Wealthfront, founded in 2011, is a digital advisory firm backed by over $200 million in venture capital. Wealthfront charges 0.25% per year and has grown to provide the ultimate robo-advisor experience, finishing as our top pick for 2018.
A robo-advisor is a firm that provides algorithmically driven online advice and investment portfolios. Over the years, a variety of robo-advisors has emerged, with online brokers such as Charles Schwab, Fidelity, and TD Ameritrade launching robo services more recently.
While many stand-alone robo-advisors have been acquired or failed to gain traction, industry leaders Wealthfront and Betterment have remained on top. Wealthfront occupies third place in the ranking of total assets under management (AuM), managing more than $10 billion in assets and servicing nearly 200,000 clients as of March 1, 2018.
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.
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.
And one final note: when clients set up an account with Wealthfront, the firm is sensitive to taxes even when it liquidates an old portfolio and purchases new shares on the client’s behalf. The firm dubs it “tax-minimized brokerage account transfer” where investors have more options for the way they move assets to Wealthfront. The company uses its software to monitor your account daily and holds your transferred securities until they qualify for long-term capital gains treatment.
Wealthfront charges a flat 0.25% annual advisory fee.
|View All Fees||Wealthfront||Betterment||Fidelity Go||TD Ameritrade Essential Portfolios||Schwab Intelligent Portfolios|
|Total AuM||$10 Billion||$11.8 Billion||NA||$1.8 Billion||$30.6 Billion|
|Annual Fee - $5,000||0.25%||0.25%||0.35%||0.30%||0.00%|
|Annual Fee - $25,000||0.25%||0.25%||0.35%||0.30%||0.00%|
|Annual Fee - $50,000||0.25%||0.25%||0.35%||0.30%||0.00%|
|Annual Fee - $100,000||0.25%||0.25%||0.35%||0.30%||0.00%|
|Annual Fee - $1,000,000||0.25%||0.25%||0.35%||0.30%||0.00%|
Alongside an annual management fee, Wealthfront also passes on the expense ratio (annual fees) for your ETF holdings – a common practice among all robo-advisors, which in this case, adds an average of .12% to the yearly portfolio cost.
As far as goal trackers go, Wealthfront's Path experience is the best in the industry.
Wealthfront, built around its Path experience, is the centerpiece of the offering. As far as goal trackers go, it’s the best in the industry.
The objective 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, Path asked for information regarding my marital status, birthday, expected retirement age, income, projected 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 (connecting your home means entering your address which pulls Redfin’s value estimate). Over 10,000 institutions can be linked, and manual entry is available as well.
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 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.
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 specific stocks you don’t want to purchase for personal reasons (for example, tobacco companies), then you can add those to the list.
To take its Direct Indexing product one step further, in June 2017 Wealthfront introduced Advanced Indexing. Available for accounts with at least $500,000, Advanced Indexing takes Direct Indexing one step further by adjusting holdings to increase the portfolio’s expected after-tax return.
Lastly, Wealthfront offers mobile apps for both iOS and Android. While many robo-advisors do not port the full desktop experience to mobile, Wealthfront does, which impressed me. It’s another plus in the bucket that illustrates Wealthfront’s dedication to helping their clients succeed long term.
Bottom line, Wealthfront provides an excellent client experience.
Wealthfront is the only robo-advisor to offer a 529 college savings plan for investors. Not only does Wealthfront offer 529s, but Path has an entire section devoted to the experience. You can select any school to determine what the estimated tuition costs might be when your child begins, providing valuable context for your savings trajectory.
In April 2017, Wealthfront 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%.
Wealthfront is a great option for first-time savers all the way up to serious investors with $100,000 or more.
Wealthfront is a great 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. Besides Path, 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.
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.
Reviewed by Blain Reinkensmeyer Blain heads research at StockBrokers.com and developed the site's annual review format, which broker executives consider the most thorough in the industry. He has placed over 1,000 stock, options, forex, and crypto trades since 2001.
*Wealthfront was not included in the latest annual review, as a result this data may not be up to date.