M1 Finance VS Betterment (Comparison & Review)


M1 Finance VS Betterment (Comparison & Review)

Robot advisors have been around for some good time – over a decade now. These services have made it much easier for anyone to get hold of the finance industry, knowing the ins and outs and how they can create wealth by planning for the future. Robot advisors have taken a little different approach, like using AI and machine learning, to provide financial advice. An example of this is Betterment. 

Betterment has been around for over a decade since it launched in 2008. Robot advisors provide financial advice for cheap and are therefore handy for beginners who may need advice in this field but cannot afford human financial experts who usually charge high fees for consultation. M1 Finance, with its different approach, is also another robot advisor you can rely on.

With the many options out there, we want to take you through the two to help you make the right decision based on your needs.

Summary

In this comparison review, we did not settle for any choice on the two. Simply because the two have their own similarities and differences that make the choice highly dependent on the customer’s needs. That is why it is not possible to give a general recommendation. M1 Finance has the edge over Betterment on account management fees and portfolio flexibility. Betterment, on the other hand, performs better through its excellent customer support service, the ease of use, and allows you to plan for goals, plus there are human advisors if you need them.

Features

M1 Finance Features

Minimum Deposit

M1 Finance requires you to have a set minimum amount of cash before you can get started. For taxable accounts, M1 Finance requires you to have a minimum of $100. For retirement accounts, you will have to deposit $500, at least. Although these figures may seem a bit higher for some, this is reasonable if you need to grow your portfolio seriously. Like for the retirement plans, it makes sense to have a good head start with at least $500.

Account Types

M1 Finance offers the following account types:

  • Taxable accounts (individual and joint)
  • Traditional IRA accounts
  • SEP-IRA accounts
  • Trust accounts

Goal Setting

M1 Finance is not really into Goal setting, unlike Betterment, which we will look at later in this review. But that is not the fault of the company since they don’t have any certification in that line. M1 Finance is not registered with the SEC, which bars the company from interacting with its clients. Instead of human interaction, M1 Finance, therefore, relies on its robot advisor to offer clients solutions for portfolio management and automation. Apart from this, the platform also provides some more features like its blog, which has several articles written to shed light on the importance of saving money for retirement, for example. More so, M1 Finance has no personalized portfolio for a given goal or target. Instead, the platform generally concentrates on how the whole portfolio can be built.

Security

Security is also essential when it comes to apps that involve finance and any other activities. M1 Finance has put in place several security practices to ensure that your money is safe and sound. More so for investment platforms, you must know your money is secure from fraud as much as you are trying to build a portfolio for yourself.

For the security of users’ data, M1 Finance relies on military-grade 4096-bit encryption technology for all the data transferred and stored within their systems. For your security, M1 Finance offers two-factor authentication to ensure that your account is safe. On top of that, the company also supports fingerprint and face recognition on mobile devices like smartphones.

Insurance

For the security of money, which is one of the vital assets here, M1 Finance is funded by the SIPC (Securities Investor Protection Corporation) to guard against the loss of cash by a customer. On top of that, M1 Finance’ clearance firm has also purchased supplemental insurance in case the SIPC $500,000 limit is exceeded. SIPC offers protection up to $500,000, which includes a $250,000 limit for cash.

It is good to take note that the SIPC does not insure your funds against the decline in the value of your securities.

Retirement Planning

If you seek to be involved with any robot-advisor, you definitely have a plan of investing in your retirement plan, as well. Unfortunately, M1 Finance does not offer any retirement-focused goals. As we had stated earlier, M1 Finance generally wants to help you grow your portfolio. So much of the hassle involving saving towards a particular specific goal is not available here. However, to save for retirement, you can purchase any of the target-date portfolios that consist of ETFs. 

Investment Portfolios

M1 Finance relies on highly automated means to curate portfolios. The whole process is automated, but with a high level of customization to ensure they fit the customers desired needs. The portfolio’s on M1 can be composed of low-cost ETFs, individual stocks, or both. 

The platform also has an expert Portfolio, which upholds the theme of Modern Portfolio Theory (MPT) and thematic investing. On M1 Finance, there is no questionnaire to help the robot advisor determine your risk tolerance. As a result, they create a swarm of options and place trades at the opening of the trading day once per day. Here the account holder is out of the control on the exit of the trade. 

Portfolios are continuously monitored and are rebalanced once a month to reduce drift. This is majorly triggered when one adds funds or withdraws funds from their M1 Finance account. However, you can still force a rebalance anytime.

Adding funds will make the shrunken portfolios are backed up, or an automated or forced rebalance will still try to ensure you are safe from any far drifts of a given portfolio.

Tax-Advantaged Investing

This is one vital feature and is available in M1 Finance. It ensures that you save as much cash as possible while transacting on the taxable accounts. This is possible through M1 Finance, which manages your withdrawals to limit the taxable bill.

Borrowing

Yes, M1 Finance also allows you to borrow up to a specific limit of your account’s value. As per now, clients can take loans to fund their activities up to 35% of their accounts’ value. The loan is repaid at your schedule with minimum interest, so if you want to take a loan, there is not much risk involved. Since you have money with them, there is no credit card check, no paperwork, no denials, and no loan officers. M1 Finance has one of the lowest interest rates on the market, capped at 3.50%.

Some takeaway here is that M1 Borrow is available on margin accounts with a balance of at least $10,000 and does not apply to retirement accounts.

Deposits

With M1 Finance, you can link your financial accounts to automate the process of depositing your funds. You can choose to deposit on M1 Finance automatically on specific time intervals – like daily, weekly, or even monthly.

Accessibility

Even though this is not much of an issue to some, we had to let you know how you can access M1 Finance. The platform is web-based so you can access it inside your browser, and there are also mobile apps for both Android and iOS.

Betterment Features

Minimum Deposit

Unlike m1 Finance, Betterment has no minimum deposit whatsoever. Even with $1, you can get started on the platform. 

Account Types

Betterment has the following accounts you can select as you please

  • Individual taxable accounts
  • Joint taxable accounts
  • Traditional IRA accounts
  • Roth IRA accounts
  • Trust accounts
  • High-interest cash accounts

Goal Setting

If you recall, M1 Finance has no feature for setting specific goals and saving towards them. But now on Betterment, there is this feature. Betterment has an easy to follow the process for setting goals. You can set more than one goal, and you will be able to monitor each one of them separately. Once you set different goals with variant parameters, the portfolio will also adjust to that.

This makes Betterment a better alternative for those who have no financial investing background but also want to create a reliable future. 

Security

On matters security, Betterment has several practices put in place. The company says it uses browser encryption technology to make sure you access your account securely. The data stored in their servers is also encrypted and stored behind firewalls in a secure facility monitored 24/7. The company also says they perform regular security audits on their software and systems. Some secure procedures put in place include data encryption, auditing, logging, backups, and safeguarding of data.

To reinforce data security, Betterment has two-factor authentication, app passwords, automatic logout, personalized email, contact information confirmation, background checks on employees, and also third-party verification.

Insurance

After looking at the security, now let us see how Betterment ensures your money is safe. Betterment is also protected by the SIPC, up to $500,000 per account upon missing funds. If the amount exceeds $500,000, then Betterment will take care of the rest under its entity.

Retirement Planning

Since Betterment allows you to save towards goals, saving for retirement can be part of the plan as well. Betterment allows you to connect your bank account so you can be able to save as much as you want for the future. This also makes the process of money transfer easy. To be able to save for the future, you will have to set the goal strategy to be long term. That way, it will be easier for you to save for your retirement.

Investment Portfolio

Betterment also curate’s portfolio based on the Modern Portfolio Theory (MPT) principles, just like M1 Finance. There are five different portfolio themes offered here. The different investment portfolios include;

  • Standard Portfolio
  • Socially responsible portfolio
  • Goldman Sachs Smart Beta portfolio
  • Flexible Portfolio
  • Income focused all-bond portfolio

Tax-Advantaged Investing

Betterment also offers tax minimization. This feature is always on any taxable accounts offered by Betterment. This ensures that as long as you’re paying taxes, you play smart so that you won’t pay more tax than you should be able to.

Deposits

Like in M1 Finance, Deposits are also made easier on Betterment through linkage of accounts. As long as you have linked your bank accounts, it is easier to deposit cash and even withdraw. Betterment also supports automatic deposits depending on your flexibility. You can invest some money daily, weekly, or monthly.

Accessibly

Betterment is also available via the web and through mobile apps available for both Android and iOS.

M1 Finance VS Betterment: Small Comparison Table

Who is this for?

Whether you are a beginner or someone who knows what they are doing in the finance market, robot advisors are worth trying. For beginners, these platforms will help you set your goals and guide you towards efficiently achieving them. Since they only charge a few fees, it is more reasonable to opt for robot advisors, unlike human financial advisors who charge large amounts of money for a few hours of consultation.

Pros and Cons

M1 Finance Pros

  • No trading fees or asset management fees
  • Flexible portfolio building
  • Easy to create a diversified portfolio

M1 Finance Cons

  • Minimum deposit limits can be a bummer to some
  • Cannot consolidate external accounts
  • You can’t invest in mutual funds

Betterment Pros

  • No account minimum
  • Fractional shares limit uninvested cash
  • You can sync external accounts

Betterment Cons

  • No borrowing against your portfolio
  • Only bank transfer is available for deposit and withdrawal

M1 Finance VS Betterment: Pricing

M1 Finance is a free platform to use. They are even no commissions or markups on trades. For normal operations of investing in the platform, M1 Finance does not cost you anything. However, you may incur charges on the platform when you perform some activities. For example, having an inactive account for 90 days with a minimum balance of $20, you will be charged $20.

On the other hand, Betterment charges you a 0.25% fee annually for digital portfolio management. For those who may need human interaction, Betterment offers a pricey tier for that known as Betterment Premium. Betterment premium attracts a 0.4% annual fee. If you have a basic account and want to consult a financial planner, then you will have to pay between $199 and $299.

User Friendliness

Betterment is more user-friendly than M1 Finance. From the account setup process, Betterment has streamlined its service to be more based on the financial situation of the user rather than just a general thing. For M1 Finance, they don’t ask you any questions about your financial situation, which means the robot-advisor doesn’t know anything about your risk tolerance levels. Betterment also has a human interaction feature that allows you to talk directly to human financial advisors who can help you and advise you more.

The case is different for M1 Finance since the service is entirely run by robots. There is no human interaction here, and this platform is ideal for those who, apart from wanting to build a portfolio, also know what they are doing. Betterment does a better job of educating its users as well via the Premium service.

Integrations

Betterment can be integrated with the following services;

  • Redtail
  • Wealth box CRM
  • eMoney Advisor
  • MoneyGuide Pro
  • Orion
  • BlackDiamond
  • TurboTax
  • H&R Block
  • TaxAct

M1 Finance can be integrated with the following services;

  • TurboTax
  • H&R Block

M1 Finance VS Betterment: Customer Support

M1 Finance offers support via phone and email. The platform also offers a FAQ section that should help you get around most of the common questions other people have inquired about the platform. For basic inquiries, this is where you should head to.

Betterment, on the other hand, offers an instant chat option in its mobile apps. If you prefer calling, Betterment offers support via phone from Monday to Friday starting at 9 a.m. to 6 p.m. Eastern time. For email support, you can still get responses from Monday to Friday as from 9 a.m. to 6 p.m. and as from 11 p.m. to 6 p.m. on weekends.

The Verdict

Despite the two being the common robot-advisors out there, it is a bit hard to settle on one. Given that each of the two has its wins and drawbacks, the choice should be really dependent on your needs. M1 Finance has an edge over Betterment on account management fees and portfolio flexibility. Betterment, on the other hand, performs better through its great customer support service, the ease of use and allows you to plan for goals. At the same time, Betterment also offers human advisor support if you subscribe to the premium plan which differentiates itself from the basic plan by the small extra annual fees.

With these features, the choice is highly dependent on your needs.

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