Betterment vs. Wealthfront
Posted on October 28, 2019
Betterment and Wealthfront—the pioneers of the robo-advice industry—are the two largest independent advisors today. Both were founded a decade ago and have helped bring a revolution to the financial advice industry by making professional money management available to and affordable for everyone. We break out the differences between the two to see which one is better for you. Our performance figures are accurate and based on real accounts that we have open with both providers.
Facts
| Betterment | Wealthfront | |
| Minimum | $0 for Digital; $100,000 for Premium | $500 |
| Advisory Fee | 0.25% for Digital; 0.40% for Premium | 0.25% |
| Account Types | Taxable (personal, joint, trust, corporate), traditional and Roth IRA, SEP IRA, 401(k) rollovers | Taxable (personal, joint, trust, corporate), traditional and Roth IRA, SEP IRA, 401(k) and 401(k) rollovers, 529 plans |
| Access to Live Advisors | Yes, at the Premium level | No |
| Tax Loss Harvesting | Yes | Yes |
| Automatic Rebalancing | Yes | Yes |
Dividend Reinvestment | Yes | Yes |
| Cash Product (Rates as of 11.1.2019) | Betterment Everyday Savings – 1.85% APY promotional rate, 1.60% APY otherwise Betterment Everyday Checking – debit card | Savings account – 1.82% APY |
| SRI Portfolio | Yes | No |
| Weighted Average Expense Ratio | 0.08% | 0.11% |
Fees and Minimums
Betterment has a $0 minimum for its digital tier. Its platform allows for the purchase of partial shares, which means even low balance accounts can stay fully invested. Betterment users who want a higher level of service can upgrade to the Premium tier, which requires a $100,000 account minimum but provides access to live advisors who can lend a human touch to financial planning and investment selection.
Both Betterment and Wealthfront charge a 0.25% annual management fee for their base level of service. For its Premium level, Betterment charges a 0.40% annual management fee. Betterment users with an account balance above $2 million see their fees reduced by 0.10% at either service tier. This gives Betterment the advantage at higher account balances. The table below puts these percentages into real terms for the various account balances.
Management Fee Paid Per Year At Various Asset Levels
| Account Balance | $1000 | $10,000 | $25,000 | $500,000 | $2,000,000 |
| Betterment | $2.50 | $25 | $62.50 | $1250 | $3000 |
| Betterment Premium | $4 | $40 | $100 | $2000 | $6000 |
| Wealthfront | $2.50 | $25 | $62.50 | $1250 | $5000 |
Financial and Retirement Planning
Over the years, Betterment and Wealthfront have expanded beyond investment management into financial planning. Wealthfront has robust digital financial planning tools. Its platform can pull in outside accounts—bank accounts, investment accounts, loans, mortgages—to paint a full financial picture. The planning tool allows users to combine multiple goals or life events into a single picture. Such events include buying a house, saving for college, taking time off to travel, and large one-time expenses or windfalls. The house purchasing goal leverages outside technologies, such as those provided by Zillow or Redfin, to provide data on housing prices in different areas a user might be interested in. The education planning tool examines the tuition and costs of schools across the U.S. that a user might be looking at. All these various tools combine into a calculator that maps incomes and expenses over time and examines if a user is inline to meet his or her goals.
Betterment’s planner also allows users to pull in information from outside investment and banking accounts, but only allows goals to be analyzed individually. However, Betterment makes it easy to set up investment accounts for each individual goal with an appropriate mix of assets. Unlike Wealthfront, Betterment offers a higher service level with access to Certified Financial Planners (CFPs). You can talk directly to these financial professionals for more detailed advice and personalized plans.
Performance
A unique advantage that Backend Benchmarking has over other websites comparing robo-advisors is that we have opened accounts at all the providers and have accurate performance data on the accounts. The tables below show how our accounts at Betterment and Wealthfront stack up.
Total Portfolio Performance
| YTD | 1-Year Trailing | 2-Year Trailing (Annualized) | 3-Year Trailing Annualized) | |
| Betterment | 12.45% | 4.03% | 4.10% | 6.66% |
| Wealthfront | 12.27% | 3.06% | 5.14% | 6.98% |
Total Portfolio Standard Deviation
| 1-Year Trailing | 2- Year Trailing | 3-Year Trailing | |
| Betterment | 9.54% | 8.60% | 7.76% |
| Wealthfront | 9.68% | 8.76% | 7.68% |
Equity Performance
| YTD | 1-Year Trailing | 2-Year Trailing (Annualized | 3-Year Trailing Annualized | |
| Betterment | 15.17% | 1.12% | 3.8% | 8.39% |
| Wealthfront | 15.54% | 0.04% | 5.41% | 8.96% |
Fixed Income Performance
| YTD | 1-Year Trailing | 2-Year Trailing (Annualized | 3-Year Trailing Annualized | |
| Betterment | 8.02% | 9.41%% | 4.39% | 3.09% |
| Wealthfront | 6.82% | 9.33% | 4.28% | 2.96% |
After three years, performance is very comparable. Wealthfront slightly outperformed Betterment in total portfolio performance and equity performance. It also performed better when compared to the Normalized Benchmark (for more on that, click here).
Cash and Banking Products
Wealthfront and Betterment have recently ventured into cash management and banking to supplement their platform offerings. Betterment currently offers a 1.85% promotional APY on its savings account to customers who sign up for the waitlist for Betterment’s new checking account and open a brokerage account. The latter need not be funded. Customers who opt for only the savings account can earn a 1.60% APY. Wealthfront currently offers a 1.82% APY on their savings account with no stipulations. Both accounts are FDIC insured and earn substantially more interest than the national average of 0.09%. All rates are as of November 1, 2019.
Unlike traditional savings accounts, high-yield savings accounts at Wealthfront and Betterment allow for unlimited withdrawals. Betterment has a two-way cash sweep, which will automatically transfer money from your linked checking account to your Betterment high-yield account if your checking account goes above a certain predetermined range and back out if it drops below that same range. Without action on your part, this feature helps you earn interest on your cash when you are not utilizing it.
Right now, both providers only offer savings accounts. Betterment and Wealthfront both plan to release debit cards in the future. Wealthfront is trying to build out a powerful cash management system that can accept direct deposits, pay bills, and automatically direct money into other Wealthfront accounts.
Unique to Wealthfront
- 529 College Savings Plans
- Portfolio allocation to natural resource ETFs and real estate
- PassivePlus portfolios that hold individual securities and allow for stock-level tax loss harvesting
- Proprietary Risk Parity Fund
- Tax loss harvesting available at the stock level
- A line of credit against your portfolio for accounts larger than $100,000
- Multi-goal financial planning
Unique to Betterment
- Access to Certified Financial Planners at the Premium level
- Socially responsible investing (SRI) portfolios, BlackRock Target Income Portfolio, Goldman Sachs Smart Beta Portfolio
- Charitable giving option that allows investors to make tax-friendly donations to various charities
- Two-way cash sweep
- Lower management fees at higher levels of assets
Conclusion
Which service you choose (should you choose one of these two) depends on which will best fit your needs. Both offer low fees, favorable interest rates on savings accounts, and easy-to-use platforms. Betterment has the lower minimum but Wealthfront’s is also very low at $500. Betterment might be better for you if you want:
- To talk to real advisors to discuss your planning and investment strategies (above $100,000 balance)
- To invest in socially responsible portfolios
- To invest in a dedicated income portfolio if you are a more conservative investor or retiree
Wealthfront might be better for you if you want:
- To invest in a 529 plan to fund future education expense
- A comprehensive digital financial planning experience
- Exposure to real estate and commodities
Tagged Cash account, etterment, Fees, Financial Planning, IRA, Minimum, Performance, SRI, Tax Loss Harvesting, Wealthfront
