Advisors are generally either fee-based or commission-based; however, newcomer brokerage Wisebanyan Inc. by Wisebanyan Securities claims to be neither, offering “free” financial services through its website. Wisebanyan touts itself as the “world’s first free financial advisor" offering financial and investment advice free of charge. Unlike many investment advisors, it does not require any minimum balance or charge you nay base management fees. However, in April 2017, the robo-brokerage launched its first paid "premium package" called the Tax Protection package.
Wisebanyan offers “personal investment accounts” and Roth, traditional and SEP IRAs. To get started with Wisebanyan, clients set up a profile and answer a general set of questions to assess risk tolerance. These types of questions will usually ask you what your short, medium and long-term goals are. Another important aspect to these questions is the time horizon in which you will need access to your money. From there, clients also answer questions on their objectives and Wisebanyan attempts to invest according to both criteria. The actual methods behind this are of course proprietary, but the most interesting thing about their service is there is no charge for having an investing account with Wisebanyan.
While most investment firms will require some financial commitment in their planning process, be it through a fee-based general AUM fee, or a commission taken from a product they sell, advisor services aren't for free. Product-based advisors only make money if you buy a particular product they sell. These products can range from annuities to life insurance policies. To assess your need for these products, they will run you through a risk tolerance questionnaire (similar to the one done by Wisebanyan). From there, a basic financial plan will be outlined, and all the products recommended to you fully explained. You might ask yourself why so much work would go into a financial plan without any actual signatures or commitments at this stage, but remember these types of advisors will only make money after you buy one of their products. As such they are incentivized to show you more upfront.
In contrast, fee-based advisors will charge you a percentage of the total amount of assets you will give them to manage. While they can offer life insurance policies and annuities as well, these types of advisors will usually handle brokerage accounts. Let’s assume you put in $200,000 with an investment advisor and his fee is 1%. Without even placing a trade, you will already be paying $2,000 just for having your money with that particular person, so the invested money will be $198,000. Multiply this by larger sums of money and larger percentages charged, and the fees paid can be enormous.
What sets Wisebanyan apart is that it assesses your risk tolerance and will let you put money into an account without having to pay anyone. There is always a catch, though. Wisebanyan makes money off of additional products and services it hopes its clients will buy after using their free services for a while. As mentioned earlier, Wisebanyan recently rolled out its first paid package — the tax protection package.
The tax protection package costs 0.24% annually, capped at $20 per month. With this package, clients get access to three additional features: WiseHarvesting, Selective Trading, and IRA conversions(backdoor IRAs). WiseHarvesting is essentially a term the company has coined to refer to its tax-loss harvesting feature while its selective trading feature allows clients to remove ETFs that are held elsewhere from future trading in their Wisebanyan account.
While some of the above-mentioned features are bundled with accounts at other robo-brokerages. The premise here is that Wisebanyaan believes not all clients require these additional features and the ones that do will shell out cash for the premium features. Many financial advisors thrive off of the idea that clients will do what is easy. Wisebanyan banks on it, as their platform, operates under the assumption that because clients already have a little bit of money with them, they will soon roll over their other assets there as well to simplify things.
The Bottom Line
Ultimately, Wisebanyan is similar to most product-based advisors that offer similar services. As is common with most financial advisors, before any money can be deposited into an investment account with Wisebanyan, a full financial risk tolerance profile has to be performed. This is an excellent starting point for anyone trying to invest money, and no commitment is needed. Always assess your risk beforehand, regardless of what product you end up in, and understand the difference between fee-based and product-based advisors. (For more, see: What is the Difference Between Fee-based Advisors and Commission-based Advisors?)