You want to save for your goals, but you aren’t sure how to do it. Many full-service brokerage firms have minimums investment amounts that are above your budget or charge so much that it’s not worth it. Betterment offers investment accounts with no minimum balances and fees that are well below what others charge. And your investment accounts come with advanced features that are usually reserved only for the rich and wealthy. Read on to find out why Betterment will save you time and give you peace of mind as you work towards your financial goals.
I had the pleasure of speaking with Andrew Westlin, a Certified Financial Planner with Betterment, to learn how Betterment is focused on helping consumers reach their goals.
Why Was Betterment Started?
Betterment is one of the first robo-advisors created. It was formed during the Great Recession when trust in the financial services industry was at an all-time low. Many people may believe that this is the absolute worst time to start an investment company. But when you are focused on transparency, low fees, and doing what’s best for the client, it was the absolute perfect time.
John Stein, the founder and CEO of Betterment, founded the company in 2008 and launched the service in 2010. In the years leading up to the recession, John was consulting with many large banks and realized that the big banks were not putting the customers best interests ahead of the company’s bottom line. He started Betterment to help people live happier lives by empowering them to what’s best with their money.
In December 2018, Betterment was managing $15 billion dollars in assets for over 400,000 customers. Just two years ago, Betterment was managing $6 billion dollars in assets. Incredible growth that assets under management could more than double in a couple of years.
This growth goes to show you that clients want access to fiduciary financial advisors that don’t charge an arm and a leg for their services.
What Services Does Betterment Offer?
All of Betterment’s services are designed around the consumer’s question of “what should I do with my money?” This is a simple question, but with a complex answer that varies from person to person. The company holds weekly meetings with the CEO and the “ask me anything” sessions always revolve around how Betterment can help clients answer this question.
Betterment is a goals-based investing platform that allows customers to save and invest for multiple financial objectives at the same time. Additionally, clients can customize the approach for each of their financial goals.
And investment advice is always at the ready from Betterment. The robo-advisor tailors the strategy to based on their goal amount, timeframe, risk appetite, and ability to save.
Betterment Digital Plan
The standard plan with Betterment is a robo-experience that does not include traditional meetings with a financial advisor. Clients will interact with website- and app-based guidance to help them create a plan to reach their goals.
Although Digital Plan clients may not have a personal financial advisor, a team of financial advisors is working behind the scenes to create the strategies that guide Digital Plan clients towards their financial goals.
Betterment Premium Service
For clients that want a more traditional financial planning relationship, Betterment offers their Premium Service. This service includes all of the features and benefits of the Digital Plan, but Premium clients work with Certified Financial Planners on their goals.
Premium clients not only discuss their accounts with Betterment, but the planning also includes external investment accounts. These clients and their advisors talk about everything, including detailed retirement planning, saving for college, and life insurance needs.
There is a minimum Betterment account balance of $100,000 to upgrade to the Premium Service.
Betterment Advice Package
Many clients are satisfied with the Digital Plan for their day-to-day investment needs. However, they may want to occasionally meet with a financial advisor without the commitment of an ongoing relationship.
Betterment created Advice Packages where clients can purchase advice sessions to cover a specific life event or a financial checkup. Many clients purchase an Advice Package to discuss how their investment strategies may change when getting married, having a baby, changing jobs, or planning for college.
Because you do not need to be a Betterment client to use this service, these Advice Packages are a perfect opportunity for interested investors to try out the Betterment advisors.
Benefits For All Accounts
No matter if you are a Digital Plan client or have upgraded to the Premium Services, all Betterment clients have access to advanced features at no additional cost.
Investing in Exchange Traded Funds (ETFs)
Exchange Traded Funds invest in baskets of stocks and bonds similar to mutual funds, but they are traded in real-time like a stock. It is said that ETFs are generally more tax-efficient and lower-cost than comparable mutual funds.
Automated Rebalancing
Rebalancing is the process of selling a portion of the investments that have gone up and buying more of the assets that have gone down to maintain your chose asset allocation. This approach keeps investors from becoming over-concentrated in investments that have gone up in value over time. At the same time, it allows investors to buy more of the investments they like at a lower price.
Instead of handling this process manually, Betterment offers automated rebalancing to restore the balance in your portfolio periodically.
Tax-Loss Harvesting
Tax-loss harvesting is the process of selling losers to offset the gains in your portfolio to minimize taxes. When shares are sold, they are reinvested not only to minimize taxes but also to rebalance your portfolio making the transaction a win-win strategy. These tax-loss harvesting sales incur no additional charges and are designed so that clients are never hit with short-term capital gains on those transactions.
How Much Does Betterment Cost?
For the Digital Plan, Betterment charged 0.25% annually based on the average balance in your accounts. When upgrading to the Premium Service, there is an additional 0.15% charge for a total of 0.40% annually.
The Advice Package pricing varies based on the length of the call and the topic you are discussing. Prices start and $149 and range up to $399.
How Does Betterment Help Me Save On Taxes?
Nobody wants to pay more taxes than they are required to. With traditional investing, it is possible that simple moves can trigger a big tax bill. Betterment is designed to minimize taxes on investments for its clients. They seek to minimize taxes in several ways:
- Invest in Exchange Traded Funds – more tax-efficient than mutual funds.
- Tax-Coordinated Portfolio – an automated strategy that invests in specific asset classes in tax-advantaged accounts, while other assets in taxable accounts. This strategy is estimated to increase a portfolio’s value by 15% over 30 years.
- Tax-Loss Harvesting – selling assets that have declined to offset gains in other investments to minimize taxes, then reinvesting the proceeds according to your asset allocation.
- Integrated Warnings – before you sell an investment, Betterment shows the estimated tax consequences of the sale to you can make an informed decision.
By being transparent with clients, Betterment is able to increase the financial acumen of their clients and improve their financial lives. The low-cost and no minimum balance accounts make it possible for anyone to invest. Accounts can be opened with an initial deposit of $100 or a periodic contribution of $20.
If you would like to learn more about Betterment’s investment options, follow this link to learn how they can automate your investments to reach your financial goals.