M1 Finance vs Betterment: Is M1’s No-Fee Structure Really Worth It?

M1 Finance vs. Betterment – Comparison and Review

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There is a trend of late among digital robo advisor platforms. These formerly industry-disrupting, cutting-edge business-to-consumer sites have clearly grown tired of staying within their little market niches and are ready to expand.

In the case of M1 Finance and Betterment, each platform has made aggressive efforts over the past calendar year to not tiptoe, but literally stomp into the traditional banking marketplace with directly competing products and services. In the case of Betterment, the platform has also made big moves into the business-to-business sector – yet another ground-breaking first for the company that not so long ago started the robo advising trend itself.

For M1 Finance, the big move happened last year when the platform funded its 100,000th account. The platform promptly launched a new checking account and a cash management feature, complete with a debit card.

Shortly thereafter, M1 Finance debuted another industry-disrupting new option called M1 Borrow. Now you can borrow against your investment portfolio when you need funds fast.

What has Betterment been up to while M1 Finance was capturing investment news headlines? Quite a lot as it turns out.

Betterment launched its own checking and savings account product around the same time M1 Finance launched theirs. Unfortunately, because of breaking news about another (unrelated) robo advisor’s similar product, Betterment had to endure some additional regulatory scrutiny before it was permitted to move forward with the launch.

Ultimately Betterment’s launch was successful and went on to outlive its need for venture capital funding (what is called “robo retail“). Betterment then rolled out a new B2RIA (business to business serving registered investment advisors) spin-off.

With Betterment’s move to serve not just the end customer but the professional advisors who have traditionally served the end user, the company positions itself well in all three industries: robo advisement, fintech and traditional banking.

So in this review we are looking at two equally solid options for a digital advising platform that incorporates an algorithmic-based robo advisor along with innovative options for traditional banking services.

Let’s take a look under the hood of each and see what differences there are to be seen and explored!

The Big Picture: M1 Finance vs Betterment

The first step to take when comparing one robo advisor platform against another is to learn more about each platform’s ideal user. What level of investor is each robo advisor optimized to attract and serve?

M1 Finance Overview

M1 Finance Homepage Screenshot

M1 Finance is better for:

  • Investors who want the option to use a template portfolio or customize their portfolio.
  • Investors seeking more of an active investing role (passive investing is also available).
  • Investors who have at least $100 to fund their initial investment account (or $500 to fund their initial retirement account).
  • Investors who want to begin with a fee-free platform (there is a $125 annual subscription fee for the M1+ service).
  • Investors who may want to consolidate banking and investing together on one platform (and even leave their traditional bank behind).

Betterment Overview

Screenshot of Betterment PageBetterment is better for:

  • Investors who want to opt into pre-made portfolios adjusted for personal risk tolerance.
  • Investors who strongly favor a passive investing model (human involvement is available once the account reaches $100,000).
  • Investors with very low or very high levels of funds to be invested.
  • Investors who don’t mind paying an account management fee (averages 0.25 to 0.40 percent depending on account amount) in exchange for the option to reach out to human financial advisors for guidance.
  • Users who are interested in accessing a checking and high-yield savings account feature (or even replacing their traditional banking in these areas).

Aside from the important differences highlighted above here, and unlike many of the best robo advisor platforms active in the fintech industry today, M1 Finance and Betterment are actually quite similar in many important and desirable ways.

This can make it slightly more challenging to choose between them without taking a closer look into the behind-the-scenes mechanics of each.

Read on to learn more about what you can expect when you open an investing account with each platform.

Robo Advisor Experience: M1 Finance vs Betterment

Without the digital algorithm at the helm, there is no such thing as a robo advisor. It is somewhat strange to think back and realize that before Betterment opened its digital doors in 2008, the concept of a “robo advisor” didn’t exist.

Betterment completely disrupted the fintech industry with its introduction of a proprietary investing algorithm made available directly to end users – to you.

It took until 2016 for M1 Finance to catch up and open its doors, but the robo advisor has been earning awards ever since.

So let’s take an up-close look at how each platform is structured from a digital perspective.

M1 Finance

  • Level M: Free use of the robo advisor platform driven by the in-house digital algorithm. If you also want to make use of M1 banking, you get one free ATM fee waiver per month along with a plastic debit card. When your account is funded to $10,000, you can also borrow against it using M1 Borrow at a 3.5 percent APY.
  • Level M+: $125 fee annually includes the extra options to earn a 1.5 percent APY on your checking account funds and one percent cash back. Your debit card is Tungsten metal and you get four ATM fee waivers per month.

Betterment

  • Level Digital: 0.25 account management fee. There is no account level minimum for the Digital level. You get complete access to the automated passive investing via the robo advisor algorithm plus the option to sync all your financial accounts in one place for ease of access.
  • Level Premium: 0.40 account management fee. This level requires a minimum $100,000 account balance. With this level comes unfettered access to Betterment’s in-house team of certified financial planners who will help on both Betterment-related investing and outside investment holdings.

Trading Experience: M1 Finance vs Betterment

What is it like to build and manage your portfolio online with M1 Finance and Betterment? A big key to answering this question can be found by tracing each company’s growth and development over the years.

M1 Finance: A Short History

M1 Finance was launched by a 25-year-old named Brian Barries in 2016. Barries got into investing as a child when his folks funded him to invest in “real securities” on the market for a school project.

But when he graduated college and went searching for a low cost, easy way to invest online, he couldn’t find exactly what he was looking for. The ending here is clear: Barries decided to create and launch his own platform to serve, first and foremost, his own investing needs.

This kind of story always bodes well for the experience of the end user – you. Up until 2017, M1 Finance did charge an account management fee of 0.25 percent. But in 2017, Barries did away with the fee and made M1 Finance free for all to use.

You do need to fund your account to $100 to start investing via the robo advisor algorithm. But you don’t need to deposit anything in your account to start using the platform’s tools and learning resources.

M1 Smart Money ManagementM1 Finance places trades once daily. Once your account is funded to $10,000, you can choose to use M1 Borrow and trade on margin or borrow against yourself at up to 35 percent of your account value.

M1 Finance will help you fund and invest into individual taxable accounts, retirement accounts and trusts.

Betterment: A Short History

Jon Stein launched Betterment in 2008. The company was the first of its kind and turned the entire fintech industry upside down. To say it was a hit would be an understatement and it didn’t take long for the company to begin attracting investors and venture capital infusions.

As Betterment has grown, it has branched out into the business-to-business marketplace with a spin-off targeting RIAs (registered investment advisors) and a commercial 401k product. The former is called Betterment for Advisors and the latter is called Betterment for Business. Both use Betterment’s foundational strategy of passive investing using the proprietary digital algorithm.

Betterment supports investing in individual taxable accounts, retirement accounts and trusts.

Betterment places trades once daily in accordance with day trading laws. Accounts of any value can customize portfolios based on personal data.

Overall Trading Experience

One important difference between the two platforms is in how tax time concerns are addressed…or not.

Betterment practices both automatic portfolio rebalancing and tax loss harvesting as well as tax minimization strategies. The former is done periodically to adjust for “drift.” The latter is done to ease the tax time impact of capital gains during the previous tax year.

M1 Finance offers automatic portfolio balancing along with some tax minimization strategies designed to offset current and projected future capital gains. But the platform does not offer tax loss harvesting, which can be important as your portfolio holdings grow and appreciate.

M1 Finance Custom PiesIn terms of overall trading experience, these are the most important points to keep in mind:

M1 Finance

  • You can build your own customized portfolio through M1 Finance or use one of the platform’s so-named Expert Pies as a template for investing.
  • You can trade in straight stocks or ETFs made up of stocks and bonds, both domestic and international.

Betterment

  • Betterment will build you a portfolio from scratch based on data you input (age, risk tolerance, estimated retirement date, et al).
  • You are only able to trade in ETFs and may only alter your investing portfolio by adjusting the initial data you input into the robo advisor algorithm.

Investment Types: M1 Finance vs Betterment

Both M1 Finance and Betterment offer the option to invest in fractional shares.

A fractional share is a portion of a single share of stock. Fractional shares are a unique type of security that can ensure your portfolio remains fully invested at all times. However, fractional shares can sometimes be problematic to sell on the open market.

Since fractional shares within Betterment are always included as part of a greater set portfolio, you are unlikely to ever run into this issue while investing with Betterment. Since M1 Finance does permit investing in straight stocks, you are more likely to encounter an offloading issue with fractional shares on this platform.

M1 Finance offers these investment options:

  • Stocks
  • ETFs (exchange traded funds)

Betterment offers these investment options:

  • Stocks (domestic and international) in ETFs
  • Bonds (domestic and international) in ETFs

As you will notice, M1 Finance permits you to invest in straight stocks or in ETFs (exchange traded funds) comprised of a diversified mix of securities.

Betterment, in contrast, does not permit any investment in straight stocks. All investing is done through the company’s ETF portfolios.

The Mobile & App Experience: M1 Finance vs Betterment

Who does it better – M1 Finance or Betterment? In the case of each robo advisor platform’s app experience, they are quite well matched.

In all cases, app reviews for each platform reflect input from thousands of users.

M1 Finance App

  • iOS/Apple: 4.7 stars (out of 5)
  • Android: 4.5 stars (out of 5)

Betterment App

  • iOS/Apple: 4.8 stars (out of 5)
  • Android: 4.5 stars (out of 5)

Both M1 Finance and Betterment offer you the option of using the app or accessing the platform online via any smart device such as a tablet, laptop or desktop.

In Summary: M1 Finance vs Betterment

As we mentioned in the introduction here, sometimes it can be more challenging to choose between two similar robo advisor platforms than to choose between two dissimilar robo advisors.

With M1 Finance vs Betterment, for many users the choice really boils down to free versus fee. M1 Finance, a platform chartered from the start to lower the fee bar for investors at all levels, outperforms Betterment hands-down in this area. You can’t compete with free.

However, for the future-minded advisor who isn’t keen to spend a lot of personal time navigating the fine art of portfolio building, Betterment’s passive investing algorithm comes out on top.

Betterment portfolio StrategyThe entire platform runs based on Modern Portfolio Theory (MPT), a Nobel Prize-winning investment strategy that underlies everything that happens on Betterment.

Both platforms offer socially responsible investing (SRI) options. Both offer some level of traditional banking services through checking accounts and debit cards. Both offer automatic portfolio rebalancing as the need arises.

If you want the option of borrowing against yourself, M1 Borrow has no counterpart through Betterment. But then again, if you want to make use of tax loss harvesting, Betterment is the only platform that offers this service.

Most importantly, both M1 Finance and Betterment are registered legal fiduciary agents. This means that both platforms are legally bound to act in your best interests in every way, unlike many financial planners in the industry today.

In truth, with two robo advisor platforms of this quality, you could even close your eyes and point and still end up choosing a reputable platform where your interests will be well served.

We don’t necessarily recommend this approach, but whichever of the two robo advisors you end up choosing, we have a feeling you will be pleased with the outcome of your experience.

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).