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M1 Finance vs. Betterment – Which Is Best for Money Management?

The retail investing industry has changed dramatically since the turn of the 21st century. One of the biggest shifts is due to the rise of low-cost robo-advisors, which empower nonexpert investors to craft and manage semi- or fully customized portfolios that are mainly automated, requiring minimal input.

Even as the differences between robo-advisors and traditional human advisors become sharper, the concurrent rise of commission-free self-directed trading platforms has been a boon for retail investors who prefer hands-on management and making every buying and selling decision for themselves.

M1 Finance, a leading money management platform for investors and borrowers, appeals to both types of investors. Betterment, one of the original robo-advisors and still an undisputed leader in the space, caters to the passive set only, albeit with much more support and guidance for investors who need it.

Key Features of M1 Finance and Betterment

The similarities between M1 Finance and Betterment don’t stop there

Both have attractive account opening bonuses and low or nonexistent ongoing fees. Both are built around low- or no-cost automated investing platforms. Both have cash management accounts with above-average yields.

That said, M1 Finance and Betterment aren’t identical. Among other differences, M1 Finance features self-directed investing and a low-cost margin borrowing tool, while Betterment comes with an excellent cash management account and the option to get personalized financial advice from its staff. Betterment is also the only one to offer free checking accounts (spending accounts) for day-to-day money management.

To get a better sense of which platform is the better option to address your investing and money management needs, consider their respective features and benefits.

Account Opening Bonus

Both M1 Finance and Betterment entice new account holders with generous account opening bonuses. Betterment’s waives account management fees for up to one year, whereas M1 Finance doles out a one-time cash payment based on the size of your initial transfer.

M1 Finance’s Account Opening Bonus

Earn a transfer bonus of up to $2,500 when you open a M1 Finance account as a new investor and initiate an account transfer within 60 days. You’ll earn your bonus based on the following transfer thresholds:

  • $250 Bonus: Transfer $100,000 to $249,999.99.
  • $500 Bonus: Transfer $250,000 to $499,999.99.
  • $1,000 Bonus: Transfer $500,000 to $999,999.99.
  • $2,500 Bonus: Transfer $1,000,000 or more.

This offer isn’t valid on ACH deposits, wire transfers, or direct 401(k) rollovers, and your new M1 Finance account type must match your old account type — for example, transferring a taxable account to another taxable account. Expect to receive payment within 90 days once the transfer is received.

Betterment’s Account Opening Bonus

Get up to one year of free account management when you open a Betterment account and make a qualifying initial deposit within 45 days. Your fee waiver length depends on the cumulative funding amount during the qualification period:

  • 1 Month Free: Fund your account with $15,000 to $99,999.
  • 6 Months Free: Fund your account with $100,000 to $249,999.
  • 12 Months Free: Fund your account with $250,000 or more.

This offer can’t be combined with any other Betterment promotions and is available to U.S. residents only.

Available Account Types

Both M1 Finance and Betterment offer multiple account types, including taxable brokerage accounts, tax-advantaged investing accounts, and interest-bearing cash accounts. M1 Finance also allows qualifying account holders to borrow against their taxable investment portfolios’ values.

M1 Finance’s Available Account Types

M1 Finance offers investing, known as M1 Invest. It also offers a portfolio line of credit, known as M1 Borrow, for investors with ample account balances.

M1 Invest

M1 Invest offers taxable and tax-advantaged accounts with high customization potential. Available account types include traditional IRAs, Roth IRAs, and SEP IRAs.

None have minimum deposit or balance requirements, and all are free of trading commissions and management fees.

Passive investors can choose from more than 80 template portfolios (“expert pies”) aligned with their long-term goals and risk tolerance or use prebuilt “pie slices” to construct diversified portfolios.

More active investors can manually select the individual stocks and funds that appear in their portfolios, investing in whole or fractional shares as they see fit. M1 Invest dynamically rebalances all portfolios as necessary.

M1 Borrow

Investment portfolios worth at least $10,000 are eligible for M1 Borrow, a portfolio line of credit that allows participants to draw on up to 35% of their portfolios’ value at low interest rates.

Borrowers can use M1 Borrow proceeds for virtually any legitimate purpose, such as paying down high-interest debt, covering major expenses such as home improvement projects, or adding leverage to their portfolios — although this last purpose involves significant risk.

There’s no fixed repayment schedule and no lengthy application process to apply for an M1 Borrow line.

Betterment’s Available Account Types

Betterment offers taxable and tax-advantaged investment accounts, an FDIC-insured cash management account with variable yields, and an FDIC-insured free checking account.

Investment Accounts

Betterment offers taxable and tax-advantaged (IRA) investing accounts consisting of low-cost ETFs designed to help clients achieve their long-term investing objectives while managing risk.

Betterment periodically rebalances these accounts at no cost to the client and uses tax-loss harvesting practices — the strategic sales of securities that have declined in value — to reduce your tax liability.

Betterment Cash Reserve

Betterment Cash Reserve is a cash management account that currently yields 4.35% (variable) on all balances and permits unlimited outbound transfers and transactions. The yield is subject to change with prevailing rates.

Betterment Checking

Betterment Checking is a fee-free checking account with a Visa debit card that’s tap-to-pay enabled and accepted by millions of merchants. Betterment Checking has a potentially generous rewards program as well: Betterment Cash Back Rewards.

Plans and Pricing

Betterment and M1 Finance both offer two distinct plans with different features and pricing schedules.

M1 Finance’s Plans and Pricing

M1 Finance has two plans: M1 Standard (also known as the “Basic Account”) and M1 Plus. There’s no out-of-pocket cost to use M1 Standard other than third-party fees charged by funds held in M1 Invest accounts and interest charged on M1 Borrow credit lines, if any.

M1 Standard’s key metrics include:

  • No yield on M1 Spend cash balances
  • No cash back on M1 Spend purchases
  • One ATM fee reimbursement per month
  • $10,000 daily ACH transfer limit for M1 Spend
  • 3.5% base interest rate on M1 Borrow draws
  • One morning trading window for M1 Invest transactions — meaning all trade orders placed prior to the window’s opening execute within that window

For $125 per year, M1 Plus members get the following perks and benefits:

  • 5.00% yield on M1 Spend cash balances
  • 1% cash back on M1 Spend purchases
  • Four ATM fee reimbursements per month
  • $50,000 daily ACH transfer limit for M1 Spend
  • 2% base interest rate on M1 Borrow draws
  • Two daily trading windows for M1 Invest transactions

Betterment’s Plans and Pricing

Betterment has two plans: Digital and Premium.

The Digital plan has no account minimums, meaning no minimum deposit or balance requirements. Account holders pay a flat annual fee of 0.25% of total assets under management (AUM) for balances over $20,000 and $4 per month for balances below $20,000.

Key features of the Digital Plan include:

  • Multiple template portfolios designed to reflect differing risk tolerances, such as “Safety Net” (more conservative) and “General Investing” (more aggressive), with personalized asset allocation recommendations based on clients’ answers to onboarding questions
  • Low fees for index and sector funds for better diversification
  • Automatic rebalancing to keep portfolios in line with target allocations
  • Tax-loss harvesting to reduce tax liability and increase after-tax returns
  • Access to customer service staff during weekday business hours
  • Secure syncing with external bank and brokerage accounts

Betterment’s Premium plan requires a minimum balance of $100,000 and has an annual fee of 0.40% AUM on all balances. It includes all the features and capabilities of the Digital plan, plus:

  • Customized asset allocation and general strategic advice for accounts not held with Betterment, including real estate, taxable and tax-advantaged stock portfolios, and employer-sponsored retirement accounts
  • Complimentary financial planning without limit from Betterment’s in-house certified financial planner professionals, covering four major life and career events: marriage, child rearing, equity-based compensation, and retirement

Financial Planning and Advice

Betterment provides account holders with access to financial planning professionals for one-off consultations and ongoing relationships through an external advisor network.

M1 Finance doesn’t offer anything like that level of hands-on support, although it does have a nice trove of educational materials for account holders who are determined to learn more about planning for the future and growing wealth.

Betterment’s Financial Planning and Advice Services

Betterment offers one-off “Advice Packages” that focus on common life situations and maintains an external network of approved financial advisors.

Advice Packages

Betterment’s “Advice Packages” are one-off, topic-specific consultations with licensed financial experts on Betterment’s staff.

They cover four common life situations and one situation specific to Betterment: getting started with Betterment, a “financial checkup” that walks through the client’s financial needs and objectives, college planning, marriage planning, and retirement planning.

Advice Packages start at $199 and include the one-time conversation of generally no more than 60 minutes and a follow-up “action plan.”

Betterment Advisor Network

Betterment vets and curates a network of external fiduciary financial planners and advisors for the benefit of its members.

Basically, the Betterment Advisor Network is a quality-controlled referral service for clients seeking more hands-on support and guidance than Betterment can provide.

Like most fiduciary advisors, Betterment Advisor Network members charge one-off fees for project-based consultations, ongoing annual fees calculated as a percentage of assets under management, or both.

Be aware that these fees accrue atop Betterment’s robo-advisor fees, rather than replacing them, which means they’ll significantly increase your total wealth management costs.

The Verdict: Should You Choose M1 Finance or Betterment?

So, should you choose M1 Finance or Betterment? Your choice will come down to your preference for hands-on support, whether you wish to borrow against the value of your portfolio, and your preference for self-directed versus passive investing.

You Should Invest With M1 Finance If…

M1 Finance is a better choice if:

  • You Prefer Self-Directed Investing. Though its expert pies and pie slices serve hands-off investors well, M1 Finance really shines on the self-directed side. It has a capable self-directed investing platform that charges no commissions or fees for normal use and offers exposure to individual stocks (including fractional shares). Because Betterment doesn’t offer self-directed investing, the choice is obvious for active investors.
  • You Want to Avoid Asset Management Fees. M1 Finance doesn’t charge asset management fees on its template portfolios, although account holders are usually liable for fund fees and expenses levied by their component instruments. Still, this model significantly reduces M1 Finance members’ net investment expenses and could increase returns in the long run.
  • You Want to Borrow Against the Value of Your Portfolio. M1 Finance offers a low-cost portfolio line of credit for investment account holders with adequate balances. You’re free to use your M1 Borrow draws pretty much however you choose, making this a nice source of liquidity for debt consolidation, home improvement, and other legitimate expenses — generally at a far lower cost than an unsecured personal loan and without the collateral requirements of a home equity loan or line of credit.

You Should Invest With Betterment If…

Betterment is a better fit if:

  • You Want Access to a Network of Financial Planners and Advisors. The Betterment Advisor Network is a vast and well-curated network of capable financial planners and fee-only financial advisors — a great place to find a human financial partner with whom you can hopefully work for years to come. If you don’t have any intention of establishing a long-term relationship, Betterment’s one-off Advice Packages can stand in. M1 Finance can’t offer anything comparable.
  • You Need a Personal Checking Account. Betterment Checking is among the best checking accounts on the market for good reason — it involves no out-of-pocket costs, boasts powerful mobile-friendly features and capabilities, and has potentially generous rewards programs. If you’ve been looking for a new online bank, you’re in good hands.
  • You Don’t Want to Pay Extra for a High-Yield Cash Account. All Betterment account holders get the same great yield on Cash Reserve balances. Unlike M1 Finance, Betterment doesn’t require clients to upgrade to the premium plan tier to realize its best yields.

Both Are Great If…

Both M1 Finance and Betterment are great if:

  • You Prefer Passive Investing. Both Betterment and M1 Finance market to passive investors — M1 Finance through about 80 template portfolios, Betterment through its core service. Both options are more comprehensive and feature-rich than the typical robo-advisor.
  • You Seek a Generous Account Opening Bonus. Both M1 Finance and Betterment offer impressive account opening bonus opportunities to new account holders who can swing the funding requirements.
  • You’d Like to Open a Tax-Advantaged Retirement Account. Both M1 Finance and Betterment offer tax-advantaged investment accounts (IRAs) for retirement-minded investors.

Final Word

Many people think of M1 Finance and Betterment as being very similar. But in the grand scheme of the online stock broker space, they’re barely cousins, let alone siblings.

Betterment replicates the wealth management of the traditional client-advisor relationship at far lower cost and provides access to a vast network of carefully vetted advisors when users feel they need more assistance.

M1 Finance is more of a self-serve platform, with a fully capable self-directed brokerage and dozens of template portfolios for more active types, plus a portfolio line of credit that can stand in for a home equity product.

That said, neither M1 Finance nor Betterment market themselves as full-on replacements for human financial advisors. Prospective users shouldn’t mistake them as such.

Those seeking comprehensive financial advice and personalized wealth management need to look to a bespoke advisory service like Vanguard Personal Advisor Services or find an independent financial advisor who suits their needs. Get started by reviewing the different types of financial advisors.

Brian Martucci writes about credit cards, banking, insurance, travel, and more. When he's not investigating time- and money-saving strategies for Money Crashers readers, you can find him exploring his favorite trails or sampling a new cuisine. Reach him on Twitter @Brian_Martucci.

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