Features

Wealthfront is a wealth management company that uses software to automate your investment portfolio based on your tolerance for risk and modern portfolio theory. Modern portfolio theory states that trying to time the market and pick stocks is a fool’s errand and that the smart move is to invest in a well-diversified portfolio based on a selection of asset classes chosen for their complimentary risk and return potentials.

Although ultra-wealthy people are unlikely to fire their wealth management advisers and use a website to manage their billions, software-based investing is a low-cost and efficient way of investing that makes financial sense for most people.

How Does It Work?

Once you register on Wealthfront’s website, you are asked some simple questions to determine what type of investor your are. Wealthfront then creates a portfolio of stocks, bonds and other asset tailored to your risk tolerance. There are five assets to choose from when building your portfolio: bonds, natural resources, national stocks, foreign developed markets, emerging markets and real estate REITs. 

To keep costs and fees down, Wealthfront uses exchange-traded-funds to benefit from the performance of a diversified portfolio without incurring the cost of having a personal advisor or broker. 

Wealthfront charges a 0.25% flat fee on accounts with more than $10,000. (Investors with a personal invitation get the first $15k managed for free). Investors also must pay an average fee of 0.12% that is embedded in the cost of ETFs.

Tax-Loss Harvesting

Wealthfont also offers customers with over $100,000 in assets complimentary tax-loss harvesting. This tax mitigation technique allows you to use any tax benefits you receive from investment losses to offset the taxes you owe on the investments that do make a profit. This can add up to 1% more to your annual return.

The Upside

- Wealthfront’s is the automated investment service that is closest to reaching the volume of assets invested required to turn robo-advisers from a cute novelty into a viable long-term service with a chance of competing with human advisors. Its investment team includes economists, Burton Malkiel, proponent of the efficient market hypothesis and author of the classic investment book, A Random Walk Down Wall Street, and Charles D. Ellis, author of Winning the Loser’s Game, all rock stars in finance and economics; and are ideally qualified to consult in the tailoring of ETF-based portfolios.

- Wealthfront also has the advantage of offering real estate and natural resources in its mix of assets. 

- The design of Wealthfront’s platform is elegant and easy to use. 
- The first $10,000 are managed for free, and even those who exceed that amount only have to pay a 0.25% fee.

The Downside

If your assets come to less than $100,000, Wealthfront provides a competitive option to both financial advisers and other robo-advisers. However, once you have more than $100,000 in assets, the fees are no longer as low as other robo-advisers, such as Betterment and SigFig.

Wealthfront requires a minimum investment of $500, which may be a deal breaker for those who are just starting to save, particularly when direct competitors like SigFig and Betterment don’t have a minimum account.

Wealthfront's Tax-Optimized Direct Indexing service is only available for accounts with over $100k.

In Summary

Wealthfront, as several of the other robo-advisers, provides a low-cost way of creating a scientifically diversified portfolio that would either cost you a small fortune in finance adviser fees or take hours and hours of your time to set up. The design, ease of use and special features, such as tax harvesting, make Wealthfront a solid choice, but there are other competitors, such as SigFig, Betterment, and Vanguard, that are also worth a look.

  • Independent/Registered Investment Adviser
  • Software Managed
  • Asset Mgmt Fee
    0.25%
  • Commission Based
  • Fee Based
  • CPAs On Staff
  • Total AUM (in millions)
    $2600
  • Min Account
    5000
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This is one of my favorite robo-investing websites. It manages to include the best services provided by premium wealth managers, such as tax-harvesting and flexible asset allocation, and still compete in price with the other algorithm-run investment websites, such as SigFig and Betterment. On the flip side, Wealthfront requires a $5,000 investment to open an account and tax-harvesting only works for accounts with over $100,000.


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