Monday, 26 October 2020

Wealthsimple vs Betterment: Which Robo-Advisor Is Best for You?

Wealthsimple vs Betterment: Which Robo-Advisor Is Best for You?
27 Sep

If you’re a hands-off investor, choosing a robo-advisor could be a great option. You can invest your money and set up recurring deposits, and the robo-advisor will do all the heavy lifting. If you’re trying to decide on the right robo-advisor for your investments, both Wealthsimple and Betterment are great choices.

Both robos allow you to invest in exchange-traded funds (ETFs) based on your risk tolerance level. However, Betterment offers lower fees and cheaper expense ratios for investors with $100,000 or less under management. By contrast, Wealthsimple caters to more seasoned investors. And, if you have over $100,000 under management, you’ll get access to elite perks like VIP airport lounge access.

We created a side-by-side comparison to help you decide between these two excellent robo-advisors and choose the one that’s right for you.

Wealthsimple vs Betterment: Feature comparison

Wealthsimple vs Betterment: Management fees

Neither Betterment or Wealthsimple have account minimums, allowing new investors to get started right away. Both charge a flat annual management fee, with no extra fees for transactions or trades.

With Wealthsimple, your annual fee is dependent on the amount you invest:

  • Basic: For investors with up to $100,000 under management, there is a 0.50% annual fee. That fee includes a personalized portfolio, expert financial advice, auto-rebalancing and dividend reinvesting.
  • Black: If you have over $100,000 under management, your annual fee is 0.40%. You get all the perks of a Basic plan, but you also get a financial planning session and VIP airline lounge access.
  • Generation: Seasoned investors with at least $500,000 under management get all the perks of a Black plan membership, as well as a dedicated team of advisors, access to in-depth financial planning and individualized portfolios. There is a 0.40% annual fee for the Generation plan.

For beginner investors, those fees are significantly higher than Betterment’s. For Betterment Digital accounts, which have a $0 minimum, the annual fee is just 0.25%. With that fee, you’ll get personalized financial advice, diversified investment portfolios, automatic rebalancing and tax-saving strategies.

If you have over $100,000 invested with Betterment, you can sign up for a Premium plan, with an annual 0.40% fee — putting it at the same price as Wealthsimple. You’ll get all the benefits of the Digital plan, plus in-depth advice on investments you have outside of Betterment, such as your 401(k) accounts. You’ll also have unlimited access to certified financial professionals (CFPs) to get guidance whenever you have a major life change, like getting married or retiring.

Regardless of which company you choose, make sure you pay attention to expense ratios. The expense ratio is a fee you pay when you invest in ETFs, which covers the company’s operational and administrative costs. It’s deducted directly from your investment, and can impact your total returns.

The exact expense ratio you’ll pay depends on your investment portfolio, but in general, the range for average expense ratios of Betterment’s recommended portfolios was 0.07% to 0.15%, depending on allocation. At Wealthsimple, the expense ratio tends to be higher; it’s about 0.20% each year.

Wealthsimple vs Betterment: Special features

Both Wealthsimple and Betterment support individual investment accounts, traditional IRAs, Roth IRAs, SEP IRAs, joint accounts and trust accounts.

Rather than investing in individual stocks, both companies focus on investing in ETFs. They look at your finances and risk tolerance level to determine your portfolio. For example, more aggressive investors will invest mainly in stocks, while conservative investors will place more of their money in bonds.

In particular, both companies offers socially responsible portfolios, allowing you to invest in companies that are supporting the common good.

However, one instance in which they differ is in investor education. While Betterment does post informational articles, Wealthsimple takes it a step further, offering an “Investing Master Class,” a free 45-minute video course that will teach you investing basics. There’s also a series of personal finance articles to help give you a background in essential financial topics.

And if you are looking to get a higher rate of return for your savings, both Betterment and Wealthsimple offer high-yield options. However, they work very differently from one another.

Betterment Everyday is a simple savings account. You’ll earn up to 2.13% APY. When you deposit your money, Betterment distributes it to up to four different partner banks. That means you’ll get up to $1,000,000 in FDIC insurance, protecting your money. One thing to keep in mind is that you’ll have to join the waitlist for Betterment Everyday checking to get the maximum APY offered; otherwise, you’ll earn just 1.90% APY (as of September 24, 2019).

Wealthsimple offers the Wealthsimple Save option. It’s not a savings account, but a low-risk investment account. You’ll earn an average annual yield of 1.66% (as of September 26, 2019), but that number can fluctuate based on market conditions. Plus, as an investment account, your Wealthsimple Save account isn’t FDIC insured.

If you’re looking for a safe place to grow your money and are trying to decide between the two options, Betterment Everyday savings is likely a better choice than Wealthsimple Save. It offers a higher rate of return, there’s no risk of losing money and it’s FDIC insured.

However, that’s still a lower APY than you could get elsewhere. For example, with VioBank, you could earn up to 2.42% APY by opening a high-yield savings account.

Company Account Name APY
Wealthsimple Smart Savings 1.66%*
Betterment Betterment Everyday Savings 2.13%**
VioBank High-Yield Online Savings 2.42%
*Rate as of September 26, 2019
**The APY is a promotional APY available only to customers who join the waiting list for Betterment Everyday Checking. Terms apply.

Wealthsimple’s advantages

  • Roundup: Wealthsimple offers a roundup option, allowing you to invest your spare change. Whenever you make a purchase, Wealthsimple will round up the purchase to the nearest dollar, depositing the difference into your investment account.
  • Halal investing: For investors who abide by Islamic law, Wealthsimple offers Halal Investing. Portfolios are screened by a third-party committee of Shariah scholars, and there are no investments in companies that profit from gambling, tobacco, or restricted industries.
  • VIP airport lounge access: If you have at least $100,000 under management with Wealthsimple, you’ll qualify for a Black account. As an added perk, you’ll get a complimentary Priority Pass membership, giving you unlimited access to over 1,000 airline lounges in over 400 cities. If you were to purchase a Prestige Priority Pass on your own, it would cost you $429, so it’s an excellent value.

Betterment’s advantages

  • Charitable donations: With Betterment, you can decide to donate share donations from your account rather than cash. You’ll help a charity, plus you’ll avoid capital gains tax on the sale of your investments. Eligible charities currently include UNICEF, World Wildlife Fund, Feeding America, Big Brothers Big Sisters of NYC, Boys and Girls Club of America, Breast Cancer Research Foundation, Save the Children, Wounded Warrior Family Support, Hour Children, Against Malaria, DonorsChoose and GiveWell.
  • Tax-loss harvesting: Betterment offers tax loss harvesting, a practice of selling securities that have experienced a loss. By harvesting the loss, you can offset taxes on gains and income. The security that is sold is replaced by a similar one, maintaining your asset allocation.
  • Satisfaction guarantee: If you are not satisfied by your experience with Betterment for any reason, the company will try to make it right — that may include waiving management fees for the next 90 days.

Wealthsimple vs Betterment: Which is best for you?

If you’re looking for a robo-advisor, both Betterment and Wealthsimple and strong options. However, new investors will likely prefer Betterment. For investors with $100,000 or less under management, Betterment offers lower fees and lower expense ratios.

Conservative investors who are looking for a safe place for their emergency fund will likely find a better home for their money with Betterment, too. As an FDIC-insured savings account, your money can grow without the risks of an investment account, like Wealthsimple’s Smart Savings option.

However, seasoned investors who want more personalized attention, comprehensive financial planning and more luxurious benefits will prefer Wealthsimple. Once you get over $500,000 under management, you’ll get access to a dedicated team of advisors and get an individualized investment portfolio. And, of course, the VIP airport lounge access perk is an added benefit jet-setters will enjoy.

If you’re still exploring your investment options, make sure you check out the best robo-advisors of 2019.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Kat Tretina

Kat Tretina |

Kat Tretina is a writer at MagnifyMoney. You can email Kat here

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