Betterment Vs. Wealthfront Review (Which Robo Advisor Should You Trust?)

So you’ve decided that the best investment strategy for you is to create a broadly diversified investment portfolio with a long term horizon. Basically, you agree with the tenets of Modern Portfolio Theory. You also want the maximum convenience that comes with using a robo-advisor and you’ve read that two of the most popular ones are Betterment and Wealthfront.

The dilemma is, which robo-advisor is better? Actually, the right question to ask is, which robo-advisor would be better for you? In this article, we will compare the various features of the two robo-advisors and break down which type of investor would benefit most from each feature.

Accounts Available

Betterment

Wealthfront

Traditional IRA, Roth IRA, Rollover IRA, SEP IRA, trusts, non-profit, individual, joint, and 401(k).

Traditional IRA, Roth IRA, Rollover IRA, SEP IRA, trusts, non-profit, individual, joint, and 529 College Savings Plan.

As you can see, both Wealthfront and Betterment offer similar types of accounts with two exceptions; Betterment offers a 401(k) account (via Betterment for Business) while Wealthfront doesn’t. On the other hand, Wealthfront offers a 529 College Savings Plan, while Betterment does not.

Verdict: No difference, unless you are a business owner, in which case go for Betterment, or you want to invest for a college education, in which case you should opt for Wealthfront.

Minimum Account Balances

Wealthfront has a $500 minimum account balance while Betterment does not have one.

Verdict: Betterment has the advantage however in practical terms, it is almost pointless to invest less than $500 for an investment portfolio anyway.

Account Fees

Betterment

Wealthfront

0.35% p.a. on amounts under $10,000 (with monthly deposit of $100, absent which fees are $3/month)

0.25% p.a. on amounts between $10,000 and $99,999.

0.15% on amounts of $100,000 and up.

First $10,000 free.

0.25% p.a. on amounts over $10,000.

Wealthfront’s referral program also gives $5,000 of free management per referral while Betterment’s

 
gives 30 days free management with every 3rd referral getting 1 year free.

Verdict: If you wish to invest amounts under $10,000, Wealthfront is the clear winner. For amounts between $10,000 and $99,999, they appear equal however since Wealthfront charges the 0.25% fee for amounts above $10,000; Wealthfront still comes out slightly ahead. If you wish to invest $100,000 and up however, then Betterment’s fee structure will clearly be more favorable for you. Also, if you have higher balances, then Betterment’s referral program, which is based on free management for a certain period on your entire portfolio instead of a dollar amount, will also likely be more beneficial.

Account Features

Investment Portfolio

Most robo-advisors use roughly the same list of ETFs (since they are the lowest cost) in their portfolios and Betterment and Wealthfront are no different. However, there are a couple of differences that we should highlight.

First, Wealthfront invests in real estate and commodities as part of its portfolios whereas Betterment does not. Betterment believes that its equity portfolio gives it sufficient real estate exposure and that commodities are short-term in nature and thus does not fit its long term investment horizon. Betterment also invests in US Investment Grade bonds, whereas Wealthfront does not, likely due to perceived low returns (taxable accounts only).

Verdict: This might ultimately boil down to your own individual view of the inclusion or exclusion of real estate, commodities, and US bonds in your portfolio. However, there is no question that Wealthfront’s investment portfolio is overall more diversified. Therefore, we have to give the advantage to Wealthfront in this one.

Automated Portfolio Rebalancing

Both robo-advisors’ algorithms will automatically rebalance your portfolio with each inflow and outflow plus whenever a portfolio drift threshold is breached. However, Betterment is able to invest in fractional shares in ETFs meaning that every cent can be precisely allocated and you won’t have any excess cash sitting around in your account. Wealthfront does not have this capability. Betterment also allows you to keep tabs on the level of portfolio drift and make deposits to reduce said drift. Further, Betterment’s Tax Impact Preview feature also allows you to see the potential tax impact of making a portfolio allocation change prior to performing the action.

Verdict: Betterment is the clear winner in this instance.

Tax Efficiency

Both Wealthfront and Betterment offer free daily tax-loss harvesting for all taxable accounts. Other

 
than this basic feature, Wealthfront offers a Tax-Optimized Direct Indexing service for accounts of $100,000 and up while Betterment offers its Tax-Coordinated Portfolio that takes advantage of asset location. In order to use this feature you need to have a mix of both taxable and non-taxable accounts.

Wealthfront estimates that its Tax-Optimized Direct Indexing service can add as much as 1.77% to 2.03% to your annual returns (depending on level of direct indexing, which is based on account balances). On the other hand, Betterment estimates that is Tax-Coordinated Portfolio will provide an additional annualized benefit of 0.48%.

Verdict: If you have over $100,000 in your taxable accounts, then Wealthfront is the clear winner in this case. However, if your taxable account balances are under this threshold and you have a mix of both taxable and non-taxable accounts, then Betterment’s Tax-Coordinated Portfolio wins out.

Retirement Planning

While both Wealthfront and Betterment have retirement-specific accounts and goals, Betterment has made its retirement planning feature much more specific. RetireGuide allows you to monitor how on-track or off-track you are with your retirement goals and even gives you probability percentage of your portfolio being able to achieve said goals. Its comprehensive feature allows you to link your non-Betterment accounts to the tool as well for a complete analysis.

Verdict: Betterment clearly comes out ahead here.

Other Features

Betterment has a SmartDeposit feature, which is just a simple auto-deposit feature. You just set the maximum amount in your checking account and Betterment will automatically transfer the difference between your checking account balance and that amount up to your set maximum deposit limit. A great option to force yourself to invest if you find financial discipline challenging. Wealthfront has no such feature.

On the other hand, Wealthfront does have a Single Stock Diversification service for selling stock options and transferring them into Wealthfront. However this is only for employees of very select publicly-listed companies.

Verdict: Betterment wins out for convenience but if you are an employee of one of the selected publicly listed companies with significant stock options, then Wealthfront will be of greater help.

Final Conclusion

As we stated in the beginning of this article, the real question to ask is: Which of the two robo-advisors is better for you? Well, that of course depends on who you are.

One of the main, if not the main consideration, when choosing a robo-advisor is fees. And as we explained above, Wealthfront is cheaper for amounts under $100,000 and Betterment for amounts above.

 
However, if we bring in tax efficiency in the mix, then if that $100,000 is in taxable accounts, Wealthfront’s Tax-Optimized Direct Indexing service will probably be able to generate more than enough in excess returns to make up for the 0.10% (0.25% – 0.15%) fee difference. Of course, if we are talking about non-taxable accounts, then Betterment will still be ahead.

To conclude, Wealthfront seems to be the best choice if you have mostly taxable accounts. However in the case of non-taxable accounts, then if you have over $100,000 in said accounts, Betterment comes out ahead.

Should You Use a Robo Advisor? (Or Pay for a Personal Financial Advisor)

Should You Use A Robo-Advisor? 9 Questions To Ask Yourself

Robo-advisors are almost in the mainstream and they’re currently being marketed very heavily. That said, robo-advisors are not for everyone and if you’re considering using one, we’ve prepared a handy list of 9 questions to ask yourself before going robo. If you answered ‘Yes’ to all these questions, then go right ahead! Check out our robo-advisor reviews for information on how to choose the best robo-advisor for you.

Am I eligible to use a robo-advisor?

At this point in time, robo-advisors are still very US-centric. Hence, they all require that you have a US Social Security number or US Tax ID number and reside at a permanent US mailing address in order to open an account with them.

Do I think that it would be extremely difficult for me to beat the market?

If you fancy yourself being able to beat the market through careful stock picking a la Warren Buffett, then a robo-advisor is not for you. Robo-advisory algorithms are based on Modern Portfolio Theory, which states a broadly diversified investment portfolio gives the highest level of return for the lowest level of risk.

Do I want a broadly diversified investment portfolio?

In line with the question above, all robo-advisors will create for you a diversified investment portfolio. They do this by investing in ETFs, meaning that you will not be able to select individual stocks or bonds in your portfolio.

Am I investing for the long term?

If you are investing for short-term gain, you shouldn’t use a robo-advisor. Even the shortest time horizons that robo-advisors recommend in their goal setting features are typically still more than 5 years.

Do I want to spend a minimal amount of time in managing my investments?

Convenience is one of the major selling points of robo-advisors. If you don’t want to spend a lot of time managing your portfolio, then a robo-advisor would be a great fit for you.

Am I okay with not receiving personalized investment advice?

Unlike personal financial advisors, you will not be receiving any personalized advice. Sure, robo-advisors will allow you to set some financial goals based on your risk tolerance, but it is not the same thing. If you are okay with this, then go ahead and consider a robo-advisor.

Am I comfortable with my money being entirely managed by algorithms?

They’re called robo-advisors for a reason; your portfolio will be managed by software algorithms, and in most cases there won’t be any humans looking over each trade. Some people may not be

 
comfortable with that; but if you are, then great!

If my investments drop significantly in value in a certain period, am I comfortable in waiting it out?

This goes hand-in-hand with the investment time horizon question above as well as the algorithm question. In periods of market distress, you must be willing to ‘ride it out’ with a long term outlook in mind. Further, the algorithm would likely still keep you at your previous allocation even during such periods.

Are low fees in managing my investment portfolio a major priority?

Another major draw of robo-advisors is the low fees compared to traditional financial advisors. Most robo-advisors have management fees in the 0.25% – 0.50% range with many even lower than that. If low management fees are a major priority for you, then you should consider a robo-advisor.

Which Is The Best Robo Advisor? (5 Top Robo Advisors Battle)

The owners of this website may be paid for recommending Wealthfront, Betterment, WiseBanyan, Tradeking Advisors, or Future Advisor. The owners may also be paid for any sale from to any of these advisors initiated through this website.

So right here on our site we’ve reviewed 5 of the most popular robo-advisors around: Wealthfront, Betterment, WiseBanyan, TradeKing Advisors, and FutureAdvisor. We’ve done a two-way showdown between the two most popular ones, Wealthfront and Betterment in our Wealthfront vs. Betterment review. And now it’s time for the final showdown; a 5 way Mexican standoff of the robo-advisors.

Dramatism aside, we have to once again clarify that the definition of ‘best’ in this case will be what turns out to be the best for you, given your specific situation and circumstances. We will go over each aspect and determine which type of investor it would be best suited for. So it will actually be a nuanced evaluation as opposed to the last robo-advisor standing in the Thunderdome. But still, that’s a pretty great mental image isn’t it?

Quick note. After publishing this article Tradeking Advisors has merged with Ally. Some of the information about Tradeking Advisors may be outdated.

Let’s get started.

Round 1: Types of Accounts Available

Robo Advisor

Types of Accounts Available

Wealthfront

Traditional IRA, Roth IRA, Rollover IRA, SEP IRA, trusts, non-profit, individual, joint, and 529 College Savings Plan

Betterment

Traditional IRA, Roth IRA, Rollover IRA, SEP IRA, trusts, non-profit, individual, joint, and 401(k)

WiseBanyan

Traditional IRA, Roth IRA, SEP IRA, and individual

TradeKing Advisors

Individual, Joint, Traditional IRA, Roth IRA, Rollover IRA, SEP IRA, SIMPLE IRA, Beneficiary IRA, Beneficiary Roth IRA, Custodial and Coverdell, Trusts, Corporate, LLC, Partnership and Sole Proprietorship

FutureAdvisor

Traditional, Roth, Rollover, and SEP IRAs, Coverdell, 529, UTMA, as well as individual and joint taxable accounts, and 401(k) (accounts on the Fidelity platform enabled with BrokerageLink only)

Round 1: Matchup (Most Account Options)

Most robo-advisors have the standard list of accounts available which will satisfy most typical investors. WiseBanyan clearly has the most limited choices, however. If you wish to fund a college savings account then Wealthfront and FutureAdvisor, with their 529 plans will probably the best option for you.

On the other hand, if you wish to open a business account then TradeKing Advisors is really the only choice. For 401(k)s; Betterment is the only robo-advisor that can meet your needs unless you meet the criteria for FutureAdvisor’s 401(k) accounts.

Round 1 Winner - The Robo Advisor With the Most Account Options is...

Round 2: Minimum Account Balances

Robo Advisor

Types of Accounts Available

Wealthfront

Minimum balance of $500.

Betterment

No minimum balances.

WiseBanyan

No minimum balances.

TradeKing Advisors

No account minimum balances, however a $500 minimum balance is required in order to begin building a Core portfolio. Momentum portfolios have a minimum balance of $5,000.

FutureAdvisor

$10,000 minimum balance to use its direct management premium services.

Round 2: Matchup (Minimum Balance)

Verdict: Only Betterment and WiseBanyan will allow you to start building a portfolio with no minimum balance. For FutureAdvisor, if you are a DIY investor and just using its free advice and recommendations, there is also no minimum balance. The others have a minimum balance of $500.

Nevertheless minimum account balances aren’t really much of an important point when choosing robo-advisors. After all, it is almost pointless to build an investment portfolio with under $500; we would go even further and suggest that you would need at least several thousand in your portfolio for it to start making a difference.

Round 2: Winner with the lowest minimum balance is...

Round 3: Account Fees

Robo Advisor

Wealthfront

Traditional IRA, Roth IRA, Rollover IRA, SEP IRA, trusts, non-profit, individual, joint, and 529 College Savings Plan

Betterment

Traditional IRA, Roth IRA, Rollover IRA, SEP IRA, trusts, non-profit, individual, joint, and 401(k)

WiseBanyan

Traditional IRA, Roth IRA, SEP IRA, and individual

TradeKing Advisors

Individual, Joint, Traditional IRA, Roth IRA, Rollover IRA, SEP IRA, SIMPLE IRA, Beneficiary IRA, Beneficiary Roth IRA, Custodial and Coverdell, Trusts, Corporate, LLC, Partnership and Sole Proprietorship

FutureAdvisor

Traditional, Roth, Rollover, and SEP IRAs, Coverdell, 529, UTMA, as well as individual and joint taxable accounts, and 401(k) (accounts on the Fidelity platform enabled with BrokerageLink only)

Wealthfront

First $10,000 free.

0.25% p.a. on amounts over $10,000.

Referral program gives $5,000 of free management per referral.

Betterment

0.35% p.a. on amounts under $10,000 (with monthly deposit of $100, absent which fees are $3/month)

0.25% p.a. on amounts between $10,000 and $99,999.

0.15% on amounts of $100,000 and up.

Referral program gives 30 days free management with every 3rd referral getting 1 year free

WiseBanyan

No management fees.

0.25% p.a. for its premium WiseHarvesting service; capped at $20/month (this translates to a minimum account balance of $96,000 for rates to be under 0.25% p.a.)

Referral program gives you $20 to your account per referral.

TradeKing Advisors

0.25% p.a. for its Core portfolios if balance is $5,000 and up: $1/month for amounts below that (translating to a minimum rate of 0.24% p.a.).

0.50% p.a. for its Momentum portfolios.

No referral program.

FutureAdvisor

0.50% p.a. for its direct management accounts.

No referral program.

Round 3: Matchup (Account Fees)

Account fees are probably one of the biggest, if not the biggest factor when it comes to selecting a robo-advisor. Right off the bat, it appears that FutureAdvisor is the most expensive of them all. While it is true that this is only for its direct management services, since the others all have direct management as a default, we have to make an apples-to-apples comparison.

After FutureAdvisor, Betterment, if your account balances is under $10,000, is the second most expensive. After that the remaining advisors all charge 0.25% p.a., the middle tier, and the lowest is Betterment’s 0.15% p.a. for balances over $100,000. However, even among the middle 0.25% p.a. tier, Wealthfront comes out slightly cheaper because it only applies to balances above $10,000.

Further, WiseBanyan is actually the cheapest if you don’t use their WiseHarvesting services e.g. if you only have non-taxable accounts. And to complicate things for one last time, even though Betterment has the lowest fees for accounts over $100,000, if those are in taxable accounts, then the extra return generated from Wealthfront’s Tax-Optimized Direct Indexing Service (refer to ‘Account Features’ section below) would likely more than make up for Betterment’s lower fees.

If all that’s got your head spinning; we totally understand. That’s why we’ve summarized all of the above into a handy table below.

Account Balances

Taxable

Non-Taxable

Under $10,000

Wealthfront is the clear winner since it’s free.

Both Wealthfront and WiseBanyan are at the top since these accounts cannot benefit from WiseBanyan’s WiseHarvesting premium feature anyways; hence they are both free.

$10,000 to $99,999

Wealthfront comes out slightly ahead since the 0.25% p.a. fee is only charged on balances over $10,000.

WiseBanyan is the cheapest option since these accounts will be managed for free; Wealthfront comes in second.

Over $100,000

Betterment is technically the cheapest option, however Wealthfront’s Wealthfront’s Tax-Optimized Direct

WiseBanyan is the cheapest option again, being free, with Betterment coming at second place.

Indexing Service would likely more than compensate for Betterment’s lower fees.

Now obviously the table above is a bit simplified; for example we assume that you would want to use WiseBanyan’s premium WiseHarvesting service for any taxable accounts, since only then would it be a true apples-to-apples comparison as the other robo-advisors all offer tax-loss harvesting for free, with the exception of TradeKing Advisors which does not have this feature.

Further, we did not take into account the referral programs in the table. Wealthfront’s referral program is obviously better if you have moderate account balances, whereas Betterment’s referral program which gives free management to the entire account based on time, would be better if you have very large account balances. And if your account balances are really low, such as if you are a beginning investor, then WiseBanyan’s referral program which directly gives you $20 cash in your account might be the best for you.

Verdict: When it comes to taxable accounts, Wealthfront is the clear winner in this case. In terms of non-taxable accounts then WiseBanyan which will be totally free, emerges as the cheapest. For large accounts of over $100,000 Betterment is also a good choice, especially if they’re non-taxable.

Round 3: Winner with the lowest fees is...

Round 4 Account Features

Investment Portfolio

All the robo-advisors use many of the same ETFs as these are the lowest cost available. However some portfolios are more diversified than others. All of the robo-advisors, with the exception of Betterment, invest in real estate via REITs as Betterment views that real estate exposure is sufficient through its equity investments. Further, Wealthfront is the only one that invests in commodities. However, Wealthfront does not invest in US Corporate bonds, although it does invest in municipal bonds.

Verdict: In terms of diversification, Wealthfront still comes out ahead with the most broadly diversified portfolio, followed by the middle three, and Betterment coming in at the least diversified portfolio. Notwithstanding the above, you may have a personal view that you don’t want to be invested in commodities and/or real estate; in which case the order may be reversed for you.

Automated Portfolio Rebalancing

All the robo-advisors’ algorithms will rebalance your portfolio automatically whenever there is an inflow or outflow as well as based on portfolio drift, which refers to the degree that your portfolio drifts away from your target allocation. Typically this threshold is around 3 – 5%. Nevertheless, there

are some differences between each of the robo-advisors, mainly whether or not they are able to purchase fractional shares. Fractional shares means that the robo-advisor would be able to precisely allocate all the cash in your portfolio, making it more efficient.

Fractional Shares?

Others

Wealthfront

No

-

Betterment

Yes

Tax Impact Preview allows you to see potential tax impact of any allocation changes.

You can keep track of level of portfolio drift and Betterment gives you the option of making a deposit to reduce said drift.

WiseBanyan

Yes

-

TradeKing Advisors

No

You have to call their customer support desk in order to change your portfolio’s allocation; cannot be performed online unlike the others.

FutureAdvisor

No

Automated portfolio rebalancing only for its directly managed accounts.

Round 4: Winner with the best features is...

Verdict: Betterment is the clear winner in this instance, followed by WiseBanyan, and Wealthfront, and FutureAdvisor in the middle of the pack. TradeKing Advisors stands at the last place due to the lack of convenience from having to call their customer support desk to change your portfolio allocation.

Round 5: Tax Efficiency

Wealthfront

Free daily tax-loss harvesting.

Tax-Optimized Direct Indexing service for accounts of $100,000 and up. Wealthfront estimates that this service can add as much as 1.77% to 2.03% to your annual returns (depending on level of direct indexing, which is based on account balances).

Betterment

Free daily tax-loss harvesting.

Tax-Coordinated Portfolio service if you have a mixture of taxable and non-taxable accounts. Betterment estimates that this service can add as much as 0.48% in annualized benefit over a 30-year period.

WiseBanyan

Daily tax-loss harvesting services offered at 0.25% p.a.

TradeKing Advisors

No tax-harvesting services offered at all.

FutureAdvisor

Free daily tax-loss harvesting for its directly managed accounts.

Round 5: Winner with the most Tax efficiency is...

Verdict: When it comes to maximizing the tax efficiency of your investments, Wealthfront and Betterment clearly lead the pack. If you have over $100,000 in taxable accounts then Wealthfront would be the better choice. However if you have under $100,000 spread between taxable and non-taxable accounts, then Betterment looks more appropriate.

Round 6: Retirement Planning

Because of the long term investment horizon that most robo-advisors recommend, many people look to robo-advisors to set up an easy to manage fund for their retirement. As such, most of the robo-advisors offer some sort of retirement planning function. However, some are ahead of the others and we have summarized their respective retirement planning functions in the table below.

Wealthfront

Standard retirement goal in initial risk tolerance questionnaire.

Betterment

Standard retirement goal in initial risk tolerance questionnaire.

RetireGuide feature which allows you to monitor how on-track or off-track you are with your retirement goals and gives you a probability percentage of your portfolio being able to achieve said goals. You can link up your external accounts to this feature for a complete analysis picture.

WiseBanyan

Milestones goal setting and tracking feature, which has Retirement has one of a selectable goal.

TradeKing Advisors

Standard retirement goal in initial risk tolerance questionnaire.

FutureAdvisor

Based on your retirement goals in your initial risk tolerance questionnaire; FutureAdvisor will give free portfolio recommendations to help you achieve said goal.

Round 6: Winner with the best Retirement service is...

Verdict: When it comes to retirement planning, Betterment leads the pack with its RetireGuide feature being the most comprehensive of them all. Behind Betterment we have WiseBanyan with its Milestones feature, while everybody can try out FutureAdvisor’s free retirement planning advice.

Post Rounds: Other Cool Stuf

In this section, we will go over some of the more unique features that each robo-advisor has. While these features will probably not be a prominent factor in selecting the best robo-advisor, maybe some of them might sway your decision a little bit!

Wealthfront

Single Stock Diversification Service which creates a personalized selling plan for employees with stock options in select publicly listed companies. If you are an employee in one of those companies (see our Wealthfront review for the list of companies) and have significant stock options in those companies, this may be a major selling point.

Portfolio Review, is Wealthfront’s portfolio analysis tool which will analyze your non-Wealthfront accounts based on 4 factors: fees, taxes, cash drag, and diversification and gives you a recommendation based on that. Obviously it’s a promotion tool for Wealthfront however it can definitely give you a new viewpoint on your current portfolio as well.

Betterment

SmartDeposit, which is an automated deposit feature. It allows you to set a maximum amount for your checking account and a maximum amount per deposit. Each week or month, Betterment will automatically deposit the difference between the balance in your checking account up to the maximum amount per deposit. This is basically a ‘forced investment’ tool and can be a very useful if you are less than financially disciplined.

WiseBanyan

AutoDeposit is the most basic form of an automated deposit feature. A standard weekly or monthly deposit that you can choose right at the account setup process.

TradeKing Advisors

Momentum Portfolios is a premium type of portfolio that it offers in addition its Core portfolios for 0.50% p.a. It is called as such because it aims to capture the momentum of the markets. A Momentum portfolio is rebalanced more frequently; on a monthly basis and also according to the movements of the markets.

Risk Assist is a feature available to its Core Portfolios with balances over $5,000 for an additional 0.50% p.a. (total annual fee of 0.75% p.a.). In times of market distress, your portfolio will automatically shift toward the safer asset classes such as bonds and Treasuries. As markets recover, it will gradually shift back toward equities. While it might be useful for shorter-term investors, over a long term horizon it may not be worth the extra fee. It is also worth considering how useful it will be as market distress situations are typically unpredictable.

FutureAdvisor

Human Advisors are what sets it apart from the rest. For those looking for a more personal touch, you can speak to FutureAdvisor’s financial advisory team via chat, email, or phone, Monday to Friday, from 1130 AM to 8 PM Eastern. In addition, said team also monitors all managed trades like an extra layer on top of its algorithm. You can also contact this team to ‘lock in’ certain investments in your portfolio, for example your favorite stock or bond, that you may have had in your previous external portfolios.

The Final Score

Most robo-advisors share many things in common and generally appeal to the same crowd: long-term passive investors who want a ‘set it and forget it’ broadly diversified portfolio. They all use many of the same ETFs and focus strongly on convenience for the customer. As such, they are mainly differentiated by their fee structure and excess returns generated by their tax-efficiency options. Based primarily on the main factors we have analyzed in this article, here are our conclusions on each of the 5 robo-advisors.

Wealthfront

If you have mostly taxable accounts, Wealthfront is simply the best choice. With the first $10,000 and managed for free and 2 tax efficiency features, no matter what your account balance is, Wealthfront is the clear leader when it comes to investing your taxable accounts.

Betterment

Betterment is suitable for those with large account balances, particularly if they are not in taxable accounts. This is due to their low fee structure for amounts over $100,000. Betterment’s retirement planning tool is also the most comprehensive of them all and could be a major factor if your main investment goal is saving for retirement.

WiseBanyan

The most basic and low-cost option. It only charges for its tax-harvesting feature, so if you are adamant about not paying any management fees and if you have non-taxable accounts, then WiseBanyan may be the lowest cost option. That said, questions regarding the sustainability of its business model remain, and you should take this into consideration given the long term nature of your investment.

TradeKing Advisors

TradeKing Advisors’ lack of tax-efficiency options are a major drawback while its fees place it squarely in the middle of the pack. The major advantage that TradeKing Advisors has its wide variety of business accounts offered. As such, business owners would be best served by this robo-advisor.

FutureAdvisor

FutureAdvisor and WiseBanyan both operate on a ‘freemium’ business model; however WiseBanyan is clearly the cheaper option. Further, WiseBanyan will directly manage your accounts for free. As such, FutureAdvisor is best for DIY investors who want to link up their external accounts and manage it according to FutureAdvisor’s recommendations.

Verdict: While we have tried to present a balanced picture of all the 5 robo-advisors, and to be sure, each of them has its own pros and cons, it is quite clear that for the majority of investors, Wealthfront, Betterment, and to a certain extent, WiseBanyan are best robo-advisors.

FutureAdvisor Review

FutureAdvisor operates a ‘freemium’ business model, where it offers you free portfolio recommendations and account, however if you wish for FutureAdvisor to manage your accounts directly, then you will have to pay for its premium service.

FutureAdvisor does not hold brokerage accounts directly but does so through Fidelity and TD Ameritrade.

Investment Methodology

FutureAdvisor’ investment methodology is based on Modern Portfolio Theory. The premise behind this theory is: you can’t beat the market so you should instead create a long term broadly diversified portfolio that maximizes return for the lowest level of risk.

About FutureAdvisor Inc.

FutureAdvisor is a robo-advisor based out of San Francisco, California.

Founded In: 2010 by

Founders: two former Microsoft employees

Assets Under Management: as of its latest SEC filing has approximately $969m

While it was originally owned by a mix of venture capital firms, it was acquired by BlackRock Inc., the world’s largest asset manager, in 2015.

Based on the time period from July 2013 to Dec 2016 (no backtesting), FutureAdvisor’s clients, split by age group from 30s to 60s, have obtained cumulative returns ranging from 17.3% to 27.0%. FutureAdvisor does also show backtested performance from the 2005 period on their site.

futureadvisor review

Figure 1: Return for FutureAdvisor's 30s age group clients

FutureAdvisor invests in low-cost Exchange Traded Funds (“ETF”), similar to most other robo-advisors. Currently, it invests in stocks, fixed income, and real estate. FutureAdvisor has not publicly disclosed the exact list of ETFs it uses to represent each asset class; however here are some of the ETFs that it has publicly disclosed.

futureadvisor review
futureadvisor review

Getting Started

To begin, you will first have to create an account with a simple password and email address. From there, you will receive a welcome email from FutureAdvisor and followed by a risk tolerance questionnaire. Questions include your age, annual income, marital status, number of children, planned retirement age, and personal risk tolerance level. After filling out the questionnaire, you will be able to link your investment accounts to the FutureAdvisor platform, where it will rank your account holdings based on their 9 ‘best practices’. You will also be given the option to open and directly fund an account instead.

futureadvisor review

Figure 2: Sample best practices comparison

Accounts Available

You can open the following directly-managed accounts at FutureAdvisor: Traditional, Roth, Rollover, and SEP IRAs, Coverdell, 529, UTMA, as well as individual and joint taxable accounts. If you have any 401(k) accounts on the Fidelity platform enabled with BrokerageLink, FutureAdvisor can manage those as well.

Minimum Account Balances

For FutureAdvisor’s direct management premium services, the account minimum is currently $10,000.

Account Fees

For its direct management accounts, FutureAdvisor charges a 0.50% annual management fee, billed on a quarterly basis. FutureAdvisor also advises that some trading commissions may be incurred (although over 90% of its ETFs charge no commissions) as well as embedded ETF expense ratios. All-in-all, FutureAdvisors estimate that total costs, including management fees, average 0.65% annually.

Main Account Features

  • Free Recommendations
  • Automated Portfolio Rebalancing
  • Daily Tax-Harvesting
  • Access to Financial Advisors

Free Recommendations

If you’re a DIY investor who doesn’t want to pay any management fees to FutureAdvisor, you can still take advantage of FutureAdvisor’s portfolio recommendations indefinitely and execute the trades yourself through your own respective brokerages.

Note: If you’re over the age 68, you are unfortunately ineligible to use FutureAdvisor’s premium services.

Automated Portfolio Rebalancing

FutureAdvisor’s algorithm looks for rebalancing opportunities in its directly managed accounts on a daily basis. The algorithm utilizes market-based rebalancing, instead of calendar-based rebalancing, meaning that your portfolio is rebalanced as needed. Inflows and outflows such as dividends, deposits, and withdrawals are used for ‘mini-rebalancing’ purposes while regular rebalancing is done based on portfolio drift; how much your portfolio’s current allocation differs from its target allocation. FutureAdvisor has stated that on average, your portfolio will be rebalanced 4 – 6 times a year. You also have the option to request to ‘lock in’ certain specific investments (your favorite stock, for example) by contacting FutureAdvisor directly.

Daily Tax-Harvesting

Tax harvesting is a tax deferral strategy whereby realized losses on investments are used to offset realized gains or ordinary income. Depreciated assets are sold to obtain the realized loss while at the same time a correlated asset is purchased to maintain the overall portfolio risk and allocation levels. There are no minimum balances required to use this service; you can use it as long as you are a premium client. However, FutureAdvisor has stated that generally speaking, its daily tax-loss harvesting is useful for accounts with balances of $20,000 and above.

Access to Financial Advisors

If you think the robo-advisory industry can be a little too impersonal for your liking, then FutureAdvisor has added back in a human element; something that makes it stand out from the robo-advisory crowd. You will have access to FutureAdvisor’s financial advisory team via chat, email, or phone, Monday to Friday, from 1130 AM to 8 PM Eastern. We should specify that this does not equate to a dedicated financial advisor for each account although FutureAdvisor’s human advisory team does monitor all managed trades in addition to the company’s algorithm.

Who is FutureAdvisor Suitable For?

If you’re the sort of long-term investor who wants a ‘set it and forget it’ kind of portfolio, then FutureAdvisor may be for you. If you want to create a broadly diversified portfolio based on Modern Portfolio Theory but don’t feel like paying FutureAdvisor’s management fees, then you can make use of their free investment advice and recommendations. Also, since many robo-advisors are yet to offer 401(k) accounts, if you have 401(k) accounts on the Fidelity platform, you can also benefit from FutureAdvisor’s services.

P.S. If you’re looking to beat the market by investing in specific securities or through market timing; then FutureAdvisor, or any robo-advisor, is definitely NOT for you.

TradeKing Advisors Review

About

TradeKing Advisors Inc,. (“TradeKing Advisors”) is the SEC-registered investment advisory arm of TradeKing, a discount online brokerage firm. TradeKing itself, headquartered in Fort Lauderdale, Florida, was launched in 2005 while TradeKing Advisors was formed in 2014. TradeKing Advisors still only maintains a small market share in the industry, with its latest SEC filing indicating just $15.6m in assets under management.

TradeKing Advisors is partnered with Ibbotson Associates a subsidiary of Morningstar, Inc., for the purposes of providing the risk tolerance questionnaire, creating and providing model portfolios, the initial selection of the funds in each model, as well as reviewing and updating the allocations and underlying funds of each portfolio. TradeKing Advisors also does not hold its clients brokerage accounts directly, but does so through the Apex Clearing Corporation.

Investment Methodology

TradeKing Advisors’ investment methodology is based on Modern Portfolio Theory, which aims to create a broadly diversified portfolio that maximizes the return-to-risk ratio. Based on backtesting from the 2011 to Q12016 period, TradeKing Advisors has released the following data regarding the performance for its Core portfolios.

tradeking advisors

Just like most robo-advisors, TradeKing Advisors invests in low-cost Exchange Traded Funds (“ETF”) however, it also invests in Exchange Traded Notes (“ETN”) to represent the different asset classes. Currently, TradeKing Advisors invests in stocks, fixed income, and real estate. The ETFs that TradeAdvisors uses to represent each asset class are as follows:

Asset Class ETF
US Stocks Vanguard Total Stock Market ETF (VTI) Vanguard Value ETF (VTV) Vanguard Mid-Cap ETF (VO) Vanguard Mid-Cap Value ETF (VOE) Vanguard Small-Cap ETF (VB) Vanguard Small-Cap Value ETF (VBR)
International Stocks Vanguard FTSE Developed Markets ETF (VEA) iShares MSCI EAFE Small-Cap ETF (SCZ) Vanguard FTSE Emerging Markets ETF (VWO)
US Bonds Schwab U.S. TIPS ETF (SCHP) SPDR Barclays High Yield Bond ETF (JNK) Vanguard Total Bond Market ETF (BND) Vanguard Short Term Bond ETF (BSV)
International Bonds iShares Emerging Markets Bond ETF (EMB)
Real Estate SPDR DJ Global Real Estate ETF (RWO)

Getting Started

To begin, users will have to fill out a questionnaire which asks for details on age, goals (wealth building, retirement, or saving for a major purchase), investment time horizon, risk tolerance, liquid assets, and initial investment amount. From there, TradeKing Advisors will give you a recommended portfolio allocation; an example is given below:

tradeking advisors

Figure 1: My recommended portfolio allocation

From there, users can proceed to fill in their details and fund their account.

Accounts Available

TradeKing Advisors offers a wide variety of accounts: Individual, Joint, Traditional IRA, Roth IRA, Rollover IRA, SEP IRA, SIMPLE IRA, Beneficiary IRA, Beneficiary Roth IRA, Custodial and Coverdell. It also offers the following entity accounts: Trusts, Corporate, LLC, Partnership and Sole Proprietorship.

Minimum Account Balances

While there are no account minimum balances, TradeKing Advisors require a $500 minimum balance in order to begin building a Core portfolio for you. Momentum portfolios have an even higher minimum balance of $5,000.

Account Fees

For its Core portfolios, TradeKing Advisors charges an advisory fee of 0.25% annually, charged monthly, for balances of $5,000 and up. For balances of $4,999 and below, the fee is $1/month (which translates to an annual rate of 0.24% and up). Momentum portfolios incur a higher advisory fee of 0.50% annually.

Clients will also incur embedded ETF costs, however TradeKing Advisors has not publicly provided the average expense ratios of its ETFs.

Main Account Features

• Automated Portfolio Rebalancing

• Core and Momentum Portfolios

• Risk Assist

Automated Portfolio Rebalancing

As with most robo-advisors, portfolios are rebalanced during inflows and outflows such as from receipt of dividends, deposits, and withdrawals. TradeKing Advisors generally states that its portfolios are rebalanced ‘as needed’. Customers may also find some cash in their portfolios as TradeKing considers it as a small part of the allocation, depending on risk tolerance, and also uses it to automatically cover the relevant account fees.

We should also note that unlike most robo-advisors, where users are able to alter the portfolio allocation and risk tolerance level through the online interface, TradeKing Advisors require that clients contact its client services desk in order to perform such a task.

Core and Momentum Portfolios

In addition to its main Core portfolios, TradeKing Advisors also offers a Momentum portfolio, which is a more actively-managed portfolio. Both the Core and Momentum portfolios offer 5 different risk tolerance levels, being:

• Conservative

• Moderate

• Moderate Growth

• Growth

• Aggressive Growth

Momentum portfolios aim to capture the market’s momentum, and thus, this type of portfolio is reviewed on a monthly basis in response to the movement of the markets. This means that the portfolio is rebalanced not only according to target allocation but also according to market fluctuations.

Note: As of this writing, it appears that TradeKing Advisors has removed all mention of Momentum portfolios on their site; we advise that prospective customers consult directly with a customer service representative to check whether Momentum portfolios are still offered.

Risk Assist

This is an additional feature available to TradeKing Advisors’ Core portfolios which have a minimum balance of $5,000 and for an additional management fee of 0.50% annually (bringing the total fee to 0.75% annually). When this feature is activated, a client’s portfolio will automatically shift from more volatile asset classes such as equities toward safer asset classes such as bonds and US Treasuries during periods of market distress. When the market recovers, the allocation will gradually shift back towards equities. While this is a useful feature for shorter-term investors, investors with a long-term horizon may not consider this feature to be of much value, particularly given that management fees will be effectively tripled.

Who is TradeKing Advisors Suitable For?

As with most robo-advisors, TradeKing Advisors is suitable for passive long-term investors. Investors looking to beat the market via market timing or stock picking should not use its services or the services of robo-advisors in general.

As TradeKing Advisors does not offer any tax-harvesting features; something which most other robo-advisors offer, individuals with taxable accounts may want to look elsewhere. That said, TradeKing Advisors does offer a wide range of business accounts that most robo-advisors do not, making it one of the few options available for businesses.


Wealthfront Review

About

Wealthfront Inc. (“Wealthfront”) is an SEC-registered automated investment service firm, known colloquially as a ‘robo-advisor’. Based out of Redwood City, California, Wealthfront was founded in 2008 and as at end-2016, has approximately $4.7 billion in assets under management.

Wealthfront does not hold its clients brokerage accounts directly, but does so through the Apex Clearing Corporation.

Investment Methodology

Wealthfront’s investment methodology is based on Modern Portfolio Theory, which emphasizes the benefits of portfolio diversification based on asset class allocation rather than individual security selection. Its Chief Investment Officer is Dr. Burton Malkiel, author of popular investment book A Random Walk Down Wall Street reflects the Efficient Market Hypothesis; which is consistent with Modern Portfolio Theory.

To that end, Wealthfront invests its clients’ funds in low-cost index-based Exchange Traded Funds (“ETFs”) that represent each asset class. Currently, Wealthfront invests in the following 11 asset classes:

wealthfront review

Refer below for Wealtfront’s current list of primary and secondary ETFs.

Primary ETFs

wealthfront review

Secondary ETFs

wealthfront review

For more information on Wealthfront’s investment methodology, you can refer to their relevant white paper here.

Getting Started

Since Wealthfront is a purely automated service, it customizes its advice to its clients via a risk tolerance questionnaire that has to be completed prior to opening an account. The questionnaire covers investment objectives, pre-tax income, net worth, age, and behavior during a market downturn. The questionnaire is very basic and covers only 8 questions. Based on your answers, Wealthfront will generate a risk tolerance score and recommended portfolio allocation; below is one example.

wealthfront review

Accounts Available

Currently, Wealthfront offers the following accounts to its clients: Traditional IRA, Roth IRA, Rollover IRA, SEP IRA, trusts, non-profit, individual, joint, and 529 College Savings Plan.

Minimum Account Balances

Wealthfront’s current account minimum balance is $500 with a minimum withdrawal amount of $250.

Account Fees

Wealthfront charges zero fees for the first $10,000 invested by a client and a 0.25% annual advisory fee (charged monthly) on amounts over $10,000. Clients also incur embedded ETF fees which vary from fund to fund, although Wealthfront estimates an average annual ETF fee of 0.12%.

Note: Wealthfront also has a referral program, known as the Wealthfront Invite Program which waives advisory fees of an additional $5,000 in assets per referral for both the referrer and the referral.

Main Account Features

• Automated Portfolio Rebalancing

• Daily Tax-Loss Harvesting

• Tax-Optimized Direct Indexing,

• Single Stock Diversification Service

• Portfolio Review

Automated Portfolio Rebalancing

Wealthfront’s software automatically rebalances its clients’ portfolios based on how much the movement of an asset class causes a drift in a portfolio’s target allocation. Once a certain threshold is breached, the client’s portfolio is automatically rebalanced. Rebalancing is not based on time.

Daily Tax-Loss Harvesting

This is a feature that Wealthfront offers to all its clients with taxable accounts; it is not available to IRA accounts as gains and losses on those accounts are tax-deferred. The idea behind tax-loss harvesting is that by selling investments that have declined in value at a loss, clients can write-off that loss from their taxable income. Further, clients can replace those sold investments with a highly correlated alternative investment, resulting in a portfolio with an unchanged risk and return profile but with additional tax savings.

While this service is offered by traditional financial advisors, typically at the end of the year; Wealthfront’s software is able to check for such opportunities on a daily basis. Based on historical data between 2000 and 2011, Wealthfront has estimated that this service is able to increase after-tax returns by over 1.55% annually.

Tax-Optimized Direct Indexing

This feature is the more advanced and comprehensive version of the daily tax-loss harvesting feature and is available for clients with account balances over $100,000. Instead of investing a client’s money in the stock market ETFs listed above, Wealthfront will use direct indexing instead meaning that it will directly purchase up to 1,001 securities on the investor’s behalf (consisting of 1,000 stocks from the S&P500 andS&P1500 indices plus one ETF of smaller companies). Wealthfront currently offers 3 levels of direct indexing, with each threshold based on account balances. They are:

Wealthfront100 (WF100) – For accounts between $100,000 and $500,000. The Vanguard Total Stock Market ETF is replaced by up to 100 of the largest capitalization stocks from the S&P500 index plus the combination of the Vanguard Extended Market ETF (VXF) and the Vanguard S&P 500® ETFs (VOO) to represent the remaining smaller-capitalization companies.

Wealthfront500 (WF500) – For accounts between $500,000 and $1 million. The Vanguard Total Stock Market ETF is replaced by up to 500 stocks from the S&P500 index plus the Vanguard Extended Market ETF for non-S&P500 smaller capitalization companies.

Wealthfront1000 (WF1000) – For accounts above $1 million. The Vanguard Total Stock Market ETF is replaced by up to 1,000 of the largest capitalization stocks from the S&P1500 Index plus the Vanguard Small-Cap ETF for the smaller capitalization companies.

Since this feature allows for the broad market US stocks ETF to be replaced by many individual securities, the opportunities for tax loss harvesting is much greater (Index Funds and ETFs are legally prohibited by The Investment Company Act of 1940 from passing on tax losses to investors). In addition, this feature also eliminates the management cost associated with the Vanguard Total Stock Market ETF. Overall, Wealthfront estimates that tax-optimized direct indexing can add as much as 2.03% to annual investment performance (figure is for the WF1000; estimates are 1.77% and 1.88% for the WF100 and WF500, respectively).

For detailed information on their methodology, refer to Wealthfront’s white paper here.

Single Stock Diversification Service

This is a service that Wealthfront offers to employees of select publicly-listed companies whose net worth may be significantly tied up to stock options. This service creates a personalized selling plan for each employee based on stock holdings, short-term financial needs, and longer term outlook. The stock is then transferred to Wealthfront according to said plan; Wealthfront will set aside cash proceeds from each sale to cover taxes payable. Currently, this service is only applicable to employees of the following companies:

wealthfront review

Portfolio Review

This is a free portfolio analysis tool that Wealthfront makes available to all people with accounts at most brokerage firms. Portfolio review analyzes investors’ portfolios at other brokerages based on 4 factors: fees, taxes, cash drag, and diversification; it then makes recommendations based upon said analysis. Of course, the idea behind this tool is to encourage people into making the switch to Wealthfront.

You can find a detailed analysis of their portfolio review methodology in their white paper here.

Who is Wealthfront Suitable For?

Wealthfront is recommended for long term passive investors who are looking to create a diversified investment portfolio. As active portfolio management via individual security selection is in opposition to Wealthfront’s investment methodology, Wealthfront is not suitable for investors looking to beat the market by investing in specific securities or through market timing. Individuals with over $100,000 to invest will also benefit from its Tax-Optimized Direct Indexing service, a feature not offered by many other robo-advisors.


Betterment Review

About

Betterment Inc. (“Betterment”) is an SEC-registered automated investment service firm, or ‘robo-advisor’ based out of New York. It was founded in 2008 and as at end-October 2016, has approximately $6.1 billion in assets under management, making it the largest in the business.

Betterment does not hold its clients brokerage accounts directly, but does so through the Apex Clearing Corporation.

Investment Methodology

As with most robo-advisors, Betterment’s investment methodology is based on Modern Portfolio Theory , which states that a broadly diversified investment portfolio allows for maximum return for a given risk level. Betterment estimates that its methodology will be able to excess returns of 4.30% over that of an average investor over a 20 year period.

As such, Betterment does not invest in individual securities but in low-cost index-based Exchange Traded Funds (“ETFs”) that represent each asset class. Currently, Betterment only invests in stocks and bonds using the following ETFs; note that the ETF selection differs depending on whether the account is taxable or is an IRA.

Taxable Accounts

Betterment Review

IRAs

Betterment Review

Getting Started

To begin, users will have to fill out their age, annual pre-tax income, and status (retired or employed). From there, Betterment offers 3 recommended portfolio allocations:

Safety Net – 60:40 stocks to bonds allocation. A conservative portfolio that Betterment recommends as a superior alternative to a cash savings account. It is designed to beat inflation while including a 30% buffer that allows for as much as a 23% decrease in value over 5-years while still preserving the minimum balance.

Retirement – Recommended allocation changes according to age; starts at a high 90% recommended stock allocation that begins decreasing after age 48 until it reaches a 56% recommended stock allocation at retirement then a continued reduction thereafter.

General Investing – For general growth and preservation of capital. Recommended stock allocation begins at 90% until age 45 and thereafter decreases until a 55% recommended stock allocation at age 65; it remains at that allocation thereafter.

You can also go deeper into each goal to see their recommended allocation on a per-ETF basis. An example is presented below.

Betterment Review

Accounts Available

Currently, Betterment offers the following accounts to its clients: Traditional IRA, Roth IRA, Rollover IRA, SEP IRA, trusts, non-profit, individual, joint, and 401(k).

Minimum Account Balances

Betterment’s currently has no minimum amounts for account balances or withdrawals.

Account Fees

Betterment has 3 fee tiers based on the average account balance. Fees are charged at the end of each quarter. They are:

$1 - $9,999: 0.35% annual fee with a $100 monthly recurring deposit required. Without the recurring deposit, fees are $3/month instead.

$10,000 - $99,999: 0.25% annual fee.

$100,000 and up: 0.15% annual fee.

On top of the above fees, clients will also have to pay embedded ETF fees as well, which Betterment states averages 0.13%.

Note: Betterment has a referral program which gives you 30 days free with each referral with said referral receiving 6 months free. Upon your third referral, you get a bonus 1 year free.

Main Account Features

• Automated Portfolio Rebalancing

• Tax Impact Preview

• Daily Tax-Loss Harvesting

• Tax-Coordinated Portfolio

• RetireGuide

• SmartDeposit

Automated Portfolio Rebalancing

Betterment’s software automatically rebalances its clients’ portfolios based on portfolio drift, meaning the degree that the movement of an asset class causes a drift in a portfolio’s target allocation. A client’s portfolio is automatically rebalanced whenever there is an inflow or outflow; Betterment also allows its clients to keep tabs on the level of portfolio drift and gives clients the option of making deposits to further reduce the level of drift. And because Betterment can buy fractional shares in an ETF, the cash flows can be allocated precisely.

Even without cash flows, Betterment can reduce portfolio drift by selling overweight assets in a client’s portfolio and buying the underweight assets. This method is triggered at a portfolio drift level of 3%. Clients can also elect to turn off automated rebalancing if they so choose and can also alter their desired target allocation at any time.

Tax Impact Preview

The selling of securities by a client, such as when altering the target allocations of a portfolio can often result in unexpected taxes payable. This tool, available on all accounts, gives an estimate (based on highest applicable tax rates, so it is an upper-bound estimate) of the potential tax impact a transaction will have. An example of how the tool works is shown below.

Daily Tax-Loss Harvesting

Tax loss harvesting is a tax deferral strategy whereby capital losses from selling a depreciated asset is used to offset capital gains while also purchasing a similar correlated asset to one that has been sold. This maintains the portfolio at the targeted allocation level while generating tax savings. This feature is fully automated by Betterment and is available to all taxable accounts.

Betterment uses what it calls its proprietary Parallel Position Management system to facilitate tax loss harvesting and it estimates that based on back-testing from the 2000 to 2013 period that its system would have provided an additional 0.77% to an investor’s after-tax returns.

For a more detailed explanation, you can refer to Betterment’s tax-loss harvesting white paper here.

Tax-Coordinated Portfolio

Betterment’s Tax-Coordinated Portfolio is another tax efficiency optimization feature that makes use of asset location. This strategy takes advantage of different tax treatments between taxable and IRA accounts. As a basic example, consider an investor with a 70:30 stock to bonds allocation with a taxable, traditional IRA, and a Roth IRA account. In a non-tax coordinated portfolio, each of those three accounts would follow the same 70:30 allocation, bringing the overall portfolio allocation at 70:30.

However, by using asset location, Betterment alters the allocation mix between the accounts such that each of the three accounts would not have a 70:30 allocation individually however the overall portfolio allocation would still maintain a 70:30 allocation. In this manner, Betterment estimates that a typical investor would have an estimated annualized benefit of 0.48% across the entire portfolio over a 30-year horizon, equating to a 15% more after-tax return available in retirement.

For detailed information on their methodology, refer to Betterment’s white paper here.

RetireGuide

RetireGuide is a series of questionnaires that Betterment posts in order to provide its clients an idea of how on-track or off-track they are with their retirement goals. The main goal it tracks is the planned retirement age of the client and their desired annual spending in retirement. It then presents a probability of the client’s portfolio in reaching said goal. An example is provided below and you can access their full RetireGuide methodology here.

Betterment Review

SmartDeposit

This is an auto-deposit feature that automatically transfers money from client’s bank account to their Betterment portfolio. The feature allows customers to set a maximum amount they want in their checking account as well as the maximum amount per deposit. The difference between the current bank account balance and the maximum checking account balance will then automatically be transferred to Betterment up to the maximum amount per deposit limit.

Who is Betterment Suitable For?

As an automated investment advisor based on Modern Portfolio Theory, Betterment is suitable for investors with a longer term outlook who are not looking for active portfolio management. Investors who believe in beating the market through market timing or active security selection should not invest with Betterment. Investors with account balances of over $100,000 will also incur very low levels of management fees and will also likely be able to take better advantage of its Tax-Coordinated Portfolio if said balances are spread across multiple taxable and IRA accounts.


WiseBanyan Review

About

WiseBanyan Inc. (“WiseBanyan”), founded in 2013, is an SEC-registered automated investment service firm, or ‘robo-advisor’ based out of Las Vegas, Nevada. It is one of the smallest robo-advisors in the industry, with assets under management totaling only approximately $49m, according to its latest filing with the SEC.

WiseBanyan’s unique selling point is that it is the “world’s first free financial advisor”, and thus does not charge any management fees. However, it does charge a fee for its premium services, such as tax-loss harvesting (refer to our “Account Fees” section below). The philosophy behind this business model is incentives alignment; without management fees WiseBanyan is not incentivized to encourage its clients to continuously increase their account balances. However, this has raised questions about whether or not WiseBanyan’s business model is sustainable in the long term.

WiseBanyan does not hold its clients brokerage accounts directly, but does so through the Apex Clearing Corporation.

Investment Methodology

Just like all the robo-advisors, WiseBanyan’s investment methodology is based on Modern Portfolio Theory, which targets a broadly diversified investment portfolio which allows for maximum return for a given risk level over individual security selection. WiseBanyan estimates that based on backtesting from the 2003 to 2013 period that a WiseBanyan portfolio with moderate risk tolerance would have returned about 7.6%.

As such, WiseBanyan invests in low-cost index-based Exchange Traded Funds (“ETFs”) that represent three main asset classes: stocks, bonds, and real estate. The list below shows the primary ETFs that WiseBanyan uses for each asset class at the top followed by the secondary and tertiary ETFs that it uses when the WiseHarvesting feature is activated.

Asset Class ETF Expense Ratio
US EquitiesVanguard Total Stock Market ETF (VTI) Schwab U.S. Broad Market ETF (SCHB) State Street SPDR S&P 500 ETF (SPY)0.05% 0.03% 0.11%
International Developed EquitiesVanguard FTSE Developed Markets ETF (VEA) Schwab International Equity ETF (SCHF) iShares MSCI EAFE ETF (EFA)0.09% 0.08% 0.32%
International Emerging EquitiesVanguard FTSE Emerging Markets ETF (VWO) iShares Core MSCI Emerging Markets ETF (IEMG) iShares MSCI Emerging Markets ETF (EEM)0.15% 0.16% 0.70%
US Corporate BondsiShares Investment Grade Corporate Bond ETF (LQD) Vanguard Intermediate-Term Corporate Bond Index ETF (VCIT)0.15% 0.10%
Short Term High Yield BondsState Street Global Advisors Barclays Short Term High Yield Bond Index ETF (SJNK) PIMCO 0-5 Year High Yield Corporate Bond Index ETF (HYS) iShares 0-5 Year High Yield Corporate Bond ETF (SHYG)0.40% 0.55% 0.50%
REITsVanguard REIT ETF (VNQ) iShares U.S. Real Estate ETF (IYR) iShares Cohen & Steers REIT ETF (ICF)0.10% 0.45% 0.35%
Short Term Corporate BondsVanguard Short-Term Corporate Bond ETF (VGSH)0.12%
US TreasuriesVanguard Intermediate Term Government Bond Index ETF (VGIT)0.12%
US Inflation Protected TreasuriesiShares Barclays TIPS Bond Fund ETF (TIP)0.20%

Getting Started

To begin, users will have to enter their email address on WiseBanyan’s page to receive an invite link. From there, you are taken to a short risk tolerance questionnaire which asks for your age, annual income, and net worth. From there you can select one of four ‘Milestones’ (refer to “Main Account Features” section below) followed by a several more risk tolerance questions.

wisebanyan review

Figure 1: My recommended allocation based on their 'Build Wealth' milestone

After the completion of the questionnaire, WiseBanyan will give you a recommended portfolio allocation and then take you to the deposit page. There it will request the amount of your initial deposit plus the amount of monthly auto-deposits you wish to select followed by the standard personal information.

Accounts Available

Currently, WiseBanyan offers only 4 types of accounts: Traditional IRA, Roth IRA, SEP IRA, and individual.

Minimum Account Balances

WiseBanyan’s currently has no minimum amounts for account balances or withdrawals; minimum deposit amount is $1.

Account Fees

WiseBanyan does not charge any management fees; the only fees that WiseBanyan charges are for its WiseHarvesting service which costs 0.25% annually capped at $20/month. This means that account balances over $96,000 can use this service for under the 0.25% rate.

As with all robo-advisors, clients will also incur the embedded ETF fees, which WiseBanyan estimates averages 0.12% annually. There are also various fees imposed by WiseBanyan’s broker-dealer for paper statements, wire transfers, and account closings; summarized below.

wisebanyan review
wisebanyan review
wisebanyan review

Note: WiseBanyan has a referral program which gives you $20 to yours and your referral’s account.

Main Account Features

• Automated Portfolio Rebalancing

• Milestones

• WiseHarvesting

• Auto-Deposit

Automated Portfolio Rebalancing

Client accounts are automatically rebalanced whenever there is an inflow or outflow of funds such as during deposits, withdrawals and receipt of dividends. By rebalancing during inflows and outflows, WiseBanyan is able to minimize the tax consequences to its clients. The portfolio is also automatically rebalanced (regardless of inflows or outflows) whenever any portion strays by more than 5% from the target allocation; the target allocation can be changed by the client at any time.

Milestones

This is WiseBanyan’s goal setting feature and clients can select a milestone during the account opening process. Currently, WiseBanyan offers 4 different milestones; while clients can create as many custom milestones as they wish, they are limited to one each for the other 3 types.

Rainy Day – This is the recommended beginner milestone. The idea behind this milestone is the creation of an emergency fund to cover unexpected expenses.

Retirement – Self-explanatory; this milestone is designed to assist in your retirement planning.

Build Wealth – The investment milestone for those without a specific goal in mind but just want to grow their portfolio in general.

Custom – Clients can set this milestone based on a target savings amount over a selected time horizon.

WiseHarvesting

This is WiseBanyan’s premium tax-loss harvesting service. Tax-loss harvesting is a tax deferral strategy whereby investment losses are used to offset income and investment gains. In addition, a similar correlated investment to the one sold at a loss is repurchased; maintaining the overall risk profile and target allocation of the portfolio. Through its software, WiseBanyan looks for such tax-loss harvesting on a daily basis. Depending on marginal tax rates and time horizons, WiseBanyan estimates that its WiseHarvesting feature can generate additional returns as summarized in the below table.

wisebanyan review

We should also note that other robo-advisors, which charge a general account management fee, typically offer daily tax-loss harvesting at no additional charge.

For a detailed explanation, you may refer to WiseBanyan’s tax-loss harvesting white paper here.

Auto-Deposit

As the name implies, this is a simple auto-deposit feature that clients can choose to activate on a monthly or weekly basis. While the monthly deposit is the standard and is available during the account opening process, the weekly deposit allows for more dollar-cost averaging.

Who is WiseBanyan Suitable For?

As with most robo-advisors, WiseBanyan is suitable for passive long-term investors. Investors looking to beat the market via market timing or stock picking should not use its services. However since WiseBanyan currently does not charge any fees other than for its WiseHarvesting services, investors with non-taxable accounts will be able to take advantage of its services at practically no cost.