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Empower and Betterment have grown into two of the most popular financial platforms on the web. Empower offers a free financial account aggregator, and also a premium Wealth Management service. Betterment is the largest independent robo-advisor, and stays strictly with investment management.
But if you had to choose one or the other–Empower vs. Betterment–which way would you go?
It’s really a tough choice. On the surface, the two services are similar, at least as far as investment management goes. But as you’ll see from our drill down into each platform’s respective investment methodology, options and service levels, you’ll find very pronounced differences.
Empower vs. Betterment – The High Altitude View
To the untrained eye, Betterment looks like the better investment platform by default. After all, it has a much lower annual advisory fee, which may be the single factor that catches your eye. But when choosing an investment service, you have to look beyond fees.
We’re going to get deep into detail about what each service provides. But up front, it’s important to understand that Betterment is a pure robo-advisor. Empower operates like a robo-advisor in several important respects. But it’s also a full-service financial advisory. In addition to managing your portfolio, they also provide advice on the management of your entire financial universe. That includes making routine financial decisions, as well as charting major directions, like estate planning.
Learn More: Best Robo Advisors
In a real way, Empower is more comparable with traditional human financial advisors. And those advisors charge much higher fees than Empower does, for providing largely the same services.
But let’s look at these two investment platforms side-by-side, and see if we can’t help you make a decision on which one to choose.
The table below shows the basic features of both investment platforms side-by-side:
|Advisory fee||0.89% up to $1 million, lower on higher balances||0.25% up to $100,000, then 0.40%|
|Available Accounts||Individual and joint taxable accounts; traditional, Roth, SEP and rollover IRAs; trusts||Individual and joint taxable accounts; traditional, Roth, SEP and rollover IRAs; trusts|
|Asset classes included||6||14|
|Investment in individual stocks||Yes||No|
|Socially responsible investing||Yes||Yes|
|Mobile App||Android & iOS devices||Android & iOS devices|
Empower and Betterment Investment Methodologies
Most popular investment platforms use similar strategies, and that includes Empower and Betterment. They construct your portfolio based on your risk tolerance, investment goals, and time horizon. Your portfolio is then managed using modern portfolio theory (MPT), which emphasizes proper asset allocation.
In most cases, each of the several asset classes making up a portfolio is invested in low-cost, index-based exchange-traded funds (ETFs). Both platforms invest in ETFs, but Empower also includes a large number of individual stocks to provide enhanced investment strategies.
Each platform provides periodic rebalancing to maintain target asset allocations, as well as automatic dividend reinvestment.
Both platforms use tax-loss harvesting. Tax-loss harvesting involves selling losing asset positions to offset gains in other asset classes. This minimizes capital gains taxes to the investor. The funds in the asset classes that are sold are replaced with similar funds after more than 30 days have passed. (This is to avoid IRS wash sale rules.)
Those are the similarities. Now let’s look at the specific strategies each platform uses.
Empower Wealth Management
While Betterment is a true robo-advisor, Empower is something of a hybrid. Like a robo-advisor, they do use automated investment processes. But they also use other investment strategies that are not consistent with typical robo-advisors.
This includes investment strategies designed by an investment committee. Individual investors also have significant input into how their portfolios are constructed. And while your portfolio is designed based on your risk tolerance, investment goals, and time horizon, the final product is heavily influenced by the initial consultation you’ll have with a financial advisor, as well as subsequent meetings.
Like most investment platforms, Empower has several investment plans, based on your portfolio size. To take advantage of the Wealth Management service, you’ll need a minimum investment of $100,000.
Financial advisors: This is central to the Empower Wealth Management service. Wealth Management clients each have two dedicated financial advisors. They offer full financial and retirement planning, as well as college savings, and financial decision support on topics including insurance, home financing, stock options, and even compensation. Financial advisors are available by phone, email, live chat, or web conference on a 24/7 basis.
Tax optimization: Empower Wealth Management uses tax-loss harvesting, but they go beyond it with even more comprehensive tax minimization, using the following strategies:
- ETFs are used rather than mutual funds since they generate far less in the way of capital gains.
- Individual stocks are also used since they can be easily bought and sold to generate tax-loss harvesting.
- Tax allocation is used, with income-producing assets held in retirement accounts, while capital gains generating assets are held in taxable accounts to take advantage of lower long-term capital gains tax rates.
Empower Wealth Management Portfolio
Your portfolio is invested in six asset classes:
- U.S. stocks
- U.S. bonds
- International stocks
- International bonds
- Alternative investments, including real estate investment trusts, energy, and gold
The U.S. equity class will be invested in a diversified mix of 70 or more individual stocks. This will expand the opportunity for management to employ tax-loss harvesting.
It also enables the use of tactical weighing. That strategy improves on traditional indexing by maintaining more evenly weighted exposure to each investment sector and style. Backtests have indicated the strategy outperforms the S&P 500 by 1.5% per year, and with lower volatility.
All other asset classes are invested in low-cost index-based ETFs to provide broad market exposure at a low expense ratio.
Empower Wealth Management Investment Specializations
Use of alternative investments: The inclusion of stocks and bonds is typical with investment platforms of all types, especially robo-advisors. But Empower goes beyond the basic stock and bond combination, and also adds alternative investments.
These include investing in real estate through real estate investment trusts (REITs), as well as energy and gold. This provides a Empower portfolio with potentially countercyclical investments, that should perform especially well in a high inflation environment. This is not an asset allocation that’s included in Betterments portfolios.
Socially Responsible Investing (SRI): This is becoming an increasingly common offering by investment platforms of all types, and Empower offers it as well. You can choose to invest in companies that are in compliance with environmental, social and governance (ESG) guidelines. This will give you an opportunity to invest in companies you believe are doing the most good, and staying away from others whose values are not consistent with yours.
Empower Wealth Management Private Client Service: For clients with at least $1 million to invest, Empower offers its Private Client service. If offers all the services of the Wealth Management plan, but adds the following:
- Priority access to a certified financial planner (CFP), as well as financial advisors, and the Investment Committee and support
- Private Banking services
- Estate, tax and legacy portfolio construction
- Donor-advised funds
- Private equity and hedge fund reviews
- Deferred compensation strategies
- Estate attorney and CPA collaboration
Betterment Investment Strategy
Anyone can invest through Betterment since there’s no minimum initial investment. You can open an account with no money at all, then fund it with regular contributions. Betterment is a true robo-adviser, investing your money using algorithms. Portfolios are constructed based on your risk tolerance, investment goals, and time horizon. There’s generally little human input.
The basic portfolio Betterment uses applies to both the Digital and Premium versions of this robo-advisor. Up to 14 asset classes are used in the construction of each portfolio, six for stocks, and eight for bonds.
Tax-loss harvesting: Betterment uses this strategy on all taxable accounts (it’s not necessary for retirement accounts, since they’re tax-deferred).
Stock classes (6):
- U.S. Total Stock Market
- U.S. Value Stocks Large-Cap
- U.S. Value Stocks Mid-Cap
- U.S. Value Stocks Small-Cap
- International Developed Market Stocks
- International Emerging Market Stocks
Each of the stock asset classes uses three ETFs. A primary is used, with two secondary funds in the rotation to accommodate tax-loss harvesting.
Bond classes (8):
- U.S. High Quality Bonds
- U.S. Municipal Bonds (for taxable accounts only)
- U.S. Inflation-Protected Bonds
- U.S. High-Yield Corporate Bonds
- U.S. Short-term Treasury Bonds
- U.S. Short-term Investment Grade Bonds
- International Developed Market Bonds
- International Emerging Market Bonds
Four of these asset classes use only one ETF, indicating tax-loss harvesting is not employed for these sectors. However, the other four each have one or two secondary ETFs, so tax-loss harvesting is a factor.
Betterment Investment Specializations
Investing in value stocks: Three of Betterment’s six stock asset classes are held in value stocks, including the classes invested in large-cap, mid-cap and small-cap. This can be a serious advantage. Value stocks are stocks that trade at a lower price than what the company’s performance and fundamentals may otherwise indicate.
These stocks tend to outperform the general market over the long term, and investing in them is one of the most time-honored strategies on Wall Street. It’s an investment strategy Warren Buffet is well known to use.
Betterment Premium Plan: Similar to Empower’s Private Client plan, this is Betterment’s upgrade plan. You’re eligible for this plan with a minimum account balance of $100,000. In exchange for an annual advisory fee of 0.40%, you get all the benefits and services of the Digital plan, plus External Account Analysis and unlimited access to Betterments Certified Financial Planners, both of which will be explained in greater detail in a bit.
The Betterment Premium Plan enables Betterment clients to reach a service level that’s fairly close to that offered by Empower Wealth Management.
Betterment Specialized Portfolios
Socially Responsible Investing: This portfolio reflects a 42% improvement in social responsibility scores for their U.S. large-cap holdings. Betterment replaces its U.S. Stocks Large-cap and Emerging Market Stocks with SRI investments. But instead of investing in individual stocks, they hold ETFs that specialize in SRI.
Flexible Portfolios: Similar to Empowers Tactical Weighting strategy this portfolio enables you to adjust the individual asset class weights in your portfolio. It’s designed for more experienced investors, though they don’t define who they are. Flexible Portfolios can be used to deviate from your recommended portfolio. This gives at least limited individual control over your portfolio.
Goldman Sachs Smart Beta: This is an actively managed portfolio option, with management provided by Goldman Sachs. It attempts to outperform conventional market-cap strategies. It provides a higher risk/higher reward strategy, compared to more common robo-advisor strategies that simply seek to match the performance of underlying markets.
BlackRock Target Income: This is a portfolio designed specifically for investors who are looking for a relatively safe income-producing portfolio. It is invested entirely in a mix of longer-term bonds, and lower quality high yield bonds, to produce above-average interest rate returns. The portfolio does not seek capital gains.
Tax-Coordinated Portfolio: This is similar to Empowers tax allocation strategy. Once again, asset classes that generate income are held in retirement accounts. Assets that generate capital gains, and may be candidates for tax-loss harvesting, are held in taxable investment accounts.
Empower has a free version, known as the Financial Dashboard. It’s extremely popular and is currently being used by nearly two million people. Though it’s often regarded as a budgeting app, it’s actually fairly limited in that regard. The greater strength is in the many investment tools it offers. For this reason, Empower’s free Financial Dashboard is worth signing up for, even if you never plan to use the Wealth Management service.
The tools and features of the Financial Dashboard include the following:
Budgeting: The Financial Dashboard is a financial account aggregator. You connect your various financial accounts, including investment accounts, checking and savings accounts, loans, credit cards, and even employer-sponsored retirement plans. You can then track your cash flow and spending patterns, as well as analyze your spending categories and individual transactions. Monthly summaries will help you to know exactly where your money is going. The budgeting capability provides you with upcoming bill alerts but does not enable you to pay bills through the platform.
Cash Flow Analyzer: You can use the Analyzer to create a budget, and then to set financial goals. Those goals can include saving for the purchase of a home or a college education, or paying off debt. It will then help you to develop strategies for each goal.
401(k) Analyzer: This is one of the financial tools Empower is best known for. The Analyzer can search your employer-sponsored retirement plan for hidden investment fees. It can then recommend lower-cost options within your plan.
Retirement Planner: This tool uses a series of “what if” scenarios, to help you determine if you’re on track with your retirement goals. You can make adjustments for changes in your situation, such as a job or career change, the birth of a child, or even saving for college. It considers any financial factors that may affect your retirement, even beyond your retirement plans themselves.
Investment Checkup: This tool is practically a free robo-adviser all by itself. It doesn’t manage your investments of course, but it will help you to optimize your various investment accounts. It will even make recommendations to adjust your portfolio to one that’s more consistent with your investment goals.
Net Worth Calculator: This tool allows you to track your assets and liabilities, so you can find your net worth at any time. Your net worth may be the single most important financial number in your life, since it gives you the bottom line on the big picture of your finances.
Personal Advisor: Even with the free Financial Dashboard, Empower does give you access to live support. The advisors won’t provide financial advice, but they will help you make the best use of the Dashboard.
Betterment Checking: One of Betterment’s interesting features is its checking account. Its FDIC-insured up to $250,000 and you get a debit card that has contactless payment ability — meaning you can tap to pay when a merchant accepts it. There are no minimum balance requirements and no overdraft fees. On top of all that, Betterment reimburses all ATM fees and foreign transaction fees around the world. Lastly, you can quickly deposit checks by simply taking a picture, using their streamlined mobile app.
External Account Analysis: One of the inherent limits of robo-advisors is that they tend to focus only on the funds you have invested with them. There’s no consideration or adjustment of other assets, and how they may impact your robo-advisor portfolio. If you’re eligible for Betterment’s Premium Plan, you’ll get the benefit of External Account Analysis. Through it, Betterment will review your investments beyond your Betterment plan, to provide better and more comprehensive investment management.
Betterment Financial Experts: These are live experts available to take your call to help you with investment questions. They don’t act as financial advisors, but they can help you with your Betterment account, as well as provide limited investment advice.
However, Betterment does offer higher levels of financial advice if you need it.
Financial Advice Packages: For a fee, you can get one-on-one help from a live financial expert. They are available in sessions that run between 45 and 60 minutes. In some cases, the advice will require one session, but in others, two will be needed.
The pricing for these packages is as follows:
- Getting Started Package – $149
- Financial Checkup Package – $199
- College Planning Package – $199
- Marriage Planning Package – $299
- Retirement Planning Package – $399
Fees & Pricing
Empower Wealth Management: Fees for Empower Wealth Management are as follows:
|Up to $1 million||0.89%|
|First $3 million*||0.79%|
|Next $2 million*||0.69%|
|Next $5 million*||0.59%|
|Over $10 million*||0.49%|
*Applies to clients who invest $1 million or more.
Betterment: Under the Betterment Digital plan, the fee is 0.25% on balances up to $2 million, after which it drops to 0.15%.
For the Betterment Premium plan, the fee is 0.40% on balances up to $2 million, after which it drops to 0.30%.
Related: Betterment Checking Review
For a limited time, Betterment is offering up to one year of its services for free. That will require a high starting balance of $250,000, but even if you have less than that you’ll still get some free time with the robo-advisor.
Empower vs. Betterment Which is the Better Investment Platform?
Despite the superficial similarities between these two platforms, a deep drill down shows substantial differences. If you’re looking only for professional investment management at a very low fee, Betterment is the obvious choice. It provides a high level of investment management, at a fee that’s not only lower than Empower’s but much lower.
Let’s also not forget that Empower has a steep minimum initial investment of $100,000. If you don’t have that kind of money to invest, Betterment will work just fine for you.
But if you want a strong dose of financial management along with investment management, Empower is the clear winner.
Yes, it has a higher annual advisory fee than Betterment. But you’ll have a much more personalized investment experience, involving direct live support. Not only are financial advisors available to help you make important financial decisions in your life, but that connection will also enable you to have a greater measure of control over your investing activities.
Read More: Alternatives for Empower
To summarize, if you’re a small investor, or you’re just looking to have some or all of your portfolio professionally managed at a low cost, Betterment is your best choice. But if you’re looking for lifelong, big-picture financial management, Empower is the clear winner.