Company review - Betterment

One of our primary aims at wimple is to share quality information on ways to make the management of your money as easy as possible, regardless of your experience and the platform you choose.

Today we look at a leading independent robo-advisor, Betterment, one of the oldest robos in the business. We break down what robo-advising is all about, look at the history of the Betterment platform, and discuss why this no-nonsense investing platform may be right for you.


About Robo-advisors

Put simply, a robo-advisor is an algorithm - rather than a human being - that manages investment and financial planning decisions for an individual portfolio.

Robo-advisors structure portfolios on the basis of modern portfolio theory, an approach to investing that builds a diversified portfolio from different securities and asset classes based on a desired level of risk. In short: spreading your investment eggs across a range of baskets.

What’s great about robo-advisors is the speed with which this happens, and the algorithm’s ability to manage and balance thousands of portfolios instantly and flawlessly. Add to this lower fees, lower required opening balances, and the ease in getting started, and you have a sea-change in the way we view investing and financial management.


A short history of Betterment

This shift was spearheaded by Betterment, one of the oldest active robo-investor platforms. After the financial crash of 2008, founder Jon Stein looked at the set up of the financial services sector and decided that things didn’t have to continue in the traditional mould.

His perspective on the industry birthed a flexible robo-advisor platform that has steadily grown its user base and suite of product options in its ten years.  With billions of dollars in assets under management, and over 500,000 customers, Betterment is the largest independent robo-advisor today.

Being fully independent means that Betterment holds no ties to the investment products they recommend, which means transparent, cost-effective portfolio management for clients.


The nuts and bolts of Betterment

As a Betterment client you can choose from two plans:


Betterment digital plan

Account minimum: $0 | Annual fee: 0.25% of AUM


Betterment premium plan

Account minimum: $100K | annual fee: 0.4% of AUM + unlimited over the phone advice from a Certified financial planner

Betterment charges its annual fee each quarter based on your average level of assets during that quarter. This makes it relatively easy to understand the fees you’re required to pay.


Getting started

When you open your account you’re asked for your age, income, risk tolerance and savings goals. From there, Betterment constructs a portfolio made up of a balance of stocks and bonds that reflect your goal and the speed at which you need to achieve it.

Betterment also lets you tie external accounts to your profile to make it easy to get a clear picture of your entire financial situation, set up automated deposits, and make withdrawals as needed.


Account types

Betterment’s standard account is the Individual Taxable Account, where the gains you accrue are taxable. Other accounts include:

  • Retirement accounts (Traditional and Roth IRAs)
  • Black Rock Target Income (100% bond funds)
  • Goldman Sachs Smart Beta (high risk)
  • Flexible (exclusive to premium accounts-  greater asset class customization allowed)
  • High yield savings and checking
  • Charitable giving (donate your capital gains to charities to reduce tax exposure)
  • Business (company 401k plan management)


Why Betterment?

Simplified risk tolerance profiles make it easy for you to decide on your preferred exposure when signing up. Betterment wraps these profiles into a goals-based investing approach that further guides its algorithm on how to construct your asset class allocation. For example, planning for college for a child will trigger a more aggressive allocation than saving for a shorter term goal.


Who’s it for?

Betterment offers portfolio options for investors of all stripes, but it’s the best choice for younger investors who will appreciate the ease of a top drawer mobile app and dashboard interface.


What’s great

  • No minimum deposit- get your feet wet without a huge starting stake
  • Simple dashboard interface makes it easy to use
  • Focus on financial goal setting (buying a house, saving for a special trip, etc.)
  • Solid track record to date, and with an emphasis on customer service
  • No transfer or account closing fees

What’s less great

  • Lower fees can be had elsewhere
  • No 529 plans for college-minded saving
  • Might be “too simple” for experienced investors
  • The need to pay for advice from a financial planner*

*For those using the Betterment digital plan, you must pay to access the services of a human advisor. This can be useful when you want to change your investment strategy, but depending on how well capitalized you are, the $200-$300 fee can feel like a ding on top of the fees you already pay.

A last word

There are countless ways to get the most out of your investments. Robo-advisors are a great option, particularly for those new to the world of investing and looking for an easy way to start growing their money.

After a while, however, you may decide that you want more control over your portfolio, as well as the dedicated guidance of a human advisor. Our job at wimple is to help you connect with a financial advisor in your area that will help you to feel more in control of your finances and what comes next. Contact us today to get started.


Disclosure: This article is not to be taken as investment advice and should not be relied on for such advice or as a substitute for consultation with professional accounting, tax, legal, insurance, or financial professional. The observations made in external articles are independent of Wimple and should not be read as financial recommendations.

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