FutureAdvisor vs. Betterment (2020): What Kind of Investor Are You?

FutureAdvisor vs. Betterment: Comparison and Review

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Back in 2015, Black Rock, the biggest asset manager in the world, did something surprising. It bought a tiny robo advisor called FutureAdvisor for what essentially amounted to pocket change.

When Black Rock bought FutureAdvisor, financial industry analysts were charmed and repulsed in fairly equal parts.

FutureAdvisor essentially sold its own potentially bright future for a rich present-day payday. This accounted for the repulsed part of the reaction – some purists thought the FutureAdvisor founders sold out by selling out, so to speak.

Black Rock bought FutureAdvisor not to try to horn in on the still developing robo advisor marketplace, but as a form of risk management for its own formidable presence in the investment industry. This accounted for the charmed part of the reaction – analysts praised Black Rock for its innovative solution to a never ending problem of moderating risk.

FutureAdvisor LogoMeanwhile, while FutureAdvisor was busy charting its course from business-to-consumer to business-to-business-to-consumer and back to business-to-consumer again, Betterment was navigating growing pains of its own.

In just 12 months, the company launched a new traditional banking-inspired checking and savings account offering and then proceeded to completely upgrade its end-user mobile experience.

How do these two essentially unlike robo advisors stack up in a head to head comparison? Which one best meets your own investing interests and needs? Read on to find out.

Who Does It Best? FutureAdvisor vs Betterment

The days when Betterment was not just the industry leading robo advisor but the only robo advisor are long gone.

Betterment Homepage Screenshot

Today, new robo advisors are popping up here, there and everywhere.

FutureAdvisor is exactly this sort of competitor for Betterment. And in a way, while Betterment and FutureAdvisor may both be robo advisors, they are not really direct competitors.

The happy news here is that it is easier to choose between two less-similar robo advisors than it would be to choose between two similarly stellar direct competitors like, say, Betterment vs Wealthfront.

FutureAdvisor and Betterment are both structured to offer tiered levels of investing services. But they don’t compete equally at all levels. Where the two robo advisors are in more direct competition is at either extreme – at the free end with their free financial tools and at the higher fee end with their high-value investors.

FutureAdvisor is best for:

  • Parents and other investors seeking support for 529 college savings plans.
  • Investors who already have holdings with TD Ameritrade or Fidelity or are fine with transferring existing investments to one or both entities.
  • Investors who plan to continue to take the reins of their investment decisions.
  • Investors who are not focused on choosing only socially responsible investing options.
  • Investors who have at least $5,000 to invest.
  • Investors who don’t mind paying a substantial account management fee (0.50 percent annually) in exchange for FutureAdvisor’s guidance.
  • Investors who want to make their own choices about where they invest.
  • Investors who want to compare different investing advice from Fidelity and/or Ameritrade side by side with FutureAdvisor’s own guidance.
  • Investors who want to have access to financial advisors at any time as part of their overall package.

Betterment is best for:

  • Investors who want to have a mobile app option to manage their investments.
  • Investors seeking a robo advisor to build a portfolio for them.
  • Investors who favor a passive approach to online investing.
  • Investors who want to have options for investing in a socially responsible way.
  • Investors who have at least $10 to invest.
  • Investors who are seeking a robo advisor with lower account management fees (0.25 to 0.40 percent annually depending on investment level) yet high quality user support.
  • Investors seeking turnkey options for getting involved with socially responsible investing (SRI).
  • Investors who feel less confident in making independent investing decisions but feel comfortable assessing personal risk tolerance and setting investing goals.
  • Investors who don’t mind paying $199 to $299+ for personalized individual financial guidance as needed (at the basic digital level; at the Premium level this is part of the annual fee).

Is it Possible to be Better Than Betterment?

In the wake of increasing competition from fellow robo advisor platforms, Betterment has continued to get, well, better, refining its offerings, upgrading its services, listening to its user base and redesigning its platform as needed to meet users’ needs and expectations.

With a robo advisor of this caliber, really the only reasons to use a different service would be:

  1. If that service provides something Betterment does not provide.
  2. If that service provides the same exact service at a lower cost.

FutureAdvisor is more expensive than Betterment across the board with an annual account fee of 0.50 percent. This is not an easy fee to justify, especially when you consider that both robo advisors also offer tax loss harvesting.

2 Key Ways That FutureAdvisor Is Different Than Betterment

One of the best ways to analyze two robo advisors side by side is to identify where each is unique. FutureAdvisor has such a specific service that this task is much easier.

FutureAdvisor Homepage

1. FutureAdvisor requires that you invest with either TD Ameritrade or Fidelity.

FutureAdvisor has a very unique structure. The service is designed to work only with holdings through TD Ameritrade or Fidelity.

2. FutureAdvisor is only available for investors who have at least $5,000 to invest.

Requiring that users have $5,000 to invest and requiring that it be invested with one of two specific institutions means FutureAdvisor’s robo advisor fits the classic definition of a niche market robo advisor.

2 Key Ways That Betterment Is Different Than FutureAdvisor

Betterment has always strived to serve investors at all levels – from those who are just starting to think about investing to those with significant holdings to manage and protect.

This makes it a generalist in the robo advisor industry and also one of the hands-down best.

1. Betterment has an unmatched suite of completely free financial planning tools.

Betterment is as well known for its suite of free investing, budgeting and financial planning tools as it is for its robo advisor services.

2. Betterment has competitive account management fees industry-wide.

While not every robo advisor charges a flat or percentage-based account management fee, every robo advisor does charge fees in some form or fashion – otherwise it wouldn’t survive.

Overall, Betterment continually strives not to nickel-and-dime its users, but rather assess a straightforward account management fee that escalates only as individualized service needs increase.

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

The short answer to this question is “yes.” But there is a cost associated with this service for both platforms.

Earlier we mentioned that FutureAdvisor and Betterment only become true competitors at either extreme – free or premium.

For example, FutureAdvisor and Betterment both offer a completely free portfolio analysis tool that exists independent of any involvement with their robo advisor services.

Both FutureAdvisor and Betterment also offer a high-end service which includes unlimited access to financial planning experts .

But here is where the direct comparisons end.

FutureAdvisor has no “basic” robo advisor tier. If you want to use this service, you have to pony up at least $5,000 for an initial investment. You have to use either TD Ameritrade or Fidelity’s suite of ETFs (exchange traded funds).

Screenshot of Etrade ETF Trading Page

You also have to pay the hefty 0.50 percent annual account management fee. And you are also assessed additional fees (more on this here later) depending on the investing choices you make.

FutureAdvisor’s website also specifies you may have to pay as much as $24 per mutual fund at TD Ameritrade and $50 per mutual fund at Fidelity. Plus, you may have to pay account closing fees of up to $100 to transfer your existing holdings.

Betterment, in contrast, has both a basic digital tier and a Premium tier. The basic digital service requires only $10 to begin investing with the robo advisor algorithm.

Betterment Pricing Plans

The 0.25 percent annual account management fee is all-inclusive. If you want to speak with a financial planning expert, there is an a la carte menu of 45-minute and 60-minute calls starting at $199.

With Betterment, the Premium service is available to users who have at least $100,000 to invest. Premium users always have access to certified financial planners. Their 0.40 percent annual account management fee is also all-inclusive.

Even if all else remained equal (which it does not), we must admit it is awfully challenging to justify paying a 0.50 percent account management fee along with FutureAdvisor’s other restrictions when you could be paying a 0.25 to 0.40 percent management fee to use the industry founding and leading robo advisor in the business.

What About Account Security & Investment Insurance? Who Does It Better?

Both Betterment and FutureAdvisor use industry standard practices for account security and investment insurance.

Both robo advisors maintain insurance through the Securities Investor Protection Corporation (SIPC) as follows:

  • Cash up to $250,000
  • Investments up to $500,000

FutureAdvisor maintains protections through either Fidelity or TD Ameritrade rather than directly.

Who Does It Better? Account Types & Investment Asset Classes

Comparing the account and asset types that each robo advisor covers is one way to make it easier to choose between the two.

In this case, both robo advisors offer something the other doesn’t. Betterment includes trust accounts and FutureAdvisor does not. FutureAdvisor includes 529 college savings accounts and Betterment does not.

FutureAdvisor Account Types

FutureAdvisor currently provides guidance for the following types of investment accounts:

  • Single and joint taxable accounts
  • Traditional and Roth IRA accounts
  • Trust accounts
  • High yield savings accounts

Betterment Account Types

Betterment currently provides guidance for the following types of investment accounts:

  • Single and joint taxable accounts
  • Goal-oriented household accounts (i.e. saving for a home, college, retirement)
  • Traditional and Roth IRA accounts
  • 529 college savings accounts

FutureAdvisor Investment Assets

FutureAdvisor has the up-front requirement that all holdings must be managed through either Fidelity or TD Ameritrade. So if your holdings are currently elsewhere, the platform will sell them and transfer the proceeds to the institution of your choosing.

Once there, your funds will be invested via low-fee and commission-free ETFs (exchange traded funds), REITs (real estate investment trusts), Black Rock mutual funds and/or fixed income securities (i.e. bonds, preferred stock, certificates of deposit, et al). Straight stocks are also permitted as long as they represent a minority of your holdings.

From there forward, your holdings will be monitored with re-balancing as often as daily (but more likely quarterly) as needed to account for drift.

The need to liquidate and transfer funds to TD Ameritrade or Fidelity can be a particular barrier to entry for some investors who don’t want to see their funds out of market during the transfer period or, alternately, liquidated out of a tax-sheltered account before being reinvested at one of the two accepted institutions.

For investors who already have holdings with TD Ameritrade or Fidelity, however, the onboarding process to use FutureAdvisor’s robo advisor is relatively seamless.

Betterment Investment Assets

With Betterment, you start fresh with anywhere from $10 to $100,000 depending on the service tier you opt in for (basic digital versus Premium). There is no need to liquidate outside holdings or cope with penalties or tax fallout from tax sheltered account liquidation.

Betterment Tax-Coordinated Portfolio Asset Allocation DataLike FutureAdvisor, Betterment also operates through portfolios made up of ETFs (exchange traded funds). Betterment uses your responses to tailor your portfolio holdings to your goals, anticipated retirement date, risk tolerance and similar information. Unlike FutureAdvisor, Betterment also offers the option of investing only in socially responsible holdings.

Who Does It Better? Online Platform and Mobile Apps

With literally thousands upon thousands of new apps entering the marketplace every single day, it feels almost inconceivable that any online platform would not have its own dedicated accompanying app. And yet FutureAdvisor does not have a mobile app.

Betterment, on the other hand, has both an iOS/Apple and Android app and has recently redesigned each to better serve its users.

FutureAdvisor Mobile Experience

As of time of publication, FutureAdvisor has not made available any mobile apps to its user base. While the FutureAdvisor website states it is mobile-ready, this is a major failing for the younger generation of investors in particular.

To be fair, the FutureAdvisor robo advisor service is integrated through the TD Ameritrade and Fidelity apps. If users can navigate each respective app to find it, FutureAdvisor is there.

But even so, this is a far cry from the dedicated, customized and personalized mobile experience today’s robo advisor users expect.

Betterment Mobile Trading AppBetterment Mobile Experience

Mid-year last year, Betterment unveiled a completely redesigned online and mobile user experience. The website interface and both mobile apps were updated to reflect user feedback.

With an average of 4.65 (out of five stars) for both mobile apps, clearly the facelift has been a success with Betterment’s user base thus far.

Which Robo Advisor Is Your Top Pick?

Comparing FutureAdvisor vs Betterment can often feel like comparing two quite different robo advisors.

For some investors, there may be sufficient value in having unlimited access to financial planning experts that even a high-end account management fee of 0.50 percent seems justifiable.

But for most, generalist Betterment is likely to be a better fit with its expanded suite of free tools, multiple user levels and lower overall account management fees.

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).