Wealthfront was an early entrant to the robo-advisor space in 2011. A robo-advisor is a firm that provides algorithmically driven online advice and investment portfolios. Wealthfront manages more than $5.2 billion in assets and has 100,000 client accounts as of December 31, 2016.
Like most of its competitors, Wealthfront uses Vanguard and iShares ETFs (exchange traded funds), citing that these ETFS are the best value in the ETF universe. The firm seeks to maximize after-tax real investment returns based on each person’s tolerance for risk.
Dr. Burton Malkiel, a well-known economist and chief investment officer for Wealthfront, takes the approach that you can’t control the stock market but you can control your own fees. He has devoted his career to helping investors snare better fees. In his 1973 book, “A Random Walk Down Wall Street,” Malkiel emphasizes ways to minimize taxes through tax-loss harvesting.
Wealthfront’s approach to taxes is core to its investment beliefs, and the robo-advisor is one of only a few that offers tax-loss harvesting. Tax-loss harvesting is a process in which investments that have lost value are sold at a loss, allowing you to write off the loss and lower your annual tax burden. Naturally, it is used solely in taxable accounts and is an available option for all clients.
Wealthfront’s portfolios include a mix of U.S. stocks, foreign stocks, real estate, natural resources, and corporate, municipal, and emerging market bonds. For taxable accounts, Wealthfront uses municipal bonds. These are attractive for tax purposes because municipal bond interest is exempt from federal taxes.
High-level overview aside, the one primary gripe I have with Wealthfront’s investment approach is its new client sign up process which is severely flawed in its current iteration.
High-level overview aside, the one primary gripe I have with Wealthfront’s investment approach is its new client sign up process which is severely flawed in its current iteration. Once you fill in your basic information and complete the two question risk-tolerance questionnaire, you are shown your recommended investment plan. This was mine.
The serious flaw comes with the fact that you can change your risk tolerance number by simply clicking the “+” or “-” icons, immediately see the adjustments to the portfolio holdings, and then open the account anyway. Establishing the wrong portfolio allocation can be detrimental to your financial future. I set my Wealthfront account at 0.5% risk tolerance to see what would happen. Unfortunately, Wealthfront did not alert me within my account dashboard to get me back on track. This flaw needs to be fixed.
UPDATE 03/02/17 – Wealthfront thanked us for our feedback and has added a risk score change popup warning message. This warning will appear if a user attempts to sign up with a risk-tolerance number that is more than one point different than the original recommended score provided.
The standout of Wealthfront’s fees is that for the first $10,000 you invest, the firm charges no advisory fee. Charles Schwab Intelligent Portfolios is the only other robo to match this offer (Intelligent Portfolios charges no advisory fee at all).
Note, that doesn’t mean the entire service is free; you’re still on the hook for paying for the expense ratios of the ETF holdings (every robo-advisor passes the fund expense ratios onto its clients), although those are extremely low. The average annual portfolio fee is .12% when all ETFs are taken into consideration.
|View All Fees||Wealthfront||Betterment||Fidelity Go||TD Ameritrade Essential Portfolios||Schwab Intelligent Portfolios|
|Total AUM||$7.4 Billion||$9.1 Billion||NA||$900 Million||$19.4 billion|
|Annual Fee - $5,000||0.0%||0.25%||0.35%||0.30%||0.00%|
|Annual Fee - $25,000||0.15%||0.25%||0.35%||0.30%||0.00%|
|Annual Fee - $50,000||0.20%||0.25%||0.35%||0.30%||0.00%|
|Annual Fee - $100,000||0.23%||0.25%||0.35%||0.30%||0.00%|
|Annual Fee - $1,000,000||0.25%||0.25%||0.35%||0.30%||0.00%|
Once you hit $10,000 in assets, Wealthfront charges an annual advisory fee of 0.25% on the remaining balance. For example, an account with $25,000 would pay an annual advisory fee of just $37.50 ($25,000 x .0015) a year. Similarly, a client with $50,000 in assets would pay just $100 per year ($50,000 x .0020).
Considering the attractiveness of millennials to robo-advisors, I was extremely surprised to learn that Wealthfront’s customer service doesn’t offer an online chat system. In the past, the firm had offered online chat, but ended that option, a spokeswoman explained, adding that Wealthfront could initiate the chat system again.
Live chat aside, Wealthfront is quick to respond to questions via phone, although email response times varied. With phone, they often directed us to the website and helped us find the answers on our own. That’s very helpful because the firm wants its clients to be able to maneuver comfortably on its website.
All in all, the customer service through email and phone was good, but not award winning. Wealthfront finished 6th overall for Customer Service.
In early 2017, Wealthfront launched Path as its featured experience for long-term financial planning. The goal of Path is to calculate your current and future financial landscapes and assess your retirement readiness without the assistance of an advisor. Path helps answer questions such as, “Can I live my current lifestyle in retirement?” and, “What is the impact of saving more today?”
Going through Path’s setup, I was asked for information regarding my marital status, birthday, expected retirement age, income, expected Social Security benefits, and several other miscellaneous items. From there, Path helped me assess my potential monthly retirement spending, and I was able to link outside investment accounts and cash accounts, together with my home (linking your home simply means entering your address which pulls Redfin’s value estimate). All said and done, I added two Fidelity brokerage accounts and my home. This process is similar to Betterment’s RetireGuide tool or Personal Capital’s Retirement Planner tool.
With all the data incorporated, Path then does a quick calculation and tells you if you are on track for retirement or not. Unfortunately for my wife and I, according to Path, we were only 15% on track. The results screen also summarized the primary data points that went into the calculation with supplemental education, which was a nice touch.
Since I was off-track for retirement, Path quickly pointed out my problem areas.
Once you have completed Path’s setup, your Wealthfront dashboard moving forward features the results and visually shows your current trajectory. Since I was off-track for retirement, Path quickly pointed out my problem areas. In my account, I had input that I was making no monthly contributions. Naturally, it would be hard to retire if you weren’t saving each month. Updating this to $1,000 per month quickly solved my problem, placing me back on track for retirement.
While I found Path to be beneficial, it did take some time to fully process how it worked and what it meant for my personal future. After linking my Fidelity accounts and seeing how that impacted my retirement projections, I was motivated and linked other outside accounts. Naturally, this is the intended purpose.
One final note on Path is that when it first launched in early February 2017, it would analyze your externally linked accounts and provide suggestions for improvement (basically finding a flaw such as no tax-loss harvesting, thus recommending you transfer the assets to Wealthfront). Two weeks later, as I write this review, it appears that functionality has been hidden on the website experience while it is still available on the mobile app.
Alongside Path, Wealthfront shines because it offers unique programs other robo-advisors don’t. For instance, the firm offers Tax-Optimized Direct Indexing. Here’s how it works. Instead of purchasing a single ETF of an Index Fund to invest in U.S. stocks, this program will purchase up to 1,001 individual securities on your behalf. By owning so many stocks, Wealthfront says it can improve tax-loss harvesting. According to Wealthfront, Tax-Optimized Direct Indexing can add 2.03% to your annual performance.
Tax-Optimized Indexing is a service traditionally offered by advisors for clients with at least $5 million in assets. At Wealthfront, only $100,000 is required. Furthermore, there is no additional fee for this service. What is also unique about this service is you can set up an exclusion list of stocks, meaning if there are certain stocks you don’t want to purchase for personal reasons (for example, tobacco companies), then you can add those to the list.
Lastly, Wealthfront offers mobile apps for both iOS and Android. On the whole, they aren’t bad, accomplishing their goal of showing portfolio performance and account information. Path is also fully integrated, which I found useful.
In terms of its tools, while there are aspects of the experience that could be improved to better compete with leaders such as Betterment and Schwab Intelligent Portfolios, Wealthfront left us impressed.
UPDATE 04/25/17: Wealthfront has launched Portfolio Line of Credit, a new margin product that competes with a traditional Home equity line of credit (HELOC). Clients with at least $100,000 in their account can take a line of credit of up to 30% of their portfolio value at an interest rate of 3.25% - 4.5%. Read more.
A unique offering by Wealthfront is a 529 college savings plan for investors. Wealthfront is the only online robo-advisory firm in our 2017 Review that offers the 529 plan.
While all online advice firms say they pay special attention to taxes, Wealthfront clearly goes that extra mile.
While all online advice firms say they pay special attention to taxes, Wealthfront clearly goes that extra mile. When clients set up an account with Wealthfront, the firm is sensitive to taxes even when it liquidates an old account and purchases new shares on behalf of the client. The firm dubs it “tax-minimized brokerage account transfer” where investors have more options for the way they move assets to Wealthfront. Wealthfront uses its software to monitor your account daily and hold your transferred securities until they qualify for long-term capital gains treatment.
In contrast to its competitor, Betterment, one program Wealthfront doesn’t offer is fractional shares. What this means is if you don’t have enough money to purchase whole shares, Wealthfront will set that money aside in cash until full stocks can be purchased.
Lastly, at Wealthfront I discovered I could set up three bank accounts for ACH transfers, which I found beneficial since I have multiple checking accounts. For example, at Betterment I could only transfer money from one bank account. If I wanted to add another bank account, I had to remove the current bank account.
Wealthfront is a good option for first-time savers all the way up to serious investors with $100,000 or more. It is low cost and has diverse investment options, including 529s. One of Wealthfront’s best attributes is its tax programs, Tax-Loss Harvesting and Tax-Optimized Indexing. Investors with tax concerns should especially consider Wealthfront.
Wealthfront has combined its clean investment approach with its tax-efficient portfolios to provide an intriguing solution for taxable accounts. Drawbacks primarily rest with the client website experience, which lacks calculators and live chat support, and offers a poor overall customer service. Cons aside, the robo-advisor is a good fit for those who want to focus primarily on passive investing for the future.
To find the best robo-advisors we assessed, rated, and ranked eight different firms. Instead of relying on website information and marketing materials as most editorials do, we opened and funded an account with each robo-advisor to acquire a true client experience.
Reink Media Group (RMG) remains committed to providing transparent and unbiased reviews of various financial services and segments, including Robo-Investment Advisors (“RIA’s”). Although exempt from registration as an investment advisor under the Investment Advisors Act of 1940, 15 U.S.C. §80b-1, et seq, RMG works tirelessly to ensure compliance with all applicable Security and Exchange Commission rules and regulations for entities which perform reviews and/or receive payments for advertising and solicitation. Please be advised that for purposes to this Review, RMG utilized a live account with actual funding which was later closed once the Review’s test period was complete.
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Reviewed by Blain heads research at taxconference.ru and has been involved in the markets since placing his first stock trade back in 2001. He developed taxconference.ru's annual review format seven years ago, a format broker executives consider the most thorough in the industry. Blain currently maintains funded accounts with more than a dozen different US-regulated online brokers and has executed thousands of trades throughout his career. He enjoys sharing his experiences through his personal blog, StockTrader.com.
Best in Class