Betterment SRI Impact Portfolios (Review)

Betterment is a low-cost, feature-rich robo-advisor with three socially responsible investing (SRI) options. While not perfect, the SRI options are relatively cheap and betpersonal capter than the conventional portfolio for the sustainable investor. Plus, Betterment expects SRI Portfolio performance to be comparable to the non-ESG portfolio. Here is our Betterment review.

SustainFi Updated: October 18, 2021

Some of our posts may contain links from our affiliate partners. However, this does not influence our opinions or ratings. Please read our Terms and Conditions for more information.

Rating: Excellent (4.5 / 5)

Pros

  • Choice of three low-cost socially responsible investing (SRI) options
  • SRI options have improved environmental, social, and governance (ESG) metrics and less energy exposure than conventional portfolios
  • Multiple features, including automatic rebalancing and tax-loss harvesting
  • Easy to use
  • Charitable giving tool
  • Human advisors are available a la carte 

Cons

  • The Climate Portfolio invests in fossil fuels
  • No option to exclude fossil fuel companies
  • No direct indexing
  • Human advisors are not included

Summary

SustainFi Rating:4.5 / 5
Account minimum• Betterment Digital: $0
• Betterment Premium: $100,000
Management fee• Betterment Digital: 0.25%
• Betterment Premium: 0.40%
ESG options3 impact portfolio options (Broad Impact, Climate Impact, and Social Impact). ESG funds replace conventional funds for stocks and some bonds
Investment expense ratio (ESG portfolios)• Broad Impact: 0.13%-0.18%
• Climate Impact: 0.16%-0.22%
• Social Impact: 0.16%-0.20%
Accounts supported• Individual and joint taxable investment accounts
• Traditional, Roth, and SEP IRAs
• Trusts
• High yield savings and checking accounts
• 401k rollovers
Human advisors• Betterment Digital: none, but you can purchase financial planning packages starting at $299
• Betterment Premium: unlimited access to human advisors
Tax-loss harvestingYes
Automatic rebalancingYes
FeaturesCharitable giving tool, RetireGuide retirement planning tool
Best forLow-cost selection of ESG portfolios

What is Betterment?

Founded by Jon Stein in 2008, Betterment is the first and most successful robo-advisor judging by assets under management (which reached $29 billion in early 2021). The robo-advisor uses algorithms based on Modern Portfolio Theory to create the right portfolio to meet your goals, such as saving for retirement or growing your wealth.

Account types

Betterment supports the following account types:

  • Taxable indivdiual and joint investment accounts
  • Traditional, Roth, and SEP IRAs; rollover IRAs
  • Trusts

Betterment doesn’t offer custodial (UTMA/UGMA) or 529 college savings accounts. You can get custodial accounts with Acorns.

Signup process

Betterment offers a simple signup process and allows you to modify investment goals by adjusting how much you want to invest in equities vs. bonds. The site is very transparent about the funds your portfolio is invested in. The signup process takes about five minutes and involves answering a series of short questions.

Account minimum

There is no minimum for the Betterment Digital plan. The premium plan, which gives you access to fiduciary financial advisors, requires a $100,000 investment.

Management fee

Betterment Digital charges the same management fee (0.25% or $25 annually on a $10,000 investment) for traditional and ESG portfolios. 0.25% is one of the lower fees among full-service robo-advisors. The premium plan costs 0.40%.

Portfolio options

Betterment launched the first socially responsible investing (SRI) portfolio in 2017, expanding it to three SRI options in 2020. In addition, they offer the conventional Betterment Core Portfolio, the Goldman Sachs Smart Beta Portfolio, and the BlackRock Target Income Portfolio (a bond-only strategy). Finally, the Flexible Portfolio lets you adjust how much to allocate to different asset classes.

Fund expense ratios

The funds in the ESG portfolios cost slightly more than the funds in the Core Portfolio. For example, the Broad Impact Portfolio costs 0.13%-0.18% ($13 to $18 on a $10,000 investment) versus 0.05%-0.16% for the Core Portfolio. Still, 0.13-0.18% is one of the cheapest options, even if you are not an ESG-focused investor.

Betterment Cash Reserve and Checking Accounts

Betterment offers two cash management accounts:

  • Betterment Cash Reserve, a high yield savings account, is FDIC-insured for up to $1 million and pays 0.10% APY as of October 2021
  • Betterment Checking Account, a no-fee checking account that comes with a Visa debit card. The account is FDIC-insured for up to $250,000 and reimburses all ATM fees. You can get cash back rewards from thousands of brands like Dunkin, adidas and Walmart

Human financial advisors

The Betterment Digital plan doesn’t come with access to human advisors, though you can buy a package for an extra fee ($299-$399 for 45-60 minutes). Human advisors are Certified Financial Planners (CFP), the most rigorous certification for financial professionals. CFPs also pledge to be fiduciaries, meaning that they promise to act in your best interest. 

Here are some of the packages:

  • Getting Started: $299
  • Retirement Planning: $399
  • Financial Check up: $399
  • College Planning: $399
  • Marriage Planning: $399

The charitable giving tool

Betterment lets you donate to charities in a tax-efficient way – by giving shares from your account. Betterment chooses the shares that have appreciated the most and have the highest long-term capital gains. You get tax receipts for your donations through the account. Donating through Betterment helps charities avoid processing fees (which add up to 5% through some platforms) and get 100% of your gift.

Automatic rebalancing

Betterment will automatically adjust your holdings if the portfolio strays from the predetermined asset allocation. Nearly all robo-advisors offer this feature. 

Tax-loss harvesting

Tax-loss harvesting is a tax reduction strategy that involves selling a fund or stock that has experienced a loss. By realizing this loss, you can offset taxable gains on other investments. The sold fund is replaced with a similar one, maintaining an optimal asset allocation.

Betterment offers automatic tax-loss harvesting at no additional cost at the ETF level. A more advanced tax-loss harvesting strategy, selling individual stocks that have lost money (also called direct indexing), is not available. (If you are interested, you can check out Personal Capital.)

In addition to tax-loss harvesting, Betterment offers Tax-Coordinated Portfolios. To take advantage of that, you need to open both a taxable investment account and a retirement account with Betterment. Betterment will then hold income-earning assets like bonds in tax-advantaged retirement accounts and stocks in taxable accounts. This will ensure an optimal asset allocation while reducing taxes.

Compare robo-advisors with sustainable options

Acorns ESG (Sustainable) Portfolio

Socailly Responsible Investing Pies

Socially Responsible Personal Strategy

Fees

$3-$5/month

Fees

$0 ($125 for M1 Plus)

Fees

0.49%-0.89%

Minimum

$5

Minimum

$100

Minimum

$100,000

🔔 Read our guide to socially responsible robo-advisors.

Socially Responsible Investing (SRI) Options

Betterment offers three socially responsible investing options: Broad Impact, Climate Impact, and Social Impact Portfolios. 

Broad Impact Portfolio

Most of the Broad Impact Portfolio is invested in environmental, social, and governance (ESG) funds. We found that for the 70% equity and 30% bond allocation, 72% of the assets were in ESG funds. 

Betterment’s general ESG option includes ESG funds for U.S. stocks, emerging and developed markets stocks, and, for non-taxable portfolios, U.S. high-quality bonds. Because of fees or trading limitations, the rest of the portfolio (including U.S. bonds for taxable accounts, international bonds, and emerging markets bonds) is still drawn from conventional ETFs. When tax-loss harvesting is enabled, Betterment adds conventional ETFs for emerging and developed markets stocks. 

The Broad Impact Portfolio includes the following funds:

  • U.S. stocks: iShares ESG Aware MSCI USA ETF (ESGU), iShares MSCI KLD 400 Social ETF (DSI), iShares MSCI USA ESG Select ETF (SUSA)
  • U.S. engagement stocks: Engine No. 1 Transform 500 ETF (VOTE)
  • Emerging markets stocks: iShares ESG Aware MSCI EM ETF (ESGE)
  • Developed markets stocks: iShares ESG Aware MSCI EAFE ETF (ESGD)
  • U.S. bonds: iShares ESG Aware USD Corporate Bond ETF (SUSC), iShares ESG U.S. Aggregate Bond ETF (EAGG) for retirement accounts, iShares National Muni Bond ETF (MUB) for taxable accounts
  • Conventional options for international bonds and emerging markets bonds

The portfolio relies on cheap ESG ETFs from iShares. Betterment uses large ESG ETFs from iShares (BlackRock), especially the iShares ESG Aware MSCI USA ETF (ESGU). While iShares ETFs own fossil fuel companies, they generally contain less energy than conventional alternatives. They also exclude tobacco, thermal coal, and certain weapons manufacturers. 

In July 2021, Betterment added the VOTE ETF, which will try to engage with large U.S. companies to drive change on issues like climate change.

This is what the Betterment dashboard looks like for the Broad Impact Portfolio:


Betterment Broad Impact Portfolio Composition (70% Stocks, 30% Bonds)

Asset ClassFundExpense RatioESG Fund?Allocation% of Fund in EnergyMSCI RatingSustainalytics Rating
U.S. StocksiShares ESG Aware MSCI USA ETF (ESGU)0.15%Yes30%5.8%6.74 / 5
U.S. Engagement StocksEngine No. 1 Transform 500 ETF (VOTE)0.05%Yes3%5.6%5.53 / 5
Developed Markets Stocks
iShares ESG Aware MSCI EAFE ETF (ESGD)0.20%Yes30%7.2%8.7
3 / 5
Emerging Markets Stocks
iShares ESG Aware MSCI EM ETF (ESGE)0.25%Yes6%5.6%7.6
3 / 5
U.S. Municipal BondsiShares National Muni Bond ETF (MUB)0.07%No17%NANRNR
International BondsVanguard Total International Bond Index Fund ETF (BNDX)0.08%
No7%NA6.4
NR
Emerging Markets BondsiShares JPMorgan USD Emerging Markets Bond ETF (EMB)0.39%
No4%NA3.0
NR
U.S. Corporate BondsiShares ESG Aware USD Corporate Bond ETF (SUSC)0.18%
Yes2%NA7.9
NR
Portfolio Total0.16%72% of portfolio100%6.4%7.33.4 / 5

Data as of 6/30/2021

Climate Impact Portfolio

The Climate Impact Portfolio emphasizes the “E” or environmental factors in ESG. This portfolio features a low-carbon footprint stock ETF (CRBN) and ETFs that divest from fossil fuel reserve owners. According to Betterment, carbon emissions per dollar of revenue for the 100% stock Climate Impact Portfolio are half of those of the conventional (Core) Portfolio. The portfolio adds green bonds – bonds that fund environmentally friendly projects – through a green bond ETF. 

The 70% equity and 30% bond portfolio has 82% of assets in ESG funds, a high allocation. To construct this portfolio, Betterment relies on the iShares MSCI ACWI Low-Carbon Target ETF (CRBN). CRBN is an ETF that seeks to include companies with a lower carbon footprint. The ETF provider measures the carbon intensity of each stock by tracking the tons of CO2 emissions per million dollars in sales. (Despite lower carbon intensity, CRBN has energy exposure, including oilfield services provider Schlumberger.)

🔔 Learn if low-carbon funds are right for you.

The remaining half of the stock exposure in the Climate Impact Portfolio is invested in fossil fuel reserve-free ETFs (SPYX for U.S. stocks, EFAX for developed markets stocks, and EEMX for emerging markets stocks). (Despite excluding oil and gas companies with reserves, SPYX includes oilfield services and fossil fuel-powered utilities.)

The Climate Impact Portfolio includes the following funds:

  • Global stocks: iShares MSCI ACWI Low-Carbon Target ETF (CRBN)
  • U.S. stocks: SPDR S&P 500 Fossil Fuel Reserves Free ETF (SPYX)
  • U.S. engagement stocks: Engine No. 1 Transform 500 ETF (VOTE)
  • Emerging markets stocks: SPDR MSCI EAFE Fossil Fuel Reserves Free ETF (EFAX)
  • Developed markets stocks: SPDR MSCI Emerging Markets Fossil Fuel Reserves Free ETF (EEMX)
  • U.S. high-quality and international bonds: iShares Global Green Bond ETF (BGRN)
  • Non-ESG options for other bonds

The Climate Impact Portfolio is not fossil free. Although the Climate Impact Portfolio is not free of fossil fuels, it does have better ESG scores and less exposure to energy than Betterment’s Core Portfolio, particularly for international stocks.

Assets invested in fossil fuels (%): Core vs. Climate Impact Portfolios

Asset ClassBetterment Core (non-ESG) PortfolioClimate Impact Portfolio
U.S. equities8.7%5.0%
Developed markets equities8.4%1.7%
Emerging markets equities9.4%3.0%

Source: Fossil Free Funds. Assumes a 70% / 30% stock vs. bond allocation.

Although the Climate Portfolio invests less in fossil fuels than the conventional portfolio, you might be surprised that it includes oil and gas stocks at all. There are better climate-friendly ETFs than the ones Betterment uses. 

🔔 Read our guide to fossil free investing

This portfolio doesn’t take into account social or governance factors (the “S” and the “G” in ESG), leading to lower ESG ratings from ESG rating providers Sustainalytics and MSCI than the Broad or Social Impact Portfolios. 

This is what the Betterment dashboard looks like for the Climate Impact Portfolio:


Betterment Climate Impact Portfolio Composition (70% Stocks, 30% Bonds)

Asset ClassFundExpense RatioESG Fund?Allocation% of Fund in EnergyMSCI RatingSustainalytics Rating
Global StocksiShares MSCI ACWI Low Carbon Target ETF (CRBN)0.20%Yes35%5.0%6.33 / 5
U.S. StocksSPDR S&P 500 Fossil Fuel Reserves Free ETF (SPYX)0.20%Yes16%5.0%5.8
3 / 5
U.S. Engagement StocksEngine No. 1 Transform 500 ETF (VOTE)0.05%Yes4%5.6%5.53 / 5
Developed Markets Stocks
SPDR MSCI EAFE Fossil Fuel Reserves Free ETF (EFAX)
0.20%Yes9%1.7%
7.83 / 5
Emerging Markets Stocks
SPDR MSCI Emerging Markets Fossil Fuel Reserves Free ETF (EEMX)0.30%Yes6%3.0%
5.4

3 / 5
Global Green BondsiShares Global Green Bond ETF (BGRN)0.20%
Yes12%NA7.4NR
U.S. Municipal BondsiShares National Muni Bond ETF (MUB)0.07%No11%NANRNR
Emerging Markets BondsiShares JPMorgan USD Emerging Markets Bond ETF (EMB)0.39%
No5%NA3.0
NR
US Inflation-Protected Bonds
Vanguard Short-Term Inflation-Protected Securities ETF (VTIP)0.05%
No2%NA6.1NR
Portfolio Total0.19%82% of portfolio100%4.4%6.23 / 5

Data as of 6/30/2021

Social Impact Portfolio

Similar to the Broad Impact Portfolio, most of the Social Impact Portfolio is invested in ESG funds. We found that for the 70% equity and 30% bond allocation, 73% of the assets were in ESG funds. 

The portfolio adds diversity and inclusion funds. The Social Impact Portfolio adds two impact funds that promote gender diversity and ethnic and racial inclusion. These funds are SPDR SSGA Gender Diversity Index ETF (SHE) and Impact Shares NAACP Minority Empowerment ETF (NACP). These two funds add up to around 8% of the portfolio invested 70% in stocks and 30% in bonds. 

  • SHE is a U.S. Stock ETF that includes companies with greater gender diversity in senior leadership. Companies are ranked according to the ratio of women in senior leadership positions; the leaders in each sector are added.
  • NACP, a U.S. stock ETF from Impact Shares, uses a scoring methodology from the National Association for the Advancement of Colored People (NAACP). The goal is to provide exposure to companies with strong diversity policies. 

The Social Impact Portfolio includes the following funds:

  • U.S. stocks: iShares ESG Aware MSCI USA ETF (ESGU), Impact Shares NAACP Minority Empowerment ETF (NACP), SPDR SSGA Gender Diversity Index ETF (SHE)
  • U.S. engagement stocks: Engine No. 1 Transform 500 ETF (VOTE)
  • Emerging markets stocks: iShares ESG Aware MSCI EM ETF (ESGE)
  • Developed markets stocks: iShares ESG Aware MSCI EAFE ETF (ESGD)
  • U.S. bonds: iShares ESG Aware U.S. Aggregate Bond ETF (EAGG), iShares National Muni Bond ETF (MUB)
  • Non-ESG options for international bonds, emerging markets bonds, and inflation-protected securities

This is what the Betterment dashboard looks like for the Social Impact Portfolio:


Betterment Social Impact Portfolio Composition (70% Stocks, 30% Bonds)

Asset ClassFundExpense RatioESG Fund?Allocation% of Fund in EnergyMSCI RatingSustainalytics Rating
U.S. StocksiShares ESG Aware MSCI USA ETF (ESGU)0.15%Yes28%5.8%6.74 / 5
U.S. Engagement StocksEngine No. 1 Transform 500 ETF (VOTE)0.05%Yes4%5.6%5.53 / 5
Developed Markets Stocks
iShares ESG Aware MSCI EAFE ETF (ESGD)0.20%Yes18%7.2%8.7
3 / 5
Emerging Markets Stocks
iShares ESG Aware MSCI EM ETF (ESGE)0.25%Yes12%
5.6%7.6
3 / 5
U.S. Stocks - Minority EmpowermentImpact Shares NAACP Minority Empowerment ETF
(NACP)
0.49%Yes4%
4.7%
5.7

4 / 5
U.S. Stocks - Women LeadershipSPDR SSGA Gender Diversity Index ETF (SHE)0.20%Yes4%
4.9%7.94 / 5
U.S. Municipal BondsiShares National Muni Bond ETF (MUB)0.07%No11%
NANRNR
International BondsVanguard Total International Bond Index Fund ETF (BNDX)0.08%
No9%
NA6.4
NR
Emerging Markets BondsiShares JPMorgan USD Emerging Markets Bond ETF (EMB)0.39%
No5%NA3.0
NR
U.S. Corporate BondsiShares ESG Aware U.S. Aggregate Bond ETF (EAGG)0.10%

Yes3%
NA6.9NR
U.S. Inflation-Protected BondsVanguard Short-Term Inflation-Protected Securities ETF (VTIP)
0.05%
No2%
NA6.1NR
Portfolio Total0.18%73% of portfolio100%6.0%6.93.5 / 5

Data as of 6/30/2021

Betterment Core vs. Impact Portfolios comparison

All three socially responsible portfolios are a material improvement over the conventional portfolio based on fossil fuel exposure and ESG ratings from MSCI and Sustainalytics. We believe it justifies paying slightly more in expenses.

Portfolio
Expense Ratio% of Assets in ESG Funds
% of Assets in Energy
MSCI ESG Score
Sustainalytics ESG Rating
Broad Impact
0.16%
72%
6.4%
7.3
3.4 / 5
Climate Impact
0.19%
82%
4.4%
6.2
3.0 / 5
Social Impact
0.18%
73%
6.0%
6.93.5 / 5
Core
0.07%
0%
8.7%
5.9
2.2 / 5

Data as of 6/30/2021. Note: assumes 70% stocks / 30% bonds. Fossil fuel exposure and Sustainalytics ratings are for stock funds only.

Betterment SRI Portfolio performance

The team at Betterment has looked at industry research and done historical backtesting of the SRI (Impact) Portfolios. They believe that SRI Portfolio performance shouldn’t differ significantly from the Core (non-ESG) portfolio over the long term, though there can be some differences over shorter periods.

After including the relevant fund expense ratios and Betterment’s 0.25% management fee, the performance of the Broad Impact Portfolio was similar to that of the Core Portfolio for the four-year period ending May 2021. Data for Climate Impact and Social Impact Portfolios was more limited because some of the funds in the Portfolios were only launched in 2018.

Here is some more data for you: 

  • The Climate Impact Portfolio returned 43.3% vs. 39.4% for the Core Portfolio between November 2018 and May 2021
  • The Social Impact Portfolio returned 47.4% vs. 43.9% for the Core Portfolio between October 2018 and May 2021
  • The Broad Impact Portfolio returned 10.4% vs. 11.0% for the Core Portfolio over the four-year period ending May 2021

💰 Takeaway

  • Betterment is a low cost and feature-rich robo-advisor with three impact investing options
  • But there is room for improvement. For example, we hope they offer options with reduced fossil fuel exposure and fossil free options

🔔 Looking to compare more options? Read our guide to socially responsible robo-advisors.

Compare robo-advisors with sustainable options

Acorns ESG (Sustainable) Portfolio

Socailly Responsible Investing Pies

Socially Responsible Personal Strategy

Fees

$3-$5/month

Fees

$0 ($125 for M1 Plus)

Fees

0.49%-0.89%

Minimum

$5

Minimum

$100

Minimum

$100,000

Methodology

We compared robo-advisors with an ESG offering based on management fees, ESG portfolio expense ratios, the percentage of the ESG portfolio invested in ESG funds vs. traditional funds, ESG portfolio ratings (from Sustainalytics and MSCI), portfolio exposure to energy, transparency, features like tax-loss harvesting and automatic rebalancing, and access to human advisors.