Overview
Wealthfront is a ‘smart’ robo-advisor with low fees no dummy could ignore.
The brains of this robo-advisor were created by former Vanguard executive and Princeton University professor Burton Malkiel – a father of passive index investing. Based on three decades of research and superior passive versus active investing returns, Wealthfront seeks to provide you with a long-term investment edge through its value-added products. This fiscal-minded robo-advisor seeks to improve your investment returns through tax saving strategies.
By not trying to “beat the market,” Wealthfront invest in low-cost funds that also have less risk. The cost savings are passed onto you in the form of higher returns and managing your first $10,000 for free! The $10,000 of free managed assets saves you $25 a year that can be invested to earn more passive income.
The famous academics at Wealthfront are not resting on their laurels. In 2017, Wealthfront added an Advanced Indexing product based on ‘smart beta’ factors proven over time to be drivers of long-term performance. Wealthfront’s value-added products – Tax Harvesting, Direct Indexing, and Advanced Indexing are now bundled into the PassivePlus® product suite.
Founding: 2011
Assets Under Management: Over $5 billion
Client Profile: The average client is 37 years old and married with a joint income of $260,000, or $422,000 for premium clients.
Table of Contents
Getting Started
What do you need to start?
Click on Invest Now to start optimizing your investment portfolio with Wealthfront’s time-tested performance and tax-enhancing strategies.
What questions do they ask?
After answering the online assessment questions, a retirement portfolio based on your risk tolerance will be generated. Your portfolio will be generated in less than a minute from now. The questions cover your:
Investing Objectives
Is your priority to build a diversified portfolio, benefit from tax savings, to beat the market, or all of the above?
Financial Profile
Next, Wealthfront asks about your personal income, investments and other assets, and family status.
Risk Tolerance
Do you seek to maximize gains, minimize losses, or both?
What would you do if your portfolio lost 10 percent of its value in a month?
That’s it!
Your investment plan with a detailed asset allocation will arrive within a few seconds in your email. To minimize your taxes, assets will be allocated into a taxable and non-taxable portfolio: a Taxable Investment Mix and Retirement Investment Mix, each diversified across up to 11 global asset classes. You will also receive your risk rating. You may update your rating monthly but are advised against changing your risk profile, and consequently your asset allocation. Remember the lesson from Malkiel’s popular 1973 book A Random Walk on Wall Street – “large advisory fees and substantial portfolio turnover” reduce investment results.[1]
Screen Shots
Platform Features
Wealthfront keeps its desktop and mobile interfaces simple. It may look like a site for dummie but it is becoming very smart. The newest platform Wealthfront 3.0 was designed to leverage artificial intelligence to make smarter investment decisions for you. The Path financial planner has been added to provide retirement investment advice.
Dashboard – The dashboard is designed to keep you attuned to your retirement financial planning. Your net worth is displayed and you can see your potential worth far into the future by following a simple timeline.
Financial Advice/Education – Financial advice is data-driven and provided in real time. As you connect new accounts and information to your Wealthfront account, it immediately goes to work for you analyzing your savings, spending and investment patterns. This helps to improve recommendations on diversification, taxes and fees drawing on your financial profile and risk tolerance.
Integration – In addition to connecting to your traditional financial accounts, Wealthfront can connect to your online lending services such as LendingClub and even Coinbase, the cryptocurrency exchange.
Wealthfront Features
| Account Minimums | The minimum deposit is $500. |
| Accounts Supported | Taxable: Individual, Joint; IRAs, Roth IRAs, SEP IRAs, 401(k) Rollovers |
| Account Management Fees | No fees under $10,000. 0.25% above $10,000. No fees up to $1 million 501(c) charities. No fees to transfer an account to another broker; Reimbursement by Wealthfront of fees charged by former broker on assets already transferred. No commission on transferred assets sold by Wealthfront. No account opening, closing or withdrawal fees. |
| Investment Expense Fees | The average ETF expense ratio is 0.12%. |
| Asset Allocation | ETFs from 11 asset classes |
| Tax Harvesting | Yes. Free on all taxable accounts. |
| Auto Re-balancing | Yes. Free. |
| Mobile App | Yes – You can download the iOS app here and Android app here. |
| Customer Support | Phone — M-F 11A-8P ET, Email — 24/7 |
Passive Plus
Wealthfront provides three additional products within its PassivePlus® product suite, all aimed toward maximizing your after-tax returns net of fees by optimizing investment returns while generating tax savings.
Tax Harvesting (Minimum: $500)
Wealthfront identifies daily losses in your taxable portfolio and sells the securities to create a recognizable loss for tax purposes. With these tax losses, you may offset future gains, or take tax deductions against future income. You may reinvest the savings in your portfolio to ‘supercharge’ your long-term returns.
Direct Indexing (Minimum: $100,000)
Direct Indexing allows you to take ownership in your account of individual securities, mirroring an ETF’s holdings, and benefit from tax loss deductions that an ETF is prohibited from passing on. Wealthfront monitors your portfolio daily for money-losing stock positions. The robo then replaces the stocks it sells with highly correlated securities to maintain the risk-return balance of your portfolio. The level of diversification for portfolios with a minimum of $500, $100,000 and $1 million is 100, 500 and 1,000 stocks, respectively.
Advanced Indexing (Minimum: $500,000)
Advanced Indexing is Wealthfront’s new factor investing product. Also known as ‘smart beta,’ factor investing weights your investment portfolio based on factors (e.g., value, quality, momentum, low volatility, size) known to be persistent drivers of returns rather than the market capitalization weighting typically used by the S&P 500 and other indexes. Wealthfront combines single factors into multi-factor products to further optimize returns through a diversified portfolio of factor exposures.
While many of its competitors are adding a human touch through access to human advisors, Wealthfront is making its robo-advisers more intelligent. In 2017, Wealthfront introduced Path, a robo retirement investment advisor. The automated financial advisor connects all of your investment and bank accounts to perform real-time analysis on your savings and investment patterns.
Asset Allocation
Wealthfront applies Modern Portfolio Theory (MPT) developed by Nobel Prize-winning economists to determine your asset allocation. They discovered that the higher the number of uncorrelated assets you have in your portfolio, the higher your investment returns will be. The robo-advisor combines asset classes to create the most efficient frontier of returns for the risk assumed.
Wealthfront portfolios allocate investments across 11 global investment classes:
- US stocks
- Foreign stocks
- Emerging market stocks
- Dividend growth stocks
- US government bonds
- Corporate bonds
- Emerging market bonds
- Municipal bonds
- Treasury securities
- Real estate
- Natural resources.
Based on the tax efficiency of each asset class, they are allocated into taxable or nontaxable accounts, or both. Asset allocation is primarily across large and medium capitalization stocks, but some small capitalization exposure may be included.
Competitor Comparison
| WealthFront | Betterment | WiseBanyan | |
| Review | Read Review | Read Review | |
| Rating | 9.5 | 9.8 | 7.8 |
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Summary
Wealthfront will face increasing competition from the supermarkets of digital financial services being built. Traditional wealth managers, online lenders, and insurance companies are adding robo-advisors to their services. Wealthfront’s premium products and services could make it the Apple of robo-advisors. Importantly, it has the in-house talent to keep innovating, and its large client base of Silicon Valley technologists have faith in Wealthfront’s investment edge.
Pros of Wealthfront
You may like Wealthfront for its value-added services developed to increase investment returns for a low fee:
- No management fees on assets under $10,000 (0.25% for additional assets)
- No additional fees, other than 0.12% average ETF expense fee
- Daily tax-loss harvesting
- Tax benefits of daily sales of money-losing securities (accounts >$100,000)
- Advanced Indexing factor investing, a premium service, for no fee (accounts >$500,000)
- Path real-time financial planning connects all your accounts to Wealthfront
- No fee sales of your stocks on a gradual basis to optimism tax savings.
- A special offer of an additional $5,000 tax-free for you and the friend you refer to WealthFront.
Wealthfront has kept the website and robo-advisor very simple, making it easy to sign up and manage your account.
Cons of Wealthfront
The reasons below might be why you won’t like Wealthfront.
- No access to human advisors
- Fractional share trading is not offered
- Premium services available at $100,000 and up
If you’re opening your first retirement account, as is the case with many of Wealthfront’s young upwardly mobile client base, you may prefer some human guidance, but human guidance can also be annoying and unproductive. Many digital financial services supermarkets are adding human advice to upsell products and services to their clients. Path is Wealthfront’s digital financial planner. Investors pay up for human advice. Both Personal Capital and Betterment’s fees quickly add up as your wealth increases. With its Wealthfront 3.0 platform, the digital wealth manager has gone one step further. Rather than tracking your financial plans – what you say you want to do — its artificial intelligence tracks your actual behavior in real time and makes recommendations based on it.
Is Wealthfront Right for You?
WealthFront has perched itself between the no-frills, low fee and premium service robo-advisors by providing value-added products for a low, basic annual fee. The PassivePlus® product suite is cleverly designed to optimize your investment portfolio performance. When your income grows the value-added services scale up. Under $100,000, investors are getting a lot of investment performance brainpower for free. This fast-growing robo-advisor – assets under management doubled in two years to $7.5 billion in 2017 – benefits from 30 years of research by a father of passive index investing.
Wealthfront wants to be more than a monkey watching passive index funds deliver superior long-term returns over actively managed funds. Indeed, it is now widely accepted that “a blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by experts.”[2] With its tax efficiency and factor investing strategies, this robo-advisor is working hard to provide you with an investment edge beyond average passive investing returns.
Wealthfront’s biggest advantage for small investors is the free management of your first $10,000. This perk can offset not having fractional investing. If you prefer fractional ETF investing, you will want to use a different robo-advisor like Betterment or WiseBanyan.