What Is Betterment Is Betterment Safe?

With its amazing technology, Betterment, a robo-advisor with its headquarters in New York City, began in 2010 and now serves about 900,000 consumers.
Investors may question whether Betterment is risk-free or if there are additional hazards as compared to utilizing a human investment advisor because robo-advisors are still a relatively new idea.

Betterment must behave in the best interests of its investors as a fiduciary fintech company. The business has a history of prioritizing investor security and is as safe as, if not safer than, more conventional brokers and advisors.

What Is Betterment?

Betterment is a platform for virtual financial advisors. It functions as a robo-advisor, creating and maintaining user investment portfolios on its own without the need for human intervention. Along with virtual access to live financial advisors, Betterment offers a cash management account that accrues interest on your money that isn’t invested.

Is Betterment Safe?

To protect investors, Betterment employs a wide range of security measures. Betterment protects its users in the following ways.

Transparency: Betterment’s robo-advisor tool creates your portfolio using in-house technologies. It does not, however, conceal your investments. Betterment uses verified securities from brokers such as Vanguard and iShares to construct portfolios. Every time the robo-advisor executes a deal on your behalf, you may view your precise holdings and changes. Betterment provides you with the information you need to prepare your taxes by applying the same openness to your tax statements and dividend reports.

Two-factor authentication: Users are strongly encouraged to implement two-factor authentication via Betterment. By taking this extra precaution, investors are shielded from account intrusions by an additional layer of security. For instance, the two-factor authentication function prevents a hacker from accessing your Betterment account even if they manage to obtain the password. When you log in, you might configure standard two-factor authentication to send a brief, one-time text message to your phone. A more secure program, such as Google Authenticator or Authy, might also be used to set up authentication.

No commingling of funds: Brokers, including Betterment, should never mix their own money with that of their clients. To keep customer assets separate from Betterment’s operating finances, it employs both human and digital barriers. Additionally, although other retail brokers may lend out client assets, Betterment does not. With Betterment, you can be sure that your investments and money are secure.

SIPC membership: Like all investing brokers, Betterment offers Securities Investor Protection Corporation (SIPC) protection. In the event that Betterment files for bankruptcy, this insurance will protect your portfolio and any uninvested funds. Your portfolio is protected up to $500,000, with uninvested capital up to a maximum of $250,000. However, SIPC insurance only pays out in the event that Betterment files for bankruptcy. Losses on investments are not covered.

FDIC coverage for cash reserve: A high-yield savings account called Betterment Cash Reserve pays interest on funds you do not invest. You might question whether Betterment is a safer option for your money than a traditional bank. Betterment, on the other hand, retains your funds with partner banks that offer FDIC bankruptcy insurance. Because of these relationships, Betterment is able to insure deposits up to $2 million, which is eight times the FDIC’s $250,000 coverage that a traditional bank would provide.

FINRA registered: Broker-dealers are subject to regulations and training requirements mandated by the Financial Industry Regulatory Authority (FINRA). Broker-dealers are also examined to make sure they are handling consumer information appropriately, adhering to legislation, and maintaining their financial stability. Betterment has a FINRA registration. FINRA authorities evaluate it once a month.

Subject to the Investment Advisors Act of 1940: Betterment is governed by the Investment Advisors Act of 1940 because it is a broker-dealer. This imposes more guidelines and standards on these businesses. For instance, an independent public accountant surprises Betterment with an annual exam. The accountant verifies that Betterment is keeping accurate customer asset records.

External audits: Government authorities from FINRA and the U.S. Securities and Exchange Commission (SEC) often audit Betterment. Additionally, Betterment is subject to three independent public accounting audits, which examine its financial standing, operational control security, and client asset protection protocols. Users can view the outcomes of the government audits that Betterment openly provides.

What Is Betterment’s Revenue Model?

A yearly asset under management charge, which is a percentage of the money you invest with Betterment, is how they generate revenue. If you solely use the robo-advisor, Betterment costs 0.25% year (or $4 per month for accounts under $20k). For its premium service, Betterment costs 0.40% annually if you also wish to ask questions of human financial counselors. However, the option to work with human advisors requires a minimum investment of $100,000.