- Commissions and Fees
- Ease of Use
- Investment Options
Wealthfront is a robo-advisor that has the trade world buzzing. Wealthfront has made it easy for traders to find a wide variety of services in one place. So, is Wealthfront right for your trading? Read our comprehensive review to find out.
Wealthfront.com is an automated investment platform also referred to as a robo-advisor. The platform enables investors to benefit from many of the services normally provided by expensive professional financial planners including goals-based, risk-adjusted and tax-efficient portfolio construction and management. The simplified interface streamlines the onboarding process making it quick and painless for new customers to set-up and get started within minutes just by answering some financial questions.
Wealthfront was launched in 2013 by Andy Rachleff and Dan Carroll, out of Redwood City, CA. Rachleff was co-founder of venture capital firm Benchmark Capital and Carroll was the original designer of the platform using his expertise as a trader. They built an algorithmic platform that automates the implementation of sophisticated financial advice and made it accessible to the masses regardless of account size or investment experience. Backed by investments from Benchmark Capital, DAG Ventures Ribbit Capital as well as renowned Silicon Valley icons like Marc Andreessen, Jeff Jordan and Ben Horowitz. Their Chief Investment Officer, Burton Malkiel, was the author to the classic “A Random Walk Down Wall Street” and former senior economist at Princeton University. Wealthfront surpassed over $10 billion in assets under management in early 2018 and continues to flourish.
How Wealthfront Works
Wealthfront creates individual financial plans based on users answering questions pertaining to their financial details and goals. The algorithms crunch the data to generate personalized financial profiles including risk tolerance and path objectives. From there, the robo-advisor gets to work investing deposits, constructing portfolios and managing them with automated rebalancing, dividend reinvestment and tax-loss harvesting, Users have full transparency and access to their portfolios and the flexibility to make changes to their profiles.
The advice engine named Path also provides automated personalized financial insights, projections and advice to meet goals like determining how much savings are needed to buy a house or save for college. Everything is automated and frictionless. Wealthfront estimates investors would need 105 hours per-year to replicate the automated investment strategy manually with $2,926 in trading fees averaging 418 trades per year.
Minimum account requirement is $500. Users must be 18-years or older. Stock-level tax-loss harvesting is available on account over $100,000. Smart beta available only for accounts over $500,000. Minimum withdrawals are $250.
Wealthfront Pricing and Fees
Wealthfront has a simple 0.25% annual management fee. There are no other ‘plans’ or services, which is a relief compared to other robo-advisory services. There are no transfer fees, inactivity fees or closure fees.
Wealthfront is conscious about expense ratios and manages to use ETFs with some of the lowest expense ratios averaging 0.07%to 0.16%, except for the international bond fund ETF.
The Wealthfront platform can be accessed via desktop or mobile device through iOS and Android. The mobile app is as seamless and intuitive as the desktop but with more convenience and portability. Portfolio performance, holdings and allocations are available at-a-glance. Users can also adjust their Risk Score manually anytime.
Wealthfront Investing Tools
Path is an AI-engine tool that provides financial planning insights and advice. Whether saving for college, buying a house or planning a vacation, Path maps out how much you will need in various areas to meet the needs along with a time line. It also factors in tax implications to the projections. It’s intuitively designed to answer over 10,000 questions pertaining to your financial situation and scenarios. Path is embedded into the investment algorithms but also serves as a tool as mentioned. It can be used to answer questions free even without an account through the website.
Wealthfront invests in exchange-traded-funds (ETFs) in 11 global asset classes to construct portfolios. These asset classes range from S&P 500 benchmark indices to real estate, commodities, foreign and emerging markets to corporate and municipal bonds. Unlike other robo-advisors, Wealthfront also invests in individual stocks for purposes of efficient tax-loss harvesting, as an option.
Stock-Level Tax Harvesting
While other robo-advisors will swap out like ETFs for tax-loss harvesting, Wealthfront will replicate the swapped-out index ETF with a mix large-cap, mid-cap and alternate ETFs. This is a much more sophisticated and efficient method of tax-loss harvesting. This service is available to accounts over $100,000 on taxable accounts.
Smart Beta for High Net Worth Accounts
Wealthfront offers a special Smart Beta strategy for Stock-Level tax-loss harvesting for accounts over $500,000. The Smart Beta algorithm shifts the market capitalization-based weighting to increase the after-tax expected return of the portfolio.
Individual portfolio performance depends on when you started investing as well as having access to the more sophisticated Stock-Level and Smart Beta tax-loss harvesting strategies. More so than any other robo-advisor, Wealthfront is very tax conscious with its portfolio management, which can improve performance by several hundred basis points. Personally, that’s where a lot of investors give up potential found money due to the labor-intensive efforts needed to monitor and track portfolio fluctuations.
Wealthfront automatically rebalances portfolios when they break a threshold allocation range per asset class or sector. This can happen when markets get excessively volatile or certain sectors and asset classes underperform or outperform. The algorithms handle all the monitoring and leg work so users can remain passive and watch from the sidelines.
Compared to other robo-advisories, Wealthfront maintains some of the lowest management fees at 0.25%. However, they don’t provide some of the perks like free VIP Priority Pass access to airport lounges like Wealthsimple or have a spare change round-up function like Acorns. While many of the large robo-advisors combine human and algorithmic advice, Wealthfront stays true to form as pure robo-advisory service providing purely computerized wealth management and advice. There are no human financial planners that users can access. For this reason, the customers should be tech-savvy and experienced enough to let the algorithms manage performance.
Wealthfront Key Differentiators
Wealthfront offers Portfolio Line of Credit for accounts over $100,000. Users can borrow up to 30% of their account value at rates ranging from 4.75% to 6.00% instantly. The stock-level tax harvesting and smart-beta management functions are unique but require larger balances to operate. Wealthfront is a big believer in investing in foreign and emerging markets and allocates between “3% to 30%” of the portfolios in those asset classes for risk tolerant investors.
Instead of closing out all your positions if transferring over from a financial advisor or brokerage firm, Wealthfront will initiate transfers in a tax-efficient manner meaning they will transfer assets into a diversified portfolio incrementally to minimize tax obligations. However, mutual funds and stocks should be cashed out manually.
Wealthfront is registered with FINRA and provides FDIC and SIPC insurance coverage to accounts. The highly regarded management and heavy-duty VC firms bring much credibility to the brand. As one of the top four robo-advisory firms, this one is a highly trusted brand.
Who is Wealthfront Best Suited For?
Wealthfront is best suited for long-term investors, five-years or longer holding period, looking for professionally managed portfolios at minimal cost. Higher balance accounts over $100,000 and $500,000 get access more sophisticated strategies, thus tech savvy mature investors with large savings benefit the most. Small investors just starting off can still benefit long-term from the low management fees.
- Low account management fees of 0.25%
- Path AI-powered personal financial advisor is free to use
- Sophisticated Stock-Level and Smart Beta tax-loss harvesting strategy for higher balances
- Easy-to-use straightforward interface for both desktop and mobile app
- Fully automated platform especially favorable to high net worth passive investors
- Offers Portfolio Lines of Credit up to 30% of account value on accounts over $100,000
- Tax-efficient transfers from existing financial advisor or brokerage account
- No access to human Certified Financial Planners
- No tail hedge products to profit in bear markets