Updated on August 12, 2021. Wealthfront has been very quite since 2019. You don’t hear them in the news or anything. It’s kind of strange to be frank. Now I’m wondering is Wealthfront running out of money.
Wealthfront, one of the largest independent digital wealth management firms, closed a $75 million round of funding in 1Q2018 to help develop new products for its growing client base. The funding was led by Tiger Global, a NYC-based hedge fund run by Chase Coleman.
The company has amassed just over $12 billion in assets under management since launching in late 2011. The new round should be “more than enough” to see them through to becoming profitable, he said.
The startup, based in Redwood City, California, declined to comment on valuation, but was previously valued at $700 million when it raised money in 2014, according to CB Insights. Knowing Chase Coleman’s reputation, he probably was able to get in at a good valuation. Existing institutional investors also participated in the latest round, including Benchmark Capital, Greylock Partners, Index Ventures, Ribbit Capital, Social Capital and Spark Capital Growth.
Is Wealthfront Running Out Of Money?
After raising a monster $130 million in funding before this latest round by Tiger Global, investors are now wondering whether Wealthfront is running out of money and is having a tough time turning a profit. The answer is simple: with $12 billion in assets under management and a fee of only 0.25%, the firm is only generating about $33 million in revenue a year to cover the salaries of 100+ employees and all other operation costs.
Wealthfront really needs to manage closer to $20 billion ($40 million+ in revenue) in order to be fully profitable. The digital wealth advisory business is competitive, and fees keep going down.
But with $75 million in new funding, I believe it’s highly likely they’ll be able to get to $20 billion AUM way before their $75 million in funding runs out given they still generate over $20 million a year in revenue and growing.
Wealthfront Review
The reason why Wealthfront is so popular is because the first $15,000 under management that you invest is free. They only charge 0.25% of your assets under management each year compared to 2% – 3% for traditional wealth advisors like Merrill Lynch and JP Morgan. Further, signing up to see their model portfolios is completely free.
If you choose to have Wealthfront manage your money, you only need to start with $500. If you were to go elsewhere to get most of the services Wealthfront, such as tax-loss harvesting, Direct Indexing, Tailored Transfers and Sellling Plan, you’d likely have to hire a private wealth manager who requires million dollar minimums.
Besides the much lower fees and lower entry point, Wealthfront is led by renowned economist Dr. Burston Malkiel, PhDs, and a data science team. They offer personalized and globally-diversified investment portfolios of index funds that are based off of Modern Portfolio Theory, designed to adjust according to your personal risk tolerance while staying diversified and tax-efficient.
Personally, I like Personal Capital the best because they also have real human beings to guide you through your financial journey.
Wealthfront CompanyOverview
Total Equity Funding: $200 million in 6 rounds from 35+ investors
Most Recent Funding:$75 million Series E round led by Tiger Global in 1Q2018 – Nothing since and it’s 2021+
Headquarters: 900 Middlefield Rd, Redwood City, CA 94063
Description: Wealthfront is the only robo advisor who offers both automated investment management and financial planning, with over $9 billion in assets under management.
Founders:Dan Carroll, Andy Rachleff
Categories:Fintech, Financial Services, Wealth Management
Founded: Wealthfront launched its service in 2011.
Contact: support@wealthfront.com
Employees:~138
Sign up link with 15K managed for free:Wealthfront
Company Details
Wealthfront is the only robo advisor who offers both investment management and financial planning. Clients receive a personalized, globally-diversified investment portfolio that is managed for them when they open an account.
Wealthfront provides data-driven, actionable recommendations to improve net-of-fee, after-tax, risk-adjusted returns. With an annual advisory fee of 0.25%, users can monitor their real-time investment performance, review recent transactions, receive financial advice, and manage their deposits.
Comprehensive Wealthfront review here.
Modern Portfolio Theory
The efficient frontier is a concept in modern portfolio theoryintroduced by Harry Markowitzand others in 1952. If there are two portfolios that offer the same expected return, investors will prefer the less risky one.If the price isthe same, wouldn’t you buy the exact same housewith panoramic ocean views over the one with a view of another building? Of course you would.
In Modern Portfolio Theory, everything is RATIONAL, which is why I’m such a big fan. Everybody here wants to improve their personal finances, which is why none of you are on Buzzfeed killing brain cells. Nobody here thinks they’ll have guaranteed employment for life, which is why you are building as many income streams as possible.
Unfortunately, there are a lot of irrational people out there who believe theycan get ahead without putting in the effort. I’ve even met someC students who think they deserve A lifestyles. No wondercredit cards are such big business. They allow consumers to realize their delusions.
According to the Efficient Frontier chart below,optimumportfoliostrac
Wealthfront Model Portfolio Examples
Now that you’ve got a basic idea of Modern Portfolio Theory, let’s look at some sample Wealthfront model portfolios based off somespecific answers given during the sign up process. The sign up process only takes several minutes because it’s free, and there are only 5-10 multiple questions to answer to accessyour recommended model portfolio.
Example #1: 18 – 35 year old
Let’s say you’ve recently graduated college and are just starting to build your retirement nest egg. You contribute to your IRA or 401k at least up to the company match, but you also want to invest after-tax dollars efficiently to one day buy a car, a home, or go to graduate school. So you wisely sign up for Wealthfront for free to see what they have to offer.
Based on your situation, Wealthfront may classify your risk tolerance as a 10. You’ve got nothing to lose, and only upside as you grow your earnings. With a risk tolerance of 10, notice how you have 95% of your asset allocation in stocks and only 5% in bonds. Historically, stocks have returned between 6%-8% a year versus bonds at only 3-4% a year.
Example #2: 35 – 55 Years Old With Family
The older you get, usually, the more responsibilities you have. You may have a spouse or children who depend on you. You may also have a mortgage that needs paying off. The good thing about being older is that you generally are making more money and have more savings in the bank. Therefore, it’s probably prudent for you not to take as much risk as someone who has no dependents and a much smaller amount to invest.
Below is a sample investment asset allocation for someone with a risk tolerance of 5. Roughly 70% of the portfolio is weighted in stocks, with the rest in bonds.
Example #3: 50 – Retirement Years – Protecting Your Assets
During the latter part of your career and life, your investment portfolio should be at its largest point if you’ve been consistently saving and investing. Your number one priority is to protect your principal at all costs because your ability or desire to work won’t be as high as when you were younger. Therefore, it’s natural to have a lower risk tolerance.
With a risk tolerance of two, Wealthfront will construct for you a portfolio consisting of 52% stocks and 48% bonds. You don’t necessarily have to be over the age of 50 to follow this asset allocation. As a 40-year-old early retiree, I’ve chosen a 50/50 stocks/bonds asset allocation because I’ve already accumulated “enough” money to comfortably live off my dividends forever.
The great thing about Wealthfront’s investment portfolios is that you can can manually change your risk tolerance number to see how the model portfolio changes. A lot of people may think they are more risk tolerant than they really are. The more recessions you’ve been through, generally the lower your risk tolerance because you can see how devastating a correction can be to your wealth.
Make Your Contributions Automatic
One of the keys to building long term wealth over time is to make your investment contributions consistent and automatic. Wealthfront has an easy feature where you simply link up your checking account and tell them to contribute X amount every week, two weeks, month, or quarter.
Time in the market is much more important than timing the market. You want to have your returns compound month after month, year after year until you build a portfolio so large that small percentage gains can mean big returns. For example, I’ve currently got a roughly $2 million public investment portfolio. If I can just return 5% a year, I’ll earn $100,000. Not bad!
Types of Accounts Supported
- IRAs
- Roth IRAs
- SEP IRAs
- Trusts
- 529 College Savings Plans
- Taxable (Joint and Trust)
- Non-profit accounts
Other Great Wealthfront Features
Automated Portfolio Rebalancing
Portfolio rebalancing keeps your allocations amongst stocks, bonds, and different sectors in balance over time. This is key to ensuring diversification. This feature is done with software automatically on a daily basis to continually buy some assets when they are low and sell others when they are high. No longer do you have to worry about constantly ensuring you have a properly balanced portfolio.
Automated Tax-Loss Harvesting
Each year, you are allowed to take capital losses to reduce your taxable income in that year. The amount you can write off depends on your income level, but the number most often referred to is $3,000. Financial advisors usually review your portfolio near the end of the year and will sell some losers to help you meet this deduction. Wealthfront offers this feature to all clients at no added cost.
Tax-Optimized Direct Indexing
When it comes to optimizing earnings in taxable accounts, Wealthfront focuses on Tax-Optimized Direct Indexing as a way to improve the results of tax-loss harvesting while also keeping fees at a minimum. Here’s how it works: Instead of using ETFs or Index Funds to invest in U.S. stocks, Tax-Optimized Direct Indexing directly purchases up to 1,001 individual securities on your behalf.
This strategy allows you to fully take advantage of the advanced tax-loss harvesting opportunities available through the movement of individual stocks – a move which will hopefully lead to greater gains overall. Combined with their Daily Tax-Loss Harvesting service, Wealthfront believes it could add up to 2.03% to your annual earnings.
Related: DIY Investing: An Easy Guide To Managing Your Own Money
Tailored Transfers
Tailored Transfers are a key component of our Portfolio Review and a service that no other advisor — robo or human — offers. If you want to switch advisors or move your brokerage holdings into a diversified portfolio, you typically have to sell all your holdings and move in cash. This means you will more than likely have a large tax bill. Instead of selling your holdings, we will directly transfer them into a diversified portfolio tax efficiently, saving you that tax bill.
Selling Plan & 529 College Savings Plan
Selling Plan is another service unique to Wealthfront. It helps all employees who hold public company stock to sell their shares tax-efficiently and commission free, at a level of service previously only available to executives. Additionally, our 529 College Savings Plan is another investment account unique to Wealthfront.
New Product Launch
Wealthfront launched Path, a new free automated financial planning experience for all clients to better plan for their financial futurein 2017.
Many clients don’t know what their financial goals should be, and even more don’t realize that the goals they’ve set with their current spending and saving patterns are actually unattainable. Wealthfrontbuilt something more personal, connected and instant than any financial advisor could ever be. Path takes advantage of theirteam of PhDs to analyze your past behavior from connecting to your financial accounts, showing you what’s possible for your future.
As your financial advisor, it’s Wealthfront’sjob to sometimes be the bad guy and tell you that you can’t necessarily afford the lifestyle you want. So Wealthfrontdesigned Path to first assess your basic financial health, before we let you imagine what’s possible. Theystart with your needs before theyget to your wants and wishes for one simple reason: If the foundation is shaky, then the rest is irrelevant.
Path let’s you:
- Financially plan for your future
- Explore “what if” scenarios
- Highlight how much you need to save to reach your goal by a certain date
- Highlight how much you can spend to still be on track
- Model your investment forecasts
Wealth Management For Everyone
After spending 13 years of my career working in the finance industry for large banks such as Goldman Sachs, it’s clear to me that Wealthfront is revolutionizing the way everyday people can get better wealth management services. Too many people are cashed up because they don’t know how to invest or where to start. Wealthfront has lowered the bar so that anybody with 5 minutes of initiative can get started.
In the past, you’d have to come up with at least $1 million to have the privilege of paying a 2% – 3% fee each year ($20,000 – $30,000!) to have someone manage your money. Now, you can pay just 0.25% and start with just $500 with Wealthfront.
Technology and the internet is a boon for consumers. I’ve researched and followed Wealthfront since the beginning and I highly recommend Wealthfront as a low-cost, after-tax retirement solution.
If you’re looking for alternatives, Betterment is the leading pure-play robo-advisor and Personal Capital has the best free financial tools.
Leverage free wealth management to your advantage!
About the Author:
Sam began investing his own money ever since he opened an online brokerage account in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college working at two of the leading financial service firms in the world. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate.
In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $200,000 a yearin passive income. He spends time playing tennis, hanging out with family, consulting for leading fintech companies andwriting online to help others achieve financial freedom.
FinancialSamurai.com was started in 2009 and is one of the most trusted personal finance sites today with over 1.5 million pageviews a month. Financial Samurai has been featured in top publications such as the LA Times, The Chicago Tribune, Bloomberg and The Wall Street Journal.
For more nuanced personal finance content, join 100,000+ others and sign up for thefree Financial Samurai newsletter. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009. Everything is written based off firsthand experience.
FAQs
Is my money safe with Wealthfront? ›
Every one of our partner banks is FDIC insured. As a result, you get 8x the FDIC insurance at Wealthfront you'd get with a regular bank account. This means your funds are arguably much safer at Wealthfront than they would be at a traditional bank.
Can you lose money with Wealthfront? ›You can lose more funds than you deposited in your margin account. A decline in the value of securities that are purchased on margin may require you to provide Wealthfront with additional funds to avoid the forced sale of those securities or other securities or assets in your margin account(s).
Is there anything better than Wealthfront? ›It is one of the most popular Wealthfront alternatives. Robinhood is a great choice for people who are looking for a more affordable option when it comes to investing. You don't have to worry about any account minimums or hidden fees. In addition to stocks, you can also invest in ETFs and options on Robinhood.
Who owns Wealthfront now? ›I am excited to announce that Wealthfront has agreed to be acquired by one of the premier brands in wealth management, UBS, in a transaction valued at $1.4 billion.
What is the risk level of Wealthfront? ›Investors in Wealthfront's Classic Automated Investing Account, with a risk score of 9, watched their pre-tax investments grow an average of 6.96% every year since we started.
Which is better fidelity or Wealthfront? ›Wealthfront offers advanced planning tools to help provide a complete picture of your financial health and track your goals. However, there are no human advisors. While Fidelity offers stock trades at $0 per trade and more than 180 branch locations. There is no minimum deposit.
What is the average return on Wealthfront? ›Wealthfront Cash charges no monthly maintenance fee or ATM fees, and you'll earn an APY of 1.40%.
Is Vanguard or Wealthfront better? ›Vanguard is best for most types of investors, as it offers access to stocks, ETFs, options, mutual funds, and much more. If you're a hands-off investor strictly in search of robo-advice, Wealthfront is the better choice.
Should I use Wealthfront or Vanguard? ›If you would like to invest around financial goals without having to select the actual securities to trade or when to trade, Wealthfront is the choice for you. Investors who would like to select their assets personally and build a financial plan based on their personal financial management should select Vanguard.
Why did Wealthfront acquisition fail? ›Swiss bank UBS reportedly dropped its bid for U.S. wealth-management operation Wealthfront last month due to pushback from shareholders and U.S. regulators.
Is investing in Wealthfront worth it? ›
Wealthfront is one of the lowest-cost online advice solutions. Especially for customers with taxable accounts, Wealthfront offers compelling tax strategies to help enhance your tax efficiency. It also offers digital financial planning tools that are both useful and easy to use.
What banks work with Wealthfront? ›- Citibank N.A.
- CrossFirst Bank.
- East West Bank.
- Green Dot Bank.
- HSBC Bank USA, NA.
- Peapack-Gladstone Bank.
- State Street Bank and Trust Company.
- Customers Bank.
For individual, joint and trust cash accounts, you will receive a 1099 tax form if your cash account generated more than $10 of interest in the previous calendar year or received $600 or more in awards. Most likely this form will be available on January 31st. We'll email you as soon as it is available.
Is personal capital better than Wealthfront? ›Betterment and Wealthfront are good fits if you're trying to minimize fees, while Personal Capital is more suited to those who want greater access to personal financial advice.
How do I get rid of Wealthfront? ›- Log in to the Wealthfront website.
- At the top of the screen, tap “Accounts” and choose “Transactions” in the dropdown menu.
- Select the account transfer you would like to cancel.
- Click “Cancel” on the right side of the screen.
| Rank | Company | Trust Rating |
|---|---|---|
| 1 | USAA | 91.1 |
| 2 | USAA | 90.1 |
| 3 | Vanguard Brokerage | 89.8 |
| 4 | Charles Schwab | 88.6 |
- Best overall: Betterment.
- Runner-up: Wealthfront.
- Best for making a large deposit: Charles Schwab.
- Best for women: Ellevest.
- Best for extra investing perks: SoFi Invest®
- Betterment.
- Schwab Intelligent Portfolios.
- Wealthfront.
- Fidelity Go.
- Interactive Advisors.
- M1 Finance.
- Ally Invest Robo Portfolios.
- Marcus Invest.
To connect your account, we partner with third-party providers to establish and maintain secure, read-only links on your behalf. These providers specialize in tracking financial data; they employ robust, bank-grade security and follow data protection best practices.
Is Wealthfront a good option? ›Wealthfront is our top choice overall for robo-advisors as well as best for goal planning. Wealthfront's sophisticated digital financial planning tool answers scores of planning questions and is accessible to anyone.
What happens when you withdraw from Wealthfront? ›
When you request a withdrawal from your taxable Wealthfront account, we will send you an email within one business day to verify that the request is valid. Once you verify your withdrawal request, we will place the trades to raise the required cash in your account.
How many users does Wealthfront have? ›Wealthfront Inc. is an automated investment service firm based in Palo Alto, California, founded by Andy Rachleff and Dan Carroll in 2008. As of 2022, Wealthfront had $27 billion AUM across 470,000 accounts.
Do I have to report crypto on taxes if I made no money? ›You must report income, gain, or loss from all taxable transactions involving virtual currency on your Federal income tax return for the taxable year of the transaction, regardless of the amount or whether you receive a payee statement or information return.
What will happens if I don't report cryptocurrency on taxes? ›If you don't report a crypto-taxable event, you could incur interest, penalties, or even criminal charges if the IRS audits you. You may also even receive a letter from the IRS if you failed to report income and pay taxes on crypto, or do not report your transactions properly.
What income do you not have to report to IRS? ›The minimum income amount depends on your filing status and age. In 2022, for example, the minimum for single filing status if under age 65 is $12,950. If your income is below that threshold, you generally do not need to file a federal tax return.