Robo-advisors provide professional investment advice at a fraction of the cost of a traditional investment manager. They have become a popular option for many non-professional investors.
Betterment and Wealthfront are two of the most prominent stand-alone Robo-advisors (not associated with a larger investment firm).
Let’s look at how they work and what the differences between them are.
What Is Betterment and How Does It Work?
Betterment is an automated consultant that manages more than $33 billion in assets. It provides individual and joint taxable automated accounts, trust accounts, pension accounts, checking, and cash reserve accounts.
Betterment offers two main investment account options:
- Digital plan
- Premium plan
The digital option is the cheapest, with a yearly fee of 0.25 percent of your account’s value. Betterment puts your money in stocks and ETFs. It offers tax loss strategies, automatic rebalancing, split equities, goal-oriented planning, and socially responsible investment.
Betterment offers access to human advisors. With the digital plan, you’ll need at least $299 for one-time counseling with an advisor.
Betterment offers plans built around five goals:
- Retirement income
- Major purchase savings/investments
- General Investing
- Retirement savings
- Safety net money (rainy day fund)
You can modify these objectives at any time.
The Premium account requires a minimum of $100,000, and you’ll have to pay a yearly fee of 0.40%, but you’ll have access to all the features of the digital plan and more. In particular, you will have unlimited access to licensed financial planners and comprehensive investment advice.
Betterment now offers cryptocurrency portfolios. These have an annual fee of 1% and allow you to invest in up to 25 different cryptocurrencies. Furthermore, Betterment offers several retirement accounts (traditional IRAs, Roth IRAs, SEP IRAs, and Roth IRA conversions) and an investment platform for advisors. It also pays you interest on your cash balances.
What Is Wealthfront and How Does It Work?
Wealthfront offers investment accounts, pension accounts, portfolio lines of credit, 529 education savings programs, and cash management accounts. You can take advantage of tax-loss harvesting, financial planning guides, and access to a range of index investments. It aims to increase your returns by using portfolio diversification.
Portfolio diversification means investing in a broad range of investments so that if one fails, the others may make up for it.
Wealthfront also offers a crypto exposure option featuring two crypto trusts:
- Grayscale Bitcoin Trust (GBTC)
- Grayscale Ethereum Trust (ETHE)
Wealthfront provides a fairly basic service lineup but offers extremely low costs.
Wealthfront vs. Betterment
Both Wealthfront and Betterment offer highly credible, well-reviewed rob-advisor services. We can’t say either platform is distinctly superior: you’ll have to review the features and decide which meets your needs best.
You can see that many of the differences come down to personal preference. Still, it is essential to consider what they may cost you in real dollars. The two services do differ, and your investment results will depend on those differences.
| Feature |  |
 |
|---|---|---|
| Access to Certified Human Consultants | ✔️ | ❌ |
| Minimum Balance Required | $0 | $500 |
| Mobile Application | ✔️ | ✔️ |
| Tax-loss Harvesting | ✔️ | ✔️ |
| Cryptocurrency Trading | ✔️ | ✔️ |
| 529 Educational Savings Programs | ✔️ | ✔️ |
| Socially Responsible. Investments | ✔️ | ✔️ |
| Portfolio Lines of Credit | ❌ | ✔️ |
| Fee-free ATMs | Reimburses ATM fees worldwide | 19,000+ fee-free ATMs |
| Cash-back rewards | At thousands of merchants | ❌ |
| Fees on investments | 0.25% annual fee on investments | .25% plus investment fund fees ranging from 0.06% to 0.13%, |
| Fees on Crypto | 1% annual fee on Crypto plus .15% per trade | 2% for the Grayscale Bitcoin Trust and 2.5% for the Grayscale Ethereum Trust |
| Customized Portfolio | ❌ | ✔️ |
| Visit Website | Visit Website |
Things Both Services Do Well
- Portfolio Management – You can choose what investments you want to be in, and you can get out of those that are not performing well. You can easily add ETFs and other funds to assemble a basket of investments that meets your individual goals.
- Tax-Loss Harvesting – Tax-Loss harvesting means selling your losing investments to take the loss as a write-off on your taxes. Then you invest the money in a potentially profitable opportunity. Betterment and Wealthfront both help identify tax-loss harvesting opportunities.
- Managing Cash – Wealthfront and Betterment cash-management accounts are among the best in the industry and pay interest. These are the accounts where you keep your money that is not invested. You can also use ATMs for free or get reimbursed for ATM fees.
The two services are nearly identical in terms of managing your cash (not your investments).
| Cash Management Feature | |
|
|---|---|---|
| Pays Interest? | ✔️ | ✔️ |
| No overdraft fee? | ✔️ | ✔️ |
| Debit card? | ✔️ | ✔️ |
| No monthly fee? | ✔️ | ✔️ |
| Can you open without an investing account? | ✔️ | ✔️ |
| Mobile check deposit, bill pay, check writing? | ✔️ | ✔️ |
| Fee-free ATMs? | Reimburses ATM fees worldwide | 19,000+ |
The Differences and Why They Matter
Let’s look at the features and services that differ between Betterment and Wealthfront, so you can understand how they can affect your investments.
Access to Human Consultants
Suppose you feel your financial and investment decisions don’t always fit into the automated advice you get through a Robo-Advisor. In that case, access to a human consultant could be a pivotal issue.
Wealthfront does not offer human advisors.
Betterment does offer access to human advisors, but you will pay for that advice. You’ll need the more expensive Betterment Premium Package or pay $299 for a one-time advice session.
💡 Determine whether access to a human advisor will be worth the cost. If you only have a few questions, you may not find the price worth it.
Minimum Balance Requirements
If you are starting out with investing, it is helpful to have a low minimum balance requirement so you can “get your feet wet” without a huge commitment. You may not be ready or able to commit a lot of money to invest.
There are two things you can do. Either save up your money gradually before opening an investment account or find one that allows you to start with little or no cash.
Betterment will let you get started quickly with no minimum balance required.
To open an account with Wealthfront, you will need at least $500. And it’s not just about getting started. You will have to maintain your minimum balance in your Wealthfront account even after you open it.
👉 If you plan to withdraw the money, consider Betterment which will not require an ongoing minimum balance.
Portfolio Lines of Credit
A line of credit differs from a loan. One of the distinctive features of Wealthfront is its portfolio lines of credit. This enables you to quickly access liquidity by borrowing up to 30% of your available investment account. You can repay whatever you borrowed, with interest, any time you want.
While this can sound attractive, it is also dangerous. You could easily borrow and spend some of the value of your portfolio and destroy all your progress.
With Betterment, you can apply for a loan. You can borrow up to 50% of your account balance. You are limited to $50,000. This is not like a line of credit because you must formally apply and be approved.
⚠️ If you are attracted to the idea of having a line of credit, ask yourself if you have the discipline to use it wisely.
Fee-Free ATMs
Each service addresses ATM fees in its own way.
Betterment reimburses you, and Wealthfront waives those fees at certain ATMs.
However, cash is becoming increasingly less important in daily finances. How vital is quick access to cash for you? The offerings by both services regarding ATM fees may be “nice to haves” rather than “must haves” for most people.
Cash-Back Rewards
Betterment offers cash-back rewards on purchases you make with your Betterment card. If you make a lot of purchases, this could be attractive.
The question becomes, will the rewards offset your tendency to spend more of your investment money? In other words, will the rewards entice you to buy things you shouldn’t since it feels like you are getting reimbursed? Cash-back rewards are relatively small and should not be treated as income you are earning.
Fees
It is easy to dismiss fees when evaluating investments, but they add up. Note that you pay an annual fee for both services, but Wealthfront also charges fees on the investment funds it puts your money into.
Don’t just look at the headline fee. Understand precisely how much you will pay for putting your money into specific funds.
The same goes for crypto. You pay an annual fee plus trading fees for both crypto services. Wealthfront’s crypto fees are higher, but that will only matter if you intend to use the crypto investing feature.
Customized Portfolio
The ability to pick and choose your investments may be important to you. You can adjust your investments to your personal style and tolerance for risk. However, there is a time when you want to go with the consensus, which is what automatic portfolios are for. Do you want to tweak, or will you be satisfied with more generic recommendations?
If you want the ability to pick your investments, then Wealthfront is the right choice.
Customer Reviews
Wealthfront and Betterment have similar patterns of reviews. Neither company is accredited by the Better Business Bureau (BBB), and there aren’t enough reviews on the BBB and Trustpilot sites to reach any conclusions.
Both companies have many more reviews on the Google Play Store and Apple’s app store.
Betterment gets 4.5 of 5 stars from 10,600 reviews on the Play Store and 4.7 of 5 stars from 38,200 ratings on the App Store.
Wealthfront gets 4.5 of 5 stars from 4,830 reviews on the Play Store and 4.8 of 5 stars from 15,400 ratings on the App Store.
These are very similar ratings, and while browsing reviews can give you an idea of what customers liked and didn’t like about the two companies, neither comes out looking substantially better.
The Verdict
Betterment has the edge based on its lower fees and $0 minimum to get started. If you are just now exploring the world of Robo-Advisors, this service will give you a hands-on experience without a substantial financial commitment. Your ongoing fees will be lower too.
As your sophistication grows, Wealthfront’s higher cost could be justified by the ability to tweak your portfolio to your risk tolerance. Wealthfront’s line of credit may be helpful as well.
So how do you choose between the two?
Betterment may be best for beginners because it is a bit simpler. You fill out a questionnaire, and Betterment recommends a portfolio for you. Wealthront offers a broader range of investments to choose from. If that is important to you, Wealtfront could fit with your investing approach.
