While Wealthfront and Betterment started out with similar models, they’ve slowly made changes to differentiate themselves. Which is best for you depends largely on, well, you. Factors like how much you have to invest, which features matter most to you and how much human interaction you want weigh heavily here.
A quick comparison
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Management fees |
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| 0.25%; first $10,000 is managed free | 0.25% to 0.40%, depending on plan |
Account minimum |
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| $500 | $0 |
Account types |
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Portfolio |
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Human advisors available |
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| No | Yes |
Standout features |
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Best for |
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Promotion |
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| $15,000 managed free for NerdWallet readers | Up to 1 year of free management with qualifying deposit |
How to open an account |
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Want a deeper dive? Read on for an in-depth breakdown of how these two robo-advisors compare.
Management fees
Here’s the short of it: Betterment and Wealthfront both charge an annual fee of 0.25% for digital portfolio management.
The long of it is that Wealthfront offers free management of $10,000 worth of your account balance. That means the annual cost at Wealthfront will nearly always be lower than at Betterment. Why “nearly”? Betterment waives management fees on the portion of an account balance that tops $2 million, so if you’re a high roller, that’s worth considering.
Here’s a look at how much you’d pay each advisor at various account balances:
| Account balance | | |
| $10,000 | Annual fee: None What that costs: $0 | Annual fee: 0.25% What that costs: $25 |
| $75,000 | Annual fee: 0.25% What that costs: $150* | Annual fee: 0.25% What that costs: $187.50 |
| $100,000 | Annual fee: 0.25% What that costs: $212.50* | Annual fee: 0.25% What that costs: $250 |
| $2.5 million | Fee: 0.25% What that costs: $6,212.50* | Fee: 0.25%; waived on amount over $2,000,000 What that costs: $5,000 |
*Wealthfront costs are based on NerdWallet’s promotion: The first $15,000 in the account incurs no management fee.
Winner: Betterment on account balances above $2 million; Wealthfront for the rest of us.
Human advice
Note that the above fee comparison looks at the cost of digital management. At Wealthfront, that’s all there is — a decision the company has made intentionally by bolstering its online advice offerings while other robo-advisors like Betterment have added a human element. If human advisors are important to you, cross Wealthfront off your list.
At Betterment, investors who pay 0.25% for the digital service can ask a team of financial advisors questions via an in-app messaging feature, receiving an answer in about one business day. Those who want more direct contact can join Betterment Premium, which charges 0.40% per year. It requires a minimum $100,000 balance but offers unlimited phone calls with those advisors. The type of advice available through both plans is the same; the means of contacting the advisors is the major difference.
Winner: This is an unfair contest in many ways. If you want human advice, Wealthfront isn’t for you. But Betterment isn’t the only robo-advisor that offers access to financial advisors. You may want to compare it with Vanguard Personal Advisor Services, Schwab Intelligent Advisory and Personal Capital.
Features
Some of the offerings at Betterment and Wealthfront are similar and fit the standard robo-advisor mold. Both include automatic portfolio rebalancing, tax-loss harvesting and portfolios of low-cost exchange-traded funds. Both can also integrate — but not manage — outside accounts so you can get a picture of your finances in one place.
Where Wealthfront stands out most is through its direct indexing service. The service, offered at no extra charge to taxable accounts with balances of $100,000 or more, is like a souped-up version of tax-loss harvesting. The company says it can add as much as 2.03% to annual investment performance.
Generally, index-based investing makes it harder to harvest losses, a practice that reduces taxes by selling losing investments to offset the capital gains from winning investments. With this service, Wealthfront mimics an index fund by buying the individual investments it holds, opening the door to greater tax-loss harvesting opportunities by allowing it to sell individual securities.
Wealthfront also offers 529 account management — through the Nevada state plan — and a digital retirement planning service called Path, which is designed to grow with you and help you understand how life changes will impact your future needs.
Betterment’s overall approach is rooted in behavioral finance, and the features it offers reflect that. The company’s algorithms use your answers to an initial questionnaire to suggest up to three goals — a safety-net fund, a retirement savings account or an investing account — and a target amount, and it recommends asset allocation for each. Users can also add their own goals and select an account type for them. For instance, you might start a wedding fund in a joint taxable account.
To help you reach those goals, an optional feature called Smart Deposit harvests “unneeded” money out of your checking account. You tell Betterment how much you need in checking at any one time — enough to cover your monthly expenses, plus a buffer — and it monitors your account balance and scoops any excess into the Betterment account you designate. The tool sends a notification before a Smart Deposit takes place and allows you to opt out.
Winner: Wealthfront is a clear winner for taxable accounts because of its direct indexing service, and for 529 plans because Betterment doesn’t handle them. Retirement accounts are a closer race, but we give extra points to Betterment for its behavioral finance approach, since most retirement savers could use an extra push. Betterment handily wins for investors who want access to human financial advisors.
Investments
Both companies use portfolios composed of low-cost ETFs; the differences in expense ratios are negligible. Wealthfront offers slightly more diversification through exposure to alternative asset classes such as natural resources and real estate, and it buys individual securities through its direct-indexing service for investors who qualify.
On the other hand, Betterment lets customers buy fractional shares of the ETFs it uses, which means you won’t have cash sitting on the sideline waiting until you’ve accumulated enough to buy purchase a full share. Wealthfront doesn’t offer this service. Also, Betterment recently added a socially responsible investment portfolio, something rarely offered by other robo-advisors.
Winner: At the risk of sounding like CNN, this one is too close to call. Investors who want to avoid any and all cash in their portfolio — and that’s not a bad idea — will love Betterment for its fractional shares, as will investors looking for socially responsible investments. Those who want access to individual securities or exposure to natural resources and real estate will prefer Wealthfront.
Which one is right for you?
Wealthfront and Betterment are strong choices for a robo-advisor; there’s a reason they are NerdWallet’s top overall picks in our list of the best online advisors. Both offer low-cost, diversified ETF portfolios, automatic rebalancing and low ongoing management fees.
We like the option to message financial advisors at Betterment, and that company has slightly better features for the average retirement investor. But Wealthfront’s advanced tax-optimization services will easily win over investors with taxable accounts, and Wealthfront also wins for college savers by managing 529 accounts.
Comparing just costs — which are one of the most important factors in investing and one of the few things investors can control — investors with balances under $2 million will pay lower management costs at Wealthfront.
Arielle O’Shea is a staff writer at NerdWallet, a personal finance website. Email: aoshea@nerdwallet.com. Twitter: @arioshea.
Updated July 26, 2017.
