TheStreet

Gone are the days when investors had to turn to a stock exchange to invest or pay hand over fist for a financial adviser. In 2019, investors have plenty of options - including robo-advising sites and apps like Betterment and Wealthfront. 

From tax-loss harvesting to investing in ETFs, robo-advising services like Betterment and Wealthfront have got it all covered.

But, what's the difference between Betterment and Wealthfront, and which is better in 2019? 

What Is Betterment?

Betterment is a robo-adviser investment company that provides investors with efficient investment advice, low fees and minimums and a variety of account options. Founded in 2008, Betterment is one of the first robo-advising sites and provides investment advising for a variety of accounts and pricing tiers. 

Betterment focuses putting investor's assets into ETFs and other low-cost investment vehicles, and also lets you set up risk preferences once you join to continue working toward your goals through the service. 

As one of their main perks, Betterment doesn't require a minimum fund amount - although they do instantly invest 100% of your funds (as opposed to having a cash balance for your account sitting there). 

As an added perk, Betterment performs tax-loss harvesting - which maximizes your earnings by using algorithms to automatically invest in securities or investment vehicles that optimize tax losses and decrease your capital gains for reporting to the IRS. Unlike Wealthfront, Betterment offers human advisers in addition to their robo-advising capacities. 

According to their site, Betterment manages some $14 billion in assets under management (AUM) among 380,000 customers. And, unlike Wealthfront, the company offers support by phone or email seven days a week. 

Betterment is available online as well as on iOS and Android. 

What Is Wealthfront? 

Wealthfront is a robo-advising investment company that has fairly low minimums and focuses on stock-level tax-loss harvesting, which helps users maximize their earnings while investing in individual stocks as opposed to general ETFs. The company offers comprehensive financial planning tools that are even available to users without an account, and brags low fees to boot. 

According to their site, Wealthfront's AUM total some $12 billion among roughly 200,000 customers (as of 2018). Wealthfront has no trading fees. 

One of Wealthfront's main draws is its stock-level tax-loss harvesting option - which won't trigger until you invest $100,000. Unlike Betterment, Wealthfront uses stock-level tax-loss harvesting to invest directly in the S&P 500 (and not just ETFs). If you have the cash, Wealthfront has a definite edge as the only major robo-advisor to offer the service. 

In addition to their tax-harvesting perks, Wealthfront also offers a free savings account with 2.24% APY as well as a free financial planning tool called Path that helps investors to keep track of their finances and set goals. 

Just like Betterment, Wealthfront is available online as well as on iOS and Android. 

Betterment vs. Wealthfront

As some of the biggest (and pioneering) robo-advising companies, Betterment and Wealthfront have had years to hone their offerings. 

While both sites offer relatively similar services, there are notable differences that might prompt a customer to choose one over the other. So, how do Betterment and Wealthfront stack up, and which is the better choice in 2019? 

Minimums

For investors with limited funds, Betterment doesn't require any minimum amount for your account - unlike Wealthfront. So, you can start an account with as little as $0 with Betterment. 

On the other hand, Wealthfront has a $500 minimum for their accounts. 

Both companies offer next-day deposits. Both accounts require a minimum of $100,000 for several additional perks - including some tax-loss harvesting and credit line features. 

Returns

While returns are always subject to the individual portfolio, market and a variety of other factors, robo-advising in general has a decent track record compared to traditional financial advisers. 

Betterment provides a tool to help investors navigate the company's historical returns compared to average advised investors between 2004 and 2018. For a 70% stock investment, Betterment investors say upwards of 163% in cumulative returns compared to 94% for private investors with 60% to 80% equity risk. According to the site, for "more than 30,500 periods, the Betterment portfolio outperformed those advisor-managed portfolios 88% of the time."

On the other hand, Wealthfront touts five-year returns for taxable portfolios at around 5.6% and historical returns (since 2011) at around 7.6% (8.5% for tax-advantaged portfolios like Roth IRAs). 

However, because Wealthfront offers stock-level tax-loss harvesting, the company claims the strategy can help increase annual investment returns by up to 2%. 

Fees

According to their site, Betterment has an annual fee of 0.25% for their digital plan - much lower than the average 1% fee of traditional money managers. For a Premium account, you'll be paying 0.40% in fees. 

Wealthfront has comparable management fees of 0.25%. Additionally, Wealthfront has fund fees of between 0.07% and 0.16%. 

However, for large account customers with $2 million in their account, Betterment reduces annual fees to 0.15% for their Digital account and 0.30% for their Premium account. 

Features

Both Betterment and Wealthfront service a variety of different kinds of accounts, including IRAs, Roth IRAs, SEP IRAs, Rollover IRAs, individual investment, joint investment and trust investment. 

However, Wealthfront also offers 529 college savings accounts as well as high-yield savings accounts (unlike Betterment). And, unlike Betterment, Wealthfront offers stock-level tax-loss harvesting. 

Additionally, for mobile users, Wealthfront has digital-only financial planning services in addition to robo-advising that can help users track their expenses and plan for different financial goals. Wealthfront also offers a service called Tailored Transfer, which allows users to transfer compatible assets into their Wealthfront account (which can be a huge plus for investors with pre-existing stocks who wish to manage their stocks with the robo-adviser). 

Betterment also provides personal guidance for various financial situations including saving for retirement, purchasing a home and other financial events. And, Betterment offers a Smart Saver account which can earn users up to 2.19% with the low-risk investing. Unlike Wealthfront, Betterment also offers a charitable giving service which allows users to donate appreciated shares to charities through the service. 

In addition to offering investment tools for individuals, Betterment has "Betterment for Advisors" which provides advisers with tools to help manage their clients' investments as well. 

Both Betterment and Wealthfront have savings account options (or the equivalent). Wealthfront has a true savings account with a 2.24% APY. Betterment has a similar account called Smart Saver - a low-risk bond portfolio, which currently has an expected return of around 2.44%. Unlike Wealthfront's account, Betterment's account is subject to their fees because it is technically an investment account. 

Investing 

While both Betterment and Wealthfront offer similar investment vehicles and robo-advising services, there are some differences in their investment options.

For one, Wealthfront doesn't offer human advisers - unlike Betterment. 

Betterment offers the opportunity to invest in fractional shares, whereas Wealthfront doesn't. And for the more socially-conscious investor, Betterment also provides socially responsible investing (SRI) portfolios, which allow users to pick investments that align with their values. 

Both companies mainly invest in low-cost ETFs. Both companies also use automatic rebalancing, although Wealthfront operates on threshold-based rebalancing (which means that your portfolio is rebalanced based on how your assets deviate from their target allocation, not based on time). 

Wealthfront also offers investments in things like real estate and natural resources, while Betterment offers a BlackRock Target Income portfolio (for investors looking to generate income through investment). 

Security

Both Betterment and Wealthfront are registered with the Securities and Exchange Commission (SEC), as well as the Financial Industry Regulatory Authority (FINRA) - but neither are FDIC insured. 

Wealthfront recently got it hot water with the SEC over allegedly making false claims about their tax-loss harvesting offers to customers, according to a press release in December of 2018.

Still, both companies are members of the Securities Investor Protection Corporation (SIPC), which protects up to $500,000 (including $250,000 for claims for cash). Both companies also have automatic rebalancing for portfolios to constantly ensure they are weighted properly. In fact, both companies' algorithms rely more heavily on proper portfolio allocation than individual security picks. 

Additionally, Wealthfront is not FDIC insured, but uses what they call Program Banks to disperse funds into multiple banks to provide the benefit of FDIC insurance up to $1 million per account (much higher than typical FDIC insurance).

Reviews

Both Betterment and Wealthfront have consistently received high ratings from analysts and customers alike.

In fact, both companies were given five stars by NerdWallet this year. 

But what are critics saying about the services? 

Betterment

Touted as the better service for set-it-and-forget-it investors, Betterment provides two accounts - Betterment Digital (with a 0.25% fee) and Betterment Premium (with a 0.40% fee) that provide various levels of services including access to human advisers. 

Betterment has been recommended for low-balance, hands-off investors who want easy access to automatic rebalancing for their portfolios and personal financial planning. 

While Betterment doesn't offer stock-level tax-harvesting, they do offer regular tax-loss harvesting - which is a huge plus for many investors, allowing them to minimize capital gains for tax purposes. Betterment has consistently ranked highly for its no-minimum accounts. However, this only applies to its Digital account - Betterment Premium requires a $100,000 minimum (which will get you unlimited access to certified financial planners via phone). 

A major plus of Betterment is that it offers fractional shares to keep uninvested cash at a minimum (unlike Wealthfront). However, Betterment doesn't allow for direct indexing (it only permits you to hold broad market ETFs), which can be a negative for some investors. 

Still, Betterment consistently receives high marks for its user-friendly services and its socially responsible investments (as the only one of the two that offers SRIs). 

Wealthfront

Wealthfront has also received top marks for its full-service bar of planning tools and low fees. 

Still, one of the main bonuses Wealthfront offers is that it offers direct indexing - which allows investors to hold individual stocks (as in the S&P 500). The direct indexing feature is only available for investors holding $100,000 or more in their account with Wealthfront. 

If you have $100,000 to spare, Wealthfront users also have the option to receive a line of credit using the assets in their account as collateral (a feature Betterment doesn't currently have). Users can borrow up to 30% of their portfolio - up to $1.5 million.

As an added bonus, Wealthfront added the Wealthfront Risk Parity Fund last year - which gives investors with $100,000 the opportunity for higher risk-adjusted returns in a taxable account (although it has a higher expense ratio). 

One major bonus reviewers have noted is that Wealthfront allows you to link existing bank and retirement accounts to their site to take advantage of their financial planning tool, Path, without having to invest money in their robo-advising services. So, you can essentially get the financial planning services for free (although if you do opt to start investing, you'll be subject to the 0.25% fee). Path even takes into account Social Security and inflation to help better estimate retirement costs. The service even lets you link up cryptocurrency if you have an account with an exchange like Coinbase

Wealthfront is popular for its planning services that cover home, retirement, college savings and more. 

For TurboTax users, you can even input your Wealthfront information to link any tax-loss harvesting information when filing taxes.  

Wealthfront falls short mainly in that they do not offer fractional investing - meaning that there will always be a bit of uninvested cash in your account (for Wealthfront, at least enough to pay the fees for the next year for your account). 

The Bottom Line: Which Is Better in 2019? 

As always, the best option for you largely depends on your investment goals and resources.

Betterment seems to win out for hands-off or beginner investors in that it has no minimum account requirement and has low fees and a comprehensive, easy-to-use set up. Betterment also offers human advisers that are available through the app and via phone, which can be a huge plus for beginner investors looking for extra advice (or even advanced investors looking for that human input). Fractional investing through Betterment helps ensure you are always making the most of the funds you've allocated for investment. 

For the investor with a bit extra cash (say, upwards of $100,000 or so), Wealthfront offers better options for investors to take advantage of things like direct indexing via stock-level tax-loss harvesting. Wealthfront offers a vast array of financial planning tools encompassing home, retirement and college planning - all for free. And with a relatively low minimum ($500 for a regular account), you can still get a good bang for your buck as a mid-to-low fund investor. 

Still, while there are several differences, Wealthfront and Betterment have fairly comparable services and options - so the quality of robo-advising is relatively similar for both companies. 

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