Betterment vs Schwab

Betterment vs Schwab

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The Charles Schwab Corporation and Betterment are both industry veterans and industry leaders, each in their own way.

Today, The Charles Schwab Corporation holds a reported $3.362 trillion in assets across its banking, savings and loan, brokerage and investing arms.

To that point, no one was particularly surprised when Charles Schwab took the lead in dropping commission fees for domestic stocks, options and ETFs (exchange traded funds). How much did those fees drop? They dropped from $4.95 to zero.

Competitors were horrified, of course. Investors were delighted. Sooner rather than later, the entire market landscape followed suit.

In the robo advisor industry, competitor Betterment looks like a really big fish at first glance – perhaps even a killer whale, with its reported $16.4 billion in assets and 12-year history in the industry it created.

But next to Schwab, Betterment looks like a guppy.

Luckily, this doesn’t matter and can even potentially work in Betterment’s favor when we just look at the two robo advisors side by side. Betterment is more mobile (both literally and figuratively) and is also the acknowledged darling and grandparent of all robo advisors.

And while Betterment has made some interesting moves of late to venture onto Schwab’s traditional banking turf, this was only done to better serve the company’s robo advisor clientele rather than to become a traditional bank in its own right.

Speaking of robo advisors, let’s take a much closer look at the Betterment vs Schwab debate and see which robo advisor service comes out on top.

Who Does It Best? Betterment Vs Schwab

Schwab and Betterment are both pioneers in their respective industries. Decades before Betterment was even a gleam in the eye of founder Jon Stein, Chuck Schwab was busy putting low-cost (and then no-cost) trading on the map.

Betterment didn’t even exist until 2008. Today, Betterment still leads as the digital investing industry’s front runner (even against formidable competitors such as Wealthfront).

Schwab’s Intelligent Portfolios is a relative latecomer to the party. The Schwab robo advisor service launched in 2014 and received immediate kudos. This did not surprise anyone.

Charles Schwab Automated Investing PageWhat did surprise practically everyone is the company’s choice of Vice President of digital advice for its new robo advisor – a former Betterment executive-level employee named Cynthia Loh.

This move to hire away from a major competitor, which for Schwab happened in 2017, is technically termed “poaching.”

But given Schwab’s assertion that it is the premier robo advisor, bar none, even though a significant chunk of its $24 billion in newfound robo advisor assets were, well, poached from its client base in other divisions, gives this particular poach a distinct feeling of emerging turf wars.

Yet the truth remains that the biggest does not always equate to the best, no matter where the funds are coming from. And when it comes to comparing Betterment vs Schwab, there are some distinct differences between the two platforms that it will be important to be aware of before you choose your robo advisor.

Schwab is best for:

  • Investors seeking a fully fee-free digital trading platform.
  • Investors seeking a broader category of assets than the traditional robo advisor typically offers (more on this in later sections here).
  • Investors who have at least $5,000 to fund their robo advisor account.
  • Investors who want to invest in Charles Schwab’s own suite of funds.
  • Investors who don’t mind giving up tax loss harvesting (at least until their account is valued at $50,000+) in exchange for no management fees.
  • Investors who don’t mind having a portfolio strategy that includes a portion of holdings that will ALWAYS be allocated to cash.
  • Investors who are willing to pay a $300 up-front fee plus a $30 per month (billed quarterly) advising fee for the Premium account service.

Betterment is best for:

  • Investors who are just starting out (account minimums are $0).
  • Investors who want to receive the benefits of tax loss harvesting from day one (this is included for accounts at all levels).
  • Investors who want to use the robo advisor that started it all, with an algorithm trusted by millions of account holders today.
  • Investors who want to make sure all of their available investment cash is fully invested at all times (Schwab allocates a portion of every portfolio to cash while Betterment uses fractional shares to keep all funds fully invested).
  • Investors who want or need to speak to a financial advisor even if they only have $10 in their investment account (this service is fee-based for the Digital plan and free for the Premium plan).
  • Investors seeking a Premium level of service with no flat fee or monthly surcharge (there is just the 0.40 percent annual account management fee with Betterment).
  • Investors who want to use Betterment’s free portfolio analysis and free financial management tools to get a big picture view of all their holdings, including external accounts.

Should Any Robo Advisor Other Than Betterment Ever Be An Option? You Decide

Schwab’s Intelligent Portfolio, more than any other robo advisor challenger, swept in with the one unique selling point that seems tailor-made to encourage defectors away from Betterment: zero account fees.

Of course, Schwab, with its trillions of dollars in holdings, can well afford it. And this is precisely what the banking, financial advising and investing behemoth was counting on.

Schwab’s own spokesperson recently stated that the company is ready to “eat the losses.”

While this is admirable in spirit, it may not be the most judicious approach in practice. After all, who wants to jump on board with a robo advisor that is already anticipating losses?

The truth is, to Schwab, robo advising is just one small slice of a much bigger, meatier pie and all will likely even out in the end. Whereas with Betterment, robo advising is the pie – the platform’s newer checking and high-yield savings/cash management services are simply garnishes.

Schwab’s Intelligent Portfolios has already captured the lion’s share of the over $5,000 robo advisor marketplace, although admittedly a goodly portion of that chunk has come from within the Schwab family of clients.

This at least signals they are doing something right in serving their current customer base with new welcome offerings. Whether what they are doing is right enough in general, and right enough for you in particular, is something only detailed analysis will reveal (and read on for that now).

2 Key Ways That Schwab Is Different Than Betterment

Every robo advisor platform since industry founder Betterment has had to work that much harder to differentiate their service from Betterment’s.

Even fellow generalists like Schwab have been tasked with finding something – anything – that sets them apart.

Sometimes this something is positive and sometimes it is not so positive, as these two key differences between Betterment vs Schwab will highlight.

1. Schwab is only available to investors with at least $5,000 to invest, but to these users the Intelligent Portfolios service is free (save relevant ETF fees).

Schwab is only targeting users who are ready to start investing with a not-insignificant nest egg. As such, the platform is light on purely educational resources.

Screenshot of Charles Schwab Account Holder Expenses Goal at Risk Data

In contrast, Betterment has an entire section of its platform devoted to free learning resources and tools, including its popular free portfolio analysis and RetireGuide. Some of Betterment’s resources in this area are nearly on par with Mint, the super popular budgeting app.

2. Schwab Premium uses a flat-fee structure versus a percentage, which is still industry standard.

Opting for a flat fee structure put Schwab in the limelight right from day one. While the impact isn’t so noticeable at lower levels, for investors dealing in six or seven figure holdings, the savings can be nothing short of jaw-dropping.

2 Key Ways That Betterment Is Different Than Schwab

Betterment may have created the industry it is now competing in, but that doesn’t give it a free pass to not compete and remain on top.

Over the years, Betterment has continued to define and refine its own robo advisor service to provide unique value to its user base.

1. Betterment is truly free at the pre-investment level.

Betterment is known not just for its trusted robo advisor accounts but also for its suite of free budgeting, financial planning and investing learning resources, calculators and tools.

Betterment Investment AllocationsBetterment’s choice to devote significant time and focus to these completely free learning resources speaks to its commitment to help every user prepare to invest what they have with confidence and knowledge, whether or not they choose Betterment as their investing platform.

2. Betterment is competitively priced for what it offers.

Even as newer robo advisor competitors have pulled out all the creative stops in tweaking how their fees are assessed and how they make money, Betterment has stayed true to its basic format: two account types, each with one annual account management fee commensurate with the service provided.

It is also worth noting that Betterment’s Premium account management fee drops sharply from 0.40 percent to just 0.15 percent for all funds held in excess of $2 million.

Can You Speak to a Financial Advisor with Either Robo Advisor?

Schwab’s Intelligent Portfolios robo advisor and Betterment’s robo advisor are structured similarly when it comes to gaining access to a live human for assistance.

Schwab: Human Assistance

Schwab’s website advertises 24/7 assistance by phone and live chat for all users, basic and premium.

Premium clients pay an additional one-time fee and then a flat monthly fee to have access to a team of certified financial planners who provide personalized investing guidance.

Betterment: Human Assistance

Betterment’s website advertises customer support via phone and email five days a week from 9am to 6pm (EST).

Users of the Digital (basic) account can elect to pay a flat fee for a 45-minute or 60-minute themed phone call with a financial expert. Themes range from how to get started to planning for major life events to retirement strategies. Digital account users can also message financial experts at any time.

Users of the Premium account receive unlimited personalized phone or video support from a dedicated team of financial experts as part of their 0.40 percent account management fee.

What About Those Fees? Who Does It Better?

Over the years since Schwab’s Intelligent Portfolios launched in 2014, by far the biggest waves have come from its unique (to say the least) fee structure.

In short, it doesn’t have any fees, at least for the entry-level account type. On the other hand, the entry level account type requires a $5,000 minimum, which makes Intelligent Portfolios instantly both unattractive and off-limits to the youngest investors.

While the media has oft-touted Schwab’s robo advisor as “fee free,” this $5,000 barrier to entry means the two robo advisors literally start out appealing to two different playing sets of prospective users.

And while Schwab seems intent on rolling out one and then another and then another new product offering in what is now becoming its “Intelligent” series (Intelligent Portfolios, Intelligent Advisor, Intelligent Income), Betterment has hunkered down and continued refining what it already does very well – robo advising.

There are pros and cons to each approach, not the least of which is navigating the fees, both transparent and not so transparent. So let’s see how the two platforms shake out in terms of fees.

Schwab’s Fee Structure

  • Intelligent Portfolios basic account ($5,000 minimum): no account management fee, no commissions or fees on trades; ETF fees range from 0.08 to 0.15 percent on average.
  • Intelligent Portfolios Premium account ($25,000 minimum): one-time fee of $300 plus $30 per month fee, no commissions or fees on trees, ETF fees range from 0.08 to 0.15 percent on average.

Betterment’s Fee Structure

  • Betterment Digital account ($0 minimum): 0.25 percent account management fee annually; no commissions or fees on trades; ETF fees range from 0.03 to 0.50 percent on average.
  • Betterment Premium account ($100,000 minimum): 0.40 percent account management fee annually; ETF fees range from 0.03 to 0.50 percent on average.

There is no doubt that if you are able to pony up a minimum of $5,000 to invest and avoiding account maintenance fees is one of your priorities, Schwab’s robo advisor seems to be the way to go.

However, it may give some investors pause to learn that Schwab’s money making model revolves around using Intelligent Portfolios as a vehicle to fuel more investments into its own suite of ETFs (exchange traded funds), by earning revenues from user trades placed through Intelligent Portfolios and by placing a cash portion of each user’s portfolio in an account at Schwab Bank whether they want holdings in cash or not.

Schwab’s fine print asserts again and again that Schwab is a fiduciary, which is a designated agent required by law to act in the best interests of its clients. Yet there is a lot of crossover here that might suggest otherwise. It will be up to you to decide if you mind the grey areas.

Betterment is also a fiduciary with no such grey areas evident in its business model. Again, this may or may not matter to you, but it is still something you should be aware of.

Who Does It Better? Support for Investment Account Types

Both Schwab and Betterment offer good overall support for a wide variety of investment account types. However, Schwab outdoes Betterment in this area by including some more complex IRA types like the SIMPLE IRA.

Charles Schwab IRA Accounts

Schwab Investment Account Types

  • Individual and joint taxable accounts
  • Traditional and Roth IRAs
  • Trusts
  • Rollover IRAs
  • SEP IRAs

Betterment Investment Account Types

  • Individual and joint taxable accounts
  • Traditional and Roth IRAs
  • Trusts
  • High-interest cash accounts

Here, it is also worth mentioning again that both Schwab and Betterment offer users these additional high value features that are important to many digital investors today:

  • Socially responsible investing portfolio options
  • Tax loss harvesting
  • Periodic portfolio rebalancing
  • Customized control over portfolio allocations
  • A variety of asset classes and range of ETFs
  • Access to traditional banking services, including checking and savings/cash management

Who Does It Better? Online Platform and Mobile Apps

Both Schwab and Betterment do a good (nay, great) job with their mobile user experience.

Schwab Mobile Experience

Overall, Schwab’s mobile user experience averages 4.45 (out of five stars).

Betterment Mobile Experience

Overall, Betterment’s mobile user experience average of 4.65 (out of five stars).

Which Robo Advisor Is Your Top Pick?

Now it is time for you to decide. Which robo advisor has the right mix of fees, services and perks to best meet your investing needs?

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 (