Betterment is a robo-advisor firm that helps clients build their portfolios via automated tools and portfolios. We review the company here.
Betterment Financial LLC is a financial advisory firm based in New York, NY. It’s registered with the SEC as an investment advisor (RIA) and a broker-dealer. It specializes in robo-advisor services, including investment management, retirement planning, and cash management. It is also the first company to offer a robo-advisor service, launching in 2008.
Robo-advisors can be extremely useful, especially if you’re a beginner with limited assets. However, they can also carry a level of risk. In this guide, we’ll provide an overview of Betterment’s services and what you can expect from them, including a breakdown of costs, account minimums, and disclosures to be aware of.
Assets Under Management
Betterment LLC, 8 W. 24th Street, 6th Floor, New York, NY 10010
(718) 400-6898, Monday-Friday, 9:00 am-9:00 pm ET.
Pros and Cons of Betterment
- Abundance of portfolio options
- Good for beginners
- Inexpensive fees
- All its advisors are CFPs
- The firm is a fiduciary
- Must invest $100,000 to speak to an advisor
- No in-person advisors
- Portfolios are mainly limited to ETFs and cryptocurrencies
Types of Clients
Betterment serves a wide variety of clients. Per the firm’s Form ADV Part 2A, it provides services to:
- Retail clients
- Third-party advised clients
- Retirement plan clients, such as through employer-sponsored plans
The company’s low account minimums also make many of its services more accessible for clients of nearly all asset levels. Betterment Digital’s wrap and crypto programs each don’t set an account minimum. But if a client passes a $100,000 asset threshold, they’ll have access to the firm’s Premium plan, which includes discretionary investment advice and consultations over the phone with a human advisor.
Services Betterment Offers
In general, Betterment specializes in providing automated portfolio management services to clients, including monitoring, rebalancing, and tax-loss harvesting. The firm offers this via two tiers – Digital and Premium. Each is similar, but Premium includes more features if you’re able to qualify, such as direct access to a financial advisor for consultations.
Below is a breakdown of each service tier, including the features you can expect from them:
Betterment Digital provides investment management and advisory for clients of all asset levels. After signing up for an account and depositing funds, the firm’s robo-advisor tools go to work to build a portfolio based on your goals, time horizon, and risk tolerance. To mitigate risk and costs on your end, it employs strategies such as:
- Tax-loss harvesting
- Automatic rebalancing
- Asset allocation
For the most part, Betterment Digital portfolios comprise low-cost ETFs. However, you can choose which type you’d like to construct, ranging from environmentally conscious to cryptocurrency (i.e., the securities you invest in). Below is a more specific breakdown of the available choices:
- Core implements a long-term growth strategy featuring a broad spectrum of stocks and bonds via low-cost ETFs.
- Innovative Technology prioritizes investing in “pioneer companies” that are driving the tech and economic growth in the U.S. Keep in mind that, while this type focuses on a specific industry, it still aims to diversify your portfolio as much as possible.
- Broad Impact is a portfolio type that primarily invests in companies that fit the environmental, social, and corporate governance (ESG) standard. So, your robo-advisor will purchase securities from this category, while also attempting to maintain proper diversification according to your goals and risk tolerance.
- Climate Impact emphasizes investing in companies with low carbon emissions and that have a focus on mitigating climate change as a whole.
- Social Impact aims to invest in companies and securities that focus on equity, diversity, and inclusion.
- Goldman Sachs Smart Beta is a slightly higher-risk option that seeks to invest in securities that have a chance to beat the market by a slight margin.
- BlackRock Target Income is a bonds-only portfolio that seeks to avoid the risks posed by stocks, while also netting you an income source.
- Cash Reserve is a 4.75% APY cash-only account that’s FDIC insured up to $2 million.
- Universe is a portfolio type that seeks to diversify your funds across various cryptocurrencies and products.
- Sustainable also invests in crypto; however, it focuses on energy-conscious currencies.
- Bitcoin/Ethereum invests exclusively in these titular cryptocurrencies. Per Betterment, you can expect your robo-advisor to dedicate about 70% to Bitcoin and 30% to Ethereum.
Clients with over $100,000 in assets can participate in Betterment Premium. This includes all of the features of Digital; however, you’ll gain access to a certified financial planner (CFP) to help develop a personalized strategy for all aspects of your finances. Consultations with a professional may be via email or phone.
Fee Structure and Cost
Betterment charges a flat monthly or AUM fee for its investing services. For all investing accounts, you pay at least $4 per month. However, once you reach an account balance of $20,000 or a recurring monthly deposit of $250 or more, you’ll pay a 0.25% fee. For example, if you have $50,000 in your account, you’ll pay an annual fee of $125.
Premium accounts add 0.15% to the original fee, making it a total of 0.40% annually. This means that for every $40,000 you invest, you’ll pay $40.
The thought of putting your money under a computer’s control may seem very far-fetched. However, Betterment espouses a very specific, client-focused investment philosophy that aims to mitigate risk as much as possible. Namely, the firm’s robo-advisor runs on data science and advanced algorithms which factor your risk tolerance, goals, and time horizon into the equation.
Your robo-advisor will also constantly monitor and rebalance your portfolio. It can also reinvest dividends you receive to fully take advantage of compound interest. Betterment also claims on its website that its robo-advisor will specifically take inflation and future taxes into consideration as it grows your account.
Unlike a traditional investment advisory firm, Betterment aims to automate your experience as much as possible. Despite this, you still have control over the types of securities you invest in, as well as by communicating your goals and risk tolerance. And, if you need help from a human professional, you can do so via the company’s Premium program.
Betterment is registered with the SEC as an investment advisor. Because of this, the firm must report any legal proceedings or events as disclosures on its Form ADV, which is publicly available. This also includes any that involve the company’s representatives.
Per Betterment’s most recent Form ADV filing, it has one disclosure. In April 2023, the firm settled with the SEC because of “alleged material misstatements and omissions” regarding the company’s automated tax-loss harvesting tools.
Betterment offers a useful help center to answer several common questions clients may have. However, if you’d like to directly reach out to the company or one of its representatives, you can do so by:
- Calling (718) 400-6898, Monday-Friday, 9:00 am-9:00 pm ET.
- Chatting with a representative on the company’s contact page.
- Directly reaching out to your advisor if you’re on the company’s premium plan.
How to Start an Account
Betterment makes it rather simple to sign up for a basic investing account, especially given that it has no minimum necessary. To do so, visit the firm’s website and click “Get Started” on the top right. From there, you’ll be able to choose an account type from the following options:
- Guidance (requires a minimum of $100,000)
- Employer-sponsored plan
The information in this review is based on publicly available information directly from Betterment’s website and the SEC. Neither the firm nor its representatives have any say on what we’ve included on this page.
Frequently Asked Questions
Is Betterment a fiduciary?
While the firm is primarily a robo-advisor, it must adhere to a fiduciary duty. This is because Betterment maintains its status as an RIA with the SEC.
Is Betterment safe?
There’s always a risk when you’re investing funds; however, Betterment must act as a fiduciary at all times. This means that any security it buys on your behalf needs to be in your best interest. Also, keep in mind that the firm’s robo-advisor tools are meant to build your portfolio with your goals, time horizon, and risk tolerance in mind.
Is Betterment FDIC-insured?
Betterment’s cash accounts are FDIC-insured up to $2 million. However, its brokerage accounts are protected by SPIC, rather than FDIC. This entitles you to protection from losses if the firm fails, but not from those related to your investments.
Which Betterment portfolio is best?
This entirely depends on your goals, time horizon, and risk tolerance. Many of Betterment’s portfolio types focus on specific industries or securities, such as ESG investments and cryptocurrency. The firm does offer its Core portfolio, which gives you access to a wide variety of low-cost ETFs from all over the world. Because of this, it may be ideal for those who lack specific preferences.
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