Last March I wrote this review of Betterment, a robo-advisor, which I’ve been using for my taxable brokerage account. The main draw of having an account with them was their tax loss harvesting feature. After having my taxable account handled by Betterment for the last year and a half, I’ve decided to close my account and move the funds into a new taxable brokerage account with Vanguard. Here’s why.
Reason #1: Consolidation of Accounts
Since my 401(k) rollover IRA and Roth IRA are both with Vanguard already, it makes sense to move my taxable account to Vanguard as well. It’ll be one less login and account to keep track of, and it’ll be much easier to move funds around when/if that time comes. I originally created a brokerage account with Schwab, due to how little it takes to start investing (vs. Vanguard’s $3,000 minimum for mutual funds). But Schwab made transfers from my bank account to my brokerage account, and then investing those funds, very cumbersome. I then moved the funds to Betterment, which did make transfers and investing much easier. But now that I have more than enough in my brokerage account to invest in whatever Vanguard funds I’d like, now is the time to open a brokerage account with them.
Reason #2: Performance
While I’m not necessarily disappointed by how my account has performed over the last 1.5 years, I’m also not blown away. In fact, my rate of return for 2016 was slightly lower than the two Vanguard accounts that I manage myself (and rarely touch in regards to reallocation). If I’m going to pay an advisory fee, I’d like to see a better return than I can get on my own.
Reason #3: Excessive Account Activity
Because a robo-advisor is constantly reallocating your account and doing tax loss harvesting, there’s a lot of activity. I first realized this a year ago, when I was working on my 2015 taxes. With only 6 months of activity, the tax form was 16 pages. While I haven’t gotten my 2016 form yet, I’m guessing it’ll be even longer. Fortunately, I can upload the data directly to my tax prep software. Even then, I’m required to ensure each line was loaded correctly. It’s time consuming and something I’d prefer not to do going forward. I’ve also heard that this excessive activity can impact ACA subsidies. While this is something I’ve taken into consideration, it’s not relevant at this point since I don’t plan to retire for at least 10 years and we have no idea what health insurance will look like at that point.
I’m sure that people can provide even more reasons why I should leave Betterment (or not invested with them in the first place), but these are my main reasons for leaving. Overall it was a fine experience, and I’m glad I tried their service, but I had hoped for something so much better.
A Note On How I’m Transferring the Funds
To prevent paying capital gains taxes, I’m doing what’s called in in-kind transfer. This means that I’ll remain invested in the exact same funds, and only the brokerage will change. Since Betterment has me invested in 19 different funds, I’ll likely start selling off some of them to invest in Vanguard funds instead.
Have you ever used a robo-advisor? Would you ever consider it?