Wealthsimple sold its U.S. investment management business to Betterment earlier this year. So how will this affect you if you are a Wealthsimple investor? There are two options on how to handle the transition, and many more if you decide to move your account to a robo advisor other than Betterment. Keep reading to find out what alternatives are available to you.
Wealthsimple Best Alternatives & Competitors
Betterment is the logical alternative to start with, since it will be the destination of any Wealthsimple investors who don’t opt-out of the automatic transition. And that’s hardly a bad deal, given that Betterment is one of the top robo advisors.
You can open a Betterment account with no money at all. The annual advisory fee is 0.25% on the basic digital plan, and if you choose to invest with the premium plan (which requires a minimum investment of $100,000), the fee is 0.40%. The premium plan gives you unlimited access to Betterment-certified financial planners, even to discuss accounts held outside Betterment.
13 Asset Classes
Betterment uses exchange-traded funds (ETFs) in 13 asset classes in the construction of a typical portfolio, which includes six stock asset classes and seven bond classes. The funds are spread across U.S. and international stocks and bonds. However, they don’t include alternative investments like real estate, energy, or precious metals.
There are also multiple portfolio options, including socially responsible investing — which will make for an easy transition for Wealthsimple clients primarily invested in an SRI portfolio. However, there is no indication if Betterment will offer a Halal portfolio option.
Other portfolio options include Goldman Sachs Smart Beta, Blackrock Target Income, and Betterment Flexible Portfolio. Smart Beta is a more advanced investment strategy targeting higher returns by taking on additional systematic risks. A flexible Portfolio enables you to adjust individual asset class allocations within your portfolio.
Betterment offers tax-loss harvesting on all taxable accounts, at no additional cost to the investor.
Betterment also offers a high-yield cash account, currently paying 0.30% APY. And if you like, they even offer no-fee checking with cashback rewards at select merchants. Betterment is available for individual and joint taxable brokerage accounts; traditional, Roth, rollover, and SEP IRAs; and trusts.
Wealthfront is Betterment’s primary competitor among independent robo advisors, and the two services are very similar. For example, Wealthfront also has a 0.25% annual advisory fee, though they don’t have a higher fee for premium services. And while Betterment has no minimum investment requirement, Wealthfront does require a minimum investment of $500.
Wealthfront invests your money in ETFs across various asset classes, though you can customize your portfolio by adding or even deleting certain funds from the mix. Wealthfront also offers a socially responsible investing option at no additional cost. And unlike Betterment, Wealthfront does offer alternative investments in their portfolios, including allocations in real estate, and natural resources.
But where Wealthfront really stands out is with tax-loss harvesting for larger investors. Depending on the size of your account, you can invest in individual stocks — up to as many as 1,000 — to provide a higher level of tax loss harvesting.
Interest-Bearing Checking Account
Wealthfront offers an interest-bearing checking account, paying 0.10% APY as of July 7, 2021. There are no account fees and no overdraft fees, and your account is covered by FDIC insurance for up to $1 million through partner banks. It also comes with a debit card with access to 19,000 surcharge-free ATMs.
Wealthfront also offers a service that is unique among robo advisors: if your account has a balance of at least $25,000, you can borrow up to 30% of that value through their line of credit. There are no credit checks, and you can access the funds instantly with interest rates in the low single digits.
Wealthfront is available for individual and joint taxable accounts; traditional, Roth, rollover and SEP IRAs; trusts and 529 college savings plans.
M1 Finance doesn’t have all the bells and whistles of Betterment and Wealthfront (or Wealthsimple for that matter), but it does have its own unique niche in the robo advisor space. You can choose the ETFs and individual stocks that make up your portfolios. M1 Finance provides automated investment management, including periodic rebalancing.
M1 Finance “Pies”
This is done through a system they refer to as “pies.” Each pie is composed of up to 100 “slices,” representing a mix of ETFs and individual stocks. You can either choose those securities yourself or take advantage of 80 prebuilt pies provided by M1 Finance. Those pies are typically built around specific investment themes, like clean energy or socially responsible investing.
No Annual Advisory Fee
There is no minimum investment required and no annual advisory fee. In fact, there aren’t even any commissions charged on the stocks and funds you include in your pies.
- Like Wealthfront, M1 Finance does offer borrowing capability up to 35% of your portfolio, which must have a minimum balance of $10,000.
- M1 Finance is available for individual and joint taxable accounts; traditional, Roth, rollover and SEP IRAs, and trusts.
- If M1 Finance has a weakness, it’s a lack of tax-loss harvesting. And while that will matter with taxable accounts, it’ll be completely irrelevant with tax-sheltered retirement plans.
Ally Invest is an excellent choice if you’re looking for an investment platform that provides multiple investment options. While the platform is designed primarily for self-directed investing, Ally also offers a managed portfolio robo advisor for those who prefer professional investment management.
Self Directed Investing
On the self-directed investing side, you can trade stocks, options, and ETFs commission-free. No minimum account balance is required, and Ally’s advanced trading platform can help you up your investment game.
If you’re looking to transfer your Wealthsimple account to another robo advisor, Ally Invest Managed Portfolio is a potential alternative. You can begin investing with $100. There is no fee if you have a cash-enhanced management portfolio, otherwise the annual advisory fee is 0.30%.
Managed Portfolios Investing
Like other robo advisors, Ally’s managed portfolios invest your money in ETFs representing diversified asset classes. But they can also include a 30% cash buffer in your account to minimize risk. If you choose the 30% cash option, the advisory fee is waived. The cash portion earns a “competitive variable interest rate.”
Ally offers four different portfolios. The core portfolio is invested in domestic and international stocks and bonds and allows you to choose the investment risk level from conservative to aggressive.
The income portfolio invests in high-dividend paying stocks, and is designed primarily for those in or near retirement. The tax-optimized portfolio is designed for investors in high tax brackets, while the socially responsible portfolio invests in companies with ethical track records that practice sustainability, energy efficiency and other environmentally friendly initiatives.
Personal Capital isn’t a robo advisor, but provides human assisted investment management for high-asset investors at much lower fees than traditional investment advisors.
Unlike the robo advisor services listed above, Personal Capital doesn’t offer specific investment plans. Instead, they’ll provide a customized portfolio based on your own investment goals, time horizon and risk profile.
- To be eligible, you’ll need a minimum of $100,000. In the process, Personal Capital will consider your other investment holdings and make recommendations to provide a more holistic approach to your overall investment strategy.
- You’ll also have access to a team of financial advisors. If you have at least $200,000 invested, you’ll have unlimited access to two dedicated financial advisors.
- Fees are charged on a sliding scale. The first $1 million under management has a fee of 0.89% per year. From there, the fee gradually declines, reaching 0.49% on balances over $10 million.
- Personal Capital can manage both taxable accounts and retirement accounts. In addition, they offer financial planning services; with an account balance of at least $1 million, Personal Capital offers estate planning.
What Happened to Wealthsimple?
On March 4, 2021, Wealthsimple announced it would no longer support investment advisory services in the U.S. (the company is based in Canada). No official explanation was given for the decision beyond Wealthsimple expressing that it wanted to focus on its Canadian business.
The transition from Wealthsimple to Betterment affected 17,400 clients in the U.S., with a total of $197 million in assets under management.
Wealthsimple will continue to operate in Canada, its primary business source. The transition of U.S. customers to Betterment should have no effect on Canadian users.
What’s Going to Happen to Wealthsimple’s U.S. Accounts?
Former U.S. Wealthsimple investors have the option to transition their accounts over to Betterment. Wealthsimple is using “negative consent” for transition purposes — unless you specifically responded to Wealthsimple’s March 4, 2021 email indicating your intent to opt-out, your account was automatically transferred to Betterment. In that case, there’s nothing you needed to do since the transfer happens automatically.
If you decide you don’t want your account transferred to Betterment, you can withdraw the funds from your account from Wealthsimple. You can also transfer your account to another financial institution. This is especially important if you have an IRA account with Wealthsimple. Unless that account is rolled over into a Betterment IRA, you may be required to pay ordinary income tax and a 10% early withdrawal penalty on the amount of the distribution from the account.
That will, of course, require you to open an account with the institution of your choice if you don’t already have one open. You’ll then need to contact the institution to have them initiate the transfer from Wealthsimple. The new institution will have its own transfer-out documentation for you to complete and will handle the transfer from there.
The new institution will most likely request a copy of a recent Wealthsimple account statement. They may also request the transfer-out details from Wealthsimple.
What Did Wealthsimple Offer?
Wealthsimple is a robo advisor, and while it has much in common with other robo advisors, the platform distinguishes itself in several important ways.
Significantly, Wealthsimple was one of the first robos to offer socially responsible investing. It is perhaps the only robo advisor offering Halal investing, a form of investing that’s consistent with Islamic law. For example, the portfolio does not hold interest-bearing investments like bonds, and will not invest in the stock of companies operating in a manner that is contrary to Islamic law.
Wealthsimple features no minimum investment, free portfolio analysis, and even access to human advisors. Wealthsimple generally trailed its competitors in terms of fees. Its annual advisory fee is 0.50% for account balances under $100,000, and 0.40% for balances above.
Like other robo advisors, Wealthsimple’s investment strategy is based on modern portfolio theory, which emphasizes asset class over individual security selection in a portfolio. Those asset classes are represented by exchange-traded funds, though the Halal portfolio is composed entirely of individual stocks.
Beyond the socially responsible investing and Halal portfolio options, investors can choose between conservative, growth and balanced portfolios. Tax-loss harvesting is available on Wealthsimple Black, which requires a minimum account balance of $100,000.
For investors with at least $500,000, Wealthsimple offers a Generation plan. Clients are assigned two dedicated financial advisors who will create their investment portfolio based on the client’s total financial situation and goals. Like the Black program, Generation has an annual advisory fee of 0.40%.
Wealthsimple accommodates individual and joint taxable accounts; traditional, Roth, and SEP IRAs; Keogh plans, custodial accounts and trusts.
The Bottom Line
Although Wealthsimple is going away in the U.S., you’ll be in good hands. Whether that’s a new account with Betterment or with one of the alternatives, you can be certain each offers advantages Wealthsimple doesn’t, even if you have to give up a feature or two in the process.