Betterment vs. Wealthfront

Technology has changed the face of personal investing. Robo-advisers help investors start gainful accounts with minimal maintenance, using algorithms and premade investment packages to make automated transactions.

Betterment and Wealthfront Inc. are two robo-adviser pioneers that have been in business since before the boom in automated financial advice. They share many similarities but differ in the specific products they offer and the approaches they take. Who wins in the clash between Betterment vs. Wealthfront?

What Is Betterment?

Betterment was founded in 2008 by a pair of financial experts who were looking to create an automated investment tool that was user-friendly and easy to manage. They developed an algorithm-driven robo-advisory app that offers advice and portfolio management. 

Over the past 15 years, Betterment has evolved to offer a range of financial services, including:

• Robo-advisory services
• Goal-oriented investing
• Tax-loss harvesting and other tax strategies
• Smart Saver accounts, high-yield and low-risk bond portfolios
• Retirement planning

Betterment focuses on its clients’ goals upfront. Users set their goals and objectives in investing, and Betterment offers recommendations on what financial instruments are most appropriate. Then, Betterment technology manages their accounts and offers ongoing advice on maintaining or changing financial strategies. 

Pros of Betterment

Some of the advantages of using Betterment include:

• User-friendly interface
• Automatic portfolio diversification
• 15 years of experience
• Goal-based orientation
• Tax efficiency
• Flexibility with account structure

Betterment’s focus on user experience has made it a popular choice for everyday investors.

Cons of Betterment

Some of the drawbacks of using Betterment include:

• Less user control over choice of securities
• Percentage-based fee structure
• Traditional approach with little access to alternative investments
• Focus on exchange-traded funds (ETFs), with no option to purchase stocks directly

These disadvantages are common to many robo-advisers. Those in the market for that technology may not consider them to be deal-breakers.

What is Wealthfront?

Wealthfront was founded in 2011. The founders’ original vision was to create a robo-adviser that offered personalized portfolios, focusing on bonds, individual retirement accounts (IRAs), savings accounts and automated index investing. Its services and focuses include:

• Low-cost ETFs for passive investors
• Balanced risk across asset classes
• Tax-loss harvesting
• Direct stock ownership for high-balance accounts
• High-interest cash accounts
• Lines of credit to borrow against investment portfolios
• Low, transparent fees

Wealthfront excels as a robo-advisory platform with several options. 

Pros of Wealthfront

Some of the advantages of working with the Wealthfront robo-adviser include:

• Low-cost ETFs for instant diversification
• Risk parity investing, balancing risk across different asset classes
• Tax-loss harvesting or selling losing investments to improve tax returns
• Direct stock ownership for accounts that keep high balances
• Access to the Path financial planning tool
• Relatively low fees
• Automatic rebalancing
• Access to high-interest cash accounts and 520 college savings plans

These benefits make Wealthfront an attractive robo-adviser for serious but passive investors.

Cons of Wealthfront

A few of the drawbacks that may come with the Wealthfront experience include:

• Less user control over investments
• Primary focus on ETFs
• Fees based on assets under management (AUM)
• No direct stock purchases for normal or low to medium balance accounts

As with Betterment, most of the disadvantages of using Wealthfront are inherent traits of the robo-advisory industry. If you’re looking for that kind of service, these cons may not be important to you.

Similarities Between Betterment and Wealthfront

As pioneers in the robo-advising industry, Betterment and Wealthfront share many similarities, including:

• Automatic diversification through ETFs
• Emphasis on goal-based investing
• Tax-efficient investing strategies
• Competitively priced fee structures
• Focus on easy customer interfaces
• Offer high-interest cash accounts
• Access to checking accounts
• No charges for trading

These similarities make deciding between Betterment and Wealthfront a bit of a challenge. 

Comparing Betterment and Wealthfront Robo Adviser Platforms

What are the primary differences that distinguish Betterment and Wealthfront? Here are some of the main points.

Pricing Structure

Both Betterment and Wealthfront charge fees based on AUM. Betterment has a tiered annual fee for management services, offering different percentage rates for various account balances. Wealthfront charges the same percentage for all clients, regardless of the account balance.

Betterment also has a Premium plan through which account holders can access unlimited advice from certified financial planners (CFPs). This service is available for an add-on fee of 0.15%. Wealthfront does not provide that exclusive tier.

Investment Approaches

While both robo-advisers could be appropriate for passive investors, it’s safe to say that approach takes precedence with Wealthfront. Betterment uses a global diversity approach, using factors like ETF quality, value and market momentum to guide its investment decisions.

Wealthfront does not use that factor-based investing. It focuses on risk parity, a practice that emphasizes risk balance across asset classes. It also allows wealthier investors access to direct stock purchases, which Betterment does not.

Betterment also guides retirement planning. Wealthfront offers alternative investment strategies, specifically 520 college savings plans.

Specialized Features and Services

Betterment’s Smart Beta feature executes the company’s focus on factor-based investing. The feature uses data to automatically diversify and rebalance accounts. Smart Beta is an optional add-on — users are free to adopt the Smart Beta portfolio or the standard portfolio.

Wealthfront offers a financial planning tool called Path. This helps Wealthfront clients to specify and monitor their financial goals. Path adjusts and advises on the probability of achieving those goals based on the client’s saving patterns and spending habits.

User Experience and Platform Interface

Both platforms strive to make their user interfaces simple. Betterment’s site design is slightly more oriented toward achieving the client’s financial goals — retirement, major purchases and so forth — adjusting the investment strategy and options as needed.

Wealthfront maintains a user-focused design, focusing on making the transaction experience as streamlined as possible. Its interface also allows for high-interest cash accounts, 529 savings plans and direct indexing for accounts with high balances.

Performance and Historical Returns

Betterment and Wealthfront are close in the annual rate of return on their portfolio offerings. Betterment’s Robo Advisor 100 Portfolio had a one-year return of 7.21% as of November. Wealthfront reports an annual return of 7.58%.

Both companies track the Vanguard Total Stock Market Index Fund ETF (NYSEARCA: VTI), resulting in a 12.72% annual return. 

The Betterment Advisor 100 Portfolio features five other indexes, with annual returns ranging from negative 5.38% to 10.33%. Wealthfront offers one other low-cost ETF in its portfolio: the iShares Core S&P Total U.S. Stock Market ETF (ITOT), with an annual return of around 20.5%.

Security and Customer Support

Both Betterment and Wealthfront prioritize customer security, offering features like two-factor authentication and encryption to keep client accounts safe. Wealthfront’s client base is protected by account monitoring, whereas Betterment focuses on secure login protocols to protect clients.

Betterment vs. Wealthfront: Who Wins?

Both Betterment and Wealthfront offer cutting-edge robo-advisory services that enhance the financial prospects of their user bases. They’re both oriented toward passive or hands-off investors, tax-loss harvesting and automatic rebalancing of accounts.

Betterment may be better aligned for those with low-balance investors, as they offer tiered service premiums that correspond to account balances. Wealthier investors may be more attracted to Wealthfront, as it offers access to taxable accounts and alternative investing strategies.

The battle of Betterment versus Wealthfront largely comes down to the interface and usability that fits investors’ individual preferences. Either way, you’ll employ the services of a true vanguard in the robo-advisory industry.

Frequently Asked Questions