401(k) Mutual Fund Disclosure

If your employer’s 401(k) plan or your solo 401(k) plan offers mutual funds to you as investment options, you should be aware of how mutual funds trade and interact with other Betterment portfolio management features, including rebalancing, automatic adjustment, and tax coordination. 

Mutual Fund Trading Behavior

Mutual funds trade only once per day, after the market closes. A trade to buy or sell shares of a mutual fund is executed at the next available net asset value, which is calculated after the market closes, and may be different from the previous day's closing net asset value. This means that the price displayed in Betterment’s interface is based on the net asset value at the time the market closed the prior day, but that the mutual fund will trade at the net asset value at market close on the day the transaction is executed. Participants should be aware that any transactions that involve selling and buying mutual funds (including proactive rebalancing transactions involving the sale of an overweight mutual fund to purchase other underweight mutual fund holdings in your portfolio) may take extra business days to complete due to the way these trades must be executed. Unlike for ETF securities, where Betterment facilitates “substitutions” (i.e. sales and purchases of ETFs within a narrow time frame using anticipated cash proceeds before trade settlement), Betterment does not initiate purchases of mutual funds before the mutual fund sale transaction has been initiated and the cash proceeds have been reported. Typically, deposits, withdrawals, and allocation changes for portfolios that incorporate mutual funds made in Betterment’s interface must be submitted before 2:00 PM ET on a business day to result in trades on that same day; actions taken in the interface after 2:00 PM ET typically will result in trades being placed on the following business day. These timelines are not guaranteed. Betterment may delay mutual fund purchase transactions to avoid violations of applicable laws or regulations, including rules pertaining to free riding. When withdrawing from portfolios incorporating mutual funds, the settled amount may vary from the requested amount due to price fluctuations between the time of the withdrawal request and the time to initiate the next leg of the trade. Additionally, mutual fund transactions are rounded to the nearest thousandth of a share, and there may be account adjustments following a cash flow into or out of a client’s account as a result of such rounding.

Betterment does not support purchases of mutual funds with investment minimum thresholds, shareholder-type fees (such as sales loads and redemption fees), and distribution-type fees (such as 12b-1 fees) in the ordinary course of business. In certain cases, Betterment can hold these types of mutual funds when transferred into a Betterment account via an ACATS transfer. Please see our ACATS disclosures for more information.

In any client account that contains mutual funds, due to small price fluctuations in mutual funds that may occur on the transaction date (the last business day of the period), Betterment will accrue any fees over- or under-assessed and apply the difference to adjust the following period’s fees. Betterment will automatically debit the prorated amounts of the fees from the assets in a client’s account on a monthly or quarterly, as applicable, basis in arrears.

Betterment’s Portfolio Management

Betterment’s rebalancing feature is automatically enabled for portfolios holding mutual funds. Betterment evaluates drift in 401(k) portfolios incorporating mutual funds at the security level (i.e., unlike for Betterment managed portfolios of ETFs, mutual funds are not mapped to asset classes and super asset classes for purposes of measuring drift and rebalancing). When Betterment’s automated rebalancing algorithm evaluates opportunities to reduce drift, it seeks to increase expected returns of the portfolio through rebalancing, and will prioritize using new cash flows and proceeds from sales of securities to buy underweight securities with the highest expected returns by default. See Betterment’s rebalancing disclosures for more information. 

401(k) accounts on the Betterment at Work platform that include mutual funds as a part of their investment fund lineup cannot be tax coordinated with non-401(k) accounts. Target date mutual funds are only compatible with Betterment's tax coordination feature if the tax coordinated goal contains only tax-advantaged accounts of the same type (e.g., Traditional and Roth 401(k), or Traditional and Roth IRA). To the extent a client's 401(k) account transitions to a mutual fund investment lineup, Client understands that Betterment has been directed by your employer to dismantle any TCP that includes a non-401(k) account subject to the transition. When dismantling a TCP that includes a 401(k) account, Betterment will disable automated rebalancing in the taxable account previously assigned to the TCP to minimize potential tax impact from this transition. See Betterment’s TCP disclosure for more information.