Betterment vs. Wealthfront: Which Is the Best Robo-Advisor in 2017?

Two of the biggest robo-advisors are Betterment and Wealthfront.  At first glance they may appear to be virtually identical. Both create diversified portfolios with similar low cost ETFs. Both rebalance your portfolio, reinvest your dividends, and offer tax loss harvesting. Both have slick, easy-to-use websites.

But there are some significant differences between Wealthfront and Betterment upon closer inspection. A podcast listener named Dan touched on this in a recent email:

Are you going to do a podcast on what made you choose Wealthfront for your taxable account (other than to keep multiple sponsors happy!)? I assume it’s for the Wealthfront 500 and tax-loss harvesting benefits it offers, but Betterment counters that this is only done on a portion of the account, and not worth the added cost. Is this the future of indexing or a gimmick? Still very interested in this topic (robo-advisors) which you brought to my attention.

Many thanks,
Dan

(Betterment was at one time a sponsor of the Dough Roller Money Podcast. As of today, neither Betterment nor Wealthfront are sponsors, but both offer affiliate programs that I participate in.)

So, let’s address Dan’s question about Betterment versus Wealthfront, starting with the basics.

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1. Account Types

Wealthfront offers the following account types:

Betterment options are more limited:

  • Taxable accounts (personal, joint, revocable trusts, irrevocable trusts)
  • Traditional IRA accounts (including 401(k) rollovers)
  • Roth IRA accounts
  • SEP IRA accounts
  • 401(k)

2. Cost

Which one is cheaper depends on your account balance.  In addition to the costs of the ETFs, each service charges a management fee.

Wealthfront: Charges a flat rate of .25% of assets under management, though the first $10,000 is free.

Betterment: Betterment announced a new fee structure in February 2017. Their fees now fall into three categories: Regular, Plus, and Premium.

The fees are as follows:

  • Regular – 0.25%
  • Plus – 0.40%; minimum 100K and an annual call with their CFP and licensed financial experts
  • Premium – 0.50%; minimum 250K and unlimited calls with their CFP and licensed financial experts

Related: How Half a Percent Can Ruin Your Retirement

As you can see, Betterment uses a sliding scale in which the fee actually increases as your balance increases. As a rule, you’ll be better off with Wealthfront in any scenario in terms of costs; you simply get more access to financial experts for more of your money in fees w/ Betterment.

3. Asset Allocation

Both use solid asset allocation plans. They each allocate your money into different exchange traded funds (ETFs). Personally, I think both platforms have reasonable asset allocation plans.

But there are also some differences:

  1. Betterment favors value funds – companies that are undervalued according to certain measures, like P/E ratio.
  2. Wealthfront has real estate investment trusts (REITs), Betterment does not.
  3. Wealthfront has commodities, Betterment does not.
  4. Wealthfront tilts toward dividend paying stocks – they have a high dividend yield ETF, while Betterment doesn’t.
  5. Wealthfront has no US government bonds – yields are low so they don’t see them as a good investment; Betterment does have US bonds.

On balance, I prefer Wealthfront, but it’s a close call. You may see if differently based on your own investment preferences.

Learn More About Asset Allocation

4. Website

Both are easy to use and to understand. It’s also easy to change asset allocations. But I think Betterment is the better of the two.

5. Tax Loss Harvesting

Both offer it, but you have to have a certain account minimum for each.  With both Betterment and WealthFront there are no minimums for tax loss harvesting.

Tax loss harvesting doesn’t eliminate your tax liability, it defers it. That has value, because the more money you can keep in your account, the more you can earn on that balance.

For that reason, there’s no doubt that tax loss harvesting has value, and increases your return. It’s almost impossible, however, to quantify the value of tax loss harvesting.

Wealthfront does offer a unique tax loss harvesting feature called the Wealthfront 500.  For those with at least $500,000 in a taxable account, Wealthfront will buy shares in all 500 companies in the S&P 500, rather than invest in an index ETF.

By doing so, they can generate additional tax losses on a company by company basis.  They plan to roll out a similar feature for those with balances of at least $100,000.

6. Account Minimums

Wealthfront has a minimum of $500 (down from $5,000) to open an account. Betterment currently has no account minimum required, and you are not charged a fee for an account that has a $0 balance.

I confess to having a personal bias toward Vanguard. I’ve been with them a long time. But both Betterment and Wealthfront are good options.


Topics: InvestingPodcast

9 Responses to “Betterment vs. Wealthfront: Which Is the Best Robo-Advisor in 2017?”

    • Rob Berger

      Chuck, I have looked at SigFig. As you’ve noted, you leave your money with (or move it to) TD Ameritrade. That’s very different than either Betterment or WealthFront. SigFig is really similar to FutureAdvisors. It seems to me to be another reasonable option.

  1. Jeremy G.

    Wealthfront just announced today that everyone with a taxable account, not just those with $100,000 or more, will receive their tax-loss harvesting benefits. People with $100,000 or more will now have access to the Wealthfront 100, which is a separate offering as well.

  2. I believe this article deserves and update. Betterment has changed its pricing policies and it seems for a vast majority of people it will cost .25% unless you are a multimillionaire. This may be ok so long as their tax harvesting highly pays for itself. I have my reservations about that but Mr Money Moustache has a lot of faith in them and is still depositing 1k a month on top of his 500k already invested with them. He was planning on moving over a full million but decided against it. Now I don’t really worry about tax loss harvesting since almost all but 9k of my investments are in 401k’s or IRA’s but I am almost at the point where I am maxing both. My home should be paid off in about 5 years when I reach 36. At that point I’ll need to find a good vehicle for that extra money each month and sadly it will need to be in a taxable account. The positive side is it will work on replacing my income should I want to retire early. I was thinking betterment might be the way to go but the 10% additional fee for the next 30 years has me leery since the previous .15% was already on top of the etf expenses. If we can get mutual funds and etfs around .5-.15% with vanguard, adding that .25% for some fancy tax loss harvesting algorithm makes me wonder how close the platform is getting to trying to be an active passive fund management firm. (Contradictory in my eyes)

  3. John Antolak

    The article says that Betterment’s new fee structure gets more expensive as your balance gets higher. However, that is only if you opt for the Plus or Premium packages. There is no requirement to do so. Therefore, the difference in fee for WealthFront is the waiver on the first $10K.

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