Reviews

Wealthfront Review – Automated Banking and Investing

Wealthfront was one of the first robo-advisor platforms to break into the retail investment mainstream. He remains one of the best robotic advisers on the market today and now also has basic financial planning capabilities.

Wealthfront has low investment minimums, reasonable management fees, free financial planning tools, a clean and easy-to-use interface, a cash management account with competitive returns, and a growing variety of value-added features for investors looking for truly portfolios. diversified in line with your financial goals.

There are plenty of worthy competitors out there, to be sure, but it’s hard to find glaring flaws with Wealthfront and its offerings.

Does that mean you should open a Wealthfront account and transfer your taxable brokerage assets ASAP? Maybe. But first, get familiar with Wealthfront and how it sets itself apart from the competition.

Key features

Wealthfront offers several types of investment accounts powered by its robo-advisor algorithm: a general taxable account , three types of individual retirement account (IRA), and a college investment account.

Wealthfront also offers other types of accounts. These include a cash management account and a low-cost portfolio line of credit, which investors can take advantage of to borrow against the value of their securities.

Individual investment account (taxable brokerage account)

The original Wealthfront investment account is a taxable product known simply as an individual investment account (or “general investment” account).

The individual investment account has a fixed advisory fee equal to 0.25% of assets under management (AUM). Assigns investment balances through a combination diversified of exchange traded funds (ETF) of low cost, index – based and sector that offer exposure to a variety of asset classes. Many are backed by names known as Vanguard and Schwab.

These funds are divided into six broad categories:

  • US stocks
  • Foreign stocks
  • Emerging markets
  • Dividend shares
  • Natural resources
  • Municipal bonds

Wealthfront’s algorithm automatically allocates client balances to a handful of index or sector fund options in each category (typically two to three), all with very low expense ratios.

Over time, the algorithm rebalances these asset allocations to ensure they stay in line with clients’ declared investment objectives and risk tolerance . The operations are free of commissions .

Tax minimization capabilities for all accounts

All Wealthfront accounts come with built-in tax minimization capabilities. For accounts with balances less than $ 100,000, this occurs through the standard daily collection of tax losses .

Wealthfront strategically sells positions that have incurred losses during the previous fiscal year to offset capital gains from rebalancing transactions.

Collection of tax losses at the inventory level and risk parity for accounts with a higher balance

Taxable accounts with balances greater than $ 100,000 use inventory-level tax loss collection, a more sophisticated tax minimization strategy that can significantly reduce user tax bills.

The Wealthfront algorithm buys up to 500 shares of the S&P 500 index and 1,000 shares of the S&P 1500 index and reduces or adds to these positions as necessary to offset capital gains produced elsewhere.

Because Wealthfront clients can manually exclude any S&P stock from inclusion in the share-level tax collection and thus from the portfolio as a whole, this has the added benefit of enabling investment strategies socially. responsible (SRI) .

If you don’t want to invest in fossil fuel companies or tobacco companies, for example, you don’t have to – just exclude those names and Wealthfront won’t touch them.

Taxable accounts with balances greater than $ 100,000 are also invested in part in the Wealthfront Risk Parity Fund , a mutual fund managed by Wealthfront.

The risk parity fund uses advanced trading strategies to hedge market risk and potentially increase returns over time relative to Wealthfront’s standard investment portfolio allocations.

The fund has a separate management fee of 0.25% AUM (only applies to balances invested in the fund itself), and investors can opt out at any time.

Wealthfront Smart Beta and risk parity

Taxable Wealthfront accounts with balances greater than $ 500,000 qualify for the platform’s Smart Beta service , which can increase returns.

Smart Beta uses techniques that were previously reserved for professionals in human wealth management and financial planning. It optimizes the exposure of portfolios to a collection of known investment factors (common sources of risk) to improve performance while maintaining indexation and closely monitoring the movements of the underlying indices on which the portfolio is based.

Retirement accounts (IRA)

Wealthfront offers four types of IRAs: Traditional IRA , Roth IRA and SEP IRA and 401 (k) , IRA rollover.

Beyond their tax benefits and federally mandated retirement and annual contribution restrictions, Wealthfront retirement accounts function much the same as your taxable investment accounts, with the same robo-advisor algorithm, investment options , asset combinations and tax minimization strategies.

Customers can open more than one retirement account with Wealthfront, but no more than one type of retirement account with the same name. For most clients, a Roth IRA and a Traditional IRA are sufficient. Autonomous customers can add SEP IRAs if necessary.

College Investment Account (529 Education Savings Plan)

Wealthfront offers a 529 education savings plan , a tax-advantaged college savings account for investors looking forward to private school or higher education expenses.

Contributions increase tax-free and can be withdrawn without incurring state or federal income taxes when used for qualifying education expenses.

Assets held in the Wealthfront plan are allocated and managed using the Wealthfront robo-advisor algorithm and are customized based on the time horizon and risk tolerance of the account holder.

Wealthfront advises potential 529 plan holders to research their home state’s 529 plan, which may offer greater tax benefits, such as tax deductible contributions up to an annual threshold, than Wealthfront’s nationally available option.

Cash account (cash management account)

Wealthfront offers a cash management account that is face-to-face with the best free checking accounts out there .

Known as the cash account, it has a negligible minimum required deposit and a return that is well above the national average for large banks, currently 0.10% APY, in line with leading high-yield checking accounts .

Cash account users can take advantage of:

  • A free debit card that works at tens of thousands of free ATMs across the country.
  • Direct deposit up to two days in advance with a qualified payer
  • The ability to send one-time or recurring checks in the Wealthfront app
  • Mobile check deposit in the app
  • The ability to make purchases online and in store with Apple Pay or Google Pay
  • Peer-to-peer transfers via Paypal, Venmo and the Cash app
  • Virtually no account fees, including no withdrawal overdraft or over-activity fee, a major deterrent to everyday use in traditional savings and money market accounts .
  • Up to $ 1 million in FDIC insurance, four times the minimum required, through Wealthfront partner banks
  • Automatic transfers to your individual investment account via Autopilot, a smart transfer feature – just specify a maximum cash account balance and Wealthfront transfers the excess, minus a $ 100 buffer, without any action on your part
  • Self-Driving Money ™, an even more comprehensive feature that automatically routes funds coming into your cash account toward budget expenses (including bills that must be paid by check), your emergency fund, your other savings goals based on your personalized savings plan (allowing you to simultaneously save for future goals like an international vacation and a down payment on a house) and your investment accounts, all in minutes

Portfolio credit line

The Wealthfront Portfolio Line of Credit is a low-cost lending tool for clients with individual investment account balances of $ 25,000 or more. No credit check is required and there is no impact on your credit score when you draw on your line.

Drafts are capped at 30% of the investment account value, or $ 3,000 for every $ 10,000 in assets.

The credit line portfolio Wealthfront has a variable interest rate on par with products with mortgage guarantee : Currently, from 2.40% to 3.65%, the balance and subject to change with the current rates.

There is no fixed repayment term or amount, but interest continually accumulates, making it financially advantageous to repay withdrawals quickly.

While balances remain outstanding, Wealthfront automatically applies incoming transfers to your individual investment account, without the need to pay a separate invoice or manually assign transfers to your line of credit.

Advantage

Wealthfront’s appeal is based on reasonable management fees on all balances, above-average cash account returns, multiple tax-advantaged account types, and low-cost portfolio leverage, among other differentiators.

1. Reasonable administration fees on all balances

Wealthfront charges a fixed management fee equal to 0.25% of assets under management, regardless of account balance.

This is considerably lower than some competing robo-advisors and an order of magnitude lower than the fees charged by full-service human financial advisors, which can average 1.00% AUM or more.

2. Very good returns on the cash account

The Wealthfront Cash Management Account (Cash Account) performs above average: 0.10% APY on all balances. This is higher than most large bank savings accounts and some competing bank accounts structured as cash management accounts as well.

3. Free debit card for cash management account holders

All Wealthfront Cash account holders are entitled to a free debit card accepted by millions of merchants. The cash account is a free checking account that is not subject to the federal mandatory savings withdrawal limit of six withdrawals per cycle. That makes it handy to use it as a daily spending account.

4. Various types of accounts with tax advantages available

Wealthfront offers Traditional IRAs, Roth IRAs, and SEP IRAs. Together, they attract a wide range of investors for retirement, including the self-employed.

5. Socially responsible investment flexibility for investors with superior assets

Although Wealthfront does not offer a completely separate socially responsible investment plan, it does allow higher asset investors – those with at least $ 100,000 under management with Wealthfront – to exclude individual stocks that do not meet its criteria.

6. Super easy saving and investing with Autopilot and Self-Driving Money ™

Wealthfront’s Autopilot feature makes low-balance investing easy, “set it and forget it.” Simply set a maximum balance in your cash account to ensure that Wealthfront makes good use of your surplus funds in the marketplace.

In addition, Self-Driving Money ™ effortlessly funds your savings goals, makes bill payments, and ensures that you contribute to your tax-advantaged and taxable investment accounts in accordance with your long-term financial plan.

7. Low-cost guaranteed leverage with portfolio line of credit offerings

The Wealthfront Portfolio Line of Credit offers a low-cost, secured source of leverage. Rates are comparable to home equity loans and lines of credit and much lower than rates for unsecured personal loans , the most common source of leverage, other than credit cards, for non-homeowners. of real estate.

Disadvantages

Disadvantages of Wealthfront include a fee scale that disadvantages investors with high assets, limited flexibility for investors with fewer assets, and relatively few fund options.

1. The administration fee is fixed for all balances

Wealthfront’s fixed management fee (0.25% AUM) on all balances is something of a double-edged sword.

On the one hand, it’s good for lower-asset investors for whom the fixed dollar fees charged by competitors like Acorns and Stash are quite high in percentage terms.

On the other hand, it’s not good for high-asset investors who would benefit from the types of tiered fee structures popular in the asset management world.

2. Investors with balances less than $ 100,000 cannot purchase individual shares or instruments other than shares.

Wealthfront doesn’t offer much asset-buying flexibility for less wealthy investors.

If your balance is less than $ 100,000, you cannot hold individual shares in any Wealthfront investment account. Instead, you should be content with Wealthfront’s fairly thin line ETFs.

And no Wealthfront investor can buy currencies, futures or options . For that, a full service brokerage is required.

3. Relatively few ETF options

Wealthfront’s limited selection of ETFs is worth repeating.

Their ETFs carry low expenses and are generally highly rated by independent analysts. However, they simply do not offer the degree of strategic choice demanded by more sophisticated investors.

4. There is no socially responsible investment option for investors with lower assets

Wealthfront clients with less than $ 100,000 in investable assets cannot take advantage of the platform’s core socially responsible investing feature – the ability to exclude individual stocks from their portfolio.

Those looking for a true socially conscious investment should look for platforms that offer broader access to SRI funds and strategies.

Final word

Wealthfront is one of the best robotic advisors out there. Its user-friendly features and reasonable cost make it a great online broker for novice investors as well .

However, Wealthfront is not appropriate for all investors or financial situations.

Importantly, for investors seeking practical help, Wealthfront cannot replicate the relationship between full-service wealth management professionals and their clients. No advisers human , financial internal or portfolio managers and offers little for personalized advice.

This is not a problem for investors who are comfortable with a more independent investment approach. But it bears repeating, if only so that practical investors aren’t caught off guard by what they find on Wealthfront.

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