also offers traditional, Roth, inherited, and SEP IRAs for retirement needs. It also has trusts, solo 401(k)s, and a limited availability of 529 plans. The platform supports other products, but those are outside the scope of this review.
At launch, Betterment didn’t offer this breadth. This variety lets investors manage their investments more holistically, applying the tools to both taxable and retirement accounts, each with its own goals and needs.
How much does Betterment cost?
Identifying cost is always important when assessing your investing needs. Betterment investing accounts have straightforward pricing, but what you pay depends on balance, recurring deposits, and access to human advice.
Digital pricing
Betterment Digital is $5 per month for balances below $24,000. If you commit to $200 in monthly recurring deposits or have a household investing balance over $24,000 and up to $1 million, the fee is 0.25% annually. Betterment tiers annual pricing for higher balances as follows:
- Up to $1 million = 0.25%
- $1 – $2 million = 0.15%
- $2+ million = 0.10%
Paying $5 monthly seems small, and it is, but it’s vital to view it in light of your total balance. If you have a $10,000 balance, that’s $60 annually, or 0.60% of the balance. A $5,000 balance is 1.2%.
Moving to a $24,000 balance is a 0.25% fee. If you can’t commit over $24,000, implementing the $200 recurring deposit is a good way to avoid the $5 monthly cost.
There is no Betterment account minimum, but they require a $10 ACH minimum to start. Don’t overlook underlying fund expenses in ETFs and other product-specific costs, either. Those can apply, but the advisory pricing is really the only main fee to consider.
Premium pricing and human advice
Betterment Premium is for people with at least $100,000 in eligible investing balances who want access to a live person for guidance. The cost for Betterment Premium is 0.65% annually for the first $1 million.
Like Betterment Digital, Premium tiers are priced as follows:
- $1 – $2 million = 0.55%
- $2+ million = 0.50%
The added cost gives access to Betterment CFP® professionals, but they’re not dedicated advisors. You get access to their team of advisors, so it may not suit someone who wants the same advisor all the time.
If you’re primarily considering Betterment for automated investing, you may have little reason to pay 0.65%. However, if you want access to a CFP® to further tailor your investing to your specific goals, Premium can be worthwhile, particularly if you’re unhappy with your current advisor or want to reduce investing costs.
What portfolios, rebalancing, and tax tools does Betterment offer?
Automation is the true cost driver of the Betterment fees. After you open an account, it works continuously to manage it and help you reach your goals on your timeline.
Portfolio construction and rebalancing
Core is the standard portfolio construction available at Betterment. The company says the model portfolio suits investors who want a diverse approach to investing. It does this with a broad mix of low-cost ETFs that provide exposure to both stocks and bonds.
Betterment customizes the Core holdings based on your goals, timeline, and appetite for risk. The firm has other portfolios and customization choices for investors, but Core is the focus of this review.
A significant focus of Betterment is rebalancing your portfolio to align it with your goals and needs. Rebalancing matters because it keeps your investments on track with their target percentages as the market fluctuates and helps manage risk.
Betterment’s automatic rebalancing is powerful in practice. It uses cash flows from deposits, withdrawals, and reinvested dividends to direct resources to reach target allocations. Betterment may also trade overweight holdings to shift funds to underweight or off-target holdings to restore balance.
For certain goals, Betterment uses an auto-adjust or glide path approach to a portfolio. They do this by shifting investments to a more conservative approach as a goal nears to help protect against unintended loss.
Tax-loss harvesting and tax coordination
Taxes are an unfortunate reality throughout investing, and Betterment works to mitigate that for investors. The platform does this in two main ways: tax-loss harvesting (TLH) and tax coordination. It’s important to know these two strategies work differently.
Betterment’s tax-loss harvesting follows a simple approach. It sells an investment with a loss and replaces it with a justifiable alternative, with the goal of potentially using the realized loss to offset taxable gains.
This only works in taxable accounts, and you must opt into TLH in your Betterment account. There is no guarantee of a tax benefit, and it may trigger a wash sale, which can wipe out the benefit.
Tax coordination works differently: Betterment uses an asset-location approach to save on taxes. The company clearly states that investors are responsible for determining if they’ll benefit from tax coordination and that it depends on your circumstances.
Speaking with a tax advisor may be beneficial before opting into the tool. Like TLH, you can turn on the feature with your account.
How are Betterment investment accounts protected?
Investing always carries a risk of loss, but Betterment investment accounts have brokerage protection. Betterment is a Securities Investor Protection Corporation (SIPC) member, which traditionally covers securities at a failed member brokerage, up to $500,000 in total coverage, with a $250,000 limit for cash.
It’s essential to know what SIPC coverage is and isn’t. SIPC doesn’t cover against market losses or fluctuations in account value. What it does cover is if a firm fails financially or goes bankrupt. In essence, it’s a cousin to Federal Deposit Insurance Corporation (FDIC) coverage found at banks, but SIPC applies to brokerages.
Betterment isn’t a bank, but once cash is swept to a program bank, it can qualify for FDIC coverage upon arrival. If you have excess funds in swept cash, you can receive additional FDIC coverage. Customers can receive up to $4 million of FDIC coverage in individual accounts, or $8 million for joint accounts, according to Betterment.
Don’t overlook one thing, though. If you already have deposits at the same program bank, it will count against your FDIC coverage there. Planning may be necessary to protect excess cash.
Ultimately, SIPC protects against brokerage failure. FDIC coverage is for eligible bank deposits. SIPC won’t make you whole for market losses, as it safeguards investors in the event of brokerage failure.
| Plan | Current fee structure | Minimum/threshold | Human advice | Best-fit consideration |
|---|---|---|---|---|
| Digital | $5/month below $24K unless qualifying recurring deposits reach $200/month; otherwise 0.25% annually | No maintained investing minimum; pricing threshold applies | No ongoing CFP® access included | Investor primarily wants automated portfolio management and tax/automation tools |
| Premium | 0.65% annually on first $1M; lower rates apply to eligible dollars above $1M | $100K qualifying balance | Access to Betterment's team of CFP® professionals | Investor expects enough value from ongoing financial-planning access to justify the higher fee. |
Frequently asked questions
How much money do you need to start investing with Betterment?
Betterment doesn’t have a minimum investment balance, but it requires a $10 ACH deposit to start the Digital offering. If you want to invest through Betterment Premium, you must have at least $100,000 in qualifying assets.
Is Betterment Digital charged monthly or as a percentage?
Betterment Digital can charge either each month or as a percentage of assets. If you have under $24,000 and don’t commit to recurring monthly deposits of at least $200, the charge is $5 monthly. If you have over $24,000 or can meet the recurring deposit requirement, the fee is 0.25% annually.
Does Betterment automatically rebalance your portfolio?
Yes, Betterment automatically rebalances portfolios to achieve customized target allocations. It does this using cash flows, dividends, and trades to bring your portfolio back in line.
Are investments at Betterment FDIC-insured?
Investments are never FDIC-insured. Member brokerages like Betterment offer SIPC coverage to protect against brokerage failure or bankruptcy. Eligible cash swept from Betterment into a program bank may qualify for FDIC protection.
