Item 5: Account Requirements and Types of Clients52
Item 6: Portfolio Manager Selection and Evaluation52
Item 7: Client Information Provided to Portfolio Managers63
Item 8: Client Contact with Portfolio Managers63
Item 9: Additional Information64
Form ADV Part 2B71
Firm Description
Betterment LLC (“Betterment”), a Delaware limited liability company organized in 2009, is an
SEC-registered investment adviser that maintains its principal office at 27 West 23rd Street, 6th
Floor, New York, NY 10010. Betterment is a wholly-owned subsidiary of Betterment Holdings,
Inc. (“Holdings”), which is also the parent company of MTG LLC dba Betterment Securities,
Betterment for Business LLC, Betterment Financial LLC, and Argonaut Asset Management, LLC.
Types of Advisory Services
Betterment offers investment advisory services to clients primarily over the internet via its
interactive online platform and mobile application (collectively, Betterment’s “online interface”).
For certain clients receiving Supplementary Services (as defined below), Betterment also
provides investment advice over the phone, video, or email communications with Betterment
financial consultants.
This Brochure is meant to help you understand the nature of the advisory services offered by
Betterment, whether the advisory services offered by Betterment are right for you, and the
potential conflicts of interest associated with Betterment services. You should review it
carefully.
Betterment provides investment advice and discretionary asset management services for clients
that span (1) portfolios composed of exchange-traded funds (“ETFs”) and, in certain cases,
mutual funds, and stocks (collectively, “traditional securities”), (2) portfolios composed of digital
assets (“crypto” or “crypto assets”), and (3) a cash management offering. Traditional securities
portfolios consist of sets of globally diversified stock and bond allocations, which Betterment
typically constructs from low-cost, liquid, index-tracking ETFs, as further described in Item 8
below. Traditional securities portfolios and Betterment’s cash management offering are offered
through the Wrap Fee Program, as defined and further described in the
Wrap Fee Program
Brochure Appendix below (traditional securities portfolios and cash management, collectively
“wrap accounts”). Crypto portfolios consist of allocations of crypto assets that provide
diversified exposure to a variety of crypto sectors, which Betterment typically constructs based
on market capitalization, risk-return profile, and other factors, and which include a cash
allocation, as further described in Item 8 below. For the avoidance of doubt, an ETF that invests
in crypto assets is considered a traditional security and is offered through the Wrap Fee
Program.
A wrap fee program has a fee structure that provides clients with advisory and brokerage
services for a bundled fee with no additional account activity charges for execution of trades. As
such, Betterment charges Wrap Fee Program clients a single bundled fee that covers the
investment advisory services it provides, as well as the brokerage and custodial services
associated with holding and trading securities provided by its affiliated broker-dealer,
Betterment Securities.
With respect to Betterment Crypto (as defined below), clients are charged a single investment
advisory fee by Betterment as well as transaction expenses associated with crypto trading and
custody assessed by Betterment’s third-party partner, Gemini Trust Company LLC (“Gemini”),
which serves as the custodian of client crypto accounts.
Betterment offers investment advisory services to three types of clients:
(1) a retail service whereby individuals, trusts, and other legal entities receive advisory
services from Betterment (such clients are referred to as “Retail Clients”);
(2) a platform whereby individuals, trusts, and other legal entities receive advisory
services from Betterment and from an unaffiliated registered investment adviser or
other provider of investment advice (“Advisor”), subject to Betterment’s approval, with
which the individual, trust or legal entity has an independent relationship (such clients
are referred to as “Third-Party Advised Clients” and such business is referred to as
“Betterment for Advisors”); and
(3) a platform whereby employer-sponsored retirement plans (“Retirement Plan
Clients”) and plan participants (“Participants”) receive 401(k) plan advisory services from
Betterment, acting in an ERISA 3(38) fiduciary capacity, and 401(k) recordkeeping and/or
administrative services from our affiliate, Betterment for Business LLC (such business
line, collectively with other employee financial wellness products, certain of which are
offered through our retail service, “Betterment at Work”).
Retail Clients, Third-Party Advised Clients, Retirement Plan Clients and Participants are
collectively referred to in this brochure as “clients.” Retail Clients, as well as Third-Party Advised
Clients if elected by their Advisor and agreed to by Betterment, are eligible to receive crypto
advisory services (such services, “Betterment Crypto”), as well as participate in Betterment’s
Wrap Fee Program. Crypto assets cannot be held in Individual Retirement Accounts (“IRA”s),
401(k) accounts, 529s, or HSAs (defined below).
Retail Client accounts are managed by Betterment pursuant to each client’s Advisory Agreement
and the client’s instructions. Third-Party Advised Client accounts are managed by Betterment
pursuant to each client’s Betterment for Advisors Sub-Advisory Agreement and in conjunction
with the Advisor’s and/or Third-Party Advised Client’s instructions. Retirement Plan Client
accounts are managed by Betterment, in its capacity as an ERISA 3(38) investment manager,
pursuant to an Advisory Agreement specific to the Retirement Plan Client’s employer-sponsored
401(k) plan, as well as Participants’ instructions. Clients who receive Betterment Crypto services
also agree to a specific Crypto Addendum to their Advisory Agreement, as well as Gemini’s User
Agreement. Clients with an IRA also agree to specific custodial agreements with Inspira
Financial, which serves as the custodian and directed trustee for Betterment IRA accounts and
401(k) plan assets, respectively. Clients with a Health Savings Account (“HSA”) agree to a specific
HSA Addendum to their Advisory Agreement, as well as a Custodial and Deposit Agreement
with Optum Bank. Clients with a 529 Education Savings Account (“529”) that is serviced by
Ascensus College Savings Recordkeeping Services, LLC (“Ascensus”) and integrated with the
Betterment interface agree to a 529 Addendum to their Advisory Agreement, Ascensus’s Terms
and Conditions, as well as terms issued by their selected 529 plan. Clients who use Betterment’s
Student Loan Management Services agree to a Student Loan Management Addendum to their
Advisory Agreement, as well as the User Consent and Privacy Policy of Spinwheel Solutions Inc.
(“Spinwheel”).
Betterment additionally offers Retail Clients with a balance of at least $100,000 in Betterment
traditional securities, crypto, and Cash Reserve (as defined below) accounts (“Account Balance
Threshold”) the opportunity to receive discretionary and non-discretionary advisory services
over the phone, email, video, or other mediums from Betterment’s team of financial
consultants through participation in Betterment’s Premium Services. Clients who do not receive
Betterment Premium Services and who receive Betterment’s investment advisory services
online are referred to as clients of the Betterment Digital plan. Clients receiving Betterment
Crypto services receive such crypto advisory services either online through the Betterment
Digital plan, or with the addition of Betterment Premium Services. In connection with
Betterment’s Premium offering, Betterment reserves the right, in its sole discretion, to reduce
or waive the Account Balance Threshold. The Account Balance Threshold does not include funds
held in Betterment for Advisors, Betterment at Work, or Betterment managed HSAs offered in
partnership with Optum Bank (each as described below).
No minimum account size is required to maintain a Betterment Digital wrap account or crypto
account. The minimum deposit is $10.
Betterment’s investment advisory services, both relating to Wrap Fee Program and Betterment
Crypto, are not designed to provide clients with a comprehensive financial plan. Wrap Fee
Program services are built to advise clients on how to achieve particular financial goals that
clients indicate in their account. All of Betterment’s services are highly dependent on receiving
accurate information from clients. If clients provide Betterment with inaccurate information or
fail to update promptly the information provided to Betterment when it changes, the quality
and applicability of Betterment’s investment advisory services could be materially impacted.
In addition, there are other pieces
of information about a client’s personal financial situation
that are not elicited through Betterment’s online interface that could inform Betterment’s
advice if it were provided to Betterment. This is true even for clients who communicate with
Betterment’s financial consultants via phone, video or email. Similarly, not every piece of
information that we collect is factored into your investment advice. Clients should consider this
limitation on Betterment’s service, which is a function of Betterment primarily providing an
internet-based service.
Before depositing funds with Betterment, or in any investment or cash account, investors should
consider paying off debt, particularly to ensure that minimum debt payments are made on time
to avoid late payment penalties, extra interest, and higher finance charges. Investors should also
consider prioritizing paying off high-interest debt, which typically is associated with credit card
debt or unsubsidized student loan debt. Also, investors should consider the options that are
available to them through workplace savings plans provided by their employers that offer match
programs.
Tailored Services and Investment Restrictions
A. Wrap Fee Program
With respect to Betterment’s Wrap Fee Program, clients customize their accounts according to
their financial situation and investment goals, and choose among several portfolio strategies
described in the
Wrap Fee Program Appendix attached below. To use Betterment’s services,
clients and/or their Advisors must inform Betterment of their financial situation and preferences
through Betterment’s online interface. Based on this information, Betterment will recommend
clients an asset allocation of stock to bonds for the selected securities portfolio strategy, or if a
Third-Party Advised Client, the Advisor will recommend their clients an asset allocation based
on the selected securities portfolio strategy or Custom Portfolio (defined below).
In its Wrap Fee Program, Betterment generally organizes its advice into one of five categories –
education, retirement, emergency fund, major purchase, and general investing – each with
different attributes and a discrete advice model. After identifying an advice type, clients or their
Advisors select a securities portfolio strategy and provide details about their investing purpose.
Betterment solicits input on a client’s anticipated time horizon in order to recommend an
allocation, which is a specific set of asset classes (i.e., stocks, bonds, and if applicable, other
asset classes) and the relative distribution among those asset classes in which a client’s account
will be invested (the “Allocation”). Betterment allows clients to adjust the recommended
Allocation to their own risk preference and provides information about the risk level of the
selected Allocation. An Allocation differs depending on whether a client’s goal is taxable or
tax-advantaged and when the client expects to draw on their goal. In general, Betterment will
recommend to clients who indicate a more conservative advice type (such as an emergency
fund) or shorter time horizon a more conservative Allocation and will recommend to clients
who indicate a more aggressive investment advice type or longer time horizon a more
aggressive Allocation. Clients and/or their Advisor either accept the recommended Allocation or
elect a different Allocation based on their or their client’s own risk tolerance or preferences.
Betterment’s advice framework is described in more detail in the
Betterment Wrap Fee Program
Appendix.
Clients and/or their Advisors have the ability to impose reasonable restrictions on the
management of their portfolios. Clients and/or their Advisors are able to restrict the securities
purchased for their accounts by electing a Flexible portfolio strategy to choose from the
available pre-selected asset classes and adjust allocation weights. Clients and/or their Advisors
also have the ability to enable or disable several automated portfolio management features.
The investment advisory services provided in connection with Betterment’s Wrap Fee Program
are described in more detail below in the
Betterment Wrap Fee Program Appendix.
With respect to Betterment Crypto services, clients choose among several crypto portfolio
strategies based on their investment preferences. Clients have the ability to impose reasonable
restrictions on the management of their crypto account by electing to exclude (or include if
previously excluded) any crypto asset from their portfolio by using a block asset feature in
Betterment's online interface, which causes Betterment to generate a trading order to sell the
blocked crypto in the account’s next available trading opportunity, subject to the trading
limitations described below in
Item 12 - Brokerage Practices. Each crypto portfolio strategy
consists of crypto assets that are chosen and weighted to fit the particular investment goal of
the strategy as a whole, as well as a cash allocation used to help manage liquidity constraints
with Gemini’s exchange as well as to draw from to satisfy Betterment’s annualized investment
advisory fee, as described in
Item 8 - Methods of Analysis, Investment Strategies and Risk of Loss
below. Betterment provides clients with information about each crypto portfolio strategy to
inform their decision-making but does not make recommendations to clients that they invest in
crypto. More information about the crypto portfolios is described below in
Item 8 - Methods of
Analysis, Investment Strategies and Risk of Loss.
Clients should understand that investing in crypto is highly speculative and only appropriate for
individuals with a high risk tolerance and who are able to bear the risk of potential loss. Due to
the aggressive and speculative nature of cryptocurrency, crypto portfolios are not suitable for
investors looking for conservative strategies, low risk, lack of or low volatility, or capital
preservation. Betterment advises clients to limit their crypto investment to no more than 5% of
their reported total investable assets, and clients who are also Third-Party Advised Clients
should discuss with their Advisors the appropriate amount of investable assets to allocate to
crypto, if any. Betterment does not monitor or limit the amount of a client’s crypto investments
relative to the client’s reported total investable assets.
C. Other Financial Wellness Services Specific to Employees through Betterment at Work
Employers
If Betterment at Work employers offer, and their employees elect to receive, student loan
management services from Betterment, such services will include non-discretionary financial
advice relating to how clients may prioritize the repayment of their linked student loans, as well
as the ability to make student loan repayments via payroll deduction, employer match (if
applicable), and/or from a linked checking account. More information about Student Loan
Management Services is available at
www.betterment.com/legal/student-loan-services.
Additionally, if Betterment at Work employers offer, and their employees elect to receive, 529
education savings services from Betterment, such services will include non-discretionary
financial advice relating to the selection of a 529 plan, as well as the ability to make
contributions to certain externally managed 529 accounts with Ascensus-supported,
participating plans via payroll deduction, employer match (if applicable), and/or from a linked
checking account. More information about 529 education savings services is available at
https://www.betterment.com/legal/529-services.
Additionally, Betterment at Work allows Retirement Plan Clients to elect to match qualified
student loan payments in eligible Participants 401(k) Accounts.
Betterment at Work also makes available to Plans financial coaching packages of
non-discretionary advice with Betterment financial consultants.
Wrap Program
As described above, Betterment offers its investment advisory services for wrap accounts
through the Betterment Wrap Fee Program. For more information about the Wrap Fee Program,
please see the
Wrap Fee Program Brochure Appendix attached below. Betterment charges a
wrap fee that covers the cost of its investment advisory services, as well as custody and trading
services provided by its affiliate, Betterment Securities.
Betterment Crypto services are offered outside of its Wrap Fee Program because crypto
portfolios are subject to trading fees charged by Betterment’s crypto custodian, Gemini, and
Betterment charges a different investment advisory fee for Betterment Crypto as compared to
its Wrap Fee Program. There are also certain automated portfolio management features, such
as tax loss harvesting and dividend reinvestment, available in Betterment’s Wrap Program for
wrap accounts, that are unavailable for crypto accounts. Both traditional securities portfolios
and crypto portfolios are eligible to be automatically rebalanced, subject to certain account
balance minimums, as described below in
Item 8 - Methods of Analysis, Investment Strategies,
Risk of Loss.
Assets Under Management
As of February 29, 2024, Betterment managed $45,932,816,617 in client assets on a
discretionary basis.