A large number of investors like to choose their own stocks, bonds, ETFs, mutual funds, and other investments. They take a hands-on approach to their portfolio, and they like being in total control of every buy and sell decision.
That's great for some people… but it isn't for everyone.
Most people don't have finance degrees. Most people are busy with jobs, kids, and hobbies and hope just to take a break every once in a while. If that sounds like you, an online financial advisor or robo advisors might be the best choice.
Wealthsimple, Betterment, and Vanguard all offer opportunities to automate your investments while keeping your costs low. If you think a robo advisor may be the right choice for your money, read on to learn about these three top options in this growing industry.
|Advice||Human Assisted||Human Assisted||Human Assisted|
Wealthsimple is the newest of the three companies on this list. It was founded in 2014 by Michael Katchen, who is still the CEO. The company is based in Toronto and has additional offices in New York and London.
This robo advisor allows you to create an account in about five minutes. All you have to do is answer a few questions, and Wealthsimple takes care of everything else. Based on your risk assessment and goals, Wealthsimple will choose a portfolio of low-fee exchange-traded funds (ETFs) for you. You can set up automatic contributions and Wealthsimple will automatically rebalance your portfolio as needed and reinvest any dividends you earn.
Wealthsimple gives you access to a human who can answer your questions by phone or conduct a portfolio review. There's also a high-yield, low-risk account called Wealthsimple Save that rivals online bank savings accounts.
If you have a balance of up to $100,000, you'll qualify for a Basic account. This account charges 0.50% per year in fees. If you have $100,000 to $500,000, you will qualify for a Black account. This lowers your fee to 0.40% and includes a financial planning session and airport lounge access through Priority Pass. Over $500,000 and you get additional attention and features with the Generation account.
Wealthsimple uses 10 ETFs to make up its customer portfolios. Six of them come from Vanguard, since it's a leader in low-fee funds. The robo advisor also uses two ETFs from iShares. The other funds are the WisdomTree Japan Hedged Equity Fund and the VanEck Vectors Fallen Angel High Yield Bond ETF. In total, Wealthsimple has CA$3 billion (about US$2.2 billion) in assets under management.
Betterment was the pioneer among robo advisors. This investment company was founded in August 2008 by CEO Jon Stein. As of February 2019, Betterment managed $13.5 billion in assets, and that number continues to increase. The company is based in New York.
This robo advisor starts users with a short quiz that includes questions about your age, income, retirement goals, and risk tolerance. From there, it allocates your funds into a portfolio that lines up with your needs.
Betterment charges a 0.25% annual fee. It offers some unique high-tech investing features that can help you maximize your tax efficiency. A premium plan is available for a 0.40% fee and includes access to a CFP (certified financial planner) to answer questions about any part of your account.
Most ETFs in the Betterment portfolio come from Vanguard, Schwab, and other low-fee providers. Betterment has multiple ETFs in each category to enable its Tax Loss Harvesting+ feature. It also offers a savings-style investment account as a safe place to park your cash.
As you may have noticed, we've already mentioned Vanguard in the two sections above. It's the biggest provider of mutual funds in the United States and second in ETFs to BlackRock's iShares. Vanguard holds $5.3 trillion in assets. That is many times larger than the other two on this list, and some of those assets actually include assets managed by Betterment and Wealthsimple!
Vanguard was founded by the late John Bogle, who is considered the pioneer of the modern low-cost index fund. In some ways, none of these companies would exist without John Bogle. Vanguard is headquartered in Valley Forge, Pennsylvania. It offers a hybrid robo-advisor product called Vanguard Personal Advisor Services that competes with Betterment and Wealthsimple.
This service gives you access to both a human advisor and an automated investment product. Vanguard charges a 0.30% fee for accounts up to $5 million. You'll work with your advisor to build your portfolio, rebalance, and optimize for taxes.
Not surprisingly, Vanguard Personal Advisors are likely to direct you toward Vanguard funds. But those Vanguard funds are popular for a reason, so that shouldn't scare you away.
How Are They the Same?
All three services offer many features. First, let's take a look at how they're similar.
|Investment Account Types||Taxable, joint, Roth IRA, traditional IRA, rollover IRA, SEP IRA, and trust accounts|
|Human Assisted Advice||All three services offer human-assisted advice rather than being 100% automated.|
|Portfolio Rebalancing||All three services offer portfolio rebalancing for their clients.|
How Are They Different?
Let's take a look at the areas where Wealthsimple, Betterment, and Vanguard differ.
|Minimum Investment||There's no minimum deposit required to invest with either Betterment or Wealthsimple. However, if you want to use Vanguard's robo advisor service, you'll be required to invest at least $50,000.|
|Tax Loss Harvesting||Whereas Betterment and Wealthsimple both offer tax loss harvesting, Vanguard does not.|
|Socially Responsible Investing||If you're interested in investing in designated SRI (socially responsible investing) portfolios, you'll find them at Wealthsimple and Betterment but not Vanguard.|
|Fees||Wealthsimple: $0 to $100k — 0.50%/year; over $100k — 0.40%/year |
Betterment: Digital — 0.25%/year; Premium — 0.40%/year
Vanguard Personal Advisors: 0.30%/year
Features Unique to Wealthsimple
Wealthsimple has a friendly culture and an emphasis on a luxury investing experience. As far as I know, it's the only financial advisor that can get you into airport lounges around the world.
The platform's digital product with access to a human advisor is most similar to the higher-end account at Betterment, but it also overlaps a bit with Vanguard's hybrid human-led experience.
Wealthsimple uses a smaller list of funds for client portfolios, but the funds it picks are low cost and good performers for their sectors.
Features Unique to Betterment
Betterment offers the most automated experience of the three, and the hands-off approach on its basic account is the lowest-cost option on this list.
Betterment also offers the best tax loss harvesting opportunity. Using an automated system, Betterment will sell some funds at a loss and immediately buy a similar fund at the same time. This locks in tax losses for you, which can offset capital gains even if you end up with a long-term profit.
Features Unique to Vanguard
Vanguard is the only one of this pack to offer its own mutual funds and ETFs. It also gives you an experience more focused on the experience with a human financial advisor. While that advisor helps you with taxes, it is not the same as tax-loss harvesting at Betterment. If you want to work primarily with a person instead of a computer, Vanguard may be better for you.
Vanguard is a conservative company. While it is cutting edge in low-cost index fund investing, cutting-edge technology isn't the main focus. You can log in and manage your account online, but that is just one part of managing your account with Vanguard, not the whole thing.
Let's get the easiest comparison out of the way first.
- Wealthsimple requires no minimum deposit amount for its Basic tier of service. An investment of $100,000 will move you to the Black level. Generation level requires $500,000.
- Betterment also has no required minimum for its Digital account. If you want to sign up for Betterment Premium, you'll need to invest at least $100,000.
- However, to use Vanguard Personal Advisor, you'll need to make an investment of $50,000 or more.
Again, it depends on what level of service you qualify for.
- Wealthsimple charges 0.50% for Basic accounts and 0.40% for both Black and Generation accounts.
- Betterment's fees are 0.25% for the Digital level and 0.40% for Premium.
- Vanguard charges 0.30% for all robo-advisor accounts.
Both Wealthsimple and Betterment offer tax-loss harvesting (TLH), which helps boost your after-tax returns by letting you capitalize on your investment losses. This service doesn't require any action on your part and is fully automated. Tax-loss harvesting is available to all accounts with these two platforms; there's no minimum deposit required.
In addition, Betterment also offers Tax Loss Harvesting+ across multiple accounts for spouses. If used effectively, it can double the size of your tax-efficient space. Plus, it sets Betterment up to incentivize you to have all your accounts with the service.
Vanguard doesn't provide automatic tax-loss harvesting on accounts. Instead, your advisor team will consider tax-loss harvesting opportunities on a case-by-case basis.
Wealthsimple offers a free retirement calculator that can help users figure out how much they'll need for their golden years. However, it's currently available only for Canadians. There are no goal-setting tools with Wealthsimple.
Betterment offers retirement tools integrated into its Retirement Goals sections. The platform will now look at the health of all of your investments — including those outside Betterment — with an eye to your retirement savings health. The platform will alert you when your asset allocation for any account has fallen out of line with Betterment's advice, as well as projecting what your money would look like if you rolled it into a Betterment account.
Vanguard has such a wide selection of funds and ETFs that you're sure to find plenty of choices to reach your retirement goals. Selection and low cost are key benefits of Vanguard. You can quickly and easily build a diversified portfolio with just a few well-established, low-cost funds through this service. Other than that, Vanguard doesn't have as much support for retirement planning as Betterment.
Luxury-minded clients will love the Wealthsimple experience if they invest at least $100,000. Special benefits at this level include enhanced opportunities to work with an advisor and access to airport lounges.
Betterment shines with superior tax loss harvesting and automated investing that keeps things cheap, simple, and — hopefully — profitable.
Vanguard provides a more personal touch to guide you into a low-cost portfolio of Vanguard funds.
Wealthsimple offers customer service via phone and email. Hours are 9:00 a.m. to 8:00 p.m. Eastern Time, Monday through Thursday and 9:00 a.m. to 5:30 p.m. on Friday.
Betterment is available by phone or email from 9:00 a.m. to 6:00 p.m. Eastern Time, Monday through Friday and 11:00 a.m. to 6:00 p.m. on weekends.
Vanguard Personal Advisor Services is open Monday through Friday from 8:00 a.m. to 8:00 p.m Eastern Time.
All three of these companies offer a high level of security for your online account and your money. While investments can lose value, you shouldn't worry about any of these companies pulling a Bernie Madoff.
Wealthsimple and Betterment both offer two-step verification, an added layer of security you should use everywhere it's available. With any online account, you should use a unique, strong password so bad guys can't get into your account even if another one is hacked.
Who Are They Best For?
All three of these offerings are a good fit depending on your needs.
Wealthsimple is best for investors looking for a luxury experience.. If you've got $100,000 or more to invest, you'll enjoy unique perks, including access to select airport lounges.
Betterment is best for hands-off investors. If you want to set it and forget it, here's your pick. You can select full automation and have a computer do the rest. You'll also find the lowest fees here.
Vanguard is best if you want human help. Vanguard's human assistance is the best of the bunch — and for a low cost, to boot. However, you need at least $50,000 to start.
Which Is the Best?
So which robo advisor is the best?
If I were forced to pick a winner, I would probably choose Betterment. However, I would hate to be pigeonholed into choosing just one of these services for everyone.
Betterment is a great service for many reasons. All of the ETFs the service has selected are great picks. They all follow their respective indexes very closely and are very liquid (which lowers the bid/ask spread), tax-efficient, and low in annual fees.
The service combines low management fees with high-quality products. The service is perfect for young investors with a thorough educational component and automation to make investing extremely easy. And Betterment's retirement planning tools are perfect for beginner investors.
For advanced investors or higher net worth individuals, Betterment might not be the perfect fit. If you can reach a minimum of $50,000, Vanguard might be a better fit for you.
Plus, Vanguard funds have historically outperformed over the long run. For the 10 years ended December 31, 94% of Vanguard funds (all share classes, including ETFs) surpassed the average returns of their respective peer groups.
Wealthsimple is also a decent service, but it comes with a steep price tag. Accounts with balances under $100,000 are charged an annual maintenance fee of 0.50%, which is definitely on the high side of the robo advisor spectrum. That keeps Wealthsimple from being the best choice for many investors.
And if you'd rather have some hand-holding, both Wealthsimple's and Vanguard's live human assistance is certainly attractive. For less than what you would pay a personal advisor, you could have a team periodically reviewing and resetting your portfolio.
Depending on where you are on your financial journey, your goals, your comfort with technology, and your tolerance of fees, any of these services could be a great fit. We recommend you check out the comparison we've made of Betterment vs. Wealthfront for even more possibilities.