Form CRS Conversation Starters

About Form CRS

Form CRS (which stands for client relationship summary) is a uniform disclosure document prepared by broker-dealers and investment advisers registered with the Securities and Exchange Commission (“SEC”). Betterment LLC (“Betterment”) is registered with the SEC as an investment adviser. Investment advisers and broker-dealers are required to deliver to retail investors a brief relationship summary written in plain English that provides information about the firm’s relationships and services, fees, costs, conflicts of interest, standard of conduct, disciplinary history and where to find additional information. The relationship summary also includes key questions (“conversation starters”) for investors that Betterment has answered below. The relationship summary is in addition to the Form ADV Part 2 narrative brochure that investment advisers provide to their clients. You can contact our Customer Support Team if you have any further questions or clarifications about how Betterment works, but be aware that members of our Customer Support Team are not licensed to give financial advice.

Learn more: Investor.gov/CRS

Conversation Starters

Given my financial situation, should I choose an investment advisory service? Why or why not?

Two types of financial firms that you might be considering are investment advisers and broker-dealers. Betterment is an investment adviser.

As an investment adviser, we are held to a fiduciary standard that covers our investment advisory relationship with you. A fiduciary has both a duty of care and a duty of loyalty to its clients.

• The duty of care requires us to place your best interests ahead of our own at all times. We are also required to monitor your portfolio, investment strategy, and investments throughout the duration of our advisory relationship with you.
• Under the duty of loyalty, we must avoid conflicts of interest or tell you about them in a way that you can understand, so that you can decide whether to agree to them.

Broker-dealers must act in your best interest and not place their interest ahead of yours when they recommend you an investment or investment strategy involving securities. Broker-dealers are not fiduciaries and are not required to monitor your portfolio or investments on an ongoing basis unless agreed upon.

While not inclusive of all business models, below are some general differences between broker-dealers and investment advisers to help you decide whether an investment adviser or broker-dealer might be right for you. Please review our Form CRS and Form ADV Part 2 for more details about Betterment.

Types of Relationships and Services

Broker-Dealers

• Broker-dealers typically give point-in-time recommendations and have no ongoing duty to monitor your account.

Investment Advisers

• Investment advisers typically provide ongoing advice and regular monitoring of your account.

• At Betterment, our software monitors your account on an ongoing basis.

Authority to Make Trading Decisions On Your Behalf (Discretion)

Broker-Dealers

• Typically, a brokerage account with a broker-dealer is a non-discretionary account. You may select investments or the broker-dealer may recommend investments for your account, but the ultimate decision for your investment strategy and when to buy and sell investments will be yours.

• Some broker-dealers offer discretionary accounts, where the broker can make trades in a customer’s account without first consulting the customer.

Investment Advisers

• Some investment advisers offer discretionary accounts that allow them to buy and sell investments on your behalf when they determine it is appropriate to do so.
• Other investment advisers offer non-discretionary accounts where they may give you regular advice but allow you to decide what investments to buy and sell.
• Betterment offers managed investing portfolios composed of exchange-traded funds (“ETFs”) and, in certain limited cases, mutual funds (together “traditional securities”), and a cash management offering through a wrap fee program. Wrap fee program accounts are discretionary accounts but you can elect certain features to guide us when we manage your portfolio.
• Betterment’s Premium offering, which also includes client access to a team of Betterment CERTIFIED FINANCIAL PLANNERS™, is also a discretionary account and Betterment’s team of CFP® professionals may make changes on client’s behalf in client accounts.

Fees and Costs

Broker-Dealers

• Transaction-based fees. As a customer, generally you pay a fee every time you buy or sell an investment or take a certain type of action. Commonly referred to as a commission, this type of fee is typically a flat fee per transaction. Many broker-dealers now provide commission-free trading on certain types of securities, but charge interest on money borrowed for margin trading or charge fees on transfers or for additional services.

• Broker-dealers may also charge additional fees, such as custodian fees, account maintenance fees and account inactivity fees.

• Fund fees from certain types of investments (like mutual funds and ETFs) are embedded in investments that are purchased for your account.

Investment Advisers

• Asset-based fees. As a client of an investment adviser, generally you pay an ongoing fee based on the value of the investments and/or cash in your advisory account. Some investment advisers may have other fee structures, such as subscription-based fees, fixed fees or hourly fees.
• Betterment’s wrap-fee program includes transaction costs and custody services in your fee. Depending on your account balance and certain other qualifications, you will pay a $4 per month subscription fee or an annualized 0.25% or 0.40% fee of your account balance. You do not pay fees on a per-transaction basis.
   
  • Third-party fees from certain types of investments (like mutual funds and ETFs) are embedded in the investments that are purchased for your account.
  • ETFs or other funds in your portfolio with Betterment include embedded fund fees, but Betterment does not receive any portion of such fees. Fund fees are in addition to Betterment’s asset-based fee.

Conflicts of Interest

Broker-Dealers

• A broker-dealer who receives a fee per trade (commission) has an incentive to recommend you trade more often. The more transactions in your account, the more fees you could be charged.

• Some brokers may also receive compensation from third parties for directing orders to different parties for trade execution (known as payment for order flow).

Investment Advisers

• An adviser who charges an asset-based fee has an incentive to recommend you increase the assets in your account. The more assets you have in your account, the more fees you could be charged.

• For information about Betterment’s conflicts of interest, please review the conversation starter “How might your conflicts of interest affect me, and how will you address them?” below.

Standard of Care

Broker-Dealers

• Best interests standard at the point in time of the investment recommendation.

Investment Advisers

• Fiduciary standard involving the duty of care and loyalty at all times in the relationship.

• Betterment is a fiduciary.

Additional Information

Broker-Dealers

• For additional information about broker-dealers, visit Investor.gov/CRS or Brokercheck.finra.org

Investment Advisers¹

• For additional information about investment advisers (including us), visit Investor.gov/CRS or review our Form ADV Part 2 brochure.

¹ Information specific to Betterment as an investment adviser is presented in bold italics.

Our mission at Betterment is to help you make the most of your money so you can live better. We do that by offering guided investing portfolios, retirement planning tools, and cash management solutions. Because our advice is automated, we are sometimes called a robo-advisor, but we prefer “smart money manager” and the largest independent online financial advisor. 

We offer a managed account, which means you give us discretionary authority over the account, meaning we can buy and sell investments on your behalf when we determine it is appropriate to do so. We trade in response to your actions (such as asset allocation changes, deposits, or withdrawals), to rebalance your accounts, or to otherwise further your investment goals. Managed accounts are convenient—you don’t have to research investments, follow the market, or worry about any of the other actions listed above (although it always makes sense to review your account periodically to make sure the information you’ve provided us is accurate and up-to-date so that we’re providing relevant advice, to protect against fraud, as well as to ensure that the account continues to be appropriate for your needs). As a fiduciary, Betterment will act in your best interests at all times. You may benefit from our services if you want ongoing investment advice, a fiduciary to manage your investments, and/or someone to make investment decisions for you.

The tradeoff for this ongoing advice and convenience is that you give up day-to-day control over the investments in the account. This includes the timing of each trade. If you are the type of investor who follows the market closely and wants to dictate the precise moment at which your assets are bought and sold, as well as which specific investments are traded, a managed account may not be the right option for you, and you may prefer to open a self-directed account at a broker-dealer.

Whether you choose to use Betterment or another investing service, there are a few things we recommend looking before you sign up, to make sure your choice is the right fit for you.

How will you choose investments to recommend to me?

When you sign-up for a Betterment account, we ask you a series of questions about yourself, including information about your financial goals. For example, are you investing for a long-term goal, such as education, an emergency fund, a major purchase, or general investing, or saving for retirement, trying to manage spending or creating a cash account for upcoming expenses? We ask about the target amount of the goal and the date when you anticipate you will need the money for your goal. We also ask if you would like to sync accounts held outside of Betterment so that you can see your greater financial picture, which also allows us to give you more informed advice.

You can choose from several portfolio strategies, including Betterment’s Core portfolio, three Socially Responsible Investing (“SRI”) portfolios, an Innovation Technology portfolio, a Value-Tilt portfolio, a Goldman Sachs Smart Beta portfolio strategy, a Goldman Sachs Tax-Smart Bonds portfolio, a BlackRock Target Income portfolio, a Flexible portfolio, and a Crypto ETF portfolio. Based on the information you provide, we recommend a portfolio that has a stock to bond allocation with a risk level designed for your goal’s investment horizon. This risk level is determined by weighing the trade-offs between potential gains from higher risk investments and the potential for falling short of your goal by playing it too safe. You can also modify our recommended allocation to select an allocation that is weighted more towards stocks or bonds, depending on your risk appetite. Our Betterment portfolio strategy is goal-specific, built of low-cost exchange-traded funds (“ETFs”), designed to provide exposure to a diversified set of global assets, and seeks to maximize expected returns while taking into account your risk level. The total annual cost of ownership (“TACO”) is Betterment’s scoring method used to rate funds for inclusion in the Betterment portfolio, which balances the annual expense of a security (expense ratio) with its transactional cost (bid-ask spread). Clients of our Betterment for Advisors offering have access to additional portfolio strategies, including one managed by Vanguard and Advisor-built custom portfolios.

We receive no financial benefit from recommending particular securities or strategies, which helps align our incentives with yours.

What is your relevant experience, including your licenses, education and other qualifications? What do these qualifications mean?

Most of our financial advice is automated, and our Digital offering and financial tools are developed and overseen by investment advisory personnel that include financial planners, investment professionals , engineers, behavioral scientists, and traders.

For our most in-depth advice, you can choose to speak with a CERTIFIED FINANCIAL PLANNER™ by electing an Advice Package or upgrading to our Premium offering. A CERTIFIED FINANCIAL PLANNER™ has a CFP® qualification, which is a professional certification mark for financial planners conferred by the Certified Financial Planners Board of Standards (“CFP Board”). It is a formal recognition of expertise in the area of financial planning, and means all our CERTIFIED FINANCIAL PLANNERS™ have satisfied the CFP Board’s requirements with respect to educational attainment, ethics standards, and experience, in addition to passing a licensing exam. CFP® professionals also have made a commitment to the CFP Board to act as a fiduciary when providing financial advice to a client.

Betterment's Licensed Concierge Team is also available to provide education and assistance if you require additional help moving money to Betterment, such as on transfers and rollovers. These individuals have passed the Series 65 exam (formally known as the National American Securities Administrators Association (NASAA) Uniform Investment Advisers Law Examination) or equivalent. The Licensed Concierge team does not provide advice on rollovers but can help with other financial questions.

Members of our Customer Support Team are available to assist with questions about how Betterment works or to help with your account but please be aware that they are not licensed to give financial advice.

Help me understand how fees and costs might affect my investments. If I give you $10,000 to invest, how much will go to fees and costs, and how much will be invested for me?

The fees that you pay significantly impact the value of your account over time. Whether an asset-based fee (like our wrap fee program) or a transaction-based fee (offered by broker-dealers) is right for you depends on the level of fees and your personal circumstances, including the frequency of trades you wish to make.

If you gave us $10,000 dollars to invest in our wrap fee program, we would invest the full $10,000 for you. We charge our annual wrap fee of $4 per month (for our Digital offering), which equals just $48 per year if your account balance does not change over the course of the year. If the balance of your account for any day is $20,000 or greater (because, for example, your investments appreciate) or you enable a monthly recurring deposit of at least $250 per month into your account, your wrap fee would adjust to 0.25% (for our Digital offering) on the daily balance of assets in your account, and could be higher or lower than $48 in that year. We construct our Core portfolio with ETFs, a type of security that generally tracks a broad-market stock or bond index but trades like a stock on a listed exchange, which have embedded fund fees. Betterment does not receive any portion of the fund fees and these fees are in addition to our annual wrap fee. We construct our portfolios using cost-efficient ETFs that exhibit competitive fund fees. Fees and expenses for the securities in these and other portfolios are available in the “Portfolio” tab of our online interface.

How might your conflicts of interest affect me, and how will you address them?

We work hard to minimize any conflicts of interest. First and foremost, it’s important to know that we are a fiduciary, which means we are legally required to act in your best interest at all times in our client relationship with you and to mitigate and disclose conflicts we may have with your interests.

With that in mind, our business model has incentives that can create conflicts of interest. We are paid based on assets under management and have a financial incentive to recommend you increase the value of your accounts. We also have a financial incentive to recommend you invest in the service offering from which we expect to earn greater revenue. For example, we have a financial incentive to recommend our Premium offering, which carries a higher asset-based fee as compared to our standard Digital offering. We seek to address this conflict by ensuring that our financial consultants do not receive higher compensation for recommending Premium over Digital.

With respect to our cash management offering, the interest rate on Cash Reserve is based on the amount our program banks are willing to pay on deposits minus payments to Betterment. This means we could receive increased payments from program banks on a particular day without you receiving an increased rate of interest. We cap the annualized revenue we expect to earn from Cash Reserve to less than 1.50% of the average aggregate balance of the daily program deposits at program banks. You should be aware that when payments to Betterment on Cash Reserve balances exceed Betterment’s standard wrap fee (0.25% of the daily average balance of assets in your investing account), Betterment will have a financial incentive to recommend you hold cash. Conversely, when payments to Betterment on Cash Reserve balances are less than Betterment’s standard wrap fee, Betterment will have a financial incentive to recommend you invest in securities.

We also require that you appoint Betterment Securities, our affiliate, as the broker-dealer for your account to perform transaction and custody services for securities. Other broker-dealers provide different services and have different capabilities, which you should consider when deciding whether to become a Betterment client. 

Betterment Securities operates a transfer sweep program (“TSP”) where eligible client funds are held in non-interest bearing, FDIC-insured deposit accounts for temporary periods while transfers or trades settle. Betterment Securities receives payments from participating TSP banks based on balances maintained in those accounts. This means Betterment has a conflict of interest because it has an incentive to increase the balances in the TSP banks in order to increase the revenue Betterment Securities earns. We seek to address this conflict by ensuring that Betterment does not exercise discretion over the period client funds are held at TSP banks, which is typically based on transaction processing times or other factors outside of Betterment’s control, and is not influenced by these payments. 

Please consult our Form ADV Part 2 for additional details on conflicts.

Do you have any disciplinary history? For what type of conduct?

Yes. For more information, see Item 9 of our Client Brochure. Visit Investor.gov/CRS for a free and simple search tool to research us and our financial consultants, or you can visit or adviserinfo.sec.gov/.

Who is my primary contact person? Are they a representative of an investment-adviser or a broker-dealer? Who can I talk to if I have concerns about how this person is treating me?

Betterment is set up a little differently from other investment advisers. Because we provide investment advice primarily over the internet, your primary way of interacting with us as your investment adviser will be through our website or app. If you have questions about how Betterment works or are concerned about your account, you should contact our Customer Support Team. Members of our Customer Support Team are not investment adviser representatives and are not licensed to give financial advice.

If you have particular questions about your financial situation or a financial goal and you meet certain eligibility criteria, you can elect our Premium offering for unlimited access to a team of CFP® professionals.

We take all complaints seriously and offer a Satisfaction Guarantee.