Wealthfront is the largest and fastest growing automated investment service with over $1 billion under management. We're the least expensive service for accounts below $100k, and by far the most tax-efficient service over $100k.
Based on SEC filings, our assets under management are nearly double the assets managed by any other automated investment service. Our unique service is made possible by combining a team of world-class financial experts, led by Dr. Burton Malkiel, renowned economist and author of A Random Walk Down Wall Street, with some of Silicon Valley’s best technology talent. We believe we have been able to grow much faster than our competition for the following reasons:
1. Burton Malkiel is our Chief Investment Officer: Dr. Malkiel is an emeritus professor at Princeton University and the author of A Random Walk Down Wall Street, which played an important role in encouraging the use of low-cost “index funds” by institutional and individual investors. Dr. Malkiel, a Vanguard Group board member for 28 years, joined our team because he, like we, believes everyone deserves sophisticated investment management. Having Dr. Malkiel on our investment team enabled us to attract a world class research and development team that has resulted in a suite of innovative services not offered by any other automated investment service.
2. Innovative investment services: When you hire an automated investment service you're not only buying into what it offers today, but what it will offer in the future. Wealthfront has distinguished itself by consistently being the first to offer to everyone investment management services previously only available to high-end private wealth management clients. Being the first affords you an incredible opportunity to learn from experience and continuously improve your service. Examples of services we were the first to offer broadly:
a. Tax-Loss Harvesting: Tax-loss harvesting is a technique used to lower your taxes while maintaining the expected risk and return profile of your portfolio.
i. Daily Tax-Loss Harvesting: Our Daily Tax-Loss Harvesting captures previously unrecognized investment losses to offset taxes due on your other gains and income. You can reinvest these tax savings to significantly grow the value of your portfolio.
Wealthfront developed software to make this service, traditionally only available to accounts in excess of $5 million, available to taxable accounts with at least $100k. Between 2000 and 2013, our research shows tax-loss harvesting would have increased your after-tax returns by more than 0.92% a year. Over the next 20 years that could add more than $53k to your $100k portfolio.
ii. The Wealthfront Tax-Optimized US Index Portfolio: The Wealthfront Tax-Optimized US Index Portfolio is Wealthfront’s replacement for the US stock investment piece of a diversified portfolio that permits for an enhanced form of Tax-Loss Harvesting. Instead of using a single ETF or Index Fund to invest in US stocks, the Wealthfront Tax-Optimized US Index Portfolio directly purchases up to 501 individual securities on your behalf—all the stocks in the S&P 500 index and single ETF of smaller non-S&P 500 companies. The rest of your Wealthfront portfolio continues to own the index ETFs recommended by Wealthfront.
This allows us to take advantage of the countless opportunities for tax-loss harvesting presented by the movement of individual stocks, to further improve your investment performance. Combined with our Daily Tax-Loss Harvesting service, we believe this could add as much as 1.62% to your annual investment performance. Companies like Aperio and Parametric have offered this kind of service for years to clients with at least $5 million. We reduce their minimum by 10x and eliminate the typical 0.35% – 0.50% fee they charge and we do it with no transaction fees. To learn more about our tax loss harvesting services, please watch our short video or read our white paper on the subject.
b. Differentiated Asset Location: For all our clients we recommend a different investment mix for taxable vs. retirement accounts that takes tax efficiency of different asset classes into account. Our research shows our Differentiated Asset Location could increase your after-tax returns by more than 0.5% per year relative to a one size fits all approach. Assuming you invest $100,000 over 20 years, this could add approximately $28,000 to your account’s value. To learn more about this capability please see Wealthfront’s New Investment Mix
c. Single Stock Diversification Service: This service automates the process of selling your stock options or RSUs gradually and consistently over time in an easy, commission-free, and tax-aware manner.
Your shares will be sold every single day your trading window is open so you can benefit from dollar cost averaging. Once your taxes and other short-term needs are set aside in a fee free cash account, the remaining sales proceeds are invested in a less-volatile Wealthfront diversified portfolio that is suitable for your long-term needs.
Tax Loss Harvesting, Differentiated Asset Allocation, and the Single-Stock Diversification Service are three examples of services we implement to maximize your net of fee, after tax returns.
3. Fee Structure: Wealthfront believes everyone deserves sophisticated investment management, so we charge no fees on accounts below $10,000. We then only charge 0.25% on assets above $10k. Our clients do not incur any expenses beyond our advisory fee (i.e. no commissions, exit fees or other hidden fees). We also built an invitation program that gives you the opportunity to further lower your fees. For every friend who accepts, we will manage an additional $5k for free, for you and for your friend. We model our pricing after Dropbox, a company we admire greatly.
All our aforementioned premium services are available for no extra charge. We believe the benefit of our free premium features (0.9 – 1.6% after tax per year) is far greater than any volume based discount we could offer.
4. Account Size: Our minimum account is $5,000, and our largest account is in excess of $10 million. Our average client starts by investing about $40k with us. The average amount invested per client has grown to more than $90k as people have added funds to their accounts. We make it easy to add funds. You can add up to $500,000 via electronic bank transfer (ACH) each day and we allow you to dollar cost average into your portfolio through scheduled deposits.
Based on SEC Form ADV filings we believe our average account size is at least 7 times larger than alternatives due to our superior client satisfaction.
5. The Way We Determine Your Risk Tolerance: Behavioral economists have demonstrated that people consistently overstate their risk tolerance, which frequently causes them to sell when markets turn down, thereby significantly reducing their return. That’s why we’ve built algorithms that help us determine what your risk tolerance actually is – a determination that is the critical input to determine your optimal asset allocation. For more on the thinking behind our approach to risk tolerance, take see our blog post:https://blog.wealthfront.com/wha…. We believe by accurately assessing your risk tolerance, we are likely to recommend a portfolio that you are less likely to sell when the market declines. DALBAR, a respected research firm, found that selling when the market declines typically costs the individual investor on the order of 4% per year (http://www.dalbar.com/ProductsSe…).
6. Our Approach To Transparency: We believe information wants to be free, and that you should only pay for convenience. That's why we tell you what your allocation is going to be before we ask for your email address. We tell you why we selected each of the ETFs we recommend and which ETFs would have been our second and third choices. If you’re a “Do it yourself” investor, you are welcome to use that info to buy our recommended ETFs in your own brokerage account without paying us at all. We give away that information for free, because we believe people will find the convenience of periodic rebalancing, optimized asset location, daily Tax-Loss Harvesting and single stock diversification worth our small fee. Most importantly we believe in under promising and over delivering. We work hard to limit our claims to what is truly achievable.