Betterment Robo Advisor Review & Performance February 2021

Posted on February 22, 2021

First launched in 2010, Betterment is one of the original robo advisors.  They have raised more than $275 million in venture funding and have grown to be one of the leading digital advice providers. In their most recent annual disclosure, Betterment reports well over $18B in assets under management (AUM) on their platform and services nearly 500,000 clients. 

Betterment stands out with financial planning tools that are easy to understand and compare an investor’s options intuitively. The user interface allows an investor to create specific portfolios that correspond to separate goals.

Betterment offers access to CFPs, for both one-time financial planning sessions or unlimited access with Betterment Premium. A new investor
can benefit from having a one-time consultation to create a clear plan and ask questions.

Pros:

  • No account minimum for the Digital plan
  • Access to an advisor with the Premium plan
  • Direct indexing offered
  • Robust digital financial planning tools

Cons:

  • No dedicated financial advisor
  • Betterment Premium requires $100,000 minimum
  • Struggled with relative performance due to value-tilted equity portfolio

Performance Summary: (as of 12/31/20)

YTD 1-Year 2-Year 3-Year 4-Year 5-Year
Betterment #N/A 0.1159 0.1522 0.0722 0.0935 0.089
Rank vs Benchmark* ---/0 44/65 31/42 22/26 10/13 5/7

*The Normalized Benchmark is a method of comparing each account against a comparable asset allocation. Details can be found here.

Additional Returns: (as of 12/31/20)

YTD 1-Year 2-Year 3-Year 4-Year 5-Year
Equity-Only Return #N/A 0.1317 0.1909 0.0794 0.1135 0.1103
Fixed Income-Only Return #N/A 0.0557 0.0696 0.0476 0.0463 0.0415
vs. Normalized Benchmark #N/A -0.0306 -0.0214 -0.0184 -0.0147 -0.0121
Sharpe Ratio 0.56 0.82 0.43 0.63 0.64

Platform Facts: (as of 12/31/20)

Category Information
Account Minimum Digital: No minimum; Premium: $100,000
Advisory Fee Digital: 0.25%; Premium: 0.40%
Average Weighted Expense Ratio 0.0009

Digital Advice Ratings: (Winter 2021 Robo Ranking)

Access to Advisors (3/5) 

Betterment’s premium tier gives clients access to a financial advisor who is accredited as a CFP ® or other relevant professional designation.  However, clients will not have access to a dedicated advisor. The premium plan requires a minimum balance of $100,000.

Financial Planning (4.5/5)

Investors can build multiple financial goals with different risk tolerances that factor in assets held in outside accounts.  Betterment then provides recommendations to help investors achieve each independent goal. Betterment lags behind Wealthfront and Personal Capital because there is no way to view a unified plan, taking into account the interaction between each independent goal.  Also, these planning tools are only made available to paying clients.

Transparency and Conflicts (4.5/5)

Betterment provides easy access to traditional and blended portfolio benchmarks to assess performance.  They provide white papers detailing investment strategy and detail performance of their models online. They do not invest any of their portfolios in proprietary products.

Features and Customer Experience (4/5)

Automatic deposits, fractional shares, auto-rebalancing, and tax loss harvesting are some of the features available at Betterment. Also, they provide flexibility around concentrated positions and unrealized gains. Customers are easily able to access their account through the website or Betterment app.

Costs  (4/5)

Management Fees Fund Fees Total Cost
Digital* $25 $9 $34
Premium* $40 $9 $49

*Per $10,000 invested

Betterment is a great value when considering both their Digital plan and Premium plan with access to live advisors, who are CFP® professionals and licensed financial experts.  The only downside to the Premium plan is that it requires a minimum balance of $100,000.

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