When it comes to show-downs between various Robo-advisors, the question is often not which is better but which one suits a particular type of investor’s needs.
In comparing M1 Finance and Betterment, this is such a case. They are both top-rated robo-advisors, but for entirely different reasons.
Each service has its clear advantages over the other. However, this is tempered due to the reasons for their existence and the target market of each.
Betterment is excellent at goal planning, account setup and customer service with highly competitive pricing. It is aimed at holding the hand of new investors.
On the other hand, M1 Finance scores very high on fees, account services and portfolio flexibility.
Since the two products are pretty different and aimed at different target markets, let’s assess each separately and then analyze which one would suit you as an investor.
Overview of Betterment
One of the biggest feathers in the cap of Betterment is that it was the first robo-advisor on the market and was genuinely disruptive to the industry.
Betterment was launched in 2008. It currently manages more than $16 billion in assets.
Betterment aims to simplify the investment signup and management process.
On registration, you must answer a few simple questions, pick a level of risk tolerance, and Betterment does the rest. Yes, your friendly robo-advisor automatically creates a portfolio of low-cost ETFs for you.
Betterment offers a less hands-on approach than many other robo-advisors do, including M1 Finance.
Once you are signed up, you need to make deposits and occasionally check in on your portfolio. Betterment takes care of portfolio management.
Further picking of investments, rebalancing and allocating dollars to different investments are all done by Betterment for you.
You do not have the freedom to choose individual investments that you may consider a deal-breaker.
Betterment offers a cash account with a debit card so that you can do all of your banking with them. Again, this firm has proven to be very disruptive – even to the banks.
Continuing its disruptive streak, on 8 February 2022, Betterment announced that retail investors and advisors can now invest in diversified crypto portfolios alongside their existing investments.
There’s a lot to like about Betterment with financial advisors available for all users, no minimum, and low fees.
Let’s look a little closer. We will concentrate on items in which Betterment and M1 Finance differ.
Betterment Fees
Betterment is very competitive when it comes to fees compared to most robo-advisors. However, the zero fees charged by M1 Finance leaves Betterment in second place in the fees department.
Betterment offers a digital plan, which charges an annual fee of 0.25% with a $0 minimum balance. The digital pan includes personalized advice, automatic rebalancing, and tax-saving strategies
It also offers a premium plan with a 0.40% annual fee and a $100,000 minimum balance. The premium plan also offers advice on assets held outside Betterment and guidance such as estate planning.
There is access to real live humans under Betterment premium.
Who is Betterment Better For?
Betterment is aimed at investors who:
- Are not opposed to being charged fees (albeit low fees)
- Are looking for an investment manager to help them manage a portfolio to achieve clear goals.
- Prefer access to human, financial advisors.
- Want a free analysis of all of their investments before funding their account.
If this is you, you can sign up for Betterment here.
Overview of M1 Finance
Unlike Betterment, M1 Finance is a hybrid between a robo-advisor package and a hands-on investment offering.
It is thus ideal for investors who want to manage their investments and require investment management and portfolio rebalancing.
Your investments are managed at no charge by M1 Finance. In addition, no commission is charged for buying and selling.
A minimal $100 is enough to fund your account to start investing.
No deposit is required to start using the platform’s tools and learning resources.
With M1 Finance, you don’t purchase shares of individual stocks and ETFs. Instead, they provide you with a “pie” with your target portfolio allocation. Securities professionals create these pies. You then deposit money into that pie.
M1 Finance offers a product called M1 Borrow. Once your account is funded to $10,000, you can choose to borrow against yourself at up to 35 per cent of your account value.
The flexibility of M1 Finance allows you to fund and invest in trusts, individual taxable accounts and retirement accounts.
To start with M1 Finance and get investing today, click here.
M1 Finance Fees
With an unrivalled fee structure, M1 Finance fees win the fees race.
Zero is hero – M1 Finance does not charge any fees.
An investment minimum of $100 is also highly competitive in the industry.
Who is M1 Finance Better For?
M1 Finance is better for investors who:
- Like the idea of no fees for account management
- Are self-directed but prefer to choose from pe-made investment portfolios (or pies)
- Want their portfolios rebalanced
- May wish to borrow up to 35% of the value of their portfolio
- Are intermediate to experienced investors
- Don’t require access to a real human advisor
Direct Comparison of Major Differences
There are several excellent direct comparisons between Betterment and M1 Finance. For a detailed, thought-provoking analysis, check here:
- Modest Money – M1 Finance versus Betterment Review
- Jeremy Biberdorf – Betterment and M1 Finance comparison
- European Business Review Comparison
Our Final Analysis
You need to classify what type of investor you are.
That will go a long way in assisting you to decide whether M1 Finance or Betterment will be more in line with meeting your needs.
If you are not an experienced investor, Betterment’s handholding and ease of use will provide you with an excellent tool to get you started.
