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Investment platforms M1 Finance and Betterment have effectively disrupted the financial advisory industry by incorporating an easy-going approach to investing that allows users to build portfolios in a matter of minutes. Currently, they manage more than $23 billion in assets for their clients and investors are increasingly relying on robo-advisors to manage their financial future.
Both M1 Finance and Betterment rely on technology and algorithms to build investment portfolios based on their client’s financial goals and risk profile. This review compares the services to help you decide which one offers exactly what you are looking for.
M1 Finance vs. Betterment: Overview
M1 Finance and Betterment offer virtually the same services. What sets them apart are the advanced features that come along with the work of their robo-advisor.
In A Nutshell: M1 Finance is a hybrid robo-advisor and online brokerage that combines the features of more traditional robo-advisors (like portfolio profiles) with online brokerage options (like trading individual stocks).
In A Nutshell: Betterment is one of the robo-advisor leaders in the United States with over $16 billion in Assets Under Management (AUM). Their goal is to take sophisticated investing strategies and design a portfolio just for you with the aid of AI.
About M1 Finance
Based in Chicago, M1 Finance is a pure-play robo-advisor that currently manages some $1 billion in assets for US-based individuals.
The company launched its services in 2015. In 2017, M1 Finance slashed advisory fees to zero, which helped propel the amount of assets in their care. M1 Finance helped investors save sizable amounts by shunning traditional advisors whose fees were as high as 1% per year.
Check out our full M1 Finance review to learn more.
See Also: 7 Best Micro-Investing Apps
Betterment is one of the leading US-based robo-advisors, managing more than $22 billion in assets for customers all across the country while offering highly competitive advisory fees charged as a percentage of the account’s balance.
The firm was founded in 2008 and is currently based in New York. Some of its most attractive features include advanced tax-loss optimization strategies and specialized portfolios provided by top-tier financial institutions like Goldman Sachs.
Read our full Betterment review to learn more.
M1 Finance vs. Betterment: Main Features
Although both providers are considered robo-advisors, the features offered by each are quite different. Betterment is a pure-play passive investing platform while M1 Finance allows its users to actively trade US-listed securities.
|Minimum Investment||$100 on taxable accounts and $500 on retirement accounts||$0|
|Fees||$0||0.25% Annual Fee (Digital) and 0.40% Annual Fee (Premium)|
|Investment Types||Stocks and ETFs||ETFs|
|Account Types||Joint, Taxable, Traditional IRA, Roth IRA, Rollover IRA, SEP IRA and Trusts||Joint, Taxable, Traditional IRA, Roth IRA, Rollover IRA, SEP IRA and Trusts|
|Platforms||Web-based and Mobile (iOS / Android)||Web-based and Mobile (iOS / Android)|
|Promotions||None||Get up to 1 year managed free|
|Socially Responsible Investing|
|Access to Financial Advice|
|Best For||DIY Passive Investors||Passive Investors|
M1 Finance’s top feature is its automated portfolio builder–also known as a robo-advisor–which is an algorithm that uses the investor’s financial and personal information to determine which portfolio suits his/her goals the best.
The firm uses a pie chart to describe how the funds are allocated by the robo-advisor among different asset classes. This allocation varies depending on the client’s financial goals and risk profile while investors can also build customized portfolios without the advisor’s assistance.
There are nearly 80 different pre-designed portfolios that the company has currently made available for investors, while users can also trade the securities they have been holding during one or two trading windows per day.
Meanwhile, no minimum investment is required to open an account with this provider while users can schedule periodic contributions to their account to stay on track with accomplishing their financial goals. The system is also designed to automatically rebalance the portfolios based on the predefined percentages for each asset class.
For active traders, fractional shares are available for thousands of US-listed stocks and ETFs. Also, trades can be made commission-free.
Aside from this, M1 Finance allows investors to borrow up to 35% of their portfolio balance easily and without any paperwork as part of their M1 Borrow program. These loans have interest rates ranging from 2% to 3.5%, depending on the plan the user is enrolled in.
Finally, this provider offers a banking solution called M1 Spend, which consists of a checking account that offers a 1% annual percentage yield along with a 1% cash-back reward for M1 Plus users.
This bank account is FDIC-insured offered by Lincoln Savings Bank. It does not have any commission or maintenance fees and comes with a Visa® debit card.
Users can also opt to sign up for M1’s Plus package, which includes a second window and the lowest interest rates for any funds borrowed through the M1 Borrow program.
This program costs $125 per year.
Main Features Overview
- Free automated investing: M1 Finance’s robo-advisor allows users to build portfolios within minutes based on their financial goals and risk profile.
- Ample pre-designed portfolio selection: This provider offers a selection of 80 pre-designed portfolios for virtually every type of investor.
- Fractional shares: Actively involved investors can use fractional shares to purchase a portion of a stock if they want to build a diversified portfolio with a small amount of money.
- M1 Borrow: Users can borrow up to 35% of their account balance through this program, paying annual interest rates between 2% and 3.5%, depending on their service plan.
- M1 Spend: M1 Finance offers a bank account that charges no maintenance fees. For Plus users, this account offers a 1% APY and 1% cash rewards for purchases made with the debit card that comes with it.
- M1 Plus: M1 Plus is the premium package offered by M1 Finance. It allows users to borrow money at 2% per year and trade twice a day.
Betterment’s top feature is also its robo-advisor, which is a system that uses algorithms to determine the optimal portfolio for any investor based on their financial goals and risk profile.
These portfolios are built by using low-cost exchange-traded funds (ETFs), following a time-tested investment methodology built on the foundations of Modern Portfolio Theory (MPT).
Betterment portfolios are designed based on each user’s financial goals–along with other variables–which means that depending on whether the user is investing for retirement, a vacation, or their kid’s future college tuition, the robo-advisor will determine the optimal allocation for each scenario.
The company also offers a feature known as tax-loss harvesting (TLH), which takes advantage of any losses produced by the instruments held within the account from a tax point of view. In short, tax-loss harvesting is a strategy used to sell securities at a loss in order to offset a capital gains tax liability.
The robo-advisor will invest these tax credits in certain specific funds that should enhance the long-term returns of the portfolio as a whole.
Other tax-related strategies offered by this provider include the Smart Tax feature, which Betterment claims can expand portfolio returns by 0.5% per year over 30 years.
Furthermore, clients can also invest in Betterment’s specialized portfolios, including the Socially Responsible Investing (SRI) program. With the SRI program, investors can rest assured knowing they are only investing in companies that meet certain environmental, social, and corporate governance criteria (ESG). Betterment offers a few other enhanced portfolios, such as the Goldman Sachs Smart Beta portfolio or the BlackRock Target Income Portfolio.
Additionally, investors can also have some say as to how their funds are allocated within the different asset classes through the Flexible Portfolios feature.
Betterment also provides banking services through savings and checking accounts offered by multiple program banks. These accounts allow users to manage their money within a single platform.
Betterment account holders can also set automatic transfers to their investment account to make sure they meet their scheduled contributions.
Finally, Betterment offers personalized financial advice through their financial planning packages. Through phone consultations with a Certified Financial Planner (CFP), users can define or further strengthen their financial objectives and get some tips on managing their money.
Main Features Overview
- Automated passive investing: Betterment’s robo-advisor is designed to build portfolios by using low-cost exchange-traded funds (ETF) to allocate the money invested across multiple asset classes depending on the user’s financial goals and risk profile.
- Advanced tax optimization features: These features use tax losses to offset any tax gains with the remaining tax credit being invested into other securities to increase the return of the portfolio over time.
- A premium selection of portfolios: Betterment offers a selection of advanced portfolios provided by top institutions like Goldman Sachs and BlackRock.
- Financial planning packages: Users can enjoy personalized human advice from a Certified Financial Planner (CFP) by buying one of Betterment’s financial planning packages.
- Banking products: Along with the investment account, users can also set up an FDIC-insured checking or savings account with this provider. These accounts don’t generate any monthly fees and the savings account produces an annual percentage yield (APY) that surpasses the national average by at least six times.
M1 Finance vs. Betterment: Investment Options
Although both providers are considered automated passive investing platforms, M1 Finance allows users to invest in individual securities like stocks and ETFs while Betterment only supports exchange-traded funds (ETFs).
M1 Finance users can build a customized portfolio composed of self-picked US-listed instruments like stocks, exchange-traded funds (ETFs), and American depositary receipts (ADRs). The firm supports more than 6,000 exchange-listed securities, including those trading on the NASDAQ, BAT, and NYSE.
Additionally, users can also purchase fractional shares of stocks or ETFs. This is great for users with smaller budgets to invest in parts of stocks that cost hundreds or thousands of dollars with dollar amounts that work for them.
M1 Finance also offers what they called “M1 Finance Expert Pies” which are basically professionally curated allocations of securities (ETFs or stocks) created by their staff. These prebuilt pies are created to help investors in the creation of their portfolios. Some examples of their expert pies include:
- General Investing: You can create a diversified portfolio depending on your risk appetite
- Plan for Retirement: Invest for your desired retirement goals and age
- Responsible Investing: Invest in socially responsible companies and industries
- Income Earners: Choose a portfolio focused on dividend payouts and income returns
- Hedge Fund Followers: Mimic the investment strategies of successful investors and funds
- Industries & Sectors: Invest in industries and sector you believe in
- Just Stocks & Bonds: Build a low-cost diversified portfolio of bonds and stocks
- Other Strategies: Invest in various products and companies globally or locally
- Trinity Portfolios: These portfolios are created by Cambria Investment
Betterment does not let users actively trade securities within their platform. Instead, the robo-advisor uses low-cost ETFs to build the portfolios it recommends.
That said, users can enroll in the Flexible Portfolios feature, which allows them to modify the percentage that is allocated to the different asset classes in the portfolio.
Betterment’s approach to investing follows a two step process. First asset allocation and then fund selection.
Asset Allocation (Stocks / Equities)
- U.S. Total Stock Market
- U.S. Value Stocks – Large Cap
- U.S. Value Stocks – Mid Cap
- U.S. Value Stocks – Small Cap
- International Developed Market Stocks
- International Emerging Market Stocks
Fund Selection (Bonds / Fixed Income)
- U.S. High-Quality Bonds
- U.S. Municipal Bonds
- U.S. Inflation-Protected Bonds
- U.S. High-Yield Corporate Bonds
- U.S. Short Term Treasury Bonds
- U.S. Short Term Investment Grade Bonds
- International Developed Market Bonds
- International Emerging Market Bonds
Similar to M1 Finance Expert Pies, Betterment offers a number of prebuilt portfolios depending on your desired goals. As of this review, these are the prebuilt portfolios offered by Betterment:
- Betterment Core Portfolio: For those looking for global diversification at low-cost
- Goldman Sachs Smart Beta: Designed to outperform market-cap portfolios with Goldman Sachs
- Broad Impact Portfolio: For socially responsible individuals
- Climate Impact Portfolio: For socially responsible individuals
- Social Impact Portfolio: For socially responsible individuals
- Betterment Cash: For those with a low-risk appetite
- BlackRock Target Income: For those with a low-risk appetite
M1 Finance vs Betterment: Account Types
Both M1 Finance and Betterment offer a wide selection of accounts to meet the needs of their investors.
M1 Finance allows its users to open the following types of accounts through its investing solution:
- Individual taxable account
- Joint taxable account
- Individual retirement account (traditional, Roth IRA, or SEP)
- Trust account
- Checking account (M1 Spend)
Betterment offers similar account types compared to M1 Finance. This is a full list of the account types supported by this provider:
- Individual taxable account
- Joint taxable account
- Individual retirement account (traditional, Roth IRA, SEP, or inherited).
- Trust account
- Cash Reserve account (savings account)
- Checking account
M1 Finance vs. Betterment: Sign Up Bonus/ Promotions
Both Betterment and M1 Finance offer special bonuses for referring a friend to the platform.
M1 Finance offers a $10 bonus for customers who refer a friend to the platform and another $10 for the new user.
To be eligible for this program, the party that sends the invitation must have a funded M1 Invest account. The bonus will be received within 14 days after the new user has signed up for and funded their account.
There is also an account transfer bonus that goes up based on the balance of the account being transferred. The bonus starts at $250 for accounts between $100,000 to $249,999 and it goes up to as much as $2,500 for transferring an account with a balance higher than $1 million.
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Betterment’s current referral program includes a 30-day fee waiver. Also, new users receive a 90-day fee waiver. This fee waiver applies to the 0.25% monthly fee charged for the robo-advisor’s service.
M1 Finance vs. Betterment: Fees & Pricing
Although M1 Finance is primarily a free service, it offers a few premium features. On the other hand, Betterment charges a flat percentage fee on the amount invested.
M1 Finance’s automated passive investing feature is free. However, users can pay a $125 annual subscription fee to enroll in its M1 Plus program. With this premium service, users get lower interest rates in the M1 Borrow program along with a 1% APY on their bank account balance (M1 Spend) and 1% cash rewards on any payments made with the firm’s debit card.
Any borrowed funds yield a 2% to 3.5% interest rate per year, depending on the user’s service plan.
Betterment’s robo-advisory service charges a flat 0.25% fee for standard investment accounts and a higher 0.40% annual fee for Premium Advice accounts. This premium alternative requires a minimum account balance of $100,000.
Additionally, the firm’s financial planning packages–which consist of 45-minute or 60-minute consultations with a financial professional–have a separate cost that starts at $199 per session.
M1 Finance vs. Betterment: What We Like (Pros)
Robo-advisors are a ground-breaking solution in the financial services industry. However, they are not all the same.
The following is a quick round-up of what we like the most about each of the two featured in this article.
- US-based, regulated financial services firm
- Free automated passive investing service
- Users can borrow from their investment account at a low rate
- Actively involved investors can build their portfolios on their own
- Attractive banking product offering cash rewards and above-average APY
- Multiple account types
- No minimum balance required to open an account
- US-based, highly regulated financial services platform
- More than $21 billion in assets under management
- Advanced tax-optimization features
- Multiple premium portfolios available and offered by top-tier financial institutions
- Competitive advisory fees
- High-yield savings account
- The Flexible Portfolios feature allows investors to have some say in how they invest their funds
M1 Finance vs. Betterment: What We Don’t Like (Cons)
With the good comes the bad. There are a few things we don’t typically like about these two services.
- Does not offer other securities aside from US-listed stocks and ETFs
- Compared to Betterment, M1 Finance lacks some of the advanced features offered by its rival, including tax-optimization strategies and smart-beta portfolios
- The Plus package can be pricey for accounts with a balance lower than $50,000
- Users cannot trade individual securities
M1 Finance vs. Betterment: Security
Both M1 Finance and Betterment are heavily-regulated US-based financial services firms. Meanwhile, aside from this regulatory coverage, their products are covered by the FDIC and SIPC–both of which assure investors that their funds are safe in case any of these providers fail.
M1 Finance and its subsidiaries are regulated by the Securities and Exchange Commission (SEC) and the firm is also a member of the Financial Industry Regulatory Authority (FINRA). Meanwhile, all banking products offered by M1 Finance are insured by the Federal Deposit Insurance Corporation (FDIC), which provides coverage for up to $250,000 in cash.
Additionally, M1 Finance investment accounts enjoy SIPC protection, which provides coverage for up to $500,000, including $250,000 in cash.
Same as M1 Finance, Betterment is a regulated entity in the United States overseen by the SEC and FINRA. Its accounts enjoy the same insurance and coverage provided by SIPC and the FDIC.
M1 Finance vs. Betterment: Platform and App
Robo-advisors have different platforms to access your investments. Some have web-based platforms, others offer mobile apps, but reputable brokers should have both. This is the case with M1 Finance and Betterment.
M1 Finance’s web-based and mobile versions both use a pie chart to describe how funds are allocated within the different asset classes that comprise the portfolio.
Users can easily browse through the different features and make deposits, withdraw money, borrow funds, place trades, and build customized portfolios almost instantly through a highly user-friendly interface.
The M1 Finance Android app has a 4.5-star rating and has been reviewed by more than 10,300 users in the Google Play Store. The iOS version has a 4.6-star rating with more than 20,000 reviews.
Betterment’s web-based version is an intuitive platform where users can make any transaction they need, including building different portfolios for separate financial goals or setting different accounts for other family members.
Meanwhile, the mobile app offers all the same features but in a simplified way to fit the reduced screen space.
The Android version of the app has a 4.1-star rating in the Google Play Store while the iOS version has a 4.8-star rating and has been reviewed by almost 21,000 users.
Who Is M1 Finance For?
M1 Finance is the best choice for two particular audiences: long-term investors who would like to keep their fees in check and active investors who would like to enjoy the best of both worlds.
Additionally, the firm’s M1 Borrow program is quite convenient in case of an emergency as it allows the user to fall back on his or her holdings without having to liquidate the portfolio.
Who Is Betterment For?
Betterment is an advanced robo-advisor that, for a competitive rate, offers its users access to some impactful investing features, including tax-optimization strategies and smart-beta portfolios.
The firm’s edge is its competitive percentage-based fee, which is more suitable for accounts with a small balance. However, Betterment does not enable any self-directed investing or trading.
Both M1 Finance and Betterment offer great services with individual and unique advantages.
Although both have a strong value proposition, they are for different types of investors.
Based on the information provided above, you can pick and choose the one that fits you the best to enjoy the significant advantages of having someone else doing the hard work of investing for you.
- M1 Finance Review: A Hybrid Robo-Advisor & Brokerage
- 7 Best Micro-Investing Apps
- 12 Best Online Brokers for Stock Trading
- 12 Best Robo-Advisors: Automate Your Investments
- Betterment Review: A Robo-Advisor Worth Checking Out
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Alejandro is a financial writer with 7 years of experience in financial management and financial analysis. He writes technical content about economics, finance, investments, and real estate and has also assisted financial businesses in building their digital marketing strategy. His favorite topics are value investing and financial analysis.