Like most robo-advisors, Betterment starts the investment process by asking you a series of questions about your age, investment goals, and other topics that help Betterment to assess your risk tolerance. Based on your answers, Betterment automatically builds a personalized investment portfolio, which you can modify.
Also, depending on your investment goals, Betterment can tell you how much you need to deposit initially as well as ongoing.
Services offered
In addition to the standard portfolio allocation service offered by every robo-advisor, Betterment offers some services that help it stand out from the competition.
For example, instead of rebalancing client accounts once per year or quarter to maintain the desired asset allocation, Betterment rebalances whenever necessary. Betterment is one of the only robo-advisors that provides an automatic tax-loss harvesting feature with all accounts, regardless of balance.
Betterment also offers a Premium version of its robo-advisor service, available only to clients with at least $100,000 in their accounts. It comes with a higher 0.40% management fee. However, the Premium plan has unlimited access to human CFP® professionals to provide financial advice on life events, retirement, and even investments held outside Betterment.
Finally, the availability of managed cryptocurrency investment portfolios can be a big differentiator for investors who might want some exposure to digital assets.
Pricing and fees
It's important to understand the difference between investing in a brokerage account and with a robo-advisor. There are two main types of fees involved with investing through a robo-advisor. First, most robo-advisors charge an account management fee, which is a percentage of invested assets expressed on an annualized basis. Betterment charges a 0.25% management fee for its basic service or a flat fee of $4 per month for lower-balance standard accounts, which it calls Betterment Digital, or 0.40% for its Premium offering. This translates to $25 or $40, respectively, in annual investment costs, for every $10,000 in your account.
In addition, the individual investment funds Betterment selects for your portfolio have their own investment fees, known as expense ratios. Like the management fee, these are also annualized percentages of invested assets. The combination of your management fees and the expense ratios of your investment funds are collectively referred to as the "all-in" cost of a particular robo-advisor.
It's worth mentioning that most of Betterment's preferred ETFs are toward the lower end of the investment fund fee range. This is certainly a competitive cost structure in the robo-advisory industry, especially when you consider Betterment's list of account features. (Note: While Betterment's ETFs have fees that average 0.11%, that number is on the lower end of that spectrum.)