When you compare investment managers, investigate the costs and benefits of each service.
Betterment offers you more features and benefits for your money than other services. Take a look.
A common question we hear is, “You guys are great—but what’s the difference between Betterment and other investment managers?” When we delve into the answer—whether on the back of a napkin or in conversation—we list the values that set us apart: we are smarter and more efficient, which should result in better net investor returns.
To help you compare, we selected four management types and their cost structures and features. In the table below, you can see Betterment costs a fraction of other kinds of investment managers while offering more automated features. The same $500,000 investment at Betterment costs around 1/10th of what it would cost to manage with a traditional manager, according to published fee data.
Our assumptions are detailed at the bottom of the table.
Our comparison of the total costs and benefits to manage a $500,000 investment:
|Management type:||Automated||DIY ETFs||Mutual Funds||Traditional Manager|
|Example services||TD Ameritrade, Scottrade, E*Trade, Vanguard, Fidelity||Vanguard, Fidelity, Schwab, State Street, T. Rowe Price||Manually managed portfolios|
|Annual trading fees¹||None||$408||None||Varies|
|Average fund expense ratio²||0.12%||0.63%||1.16%||1.16%|
|Internal fund trading cost³||0.005%||Varies||1.44%||Varies|
|Management fee4||0.25% or 0.40% depending on the plan you choose||None||None||0.99%|
|Cost per year||$1,350||$3,558||$5,800||$10,750|
|Automated tax loss harvesting||%||X||X||X|
|Automated dividend reinvestment||%||X||%||%|
|Automatic tax-optimized lot selection||%||X||X||X|
|Personalized allocation advice||%||X||X||%|
|Goal-based investment accounts||%||X||X||X|
Our philosophy starts with passive investing and we only use index-tracking ETFs in our portfolio, hand-selecting every fund based on cost, correlation, and liquidity. With our algorithm-based advice, every customer receives personalized allocation adapted for his or her investment goals.
¹Assumes quarterly rebalancing across a 12-fund portfolio for a total of 48 trades annually for DIY investors with an average fee of $8.50 per trade; ETF trading fees can typically range from $0 to $20 for DIY investors, according to Wall Street Journal. Trading fees for mutual funds can vary widely and may not always be disclosed. For RIAs, pricing plans vary and some advisors may pass on trading costs to their clients. Costs may vary by provider.
²More information about Betterment fund expenses can be viewed here. For other columns, we used the fund weighted average total expense ratio of ETFs (0.63%) and average for open-ended actively and passively managed funds (1.16%) found in the 2013 Lipper Quick Guide to OE Fund Expenses. The overwhelming majority of assets in the United States are invested in mutual funds, including funds under management with an advisor, which is why we used this expense ratio. With the exception of Betterment, all fund expenses are illustrative and are not specific to any of the listed companies Traditional Manager column.
³For Betterment ETFs, internal fund trading costs are calculated as the average tracking error of our portfolio, which would reflect decreases in NAV due to trading costs. For mutual fund fees, we used a study of funds’ annual expenditures of 1,758 domestic equity funds over 1995-2006 from Shedding Light on “Invisible” Costs: Trading Costs and Mutual Fund Performance, by Roger Edelen, Richard Evans and Gregory Kadlec, Pg. 2.
4We used Betterment’s stated management fee of 0.25%, 0.40%, or 0.50%, depending on the plan you choose. We used a 0.99% management fee for advised portfolios, based on average fee provided in the PriceMetrix 2014 The State of Wealth Management 4th Annual Report, Pg. 5. Costs may vary by provider.
The Senate Is Planning a Tax Hike on Retail Investors. It Should Be Removed.
The Senate’s current tax bill includes a mandate that would be punitive for everyday investors. Without a doubt, the FIFO mandate should be removed from consideration.
How We Use Your Dividends and Deposits to Keep Your Tax Bill Low
Every penny that comes into your account is used to rebalance dynamically—and in a tax-savvy way.
Here’s How Betterment Women Are Shaping the Future of Finance
Twelve women across eleven different departments came together to talk about why they’ve chosen careers in fintech.
How would you like to get started?
Your first step toward a smarter investing future starts here.
Create a Betterment account
Go ahead and join the smart, modern way to invest.
See what we can do for you
Tell us a bit about yourself, and we’ll show you the benefits of investing with us.
Get a free investing checkup
Help us get a sense of your investing approach and see how you could improve.
Transfer a 401(k) or an IRA
Move an existing retirement account into a Betterment IRA.
Download the mobile app
Enjoy the Betterment experience anywhere on the go.