One question facing robo-advisors like Betterment: If these services are simply building portfolios out of index funds and exchange-traded funds — primarily from Vanguard — why wouldn’t investors just go straight to the source?
Vanguard has heard that question, of course. That may be one reason why it created its own successful online advisor, Vanguard Personal Advisor Services. So how does that, plus Vanguard’s brokerage services, compare with a managed experience at Betterment? This Betterment versus Vanguard comparison shakes that all out to help you decide which company is best for you.
And here are Vanguard’s offerings, with its robo-advisor on the left and brokerage on the right:
For more details on each service, click to expand the accordions below.
Betterment at a glance
|Account minimum||$0 for Betterment Digital, $100,000 for Betterment Premium.|
|Account management fee||0.25% for Betterment Digital, 0.40% for Betterment Premium.|
|Investment expense ratios||ETF expense ratios average 0.13%.|
|Account fees (annual, transfer, closing)||None.|
|Automatic rebalancing||Free on all accounts.|
|Human advisor option||For an extra fee, advice packages include consultations; Premium customers get unlimited telephone calls with a team of certified financial planners.|
|Tools||Numerous tools and calculators to help set goals, choose the right accounts and make money decisions.|
|Customer support options (includes website transparency)||Phone, text and email support Monday-Friday 9 a.m.-6 p.m. Eastern time. Email only on Saturdays and Sundays 11 a.m.-6 p.m. Eastern time.|
|Promotion||Up to 12 months of free management: deposits of $15,000 to $99,999 get one month free; $100,000 to $249,999 get six months free; $250,000+ get one year free.
If you refer a friend and that person funds an account, you'll get one month and your friend will get three months of free management.
Vanguard Personal Advisor Services at a glance
|Account management fee||Depends on account balance:
0.30%: Less than $5 million
0.20%: $5 million to less than $10 million
0.10%: $10 million to less than $25million
0.05%: Greater than $25 million
|Investment expense ratios||0.04% - 0.12%; weighted average is 0.08%|
|Account fees||No account fees; some customers may incur transaction costs for non-Vanguard products (this isn't typical)|
|Portfolio mix||Portfolios are created by advisors on an individual basis. Core holdings are Admiral Shares of Vanguard index funds. ETFs and active funds are incorporated if needed.|
|Tax strategy||Assets are allocated strategically among taxable and tax-advantaged accounts to optimize for taxes. Tax-loss harvesting done on client-by-client basis.|
|Automatic rebalancing||Quarterly; Advisors can also review and alter the automatic rebalance trades at any time|
|Human advisor option||Appointments typically take place Monday-Friday, 8 a.m. to 8 p.m. Eastern; certified financial planners available|
|Tools||High-quality tools, including simulators, calculators, retirement-planning and educational materials|
|Customer support options (includes website transparency)||Phone and email support available Monday-Friday, 8 a.m. to 8 p.m. Eastern; some information difficult to find on website.|
Vanguard at a glance
|Account minimum||$0; however, fund minimums start at $1,000|
|Stock trading costs||Vary by assets invested in Vanguard funds and ETFs:
• Less than $50,000: $7 per trade for first 25 trades each year, $20 thereafter.
• $50,000 to $499,999: $7 per trade.
• $500,000 to $999,999: $2 per trade.
• $1 million to $4,999,999: First 25 trades each year are free, $2 thereafter.
• $5 million and up: First 100 trades each year are free, $2 thereafter.
|Options trades||Vary by assets invested in Vanguard funds and ETFs:
• Less than $500,000: $7 + $1 per contract.
• $500,000 to $999,999: $2 + $1 per contract.
• $1 million to $4,999,999: First 25 trades each year are free, $2 + $1 per options contract thereafter.
• $5 million and up: First 100 trades each year are free, $2 + $1 per options contract thereafter.
|Account fees (annual, transfer, closing, inactivity)||No closing, inactivity or transfer fees.
$20 annual account service fee for all brokerage accounts and IRAs. Waived for clients who sign up for statement e-delivery.
|Commission-free ETFs||About 1,800 commission-free ETFs|
|Mutual funds||More than 3,000 no-transaction-fee mutual funds|
|Tradable securities||• Stocks.
• Mutual funds.
|Trading platform||Basic trading platform.|
|Mobile app||Average, no mobile trading platform; ability to check account, transact, analyze portfolio, research.|
|Research and data||Average quality but free|
|Customer support options (includes website transparency)||Phone support Monday-Friday, 8 a.m.-10 p.m. Eastern; email support; no branches; can be difficult to find information on website.|
Costs and account minimums
It’s almost inarguable that building and managing your portfolio yourself will save you money, at least strictly on a fee basis.
But in some cases, that extra fee for management — especially the relatively small one charged by online advisors — is worth it. That extra layer might prevent you from panic selling during a downturn, for example, or guide you toward investments that are best suited for your goals. Both could improve your investment returns.
And so while you could build a portfolio yourself at Vanguard using many of the very same funds that Betterment uses, you also have to commit to managing that portfolio. That means selecting investments, rebalancing as needed, keeping your hands off when they’re not needed and performing tax-loss harvesting and tax optimizations if it’s a taxable account. None of this is particularly hard; you just have to do it.
If you don’t want to do it, there are robo-advisors. Betterment charges 0.25% for its basic digital offering. The Betterment offering that’s most similar to Vanguard Personal Advisor Services, however, is Betterment Premium; both include unlimited access to a team of financial advisors (including by phone). Vanguard Personal Advisor Services charges 0.30% and requires a $50,000 minimum investment; Betterment Premium charges 0.40% and requires $100,000. At Vanguard, you get a dedicated advisor once your balance tops $500,000.
Winner: Vanguard’s brokerage services for DIY investors, of course. Betterment Digital wins for clients who are happy with goal-oriented tools and features, and don’t need access to a human advisor. But Vanguard Personal Advisor Services wins pretty handily for clients who want robust access to financial advisors. Compared with Betterment Premium, Vanguard PAS is lower cost, has a lower minimum balance requirement and includes a dedicated advisor offering at $500,000.
This is almost an unfair battle for Betterment, which by design streamlines investment choices down to around 12 exchange-traded funds that it then uses to build a variety of portfolios with varying levels of risk. Many of those ETFs are from Vanguard.
On the other hand, investors at Vanguard can self-manage their account, selecting from 1,800 commission-free ETFs and more than 3,000 no-transaction-fee mutual funds. Vanguard also offers access to individual stocks, option contracts and bonds.
Then there’s Vanguard Personal Advisor Services, which builds portfolios on a client-by-client basis but primarily uses Vanguard index funds. Expense ratios on portfolios from Betterment and Vanguard Personal Advisor Services are in the same ballpark. One thing worth noting: Vanguard has an interesting structure in that the company is owned by its funds. That means fund investors benefit when the company does well. But some investors will still prefer an independent advisor like Betterment, which has the freedom to choose investments from all fund families.
Winner: Vanguard, but Betterment gets points here for its independent status.
Most online advisors offer some form of regular rebalancing, along with tax-loss harvesting for taxable accounts. It’s part of the appeal; investors may not do this on their own, and this kind of account hygiene can increase your after-tax returns and ensure you’re taking the appropriate amount of risk.
Vanguard Personal Advisor Services rebalances quarterly or as outlined in each client’s financial plan, but it doesn’t offer automatic rebalancing. Vanguard also performs tax-loss harvesting as needed.
Betterment takes an automatic approach, rebalancing via algorithm as needed and searching daily for tax-loss harvesting opportunities. Accounts enrolled in Betterment Premium are also monitored by the company’s team of financial advisors.
Both companies practice smart asset location, strategically placing tax-efficient investments like municipal bond funds in taxable accounts. (This only applies, of course, in situations where the client has both types of account.)
Winner: We’d give an edge to the daily, reflexive rebalancing and tax-loss harvesting of Betterment, but some investors may prefer Vanguard Personal Advisor Services’ more personalized approach.
Which is best for you?
For some, this is an easy answer. Want to build your own portfolio? Open a brokerage account or IRA at Vanguard and DIY from their excellent funds. If you’re looking for an online advisor with powerful planning tools and features, Betterment Digital is our pick for low-cost, inexpensive robo-advisory services.
For investors seeking a robust digital-human hybrid, Vanguard Personal Advisor Services pretty easily beats Betterment Premium, due to a lower fee, more personalization and a lower minimum deposit requirement.