Wealthfront are one of the world’s most well known robo-advisory services. They are leaders in the passive investment model. There are very few downsides to this low cost investment advisor. Established in 2011, Wealthfront now manages over $12 Million in assets under management.
The way this robo-advisor functions is that clients are first asked ten questions to gauge their risk tolerance when they sign up to the platform. Once this is established, the deposits are divided into portfolio allocations based on Modern Portfolio Theory (‘MPT’). This allocation remains constant regardless of how much money is invested. The typical allocation is 60/40 stocks to bonds based on MFT, but there is flexibility depending on how questions are answered. Risk tolerance preferences can be changed.
For accounts under $10,000, Wealthfront is the cheapest robo-advisor on the market. It is about average for accounts above this figure, and far cheaper than actively managed services. The primary Wealthfront competitor are known as Betterment, with similar services.
In particular, the Wealthfront model has a huge appeal for millennials and younger generations. This is because it allows customers the ability to set their goals and to use an algorithm to carry out the investment. This eliminates the hassle of having to talk and negotiate with a personal advisor. It also eliminates a lot of confusion in terms of fees and charges. Robo-investment costs a fraction of human managed services. Like other robo-advisors, Wealthfront specializes in minimizing the tax burden for investors.
With this robo-advisor, It is also possible to avail of the free financial tools to plan for specific goals. Investors of all kinds can benefit from Wealthfront, especially those with huge portfolios who want to take advantage of the generous 0.25% management fee. Wealthfront remains one of the best robo-advisors on the market for the foreseeable future.
What can you trade?
Wealthfront specializes in low cost ETF funds. These EFTs are based on stocks, bonds, real estate, and natural resources. The ETFs are mainly from Vanguard, iShares, and Schwab, as well as the Energy Select Sector SPDR. Nothing is really traded as it is a passive wealth management tool. The client can change their risk preferences and the portfolio will be rebalanced to match this.
What can you trade?
Wealthfront Stocks Review
Wealthfront stocks are based on 4 major ETFs. These ETFs are from Vanguard and cover 4 sectors – US, Foreign, Emerging Market, and Dividend. The ETFs available are the Vanguard US Total Stock Market (‘VTI’), Vanguard FTSE Developed Markets (‘VEA’), Vanguard FTSE Emerging Markets (‘VWO’), and Vanguard Dividend Appreciation (‘VIG’).
Allocations in these stock ETFs depends on the answers given in the initial risk tolerance questionnaire. The reasons that ETFs are the primary investment vehicle is for tax advantages, diversification, and risk mitigation. They are also cheaper than mutual funds.
Wealthfront Commodities Review
Wealthfront does not provide a huge list of commodities, as these are typically quite volatile. It does offer an ETF based on Natural Resources – the Energy Select Sector SPDR (‘XLE’). It also offers an ETF based on real estate – the Vanguard REIT (‘VNQ’).
Wealthfront Indices Review
Wealthfront provides 5 ETFs based on bonds in 5 sectors – US Tips, US Government, Municipal, Corporate, and Emerging Market. The 5 ETFs are the Schwab US TIPS (‘SCHP’), Vanguard Total Bond Market (‘BND’), iShares National AMT-Free Muni Bond (‘MUB’), iShares Corporate Bond (‘LQD’), and iShares JPMorgan Emerging Markets Bond (‘EMB’).
Wealthfront has recently introduced its own mutual fund known as the PassivePlus Risk Parity Fund. This is for investors who want to introduce more risk with the potential of acquiring more gains. The minimum threshold for this fund is $100,000 and it comes with a higher expense ratio that the Wealthfront ETF average.
What did our traders think after reviewing the key criteria?
Our review team was more than impressed with Wealthfront on all possible levels. It is the perfect tool for huge portfolios as well as small investors who want to plan for specific financial goals.
It really excels in terms of reducing the tax burden with its tax loss harvesting and stock level tax loss harvesting. Combined with its SmartBeta feature, it is unbeatable when it comes to reducing taxes for large portfolios. All of these features are combined in the Wealthfront platform through a service known as PassivePlus.
The goal setting functionality is arguably the best on the market right now. Whether users are saving up for a vacation or a retirement, it works equally well. The PATH model is built on academic findings and clients will love that their preferences are being taken into account. This is partially why millennials are taking to this platform in droves.
Most actively traded funds simply clump clients together into a standardized mix of stocks and bonds without any degree of personalization. To talk to a human advisor, the costs are simply too high for most, and are only suitable for people with huge bank accounts.
Wealthfront works exceedingly well, and the knowledge base clearly answers any questions that potential investors might have. It is easy to setup an account, easy to get started, and easy to withdraw funds. Everything is streamlined without any hidden fees or hassle. Which is why our review team believes this is the best robo-advisor on the market right now.
Wealthfront is the most cost-effective wealth management platform in a highly competitive space. The management fees are only 0.25% annually, with the first $5,000 managed for free. The ETF expense fees are tiny, at just 0.18% on average.
Aside from this, there are no hidden costs. It runs automatically and all you have to do is check in to see if your financial plans are on track. For larger accounts, there are certain funds that have higher fees, and this will need to be investigated.
Account types offered through Wealthfront include Taxable, Joint, Roth IRA, Traditional IRA, Rollover IRA, SEP IRA, Trusts, Non-Profit, and 529 accounts. They do not offer 401(k), 401(k) assistance, Coverdell, custodial, money market, partnerships, limited partnerships, Simple IRA, CDs, or Solo 401(k)s.
The account minimum of $500 is enticing for many investors. They also offer a portfolio line of credit which is unique to Wealthfront and a high interest checking account of 2.07%. Accounts with over $100,000 can take advantage of a line of credit against their portfolio with an APR rate between 4.75% – 6%.
Our trading panel wer particularly impressed with the investment methodology. The Wealthfront free financial management tool uses an investment strategy known as PATH. This was developed by a team of PH.Ds to optimize portfolio returns depending on user preferences. You can open an account for free and get access to this investment strategy very rapidly.
Its like having a personal financial advisor, except in a software format. Users input their financial goals and PATH then tells them if they are on the right track to achieve them. This has appeal to a modern investor who want an automated approach without having to talk to an advisor or wade through paperwork to invest.
Wealthfront is the only pure robo-advisor to offer a free financial planning tool. Mint and Personal Capital provide a similar service, but do not incorporate the PATH model. You can answer up to 10,000 questions with PATH in order to tailor it for exactly what you are looking for.
Wealthfront has a SmartBeta features that is available for accounts larger than $500,000. This helps to enhance returns over the market indices. This feature is available at no additional cost. Wealthfront also announced that its tax-loss harvesting, Stock Level Tax-Loss Harvesting, and Smart Beta options are all merged into one combined service called PassivePlus.
The Wealthfront mobile application and core website is excellent. The application runs very smoothly and is intuitive to use. It is incredibly detailed and informative but also streamlined and usable. It displays metrics on each specific financial goal that you set using the PATH model, such as how much money you need to earn, how long it will take, planned savings a month, account returns, and more.
Wealthfront has an advantage here in the sense that it only offers pure robo-advisor services. With an active trading platform that requires a lot of features for sophisticated professionals, it is a lot more difficult to build a platform to cater to the many diverse requirements.
The passive investment model is simple and easy. And all Wealthfront platforms are simple and easy to use, with everything you need being readily available. You can set financial targets for your holiday, retirement, university, or real estate investment. The application will show you how on track you are to achieve each specific goal. It is the perfect combination. Wealth management used to be something only for wealthy investors with time to visit physical branches.
With simple mobile applications coupled with a strong PATH model, wealth management has been brought to the masses. And Wealthfront are pioneers in the space.
As a robo-advisor, there is no massive amount of customer service support with Wealthfront. There are no physical branches and no live chat option. However, it is designed to run on autopilot without errors (and it succeeds, by and large), so the need for customer service is actually lessened with this provider.
In addition, the knowledge base is very informative for answering basic questions. Wealthfront don’t push you into talking to a representative or into a more expensive option, unlike Fidelity and Personal Capital.
Wealthfront offers 3 primary deposit methods. These are ACH bank transfer, account rollover, and wire transfer. ACH transfers take between 2 to 3 business days. You can schedule recurring transfers. There are no fees for incoming wire transfers. Third-party wire transfers are not accepted. Funding by checks is also an option, but only for 529 accounts.
You can withdraw a minimum of $250 each time, as long as your balance does not fall below the $500 minimum threshold. There are no fees to withdraw funds, and withdrawals typically takes about 4 business days in total. Wealthfront withdraws from your portfolio allocation smartly to keep the risk/reward ratio intact and to minimize tax obligations.
Currently, the Wealthfront service is free for accounts under $5,000 by using a number of online promotions. Nevada residents can get the first $25,000 managed for free. For every new customer you refer to Wealthfront, you can get an additional $5,000 managed for free.
Regulation and Deposit Protection
Funds are not actually held by Wealthfront, but are stored with the Royal Bank of Canada (‘RBC’). A cash account with Wealthfront is FDIC insured up to $1,000,000, 4 times the average coverage with a typical bank. You can open a Wealthfront cash account with as little as $1 and it pays a nice 2.07% interest rate. Wealthfront supports Two Factor Authentication for added account protection.
Wealthfront only invests in SIPC covered securities registered in street name at the Depository Trust Company (DTC). This means that the securities purchased on your behalf by Wealthfront are held separately from other assets. The robo-advisor does not engage in proprietary trading so market risks are greatly lessened.
Wealthfront Advisers LLC (“Wealthfront Advisers”) is an investment advisor registered with the Securities and Exchange Commission (‘SEC’). It is a wholly owned subsidiary of Wealthfront Corporation.
Wealthfront has won a tonne of awards for its innovative approach to investment. Investopedia gave it the best for Beginners 2019, Best for Goal Setting 2019, and Best Robo Advisor 2019. The NerdWallet platform reported Wealthfront was the overall best robo-advisor in 2019.