Betterment is the original and largest independent robo-advisor.
Five years ago, Betterment invented the automated investing service, becoming the first of its kind, and now it serves more than 145,000 customers. Don't be fooled by others' fine print, especially when it comes to Schwab's new "no advisory fee" robo-advisor offering. Betterment is built to provide customers with reliable customer support, convenience, automation, lower true cost and complete transparency, all combined to do what's right—for you.
No Cash Drag
In order to generate revenue on their "free" service, Schwab allocates up to 30% of a portfolio to cash. In certain circumstances, keeping up to 30% in uninvested cash can result in up to a 0.56% annual return penalty, known as a cash drag.1 Betterment's unique technology allows us to make every penny work for our customers—without cash drag.
0.38% to 0.56% Potential Annual Cost
(6% - 30% cash allocation)1
Low Cost: A $100,000, Moderate Portfolio
An expense ratio is what the ETF-issuer charges to bundle the stocks and bonds together. It is the operating cost of the fund you're invested in. A Schwab moderate portfolio (61% stocks) has an expense ratio of 0.23%, whereas Betterment's expense ratio for a comparable portfolio of ETFs, selected objectively, has an expense ratio of 0.12%. For a $100,000 account, the all-in true cost, including the potential 0.56% cash drag, is higher than our expense ratio combined with our advisory fee.
Expense Ratio: 0.12%
+ Management Cost 0.25%
0.37% All-in Actual Cost
Expense Ratio: 0.23%
+ Potential Cash Drag: 0.56%1
0.79% Estimated All-in Cost
No Fund Kickbacks
Betterment invests in a globally diversified basket — carefully chosen for low expense ratios and low tracking error, regardless of the ETF provider. Most selected ETFs are from Vanguard and iShares. We don't receive compensation on any ETFs, which means we make our decisions with your best interest in mind. Schwab receives payments to include certain ETFs, and in the case of its own ETFs, pockets the expense ratio.
We have no incentive to make unnecessary trades for your account, whereas Schwab does. Schwab has a practice of routing trades. In 2014, Schwab generated $100M in revenue just from the market centers where ETF trade orders are routed for execution. It therefore has an incentive to trade aggressively in your account.
Only Passive Funds
Studies have shown that passive investors holding just index funds have a higher chance of success. Schwab uses actively managed funds known as "fundamentally weighted." These active funds systematically depart from passive investing and have roughly 4x higher expenses.
Advanced Personalized Advice
Betterment's advanced personalized advice is able to determine if you are on-track to reach investment targets by projecting future investment values, based on your time horizons, portfolio allocations, and deposit/withdrawal choices. We actively provide recommendations for frequency and size of deposits to help you meet your goals. Our dynamic savings tool even allows you to map out your different savings scenarios.
Lower Taxes from TaxMin Lot Selling
Betterment's TaxMin cost basis accounting method goes beyond the industry standard (FIFO). We sell losses first to minimize capital gains due to unnecessarily selling shares.
Tax Impact Preview
See estimates of taxes you will owe in advance, before you adjust investment allocations or make withdrawals, so you always make the most informed decisions.
Automated, Tax-Efficient Rebalancing
Betterment automatically rebalances your portfolio. We sell losses first, and we rebalance your account with every transaction—including dividend payments—to minimize capital gains due to unnecessarily selling shares. Schwab's rebalancing may trigger short-term capital gains taxes.
We have some of the fastest rollovers in the industry, and the process is completely paperless. Schwab's rollovers require a manual process.
Betterment's SmartDeposit feature helps you invest your excess cash automatically — even if you have variable income. Maintain the liquidity you need in your checking account, while making sure that every other dollar is put to work. If you ever need some extra cash, access your money with no withdrawal fees.
No Credit Inquiry
Hard credit inquiries can lower your credit score and remain on your credit report for two years. Betterment does not run a hard credit check when you open an account.
Support 7 Days a Week — Live Chat, Phone, and Email
Our investing may be automated, but we’re certainly not. We're here for you via phone, email, and live chat — 7 days a week.
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Member of Securities Investor Protection Corporation
Betterment Securities is a member of SIPC. Securities in your account protected up to $500,000. For details, please see www.sipc.org.
Looking out for investors' accounts is a legal duty.
Regulated by the SEC and a member of FINRA, our Broker-Dealer, Betterment Securities, follows a strict set of rules, designed to protect our investors' accounts.
Sourced as of 3/23/16 from the below links and is subject to change without notice. Betterment fee accurate as of January 30, 2017.
"No Conflicts of Interest." Betterment LLC has been designed from the ground up to put its clients' interests first. This includes, among other things, no trading costs, unbiased advice, and one simple and transparent way of generating revenue: a low cost advisory fee. For example, we do not receive compensation for our ETF selection, we do not receive compensation for trades, and we do not put a portion of your investment in cash to earn revenue.
1This illustration compares what would happen if an investor fully invested all assets in an investment portfolio in securities as opposed to leaving a portion of those investable assets in cash. A Schwab moderate model portfolio, as provided on the Schwab Intelligent Portfolio FAQ page, holds 61% stock, 5% gold and other precious metals, 23.5% bonds, and 10.5% in cash.
To calculate the potential cash drag in a Schwab portfolio, we studied expected returns for a Betterment portfolio of 74% stocks, 26% bonds. We selected that Betterment portfolio because it maintains that same proportion of stocks to bonds as in the moderate Schwab portfolio described above. In the first scenario we assumed 89.5% of an investors assets are invested in a Betterment portfolio and 10.5% is held in cash. In the second scenario we assumed all of an investor's assets are invested in the Betterment portfolio, none is held in cash. For our analysis, we assume that this 74% stock Betterment portfolio will have an annual return of 5.36% in excess of the risk-free rate (the risk-free rate is typically very close to the interest rate paid on cash in a savings account). We calculated the expected return that could be earned in the 74% stock Betterment portfolio that was instead lost to the drag of holding 10.5% of assets in cash is 0.56% on an annual basis (also above the risk-free rate). This illustration did not include Betterment's advisory fees because a Schwab portfolio does not include advisory fees.
These calculations are hypothetical and for illustrative purposes only. Investing in securities always involves risks, and there is always the potential of losing your principal when you invest in securities. Past performance does not guarantee future results, and the likelihood of investment outcomes are hypothetical in nature.
Minimum Investment: https://intelligent.schwab.com/public/intelligent/about-intelligent-portfolios
Low-Cost ETF Selection: https://intelligent.schwab.com/public/intelligent/about-intelligent-portfolios
Order Flow: Schwab Wealth Advisory Disclosure Brochure
ETFs with 4x Expenses: https://intelligent.schwab.com/public/intelligent/about-intelligent-portfolios