If you are looking for financial guidance and don’t require it to come from a human, Wealthfront offers fully digital investors for a very competitive price. Wealthfront’s goal-setting and planning technology is excellent and should serve as a model for other robo-advisors to emulate. Setting up a Wealthfront account gives you access to Path, the free financial planning tool that integrates your account data and uses third-party data to better project your financial situation.
It’s worth taking a look at the scenarios provided by Path, even if you have your primary investment account at another institution. The other three pieces of Wealthfront’s offering—Invest, Save, and Borrow—can help you accumulate wealth and open a line of credit without any fuss. In this review, we are focusing in on Wealthfront’s robo-advisor under the Invest offering.
In August, Wealthfront acquired Grove, a financial planning startup, as part of the firm's commitment to a vision they call Self-Driving Money. The goal of this vision is to help clients get their bills paid, build an emergency fund, and contribute to their investment portfolios. Though Self-Driving Money isn't yet available, this acquisition is another step along that path.
Terrific financial planning that helps you see the big picture
Goal-setting assistance goes in-depth for large goals, such as home purchases and college savings
Portfolio line of credit available
If you have multiple goals, Path shows you the trade-offs you’ll face
No online chat for customers or prospective customers
Wealthfront carries no excess SIPC insurance
Portfolios under $100,000 are not customizable beyond risk settings
Larger accounts may contain more expensive mutual funds
The experience of getting started with a Wealthfront account varies depending on how many other financial institutions and assets you will connect to your plan. If it’s just a checking account, it will go fairly quickly. However, you can put a lot of information into Wealthfront, and you will benefit from this effort with better goal planning later on. For example, you can put the value of your house into your assets along with the offsetting mortgage.
Once your information is all entered—including IRAs and 401(k)s, as well as any other investments you might have, such as a Coinbase wallet—Wealthfront shows you a picture of your current situation and your progress towards retirement. All of this is be done without talking to an advisor, unlike some robo-advisors that have made a session with a human advisor part of their setup process.
To determine the portfolio you’ll invest in, you’re asked a few questions about your attitude towards risk and when you might need the money. You’re shown the exact portfolio prior to funding your account, but you cannot customize the pre-set portfolio at all. Clients with more than $100,000 in a Wealthfront investing account can choose a stock portfolio rather than portfolios of ETFs. You can also put some companies on a restricted list if you’d rather not invest in them.
Wealthfront allows you to open taxable individual, joint and trust accounts, as well as traditional IRAs, Roth IRAs, SEP IRAs, and 401(k) rollovers. Wealthfront also allows you to open a 529 college savings account, which is rare among robo-advisories. Fees are slightly higher for 529 accounts when compared with other Wealthfront accounts, since these plans include an administrative fee.
Goal planning and tracking are where Wealthfront shines. Your dashboard shows all of your assets and liabilities, giving you a quick visual check-in on the likelihood of attaining your goals.
If a home purchase is in your plans, Wealthfront connects to Redfin to help you estimate how much a house in a particular geographic location will cost. Similarly, college savings scenarios have cost estimates for numerous U.S.-based universities. College expense projections include not just tuition, but also room and board, as well as other expenses. Wealthfront’s use of third-party data makes it incredibly useful for all sorts of planning and you may find yourself running scenarios far beyond your current investment needs. You can even figure out how long you can take a sabbatical from work and travel, while still making your other goals work.
Wealthfront adds additional goals to the suite based on customer feedback.
Automatic deposits are easy to set up with Wealthfront, since your bank account is linked during the onboarding process. Clients with more than $25,000 in their accounts can borrow up to 30% of the value of their accounts using Wealthfront’s portfolio line of credit at interest rates of 4.70%–5.95% as of June 2019. You can pay the loan back on your own schedule. If the value of your investments drops significantly, you may be asked to pay back the loan faster.
Wealthfront also offers a cash management account paying 2.07% interest as of September 2019. The interest rate fluctuates depending on the Federal Funds rate. It’s a separate account from the investing account, but you can move money back and forth easily. Wealthfont appears to be making a strong move to integrate all of its money services in a single platform with its Self-Driving Money concept, where you deposit your pay into the platform and it handles your finances for you. This service isn’t up and running yet, but it is a primary focus for the company as part of the next major launch.
Wealthfront follows Modern Portfolio Theory (MPT) in creating the asset allocations in your portfolio. Wealthfront primarily uses low-cost exchange-traded funds (ETFs) to cover 11 asset classes, not including cash. The asset classes are:
- U.S. stocks
- Foreign stocks
- Emerging market stocks
- Dividend stocks
- Real estate
- Treasury inflation-protected securities
- Municipal bonds
- Corporate bonds
- U.S. government bonds
- Emerging market bonds
- Natural resources
The ETFs covering these asset classes are provided by the usual suspects like Vanguard, Schwab, iShares, and State Street. Although Wealthfront has prefers ETFs for their tax efficiency, there can be mutual funds in the offering. Large accounts are able to invest in Wealthfront’s Risk Parity mutual fund, for example, which carries a higher expense ratio in exchange for offering high-net-worth clients potentially higher returns. Also, Wealthfront will accept and manage mutual funds as part of an account that has been transferred in, so long as they fit the allocation needs. However, these mutual funds will likely be replaced over time with more tax-efficient ETFs.
There is no set schedule for rebalancing; Wealthfront’s philosophy is to monitor portfolios and rebalance them when they drift significantly from the target asset allocation strategy. Deposits, withdrawals, and dividend reinvestments can all be used as triggers to rebalance your portfolio. Similarly, if a customer changes her risk score, Wealthfront’s algorithms will transition the asset allocation to match the new score, but it can take some time.
This is because Wealthfront takes tax minimization quite seriously. Wealthfront’s goal is to minimize short-term capital gains and avoid wash sales, and it does this even when accounts are transferred in or stocks are added to your restricted list. Wealthfront has one of the most robust tax-loss harvesting programs of all the robo-advisors. The company has an excellent white paper explaining the process, but rest assured that the methodology is sound and will benefit your portfolio over time.
If you are holding larger amounts with Wealthfront, such as $100,000 or $500,000, the company brings more technology to bear on your account with stock-level tax-loss harvesting and their Smart Beta portfolio weighting, designed to increase your expected returns by weighting the securities in your portfolio more intelligently.
The mobile apps, native iOS and Android, are designed to be extremely simple to use with minimal typing. Data inputs, such as dates and monthly deposits, are displayed on sliders or drop-down menus to avoid making typos. When linking external accounts, however, you still have to enter your user IDs and passwords. The workflow for a new account is logical and easy to follow.
Wealthfront was initially designed to be a mobile experience, so the desktop platform takes advantage of the additional real estate. The design is clean and all the primary information is easy to find, especially when you are searching in the help center.
Wealthfront is taking its non-human approach seriously. It does not have an online chat feature on its website or in its mobile apps. There is a customer support phone line staffed by licensed professionals, who can help you with anything from a forgotten password to a question about your portfolio. Most support questions posed on their Twitter are answered relatively quickly, though we saw one that took more than a week before there was a response.
Education & Security
Wealthfront does a terrific job helping its clients figure out a financial plan. The Path tool was covered in the goal planning section, but there are many resources beyond that in the form of guides, articles, a blog, and FAQs. In terms of the nitty-gritty details on using the platform, there is a lot of help on the website and most of it is accessible through the mobile apps as well.
Wealthfront is a member of the Securities Investor Protection Corporation (SIPC) and client accounts are protected up to a maximum of $500,000. The site actually has an article on why SIPC insurances don’t protect investors in the way they think it does, but the company still holds the coverage—likely because they have faced too much client friction on the matter. The separate cash account is FDIC insured. The specific details on the site security were not given, but Wealthfront’s site states that it uses third-party providers that “employ robust, bank-grade security and follow data protection best practices.”
Commissions & Fees
Wealthfront’s fee structure is very simple and very competitive: 0.25% of your portfolio, assessed monthly. There are no fees charged for cash balances. The ETFs that make up most of the portfolios have annual management fees of 0.07%–0.16%. Larger portfolios enrolled in the Smart Beta program may be invested in funds with slightly higher management fees. It is worth noting that the lack of trading commissions, withdrawal fees, and transfer fees is integral to the regular tax management strategy that would otherwise cost you a lot to implement—possibly wiping out the tax savings entirely.
Is Wealthfront a Good Fit for You?
If Wealthfront succeeds in becoming your digitally managed, all-in-one financial solution, it is possible that the robo-advisor function will be overshadowed. As it stands now, however, it is an impressive platform for algorithmic portfolio management. Like many of the lower-cost robo-advisors, Wealthfront doesn’t offer you a lot in terms of customization. If you want to pick your own stocks, then you are looking at the wrong solution. If, however, you want to make regular deposits to a portfolio and not worry about it, Wealthfront is more than up for the job.
The planning tools are spectacular and definitely worth a look, even if you don’t intend on funding your account. If you do decide to go forward, you will be getting one of the most competitively priced robo-advisors with some of the most robust tax minimization methodology available. Investors in Wealthfront do have to be ready to leave the crutch of human advisors behind, but it makes the prospect of welcoming our robot overlords a lot more appealing than you’d think—at least in terms of helping you achieve your financial goals.
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