Since its launch in 2011, Wealthfront has built trust with its unique service that designs a personalized portfolio of globally diversified investments for each client. Wealthfront has hired world-class financial experts and academics to perfect its strategy, such as Dr. Burton Malkiel, one of the founding fathers of indexing and passive investing. In its albeit short history, Wealthfront has proven to be a viable option for both beginners and high net worth investors.

Robo-advisors are sweeping the finance sector by democratizing investing and financial advice to the masses, and as a result, investing has never been easier. Wealthfront, created in December 2011, is one of the biggest players in the space, trusted with more than $5.5 billion in assets under management as of the end of March 2017. This makes it the second-largest platform of the independent launches, just behind Betterment.

Getting Started with Wealthfront

Getting started with Wealthfront is a simple process that takes under five minutes to complete. Beyond inputting personal information, Wealthfront uses the answers to various questions (such as net worth, investment objective, and risk tolerance) to make a personalized recommendation. Based on your answers, you are assigned a risk number from 1-10 that is associated with different asset allocations and account types. This can be changed before or after completing the onboarding process and making a deposit. It is worthwhile to note that onboarding process and making a deposit. It is worthwhile to note that Wealthfront uses Apex Clearing Corp. to handle its transactions, a clearing company used by many other brokerages such as TD Ameritrade Corp. and TradeKing.

Wealthfront at a Glance

Accounts Supported: Wealthfront currently offers a robust catalog of accounts which vary depending on your goals. Individual and joint non-retirement accounts are offered for general investing needs while Roth, traditional, SEP and rollover IRAs meet retirement needs. The robo-advisor recently announced it would start offering a 529 college savings plan. This really separates Wealthfront from other robo-advisors which have otherwise been slow to embrace college savings plans.

Aside from the stand individual account, Wealthfront's other accounts include: joint accounts, trust accounts, individual accounts, traditional IRAs, 401k rollovers, Roth IRAs, and SEP IRAs.

Fees: Advisory fees vary depending on your account balance. If your balance is between $500 and $10,000, Wealthfront waives its fee. However, on amounts greater than $10,000, clients should expect to incur a monthly charge of 0.25%. Additionally, the brokerage waives fees for some charities. Currently, registered 501(c) charities can invest up to $1 million for free. Wealthfront is currently running a promotion where you can receive an extra $5,000 managed for free when a friend opens an account and makes a deposit.

Wealthfront doesn’t charge trading fees or commissions, a significant savings for those using the service.

Portfolio: Asset allocation and fund selection can vary whether you choose a taxable or tax-deferred account. Wealthfront uses ETFs that represent six different asset classes to design a portfolio that maximizes returns and minimizes risks. The sectors covered include U.S., international, and emerging markets stocks and bonds. Wealthfront also uses real estate and natural resources ETFs outside of the standard options of stocks and bonds. You can gain greater insights on Wealthfront's investing methodology here.

Below are Wealthfront's funds.

Wealthfront Stock Allocation

Sector

Ticker

U.S.

Vanguard US Total Stock Market (VTI)

Foreign-Developed Market

Vanguard FTSE Developed Markets(VEA)

Foreign-Emerging Market

Vanguard FTSE Emerging Markets (VWO)

Dividend Appreciation

Vanguard Dividend Appreciation (VIG)

Wealthfront Bond Allocation

Sector

Ticker

U.S. TIPs

Schwab Barclays Capital U.S. TIPS (SCHP)

Municipal Bonds

iShares National AMT-Free Muni Bond (MUB)

Foreign-Emerging Market Bonds

iShares JPMorgan Emerging Markets Bond (EMD)

Wealthfront Alternative Allocation

Sector

Ticker

Real Estate

Vanguard ETF (VNQ)

Natural Resources

State Street ETF (XLE)

(Source: Wealthfront.com)

The biggest concern regarding Wealthfront is how it is prepared to deal with extended periods of volatility. The company was born following the most recent recession. While the robo-advisor has handled market corrections its only exposure to recession-like downturns is through extensive back testing. This is a challenge that all the robo brokerages face that can only be fixed with time and experience.

Expense Ratios: The average ETF expense ratio is 0.12%, ranging from 0.05% to 0.25%. This is well below the 1.16% expense ratio charged by traditional funds.

Tax Strategy: Wealthfront's emphasis on tax efficiency is bar none one of the best in the industry. Its automated service offers five levels of tax minimization: direct indexing, index funds, dividend reinvesting, tax location and daily tax loss harvesting. Tax loss harvesting is available on taxable accounts with direct indexing available for accounts over $100,000. It is the only service to offer direct indexing. With direct indexing, instead of purchasing a single ETF that covers an index, Wealthfront directly purchases up to 1000 individual securities on your behalf. Wealthfront believes this is a more efficient way to minimize taxes and could add as much as 2.03% to your annual returns.

Customer Support: The company offers phone support weekdays 11 a.m. to 8 p.m. ET with email support available 24/7. No weekend phone support is a small setback compared to its competitors in the space. From my personal experience, Wealthfront’s support staff was attentive, knowledgeable and prompt to follow up with any of my questions.

User Accessibility and Friendliness:

Image: Wealthfront's mobile client dashboard. Image courtesy of Wealthfront

Wealthfront is available via its website and mobile app found on iOS (Apple) and Android app stores. Both are extremely intuitive and straightforward platforms. Additionally, its website also includes a comprehensive help center and blog that answers general support or financial literacy questions

Line of Credit: In April 2017, Wealthfront introduced its portfolio line of credit program for clients with $100,000 or more in holdings in an individual or joint Wealthfront account. For eligible clients seeking access to additional capital for investing, the program offers a simple way to get a loan at a relatively affordable interest rate, especially when compared to traditional loans like a Home Equity Line of Credit (HELCO). Accessing the portfolio line of credit is easy as you automatically qualify for the loan if you meet the above-mentioned account minimum for this program. The average interest on a HELOC varies from 4.49%-7.88% as of April 2017, according to bankrate.com (based on estimated rates for a $30,000 loan). However, Wealthfront offers an interest rate of 3.25%-4.5% on its portfolio line of credit. You sign up online and can access the requested loan within one business day in most cases. Interest accrued on the loan is added to the loan’s monthly balance; however, there’s no fixed repayment schedule for the loan. This gives borrowers flexibility as the loan has no term, but it is important to borrow responsibly to avoid hefty interest payments. Deposits made to the investment account connected to the line of credit are first applied to the balance of the loan before being invested.

Transferring Holdings: If you opt to change brokerages, then through its "Tailored Transfers" program Wealthfront will transfer your holdings to the new brokerage using the automated customer account transfer system (ACTAS). This is a tremendous tax advantage as it means you won't have to sell your holdings if you decide to leave the brokerage. It also allows clients to sell their holdings without paying commissions.

If you decided to move holdings from another brokerage to Wealthfront, then the brokerage offers a few advantages. Namely that Wealthfront will attempt to minimize your tax burden during the transfer through multiple strategies. For example, if any ETFs or stocks in your old account match Wealthfront's securities, then they will be incorporated into your new portfolio, allowing you to sell fewer securities and minimize capital gains tax on the transfer. The brokerage will also hold your capital gains from your prior holdings until they reach the threshold for the long-term capital gains tax rate.

Additional Features: Outside of its core suite of services Wealthfront offers many additional features including External Account Support and TurboTax Integration. Wealthfront is also one of the only robo-brokerages that offers financial planning exclusively online. In February 2017, the robo-advisor introduced a financial planning experience that's integrated into the platform called Path. In short, Path analyzes your average saving and spending habits over a 12-month period and uses that data create custom recommendations for you. For example, based on your average habits, Path will give you answers to questions like "Can I live my current lifestyle in retirement?" or "Where should I allocate my savings?". These tools are integrated into the platform's system and keep clients mindful of their investment goals and help them reach them more effectively.

As of May 2017 Path also provides college planning assistance. College Planning with Path builds a college savings plan based on the institution that the client or their beneficiary is attending (the feature is currently limited to U.S. Colleges). This plan will show the estimated cost of college based on the year the client (or beneficiary) is attending college. Additionally, it provides an estimate of the amount of financial aid the college attendee is eligible for based on how their institution calculates financial aid. It also gives an estimate of how much you need to save on top of the financial aid provided. This feature is particularly helpful for who choose to open a 529 account with Wealthfront.

The Bottom Line

Wealthfront is a perfect starting point for beginner investors. Like other robo-advisors, Wealthfront’s management fee is tiny — only a few tenths of a percentage point per year. The fee is kept so small because of the low-cost of operating an online software-managed investment firm. Wealthfront follows the low-cost index fund passive investing approach whereby investors put their money in a diverse portfolio of low-fee index mutual or exchange-traded funds (ETFs). Even high-net-worth investors can benefit from the platform, especially from the tax benefits obtained by direct indexing. Wealthfront offers several features that are unique in the robo-advisor sphere, such as its financial planning software, Path and its selling plan allows employees who hold public company stocks to sell their company stock commission-free. Overall, Wealthfront shines and is an excellent service for investors of all expertise.

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