Many online brokerage services are beginning to include “robo-advisors” to construct effective, automated portfolios for clients. The demand for this service is growing as more investors shift towards a passively managed approach of buying index funds.
The question becomes, how do you know which robo-advisor is best for you? Two services at the forefront of the portfolio automation revolution are Betterment and Schwab’s Intelligent Portfolio. Betterment is a full blown robo-advisor while Schwab is a brokerage with a robo-advisory feature available to investors.
In this article, we will be comparing these two services and explaining the different features that each platform offers.
Betterment vs Schwab Summary:
- Both services offer portfolio automation through algorithm based robo-advisor services.
- They will each generate a pre-built portfolio for you based on your risk, time horizon and goals.
- Schwab has a $5,000 minimum for its basic Intelligent Portfolio, there are $0 commissions and no portfolio management fees.
- Betterment has a $0 minimum and offers investment management for a 0.25% to 0.40% annual fee.
- Schwab offers Intelligent Portfolios Premium with a $300 initial setup fee and $30 monthly management fee and offers access to financial planners.
- Betterment offers a Premium plan for a 0.40% annual fee which gives you unlimited access to financial planners.
- Both services offer various types of accounts, but Schwab offers SEP and Simple IRAs.
- Schwab automatically rebalances its client's portfolio instantly. Betterment rebalances when the portfolio drift exceeds a certain threshold.
- Both Betterment and Schwab use ETFs to build diversified portfolios and both offer premium plans with access to financial planners.
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What Is Betterment?
Betterment’s sole purpose is to automate the investment process for its clients. By acting as a bridge between individuals working in the investment services industry and clients who wish to capture similar returns, Betterment is attempting to revolutionize the way we invest. They offer useful services like a robo-investing platform as well as a high yield savings account and checking account.
Betterment Features
Portfolio Automation
Betterment has a very similar process to Schwab Intelligent Portfolio in the sense that it first requires its clients to answer some very important questions before constructing a portfolio.
These questions are used to learn more about the client's goals and time horizon. Betterment does this to effectively create a portfolio that will work for its client. After this step, the process is entirely automated. You can set up recurring deposits if you wish.
The automation features will take care of rebalancing and changing your asset mix over time. The tax loss harvesting feature will also kick in to lower your investment taxes.
Portfolio Contents
Betterment’s robo-advising system uses exchange-traded-funds just like Schwab’s Intelligent Portfolio. The index-tracking funds are chosen depending on the client's investment goals and risk tolerance.
Betterment offers a wide range of different accounts as it acts to satisfy all sorts of investor preferences. Some examples are:
Socially Responsible Investing (SRI) Portfolio
A portfolio that reduces exposure to companies that have potential negative social impacts.
Target Income Portfolio
A bond portfolio that is designed to facilitate higher dividend income. This could work, for example, as a low-cost option for retired clients to continue to gain income.
Quantitative Factor Portfolio
This portfolio is also called the “Goldman Sachs Smart Beta Portfolio." It automatically invests clients money in companies that embody four important characteristics. Goldman builds these portfolios with an aim for good value, strong momentum, high quality, and low volatility.
Betterment Cash Reserve
This high-yield cash account offered by betterment allows investors the option to keep their money in cash while accruing a higher interest than the normal savings account. This account acts as a risk free way to earn meaningful interest on your money since you are fully FDIC insured.
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Customer Support
Their site offers a How-To page and FAQ section on. Customer support available in normal business hours (see Betterment page because hours vary).
Betterment Fees
Fixed Management Costs
Depending on account minimums, Betterment offers different fixed rates and benefits.
Betterment Digital, $0 Minimum (0.25%)
The constituents of this portfolio include portfolio automation, efficient tax management, investment advice, and top customer support. The fee for this is 0.25% annually.
Betterment Premium, $100,000 Minimum (0.40%)
All of the Betterment Digital services plus more. Access to the annual call hosted by Betterment’s highly qualified team of financial experts. Increased monitoring of clients' portfolios are also available with this plan. The annual fee for Betterment Premium is set at 0.40% annually.
Betterment is a member of SIPC (Securities Investors Protection Corporation) which insures security theft and fraud up to $500,000 in securities and $250,000 in cash per account.
Betterment Pros
- Hands-off investment process
- Questionnaire allows for more accurate portfolio creation
- Very beginner-friendly
- No minimums on Betterment Digital account
- Customer Support and extensive FAQ page
- Slick app design, more modern and contemporary design
- High yield savings with no minimum
- Access to financial professionals through Premium
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Betterment Cons
- No individual stocks, prebuilt portfolios only
- Small fee of 0.25% to 0.40% where others do not charge
- Stocks and bonds only in ETFs
- No direct indexing
What Is Schwab Intelligent Portfolios?
Schwab is attempting to revolutionize the way that it manages its clients' money. By introducing Schwab Intelligent Portfolios in 2015, the robo-advisor aims to automate the investment process and create fully-functioning, low-risk, high-return portfolios. As an added benefit, the basic version of this robo-advisor is completely free. The only issue is the minimum balance is $5,000.
Schwab Features
How Schwab Intelligent Portfolios Work:
- Complete a short questionnaire that outlines your risk tolerance, goals, and investment time horizon.
- Schwab Intelligent Portfolio's robo-advisor will automatically construct a diversified portfolio of ETFs that come from the underlying ideas of experts in the industry.
- Sit back and watch Schwab Intelligent Portfolio's robo-advisor monitor your portfolio every day. It will automatically rebalance as needed.
Schwab Diversified Portfolios
Schwab Intelligent Portfolio utilizes the power of Exchange-Traded-Funds (ETFs). ETFs track an underlying basket of different stocks, commodities, or bonds that help to create a well-diversified investment experience and hedge against the risks of individual stock purchasing.
Automatic Rebalancing
Schwab Intelligent Portfolios' high tech system automatically rebalances your investments. This is accomplished by buying and selling when the percentage of its clients holdings change. This makes sure you stay on track with your target investment allocations.
Tax Efficiency
Schwab Intelligent Portfolio utilizes tax-incentive practices by harvesting tax-losses and helping to offset taxes on capital gains. The process is intricate, but the beauty of automation is Schwab Intelligent Portfolio will do the work for you.
Customer Support
24/7 U.S.-based customer service is at clients disposal. This level of attention to customer service shows that Schwab is committed to its clients and answering their most pressing questions.
Schwab Account Types
- Individual
- Joint
- Traditional IRA
- Roth IRA
- SEP IRA
- Simple IRA
- Trust accounts
Account Minimums
Schwab Intelligent Portfolios: $5,000
Schwab Intelligent Portfolios Premium: $25,000
Account Fees
Schwab Intelligent Portfolios: $0 commissions and 0% management fee.
Schwab Intelligent Portfolios Premium: $300 one-time initial planning fee, $30/month management fee.
Pros Of Schwab
- No fixed management cost, only pay normal operational expenses on ETFs
- Robo-advising service makes investing hands-off
- The questionnaire helps to specify the client's goals objectives
- Offers a well-diversified portfolio that ranges over many asset classes
- Offers a variety of accounts
- Automatically rebalances clients portfolio
- 24/7 customer support
Cons Of Schwab
- $5,000 minimum for Intelligent Portfolio accounts
- High cash allocation at 6% t0 10%
- No access to environmentally ethical portfolios such as Betterment’s SRI portfolio
The Verdict: Betterment vs Schwab Intelligent Portfolios
So what is the final verdict? Both of these services offer cheap, automated ways for investors to accumulate wealth for their future.
Schwab Intelligent Portfolio is a good option for the investor who has the $5,000 account minimum.
Betterment has $0 account minimums, so may be a better option for someone with a smaller account.
Schwab Intelligent Portfolios offer a competitive alternative to Betterment by offering free prebuilt portfolios at their basic tier. Schwab has the upper hand when it comes to fees.
Betterment offers an easy to use platform, with access to financial planners and full scale investment management. Betterment has the upper hand on features and use-ability.
With this being said, both services have their pros and cons. It is up to you to figure out which service is the best fit, so make sure to do your research and choose the one that fits your specific needs.
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