Wealthfront is a well-established robo-advisor in an increasingly competitive field that includes offerings from successful, large brokerages. It has the second-most assets of any robo-advisor that isn’t connected to a brick-and-mortar brokerage. Its mission is to provide accessible investment management with lower taxes, lower fees and less hassle than traditional investment managers.
Wealthfront has registered Assets Under Management (AUM) of $10.0 billion and 225,820 accounts. That works out to an average account size of around $44,800. Account types abound, and include taxable accounts, IRAs, Roth IRAs, SEP IRAs, trusts and 529 plans. 529 plans are for college savings and aren’t offered by many robo-advisors.
Fees and investing
Investing with Wealthfront requires a minimum of $500 and is free for up to $10,000. For accounts over $10,000, an annual advisory fee of 0.25% applies. That fee applies across all account types, and there are no other fees charged by Wealthfront. Though as with any robo-advisor that invests in managed funds, there are fees charged by the managers of the funds. This is expressed as an expense ratio and comes directly out of your investment in the fund.
Wealthfront does have two special services available for large taxable accounts, at no additional costs: direct indexing and advanced indexing.
Direct indexing, available for taxable accounts with a balance over $100,000 offers a couple of benefits. For one, it provides a way around the fee charged by index fund managers by directly purchasing the stocks that make up an index. Think of it like having Wealthfront purchase a fruit basket for you. Instead of paying for a pre-sorted basket, Wealthfront buys the pieces of fruit individually, based on what is in the pre-sorted basket, and saves you the cut that goes to the guy putting the baskets together.
The other advantage to direct indexing involves tax-loss harvesting. Basically, because you own the individual stocks instead of a piece of a fund, you can use any losses to offset gains and reduce the tax burden from your investments. While index funds can use losses to minimize gains given to investors, the funds can’t pass on further tax losses to investors. With direct indexing, you get to harvest all of the associated tax loss.
Advanced indexing, available for taxable accounts with a balance over $500,000, is Wealthfront’s recently introduced Smart Beta strategy. Wealthfront, which had previously dismissed Smart Beta strategies due to their perceived tax inefficiencies, paired their advanced indexing strategy with stock-level tax loss harvesting. Advanced indexing uses a variety of factors including market beta, volatility, and momentum to pick individual securities to try to outperform the broader market.
The sign-up process is quick. It asks your reason for saving, and what you want from a financial advisor. Answering some income info, your age and a few questions to assess your risk tolerance will generate an investment plan. You can’t change the plan’s allocations for individual asset classes, but you can adjust the risk tolerance setting, which will shift allocations between riskier and safer classes.
If you like how it all looks, you can continue to open an account. Wealthfront will help you determine the kind of account or accounts to open with a few more questions. Then you’ll provide some additional contact information as well as a Social Security number. Wealthfront accounts are only available to U.S. residents age 18 and over.
What you get
Wealthfront offers 40 different portfolios, 20 each for taxable accounts and tax-advantaged accounts. The portfolios are made up of low-cost, passive ETFs from 11 asset classes. ETFs are a broad holding of stocks or bonds, traded on a market. Like most ETFs, the ETFs offered by Wealthfront are based on well-known, passive indexes. These ETFs are meant to track with the market so your holdings grow (and shrink) along with the market, instead of trying to “beat” the market like more actively managed funds. Many robo-advisors invest in passive ETFs because of the low expense ratios.
*If you sign up for the direct indexing service, your “US Stocks” asset class will be made up of individual securities instead of an ETF.
All accounts come with automatic rebalancing to maintain allocations and your associated risk level. For taxable accounts, tax-loss harvesting comes free. Wealthfront also provides a “Knowledge Center” with articles, news and blog posts.
Wealthfront is a low-cost financial advisor. Both the 0.25% fee and the free tier for under-$10,000 are some of the best offers in the robo-advisor field. Also noteworthy is Wealthfront’s direct indexing service, which can lower the expense ratio on accounts over $100,000. Though, unlike some other robo-advisors, Wealthfront doesn’t offer human advisement or goal-oriented investing.
Wealthfront is easy to set up, with little downside for initial investors to try it out for free. The direct indexing, low fee and variety of accounts, including 529 plans, round out the offering and help explain why Wealthfront trails only Betterment in registered AUM and number of accounts.