Betterment vs Robinhood

Betterment vs Robinhood

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Betterment and Robinhood have some odd things in common.

Back in July 2019, Betterment found itself in some minor regulatory hot water stemming from the launch of its new, long-awaited checking account product. Here, it would seem Betterment has Robinhood’s earlier similar mangled launch to thank for the federal scrutiny.

While neither Betterment nor Robinhood are banks (digital or otherwise) both have been making waves over the last several months with their distinctly banking-centric maneuvering. But are they truly competing with one another? Do they even offer the same level of services?

Or is the Betterment vs Robinhood drama all simply hype designed to raise the public profile of each for the (um) betterment of each?

Let’s find out!

Investor Warning: All securities trading, whether in stocks, exchange-traded funds (“ETFs”), options, or other investment vehicles, is speculative in nature and involves substantial risk of loss. Robinhood Financial encourages its Customers to invest carefully and to use the information available at the websites of the SEC at http://www.sec.gov and FINRA at http://FINRA.org.

The Big Picture: Betterment vs Robinhood

We are about to dig down into detail in each of these areas. But if you are seeking a big picture perspective to make a quick decision, here it is!

Betterment Overview

Betterment is “better” for:

  • Investors who want or need guided risk tolerance-related investing through a true robo advisor digital platform.
  • Investors who want to build portfolios guided by traditional diversification rules.
  • Investors who don’t mind paying a fee for account management – and a not-insubstantial one at that (the fee range is 0.25 to 0.40 percent).
  • Investors seeking SRI (Socially Responsible Investing) options.
  • Investors who want or need to make use of tax-time strategies such as tax loss harvesting and tax efficient portfolio management.
  • Investors who want support for a wider variety of IRA and non-retirement account products.

Interested in a Betterment account? Get started here.

Robinhood Overview

Robinhood is better for:

  • Investors who are confident and ready to make their own investment decisions and aren’t seeking a true robo advisor for automated guidance.
  • Investors who want to diversify (or not) as they please.
  • Investors who want zero-fee robo advisor services for investing and trading.
  • Investors with a high risk tolerance who want to get in on emerging markets such as cryptocurrency and fringe ETFs (exchange traded funds) and the option for margin trading (borrowing money from Robinhood to trade).
  • Investors who are not interested in a robo advisor that offers tax strategies.
  • Investors whose main interest is investing into taxable individual accounts.

Robo Advisor Experience: Betterment vs Robinhood

Remember earlier here when we asked the question about whether Betterment and Robinhood are even true competitors? As it turns out, in many key ways they are not. They are actually fundamentally quite different.

As such, the two key facts to understand when comparing Betterment vs Robinhood are as follows:

1. Betterment is a true robo advisor. 

And by “robo advisor” we mean a digital platform that automates investing choices based on an in-house, proprietary algorithm to help investors at all levels make sound, risk-balanced, diversified investing choices.

2. Robinhood is not a true robo advisor. 

It is, however, a free digital investing platform where all bets are off (so to speak) and confident investors can trade and margin trade to their heart’s content, completely fee-free.

And, as so many prior reviews have pointed out, it is hard to compete with free.

If you are an inveterate freebie-seeker, you are likely going to feel inexorably drawn towards Robinhood, whether you really have the investment chops to go it alone yet or not. Acknowledge this.

But then ask yourself if your nest egg is ready for you to go rogue and able to accommodate the inevitable investing ups and downs you will experience while using Robinhood’s self-taught and totally self-guided platform.

If your honest, gut-level answer is “no,” you might better steer yourself towards Betterment, where you can learn the ropes with a competitive management fee and a digital robo advisor algorithm that will ensure your portfolio remains diversified and risk balanced as you learn and grow.

Trading Experience: Betterment vs Robinhood

What is it like to trade (invest) through Betterment vs Robinhood?

Betterment: A Short History

If you are still relatively new to the ever-expanding online world of robo advisors, you may not realize Betterment is actually the original – as in, “the” original robo advisor.

Screenshot of Betterment Page

Betterment opened its digital doors in 2008, thus becoming the first of its kind, although clearly not the last.

In fact, Betterment launched before the nickname “robo advisor” was even a thing.

Originally, robo advisors were called “digital automated online investment platforms” (which makes it easy to see why a nickname was in order).

Does this mean that Betterment is now obsolete, as so often happens when the original gets superseded by newer, better, faster or just different versions of the same? A veritable slew of respected independent reviewers, not to mention longtime loyal users, say no.

Betterment is still the best at what it does. Betterment has used its longevity in the notoriously changeable investment marketplace to refine and improve and continually innovate. In Betterment’s case, longevity actually works in its favor. It is still the best because it still works hard every single day to stay on top.

For those seeking a true robo advisor with a reliable algorithm that invites good data and strictly enforces it, you really won’t find better than Betterment. Betterment also boasts robust online learning and investing tools to help you in every important area of investing, from saving for a child’s college fund to retiring on schedule.

Betterment also incorporates the ongoing shift towards charitable investing and socially responsible investing (SRI), offering digital or human (or both) guidance to help investors find their SRI sweet spot.

Perhaps most tellingly, Betterment backs up its own confidence in what it has to offer with a Satisfaction Guarantee. (Yes, you read that right.) Betterment offers a satisfaction guarantee which includes a potential 90-day management fee waiver if you really need a do-over.

Robinhood: An Even Shorter History

Robinhood first opened its online doors in 2013.

Here, if Betterment is the grandparent of robo advisors, Robinhood is the grandchild’s scrappy little dog. Robinhood is born to be – designed to be – an industry disrupter. It likes living on the edge and seeks, successfully as it turns out, to attract the same in its users (the platform has welcomed more than one million traders to date).

Intriguingly, Comparably reports that Robinhood’s internal workplace environment also hits high marks when compared with Betterment’s.

In particular, it seems Robinhood’s outspoken, sometimes impetuous and undeniably charismatic CEO, Bhaiju Bhatt (who looks more than a little like UK celebrity Russell Brand), has developed somewhat of a fan following for himself.

Screenshot of Robinhood Home PageRobinhood brings home higher marks in every area for which there is sufficient data to evaluate the two side by side. But is this important to you, approaching the Betterment vs Robinhood decision from the outside in rather than from the inside out?

It might be. Betterment may promote socially responsible investment options and charitable investing, but it appears Robinhood is actually providing these experiences in-house for its own employees to a greater degree. Certainly its choice of business name speaks volumes for its intentions in the digital investing universe.

This is an area where you simply have to decide for yourself. Some customers may find it important while others may not.

What its millions of users clearly love is the fee-free for trading stocks, options, ETFs (exchange traded funds) and that new hottest of high-risk hot securities: cryptocurrencies.

But as some independent review sites accurately point out, making your choice of investing platforms based on “free” can have its own cost. The right question to ask yourself here is: can you afford to invest your funds yourself?

In other words, can you trust yourself to make investing choices that will grow your portfolio, keep sufficient funds liquid for emergencies, tie up sufficient funds in longer-term growth investments to provide for you later in life and weather the ups and downs the market will endure in the interim?

If and only if you can answer this question with a completely confident “yes,” then Robinhood may truly be as free as it claims to be.

So let’s sum up what we just learned.

Who should use Betterment?

  • Investors who want a “do it for you” algorithm-driven robo advisor platform.
  • Investors who want tax helps such as tax loss harvesting.
  • Investors who want the option for human financial planning assistance.
  • Investors who want support for investing into a wider array of account types.

Who should use Robinhood?

  • Investors seeking a “do it yourself” digital investment platform.
  • Investors who do not want to pay any management fees or trade commissions.
  • Investors who tolerate (or welcome) the chance to build a high-risk portfolio.
  • Investors who are experienced and confident with handling their own investment funds.

Investment Types: Betterment vs Robinhood

We hope by now it is becoming crystal clear that Betterment and Robinhood really have very little in common. They are not targeting the same customer base. They are not offering the same types of services. They are not structured similarly.

Even in the formerly sacrosanct arena of what types of investment options are available to access via their platforms, Betterment and Robinhood are structured very differently.

Betterment Investment Allocations

Betterment’s robo advisor algorithm auto-constructs risk-balanced, diversified portfolios using a variety of portfolio templates. Each template runs from exchange traded funds populated with stocks or bonds.

Robinhood gives you access to straight stocks, funds, bonds, options, the kitchen sink, you name it. Mix and match, play it straight, do as you will.

Comparing the two is like comparing dusk and dawn (or perhaps more accurately, high noon and midnight).

Betterment offers these investment options:

  • Stocks (via ETFs)
  • Bonds (via ETFs)
  • ETFs (exchange traded funds)
  • Fractional shares

Robinhood offers these investment options:

  • Straight stocks
  • Stocks (via ETFs)
  • Straight bonds
  • Bonds (via ETFs)
  • Options
  • Fractional shares
  • Cryptocurrencies

You will note only Betterment offers these investment options:

  • Socially responsible investing (SRI)
  • Charitable investing and giving

You will note only Robinhood offers these investment options:

  • Cryptocurrencies
  • Margin trading
  • Options
  • Straight stocks (not just stocks bundles into ETFs)

The Mobile & App Experience: Betterment vs Robinhood

One topic we haven’t tackled yet is the user experience via mobile and app. This is a big deal for any platform that aims to provide a full-on online investing experience.

So who does it better here – Betterment or Robinhood?

Betterment App

iOS: The Betterment app gets an average user rating of 4.8 (out of 5).

Android: Here, the app gets an average user rating of 4.5 (out of 5).

Robinhood App

iOS: The Robinhood app gets an average user rating of 4.8 (out of 5).

Android: The Robinhood app gets an average user rating of 4.5 (out of 5).

Upon first inspection, it might seem we have finally found one area where Betterment and Robinhood actually have something in common.

However, when you look closer, you will notice one important difference.

CNN reported that, as of December 2019, Robinhood was fined by the self-appointed self-regulator of the market, FINRA (Financial Industry Regulatory Authority, Inc.).

FINRA cited what it called “failures,” and they must have been big ones. Robinhood was fined a cool $1.25 million for engaging in a practice known as “payment for order flow.” Loosely translated, this amounts to giving some trading firms special treatment when it comes to executing trade orders.

Now, it is true Robinhood is currently valued at more than $90 million. So to the platform, a $1.25 million fine is probably more like losing quarters in the soda machine.

But it is still worth noting that Betterment’s app has had no such high-profile regulatory wrist slaps. Then again, we have well established by now that Robinhood the platform, like its namesake, is keenly oriented towards walking on the wild side of the market. Its app management is clearly no exception.

In Summary: Betterment vs Robinhood is Really a Non-Issue

Remember, Betterment is a true robo advisor, which means you will input a certain amount of basic data (age, risk tolerance, expected date of retirement, et al) and the in-house algorithm will use this data to build your portfolio for you.

If you want to make adjustments or need additional input, you can also reach out to a human financial advisor who is happy to help. For these conveniences, you will pay a management fee ranging from 0.25 to 0.40 percent.

Robinhood is a digital investing platform structured much like the old Wild West. Everyone is their own investment guru. Risk runs high and so does opportunity. With zero human assistance, the underdog and the King/Queen of the Hill stand on equal ground. At any minute their roles could be reversed….or not.

You can stake your claim anywhere but must fight to defend it as market conditions ebb and flow. For this you receive the opportunity to trade for zero fees and commissions.

Truly, these two digital investing platforms could scarcely be more different. Happily, this makes choosing between them one of the easier choices you will ever find in the ever-widening world of online investing.

Since there are all kinds of investors in this world, this is likely a good thing.

About Author

Tim Fries Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim is also the co-founder of Protective Technologies Capital (protechcap.com).