When the test accounts began receiving dividends, a
difference in the business structure of Betterment and Wealthfront had an
impact on how they were able to handle the dividends.
Both are “investment advisors”. They present the face that
you interact with on the web and make the investment decisions for your
account. They differ in where your investments and cash are held. Here are
their descriptions.
We have two separate arms: the first, Betterment LLC, is an
SEC-registered investment advisor, which operates the advice and investment
platform you experience when you access your Betterment account. The second
arm, Betterment Securities, is a FINRA member broker-dealer, which executes
trades on your behalf, and is the custodian of your assets.
Betterment deals in fractional shares and consequently does
not have to carry cash in your account. This allows them to fully invest your
account. It also allows them to use even small amounts of dividends to attempt
to re balance your account.
Wealthfront is an “investment advisor” only and executes the
investment decisions for your account. Here’s their description.
Third party custodian: Your assets are held in an account at
a third-party custodian named Apex Clearing. Wealthfront only has the right to
issue trading instructions against your account. It cannot access your cash
other than to receive its monthly advisory fee. You are the only one who can
deposit to or withdraw from your account
Since Wealthfront only deals in whole shares, they need to
maintain cash where small dividends are accumulated. I assume when enough is
there they will use the cash to attempt to re balance the account. It seems to
me that being limited to whole shares will make this a little more difficult. In
all fairness, this only has a significant impact on small accounts.
I will be updating the test accounts weekly. Follow me on
twitter @billlanke to be notified when I make updates.
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