Account Minimum: $500 – Fees: 0.25% – Best for: Goal-Based Investing
Let’s review Wealthfront, another up and coming robo-advisor. Andy Rachleff runs Wealthfront. They currently manages over $11 billion in assets. Andy previously managed Benchmark Capital, an early investor in Dropbox, Twitter, Uber, Snapchat, Instagram and more. With Wealthfront Andy wants to make it easier for people to control and plan for their financial future.
What is Wealthfront?
Wealthfront is a robo-advisor that provides investment advice for new and experienced investors alike. The app works perfectly for college savings, retirement planning and even lets you plan if you don’t have a Wealthfront account. You are able to see where you stand currently and predict what your financial future will look like based on the goals you set for yourself.
Getting started with Wealthfront.
Setting up a Wealthfront account is easy. It is a three step process.
Step 1: The Questionnaire – Here you answer a few basic questions so Wealthfront’s algorithms can create a financial plan based on your financial situation.
Step 2: The Investment Plan – Now you select what your strategy is, your savings goals and your risk tolerance. This helps Wealthfront decide what to invest in for you.
Step 3: The Account – Up until this point, Wealthfront gathers information about you. They then ask you to create an account with Wealthfront. The accounts currently offered by Wealthfront can be seen here.
Track Your Financial Goals
With Wealthfront it’s easy to know where you stand. You can monitor plans for retirement, travel, college funds and home ownership. It shows you how much you have, how much you need and whether or not you’re in good shape to meet your goals. Setting and changing your goals is easy and intuitive. This is incredibly valuable for those of us who are less financially saavy (or just visual learners).
6 Reasons we love Wealthfront
- Easy Financial Planning – Working with a traditional financial advisor can be challenging. Humans are only available so often. With Wealthfront you can get updates on your account any time, anywhere. This is ideal for passive investors and those of us who want to save for the long term.
- Daily Tax-Loss Harvesting – Tax loss harvesting is a great way to reduce the amount of capital gains tax you need to pay, but it is not easy for a human financial advisor to do this. Wealthfront offers this feature for free on a daily basis for accounts when your account balance passes $100k.
- Borrow Against Yourself – Getting a loan is never a pleasant process. Wealthfront offers an opportunity for you to borrow up to 30% of your account balance and pay it off at 4.75 – 6.00% interest depending on the account. While this is a great feature, if you are looking to borrow against yourself, M1 Finance is a better alternative.
- Automatic Rebalancing – One of the most annoying parts of investing is shuffling money around to make sure the balances are right. Wealthfront takes care of this for you. While Betterment does this every time you invest, Welathfront does not specify when this happens. They let their algorithms do the work.
- First $5000 Managed Free – With Wealthfront, they offer to manage $5,000 for free when you sign up via this link. This doesn’t seem like a lot, but the more people you refer, the more rewarding it is!
- Smart Beta – Wealthfront offers a special service for no extra fee called Smart Beta once your account balance passed $500k. This is a tax-efficient and multifactor wealth management tool that maximizes returns on your portfolio. Lot of big words but basically, it helps your money make more money.
Wealthfront Pricing
Wealthfront tries to keep their simple pricing model, but they don’t make it easy for people unfamiliar with traditional investing.
.25% Annual Fee
Wealthfront charges a 0.25% annual management fee. This is deducted on a monthly basis. They do not charge any account-opening fees, withdrawal or account-closing fees, trading/commission fees, or account transfer fees.
0.07%-0.16% Annual Fee
Wealthfront has simple pricing. Underlying funds however, do not. This can be confusing for first time investors. What happens is that Wealthfront buys funds from other financial institutions. These institutions charge small management fees, so your overall cost may come out to over 0.40%
Where Wealthfront Could Improve
- Investor Education – Wealthfront does a great job selling their product and showing the user how to interact with it. One thing they do not do a great job with is education. People put money into their account, but they may not know why it is working (or not working).
- Hidden Fees – If you want to make higher returns on your investment, Wealthfront will likely recommend Risk Parity. This is a way to reduce the risk you take on with more aggressive investments. What isn’t so clear is that they charge an additional 0.25% and let you put up to 20% of your portfolio in this fund.
- Limited Customer Support – Similar to Robinhood and many other financial technology products, Wealthfront has limited customer support. Their FAQ section is robust, but they obviously would prefer you solve your own problems. They do not offer any advice or advisement from humans like Betterment does.
- Flat Fee Structure – In a perfect world, you would be rewarded for investing more money with lower fees. Almost every SaaS product offers “Enterprise Pricing,” but Wealthfront keeps their rate flat no matter how much money is in your account.
Wealthfront Review: The Bottom Line
If you are a planner, goal-setter, or you simply want to know where you stand, Wealthfront is a great product. It is the perfect app for people who are looking to invest long term.
On the other hand, if you are looking to do more short term trading or aggressive investing, Wealthfront is likely not the right fit for you.