How does Betterment make money?

Finest For

  • Buyers who want a human advisor
  • Customizable portfolios
  • New traders

Betterment is among the many largest unbiased robo-advisors, and that’s not shocking once you determine that Betterment took prime honors in Bankrate’s overview of the trade. The corporate affords two tiers of service – each at a aggressive worth – differentiated principally by whether or not you’ve gotten limitless entry to human advisors. Each supply core and premium capabilities, together with investing, money administration, rebalancing and tax-loss harvesting. 

Betterment ramps it up a number of notches with additional instruments that can assist you plan and handle your taxes and charitable giving. Plus, it consists of a wide range of selections because it builds your funding portfolio, together with funds for socially accountable corporations and modern applied sciences, amongst others. With a extremely usable app full of options and the flexibility to customise portfolios, Betterment ought to be in your shortlist for a brand new robo-advisor.

These in search of entry to human advisors as a part of a robo-advisor package deal must also try SoFi Automated Investing and Schwab Intelligent Portfolios. In the event you’re in search of a top-notch robo-advisor and don’t want entry to human advisors, Wealthfront makes a compelling selection.

Purpose Planning

Betterment excels on the aim planning mannequin of funding administration. Your saving and investing are segregated into buckets with numerous progress, timeline and threat metrics. For instance, the cash you’re saving for a house down cost is invested conservatively in bonds. Whereas cash for retirement is invested extra aggressively with higher allocations to U.S. and worldwide shares. 

Betterment’s aim monitoring consists of the selection to attach outdoors accounts, for a 360° view of your entire property. The Purpose Forecaster software additionally allows you to calculate when you’ll doubtless attain the aim. With ongoing aim monitoring, you may alter your saving and investing to enhance the chance of success.

Purpose setting begins with 5 broad selections:

  • Retirement
  • Retirement Revenue
  • Main Buy
  • Security Internet
  • Training

After making a range, you personalize your targets with a reputation, the variety of years till funds are wanted, and the goal quantity wanted. One of many key strengths of Betterment is that it calculates the chance of reaching the targets underneath completely different market eventualities. Betterment additionally lets you assign the exterior accounts synced to its platform to a aim, providing you with a consolidated snapshot of your progress in direction of it. This stage of consolidated state of affairs planning is a key power of Betterment’s platform.   


Frequent questions on Betterment

Is Betterment a great funding? Investing your cash with Betterment is usually a sensible concept. Betterment’s portfolios of ETFs have confirmed observe data of returns. With low annual charges and no commerce charges in any respect, it’s a low-cost possibility. In contrast to another platforms, Betterment additionally affords socially accountable investing choices. If shopping for shares in an organization that aligns along with your values is a key a part of your funding technique, a Betterment brokerage account may very well be a great possibility. But if one among your funding targets is to save cash for faculty, you would possibly need to contemplate an analogous platform with a 529 plan reminiscent of Wealthfront. You’ll be able to see how Wealthfront vs. Betterment evaluate side-by-side and decide which is best aligned along with your funding targets. How secure is Betterment? The SIPC protects Betterment funding account balances as much as $500,000 per account towards any losses that happen resulting from dealer error. Nevertheless, that SIPC insurance coverage safety is barely towards errors on Betterment’s behalf, not market modifications. Though Betterment is a good firm registered by the SEC, no funding is assured. There may be all the time a stage of threat once you make investments your cash, and your funding might lose worth. Is Betterment good for freshmen? Betterment is a superb selection for newbie traders. There’s no funding minimal, and you should buy fractional shares of ETFs so you can begin investing with a really small amount of cash. After you reply a number of fundamental questions to enroll, Betterment will make investments your cash in ETFs for you based mostly in your monetary targets and threat tolerance. Are you able to lose cash with Betterment? Sure, as with every funding, your investments with Betterment can lose cash. If the market drops, your funding might lose worth. In contrast to checking or financial savings account deposits, investments aren’t FDIC insured, and there’s no financial institution assure. Is Betterment higher than Vanguard? Whether or not Betterment is best to your wants than Vanguard relies on your funding targets and strategy. With Vanguard, you may put money into particular person shares, bonds, and mutual funds. Nevertheless, Vanguard has a a lot greater minimal funding stage, which can be intimidating for a lot of new traders. For novice traders who need a extra hands-off strategy, Betterment makes it simpler to get began. With preselected portfolios, automated rebalancing, and a useful cell app, Betterment makes investing easy.

Who can use Betterment?

Betterment is accessible for anybody to make use of. It’s particularly worthwhile for individuals who are new to investing and aren’t certain the place to begin. As a result of the Digital Plan doesn’t require an funding minimal, you don’t have to avoid wasting lots of or 1000’s of {dollars} earlier than you may start investing as you’d with another corporations.

Betterment takes a whole lot of the guesswork out of the equation, and also you don’t should do a whole lot of work to handle your investments, which makes it a good selection for passive or hands-off traders. You merely reply a number of questions, and Betterment creates a portfolio of ETFs for you. The corporate rebalances your funding portfolio as wanted, so the account regularly works onerous for you.

Options and Advantages

Minimal Preliminary Funding

Betterment has no minimal preliminary funding requirement for its fundamental Digital Investing plan. You’ll be able to open an account with no cash in any respect and start funding it with common deposits.

Accessible Accounts

Accessible accounts embrace:

  • Taxable particular person and joint brokerage accounts.
  • Traditional, Roth, SEP, and Roth conversion IRAs.
  • Trusts and non-profit accounts.
  • 401(okay) plans.

Betterment Money Reserve

Betterment Cash Reserve affords a pleasant rate of interest of 1.60% APY. There’s no minimal stability required and no charges to fret about.

One other nice characteristic that many financial savings accounts don’t supply is limitless withdrawals out of your account. Sometimes, you solely get six withdrawals per 30 days.

Betterment Money Reserve APY Disclosure – The annual share yield (“APY”) on the deposit balances in Betterment Money Reserve (“Money Reserve”) is 1.60% and represents the weighted common of the APY on deposit balances on the banks collaborating in Money Reserve (the “Program Banks”) and is present as of August 01, 2022. This APY is variable and topic to vary every day. Deposit balances aren’t allotted equally among the many collaborating Program Banks. A minimal deposit of $10 is required, however there isn’t a minimal stability required to be maintained. The APY obtainable to a buyer could also be decrease if that buyer designates a financial institution or banks as ineligible to obtain deposits. APY applies solely to Money Reserve and doesn’t apply to checking accounts held by Betterment Checking. Money Reserve and Betterment Checking are separate choices and aren’t linked accounts. 

Betterment Checking

Betterment additionally affords a checking account with no charges, no minimal stability, and FDIC insurance coverage as much as $250,000. Plus, your ATM charges are reimbursed worldwide.

Better of all, your Betterment checking account additionally comes with a Betterment Visa® Debit Card that earns money again on purchases from collaborating manufacturers. Rewards can be found at greater than 10,000 retailers worldwide, each on-line and in-person (for on-line procuring, you’ll want to buy by Betterment’s “Earn Rewards” part on the location or app).

Money again is mechanically deposited into your account inside 90 days. To make incomes rewards simpler, Betterment remembers the place you store most to point out you related affords. It’s also possible to use the app’s locator to seek out affords in your space.

In the event you’re getting began with investing, the additional cash in your account every month might provide the funds it’s essential increase your portfolio.

Cellular Verify Deposits

Mobile check deposits are available through the ap

Cellular test deposits can be found by the app. This characteristic is handy and easy to make use of.

Monetary Recommendation Packages

Robo-advisors give traders a hands-off technique to develop their wealth, however typically you want direct monetary recommendation too. Betterment affords 5 completely different packages that can assist you plan for the longer term with a hand from devoted monetary specialists.

This can be a premium service that prices additional. The costs are:

  • Getting Began Bundle – $299.
  • Monetary Checkup Bundle – $399.
  • Faculty Planning Bundle – $399.
  • Marriage Planning Bundle – $399.
  • Retirement Planning Bundle – $399.

Exterior Account Syncing

Much like monetary account aggregators like Personal CapitalBetterment allows you to add exterior accounts to your Betterment account. The platform doesn’t really handle them, however including them to your account can provide you a greater overview of your funds. Betterment can even present recommendation about your outdoors investments (in case you have the Premium plan).

For instance, you may sync an employer-sponsored retirement plan reminiscent of a 401(okay). Betterment can then make suggestions on the right way to higher handle this account and others.

Betterment Cellular App

Betterment affords its cell app with all of the capabilities and capabilities of the net model. It’s obtainable within the App Retailer for iOS gadgets 11.0 and later and suitable with iPhones and iPads.

It’s additionally obtainable on Google Play for Android gadgets 6.0 and up.

Deposits and Withdrawals

Probably the most handy technique to make a deposit into your account is thru digital transfers out of your checking account by way of the ACH community.

It’s also possible to switch property from outdoors brokerage accounts utilizing the Automated Buyer Account Switch Service (ACATS). Transfers from retirement accounts might be accomplished by IRA rollovers.

Transferred funds are mechanically invested inside one or two enterprise days. Betterment doesn’t settle for deposits made by test or by credit score or debit playing cards. Wire transfers are really useful just for giant transfers as a result of charges concerned.

Buyer Service

Betterment might be contacted by both telephone or e-mail, Monday by Friday, from 9:00 am to six:00 pm Jap Time.

Betterment Account Safety

Your account is protected by protection from the Securities Buyers Safety Company (SIPC) for as much as $500,000 in securities (together with as much as $250,000 in money).

For extra account safety, you may arrange two-factor authentication. This may defend your account even when your password is compromised.

Two-factor authentication requires you to enter a singular verification code to entry your account. You’ll be able to obtain the code both by textual content or e-mail.

Betterment Options and Advantages

Betterment has a lot of options and advantages, however listed below are among the most essential ones:

  • Account safety. Your account is covered under the Securities Investors Protection Corporation (SIPC), for up to $500,000 in cash and securities, together with as much as $250,000 in money. This protects you from dealer failure however not losses resulting from market fluctuations.
  • Buyer Service. You’ll be able to contact Betterment by Cellphone or by Dwell Chat, Monday by Friday, 9:00 am to eight:00 pm Jap Time (ET), and Saturday and Sunday, from 11:00 AM to six:00 PM ET. It’s also possible to contact them by e-mail at any time.
  • Betterment Cellular App. Betterment affords cell apps for each iOS and Android. You’ll be able to obtain them on the App Retailer and Google Play.
  • Creating Funding Objectives. You’ll be able to create customizable sub-accounts that Betterment calls targets. These can embrace retirement, a “Security Internet” (emergency financial savings), or one other intermediate aim, reminiscent of saving for faculty schooling or a home.You’ll be able to set a portfolio allocation, time horizon, and schedule deposits and withdrawals for every aim. You’ll be able to add new targets by clicking the “Add Account” button. You’ll be able to create particular person portfolios for very particular funding wants.
  • Versatile Portfolios. After you’ve established your portfolio, these with $100,000+ in property will have the ability to manually alter the allocations of your portfolio to higher fit your wants. You get your allocation however all of the automation and tax advantages of Betterment’s administration.
  • RetireGuide. Betterment affords this as a retirement planning software. It supplies you with recommendation to allow you to attain your retirement targets. You’ll be able to decide how a lot cash you’re prone to spend in retirement plus how a lot you’ll want to avoid wasting to assist that spending.It is going to additionally present you which of them accounts to avoid wasting in, and that features your employer retirement plan, in addition to conventional and Roth IRAs, or taxable funding accounts. This can allow you to securely sync all of your funding and retirement accounts, and never simply these that you’ve with Betterment.You’ll be able to even change the assumptions inside RetireGuide to account for various outcomes. For instance, you may alter the anticipated stage of Social Safety revenue or an employer pension plan. This gives you the flexibility to tweak your retirement expectations as you progress nearer to your retirement date.
  • SmartDeposit. That is Betterment’s automated money funding software. It really works by transferring extra money out of your checking account into your Betterment account, based mostly on parameters that you just set. For instance, you determine the utmost amount of cash that you just need to have in your checking account, after which Betterment mechanically strikes the surplus stability into your funding account.
  • Betterment Advisor Community. Recognizing that some folks could choose contact with a human funding advisor to go together with their roboadvisor portfolio, Betterment created this community. They’ll match you with one of many vetted unbiased Licensed Monetary Planners within the community, who will get to know you personally. They’ll then develop a custom-made, complete monetary plan, and assist you to with extra superior and complicated monetary points.

Consumer Expertise

Desktop Expertise

Betterment’s desktop person expertise is clear with a complete dashboard and easy accessibility to accounts, targets, efficiency, and fund transfers. The flexibility to attach outdoors accounts allows customers to watch all of their funds from the Betterment platform. Buyers can monitor and alter targets from the dashboard as nicely.

Cellular Expertise

The Betterment app affords the entire performance of the desktop model. There are a variety of intelligent nudges on the app that assist customers save extra and make investments with taxes in thoughts. Each the android and iOS variations are extremely ranked (4.7 iOS and 4.6 android), though some customers have reported issue with linking accounts and fund transfers.

Betterment Pricing & Charges

In late 2017, Betterment up to date their pricing from a 3 tier pricing mannequin to solely two:

The list a “no fee” version on the pri

The listing a “no payment” model on the pricing web page but it surely’s not for the robo-advisor, it’s for his or her money administration account. It consists of their instruments (monetary goal-setting and recommendation instruments, retirement planning tools, and suggestions on accounts you maintain at different establishments) however not precise administration.

Betterment works on a flat payment based mostly on the dimensions of your portfolio. There are not any different buying and selling charges or commissions. No switch charges. And no charges for rebalancing your portfolio.

The usual payment (Digital) is 0.25% of your account stability. You’ll be able to have as much as $100,000 account managed with Betterment for $250 per yr. Even on the lowest service tier, you get all the advantages of a Betterment – rebalancing, tax harvesting, diversification, and many others.

For a Betterment Premium account, which requires a $100,000 minimal account stability, the annual payment is 0.40%. $100,000 funded account managed by Betterment for a mere $400 per yr. Betterment seems to have eradicated the Plus account and renamed it the Premium, reducing the Premium payment right down to 0.40% from its beforehand 0.50% payment.

The everyday human funding advisor would cost 1.00% to 1.50%. In the event that they’re managing $100,000, you’d be paying $1,000-1,500 per yr. (and that’s in all probability not sufficient to get them off the bed within the morning!)

There’s a low cost of 0.10% on the portion of your stability above $2 million:

  • Digital payment: 0.15% on balances over $2 million
  • Premium payment: 0.30% on balances over $2 million

2. Asset Appreciation

Betterment will personalize a portfolio based mostly in your long-term monetary targets.

Its funding technique is constructed on low-cost trade traded funds (ETFs). In addition they take into consideration the quantity of threat you’re prepared to take and the way lengthy you propose to speculate.

The vast majority of your positive factors from the inventory market are normally from asset appreciation, or shopping for low and promoting excessive. Nevertheless, you do have to promote the underlying asset so as to really acknowledge the achieve.

So, you principally take advantage of cash from Betterment although costs of ETFs going up over time. Take into accout, although, costs can go down as nicely leading to potential losses.

A Quick Historical past Of Betterment

Betterment, headquartered in New York, was based in August 2008 by Jon Stein (CEO), Eli Broverman, Sean Owen, and Ryan O’Sullivan.  

Stein, who graduated from Harvard with a level in Economics, was initially considering to pursue an expert profession in drugs. However the two issues that in the end held him again have been his unease of blood in addition to the notion that he wouldn’t have the ability to assist sufficient folks.

After graduating from Harvard, he went on to work in monetary advisory for corporations reminiscent of FMCG Direct.

The thought for Betterment originated from Stein’s private frustrations with managing his cash on-line. A few of the present options on the time, reminiscent of Vanguard or ING Direct, have been providing very poor person interfaces, difficult to arrange, and charged outrageous account upkeep charges.

Having labored within the finance trade for greater than half a decade, Stein thought to himself that he might develop a significantly better resolution. On the time, he was enrolled at Columbia Enterprise Faculty, pursuing an MBA in Entrepreneurship.

With some further time obtainable, he started crafting out a plan for what would ultimately change into Betterment. To get a head begin on improvement, he started consulting his then-roommate Sean Owen (a Google engineer and former CS main at Harvard).

Along with Owen, the pair developed a primary working sort of Betterment. Stein labored on the entrance finish whereas Owen constructed all of the backend capabilities. However given the advanced regulatory nature of monetary devices, Stein wanted somebody with somewhat extra expertise in that area.

Fortunately, that have got here within the type of Eli Broverman, who on the time labored as a securities legal professional. The blokes met a number of years earlier at a poker recreation and remained associates all through that point.

They registered the enterprise quickly after with the SEC, turning into an accredited funding advisor. What was lacking, although, was how they’d have the ability to change into a licensed broker-dealer. The crew visited a number of conferences wherein they turned acquainted with Ryan O’Sullivan.

O’Sullivan, a serial entrepreneur himself, had an intensive community of broker-dealers and will thus make the required introductions to set every little thing up. So in August 2018, all the required agreements have been in place, and Betterment LLC was capable of formally incorporate.

Betterment lastly launched to the general public on the first-ever TechCrunch Disrupt (the place it positioned #1) convention on Could 26, 2010. By that point, the founding crew had already invested $640,000 to begin the enterprise.

Wayback Machine
Wayback Machine

Owen, within the meantime, had already moved on as he relocated to London to begin his personal enterprise. His alternative as CTO turned Kiran Keshav, who on the time ran Columbia College’s Heart for Computational Biology.

To financial institution on the ever-increasing smartphone market, Betterment determined to launch an ancillary iPhone app weeks after.

By December 2010, Betterment had already onboarded 1000’s of customers whereas managing thousands and thousands in property. That progress led to the corporate’s first-ever spherical of funding wherein it raised $3 million from Bessemer Enterprise Companions, Anthemis Group, and a mix of some angels.

Inside two years of operation, the corporate had already amassed 10,000 paying customers, which deposited over $50 million into their accounts. All of that was achieved with a crew of 13. That definitely matches the working mannequin of CEO Stein, who writes the next about himself on LinkedIn:

“I’m an effectivity architect and happiness engineer. My “polestars” are effectivity and happiness. Okay, that is some high-falutin’ language; we will simply have a beer and speak about energy instruments round a campfire should you choose, however who is aware of who else would possibly learn this? Anyway, let me clarify:

Effectivity is making extra from much less – it makes us people (and the planet) higher off (and in combination, happier). Transparency, reliability, course of, and equity are guideposts on the path to effectivity. Economics, psychology, and design are my favored navigational methods.”

That ethos has been carried ahead all through his firm and have become an integral a part of Betterment’s success story. One other benefit was the agency’s capability to hearken to its customers and constantly broaden its product providing.

One instance is Betterment’s for Enterprise platform (launched in 2016), which supplies 401(Ok) plans for corporations, and attracted 300 prospects inside a number of days of operation. One other distinguished instance, highlighting its fast pace of improvement, is its money targets characteristic that was launched through the Coronavirus pandemic and helps customers to higher handle their funds in these making an attempt instances.

What’s shocking about Betterment, particularly when in comparison with different high-growth FinTech corporations reminiscent of Robinhood, is the truth that the corporate has been working out of the general public eye for many of its existence.

Stein argues that that is as a result of firm’s give attention to making private funds as simple and hassle-free as attainable. It desires to create a secure house for people to handle their wealth and save for retirement. The corporate subsequently has applied a low-risk funding technique by primarily specializing in ETFs and bonds.

In the present day, Betterment serves greater than 500,000 accounts with a median account measurement of $44,000. It now has $22 billion AUM, which makes it America’s largest robotic advisor (with Wealthfront being an in depth second). Moreover, near 500 folks at the moment are employed by the corporate.


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