Wealthfront Review

Thanks to innovations by Tesla, most people have heard of self-driving cars. But what about self-driving money?

Wealthfront founder Andy Rachleff says he has a vision for just that. Speaking at a conference in San Francisco, Rachleff said, “everyone hates their cable guy and everyone hates their banks”.

My first thought — I don’t hate my poor cable guy. The rest is on point though.

Wealthfront is growing into a full-service platform featuring banking, investment products, and one of the most advanced robo advisors to boot. Robo advisors have brought legitimacy to automated investing, and Wealthfront is near the front of the pack. In a certain sense, self-driving money has arrived — in the vehicle of a robo advisor.

Is Wealthfront what you’re looking for? Let’s find out.

Quick Summary of Wealthfront Features 📚

Management Fees 💸

• ☑️ 0.25% deducted from your account balance yearly
• ☑️ Free management with certain promotions
• ☑️ $500 account minimum to start, but to qualify for Passive Plus signature rules-based investment strategies, you’ll need $100,000
• ☑️ No transfer, annual, or account closure fees

Score: 7/10 Wealthfront’s $500 minimum is pretty low, but it’s not the lowest minimum deposit you have to make. Betterment doesn’t require a deposit for their lower-tier accounts. Also, many of the robo-advisor services like tax-loss harvesting and Smart Beta aren’t available with lower balances.

Expense Ratios 📊

• ☑️ Invest in ETFs and see expense ratios at an average of 0.08%
• ☑️ Wealthfront “Risk Parity Funds” have higher averages at 0.11%

Score: 9.5/10 This robo-advisor does try to keep your costs low and makes smarter trades with the right funds.

Account Types 🗃

• ☑️ Individual and joint taxable accounts
• ☑️ Traditional, Roth, SEP, and rollover IRAs
• ☑️ Trusts
• ☑️ 529 college savings plans
• ☑️ Cash accounts (no management fee)

Score: 10/10 You can open up any kind of account with Wealthfront, and they are always looking to accommodate their investment goals. You can manage all of your accounts from one dashboard, too.

Investment Options 📃

• ☑️ ETFs in 11 different asset classes
• ☑️ U.S. stocks
• ☑️ Foreign stocks
• ☑️ Emerging market bonds
• ☑️ Treasury inflation-protected securities
• ☑️ Dividend stocks
• ☑️ Real estate
• ☑️ Natural resources

Score: 8.5/10 We liked everything about Wealthfront’s investment strategy. Andy Rachleff and expert Chief Investment Officer Burton Malkiel know the right markets to invest in without going overboard with risk.

However, they don’t offer fractional shares. They also do not provide 401(k) assistance.

Tax-Loss Harvesting 💰

• ☑️ Daily tax-loss harvesting on all taxable accounts, includings direct indexing
• ☑️ Provides stock level tax-loss management on accounts over $100,000
• ☑️ Smart beta harvesting on balances over $500,000
• ☑️ Integrates with TurboTax so that you can import your data to your tax return file

Score: 10/10 Wealthfront not only understands why tax-loss harvesting is important, but they have improved upon the process to make it even more integral to every trade strategy, whether you like taxable or non-taxable accounts. It’s also basically free thanks to automated investing.

Rebalancing ⚖

• ☑️ Available and free for all accounts
• ☑️ Threshold-based rebalancing for when assets have moved beyond the target goal
• ☑️ No human advisors monitoring account changes

Score: 8/10 Maybe it’s the old school in us, but we don’t think every investor is ready to forego the expertise of human financial advisors and brokers.

Human Advisors 👤

• ☑️ Not available

Score: 0/10 What’s the saying? Don’t put all your eggs in one basket? Wealthfront is going head first into automated investing without stopping for any human intervention.

While there haven’t been any issues so far unless you count these examples of bad robo-advice, it’s great that everything’s automated. Wealthfront’s model works well.

However, investors can’t talk to any financial advisors with this platform. There aren’t any human advisors looking after your accounts. If something goes wrong, you can only email customer service and wait for a response.

Socially Responsible Investing ⭐

• ☑️ Available, but it’s not a priority
• ☑️ Only available to clients with account balances over $100,000
• ☑️ Clients who qualify for Stock-Level Tax-Loss Harvesting and Smart Beta programs can pick and choose what companies they want, but they’ll have to research on their own

Score: 6/10 Wealthfront has said that they want to make investing better, and while they have made some changes, it’s still ambiguous as to what some of the investments will be with lower-tier plans that don’t have balances that qualify for their flexible investing programs.

How Much Does Wealthfront Cost? 🤔

To open a basic account with Wealthfront, investors need $500. If you want to withdraw, the minimum is $250. However, you cannot draw below $500, which is your account minimum.

If you have an account with under $15,000, Wealthfront is quite inexpensive as a hands-off automated, self-driven money machine. It runs entirely on software, so you are paying lower annual percentages and expense ratios since you are simply using software. There are no human financial planners who will help you with advice or investment strategies.

There are ways to earn free management, including a referral program and promotions. You can get up to $5,000 managed for free with these options. However, there is one big issue with the cost in comparison to other robo-advisors.

Tax-loss harvesting and other services apart of PassivePlus, Wealthfront’s signature suite of features, is not available to any accounts under $100,000.

In addition, expense ratios were listed on average around 0.08 percent, but in one of our tests, the expense ratio for ETFs was actually around 0.18 percent.

Basically, Wealthfront looks like a low-cost robo-advisor, but some of the “smarter” investing tools are missing from the lower-tier package. You may want to go with another robo-advisor that offers tax-loss strategies to accounts with balances under $100,000.

Wealthfront Compared

What We Like About Wealthfront 🏆

Wealthfront has a number of investment tools and tax-efficient strategies to help their clients grow their money fast.

Regulation 🛡

Wealthfront is regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA), meaning that they have to comply with strict regulations. The company is also a member of the SIPC and carries insurance that protects clients’ accounts for up to $500,000, with a maximum of $250,000 in cash.

Investment Strategy 👨‍🏫

Wealthfront is powered by CEO Andy Rachleff and Wall Street legend Burton Malkiel, who is the Chief Investment Officer. The company has defined their strategy as a vision for “self-driving money.” Rachleff also recently stated that Wealthfront is not pursuing any technology upgrades or other ideas unless it can be automated.

Basically, Wealthfront aims to be a pure robo-advisor that clients login to check in and monitor, but the AI is constantly managing and making changes that benefit the investor based on complicated and instant mathematical algorithms.

This experience is a dream to those who prefer to invest on their own without any human interaction to stop them. They simply want to pick their goals, set their risk tolerance, and watch it go.

The process is completely automated with Wealthfront, making it easy to sign up and go through the quick survey before making your first deposit. As soon as your account is set up, the robo-advisor goes to work balancing your accounts towards your targets.

The software automatically rebalances as soon as money is deposited, dividends are reinvested, or market fluctuations cause losses in one area of your portfolio.

With threshold-based rebalancing, your goals and current status are always compared, and changes are constantly being made to maintain your goals as accurately as possible. Your assets never move away from your target allocation.

The Wealthfront team consider 11 different asset classes for investing with ETFs. These include traditional U.S. stocks, foreign stocks, dividend stocks, emerging markets, real estate and land resources, natural resources, and all types of bonds. Most portfolios with Wealthfront have between six and eight asset classes.

If you want higher returns, then you need to get into the PassivePlus signature program, which unlocks the Risk Parity Fund.

This is a proprietary mutual fund run by Wealthfront that clients are automatically enrolled in when their accounts surpass $100,000. It promises more exposure to different asset classes with higher returns, as well as higher risk.

Expense ratios with the Risk Parity Fund typically hover around 0.11% but these can shoot higher depending on the asset class and stock, as it’s a weight average. In addition, no more than 20 percent of your account can be invested in this proprietary fund.

The investors also pay the expense ratio directly to Wealthfront with this fund. Investors can always opt out by going to their account settings.

Tax-Loss Harvesting 💳

There is a caveat to this service that we explain later to this review, but if you are an investor with a higher account balance, Wealthfront offers extremely smart and cost-cutting tax-loss harvesting.

This service is available through the PassivePlus program as well, so your account must qualify. Any account under $100,000 will not receive any tax-loss harvesting.

There are multiple features to love about Wealthfront’s tax strategies, including:

• ☑️ Index funds
• ☑️ Tax location
• ☑️ Daily tax-loss harvesting
• ☑️ Intelligent dividend reinvesting
• ☑️ Risk parity fund

The best way to take advantage of their program is transfer in assets using the Tax Minimized Brokerage account Transfer feature. This allows you to merge with existing investments into the Wealthfront portfolio when it qualifies, and Wealthfront will hold transferred securities that can’t be integrated until the investor’s securities are designated long-term.

So why are Wealthfront’s tax-loss harvesting services different? Wealthfront has truly optimized its tax services by replicating the U.S. stocks index by purchasing stocks held within this index directly.

Wealthfront buys up to 1,000 of these stocks at a time. Then, the robo-advisor hunts down tax-loss harvesting opportunities. As you earn tax savings through the software, you also can reinvest more, and thus, it leads to bigger rewards for clients.

If you are an account holder with more than $500,000 in your portfolio, the robo-advisor then upgrades to the mult-factor smart beta program. With this feature, it weighs the stocks in your portfolio based on numerous factors, such as dividend yield, power potential returns, and volatility.

Even though there are high account minimums, it truly is the best tax-loss harvesting strategy available currently, and it works well for investors who want to cut down their capital gains taxes significantly on large sums of money.

Follow Your Financial Path 🕵️‍♂️

Wealthfront has pioneered another AI tool called Path. This is a free financial planning tool that Wealthfront designed to help people when they are investing in retirement, college, or real estate.

While it seems as though you do have to create an account to use the feature, that was not always the case. The Path tool was created to help investors built their retirement or savings plans based on goals, spending activity, spending patterns, and other data points until it creates a spending plan for retirement.

The Path feature also looks at Social Security numbers and inflation projections to calculate what you’ll need to retire or save for your dream home. The tool connects bank, investment, and Coinbase accounts for cryptocurrency. It also figures in how much you can travel and spend on vacation while still retiring comfortably.

This intuitive tool is a must-have for those who really want to know what they need to save and how they need to budget to make their dreams come true, whether that is retirement or finding the right property.

College Savings Made Easy 💷

For parents, you can use the Path tool to pick out the college you want to send your child, then it details a projected cost, estimates for financial aid, and creates a monthly savings plan.

Parents can also link to an external 529 savings account or open one through Wealthfront’s platform. In fact, there are no other robo-advisors currently offering this option.

Need a Credit Line? 🧐

Wealthfront has got your back and will offer clients up to 30% of the value of their portfolio as a credit line, as long as you have a minimum balance of $25,000.

You don’t have to go through a credit check, pay any fees, or fill out an application. The annual interest rate for this line is between 3.9% and 5.15% (rates change often).

Open a Better Savings Account 🌟

Rachleff has said that no one really likes their banks, and he may have a point. The current interest on a typical savings account through an institution like Bank of America is incredibly low.

Instead, Wealthfront offers high-interest savings accounts that pay 1.82% in interest. Wealthfront also offers up to $1 million in FDIC coverage for its clients. The account also does not have any fees, and the investment management fee does not apply to your savings account since it is a cash account.

Where Wealthfront Could Improve 👨‍🔧

High Account Balance Thresholds 🚧

While it’s clear that investors who make a lot money also invest a considerable amount of money, the $100,000 cap on tax-loss harvesting really hurt Wealthfront’s overall score in our opinion. Betterment, in comparison, offers tax-loss harvesting through their robo-advisor, and it doesn’t require such a high entry fee.

With that said, you still get expert investment strategies for a rather low cost, and there are tax advantages for transferring your accounts to Wealthfront, which will balance your accounts to reduce capital gains taxes somewhat. It’s not the same as PassivePlus accounts though.

No Fractional Shares 👨‍💻

Many investment firms are offering fractional shares because the stock costs of people’s favorite brands have gone up considerably. Wealthfront does not believe in buying fractional shares for ETFs.

This also means that your entire deposit may not get invested. Wealthfront also maintains a cash balance equal to the fee costs that you are projected to owe over the next year. This means most Wealthfront accounts have a little cash drag.

So if you like having all of your money invested, Wealthfront won’t able to offer that for your portfolio.

Human Advisors MIA ☎

We still can’t believe that Wealthfront does not offer any sort of advice for beginner investors. It could easily help them attract a new audience.

They do offer a blog and email customer support, but if you have any questions or don’t like a decision made by the algorithm, you are out of luck.

Wealthfront Platform, Mobile Access, and Ease-of-Use 🖥

Wealthfront is one of the few browser-based platforms that also has a mobile app. The web platform is quite intuitive, easy-to-navigate, and resourceful.

You can find a variety of tools to plan for retirement, such as Path, or to see projections for your portfolio. These are better than what some stock trading apps may offer.

The mobile app is also incredibly smart and does almost everything that you can do on the desktop version, such as:

• ☑️ Monitor your Wealthfront account balance
• ☑️ Deposit into your Wealthfront account
• ☑️ Withdraw money into your linked account
• ☑️ Access retirement planning and house buying tools
• ☑️ Calculate the costs of your target goals
• ☑️ See recommendations on how to reach those goals
• ☑️ Search houses you can afford
• ☑️ Borrow cash up to 30% of your account balance

What Type of Investors Should Use Wealthfront 🤖

Even without a human advisor, Wealthfront still offers an amazing robo-advisor to millennial investors. Many investors just starting out do not have the confidence to find and buy stocks on their own. Wealthfront’s smart software does it all for you and makes it easy to invest with a smart survey at account sign-up.

Wealthfront is also great for hands-off investors because you don’t have to do anything to grow your money. With tax efficient strategies and automatic rebalancing, everything just works for you.

Finally, retirement and passive investors will love Wealthfront because of its savings tools and calculators. You can plan for anything and get a detailed plan to make sure that you reach your goals.

Conclusion: Is Wealthfront the Best Overall Robo-Advisor? 🏁

If you do not need a human advisor or financial planner and you have significant funds to invest and save, then Wealthfront could be the right robo-advisor for you. Wealthfront offers more savings ideas and calculators, as well as the best tax-loss harvesting strategies.

However, you will need a significant investment to get returns with this robo-advisor and take advantage of their special PassivePlus features.

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For our Wealthfront robo-advisor review, here is the criteria we used to rate the company:

• Low-to-no management fees: We look at the fees assessed by the robo-advisor, which is typically a percentage of your assets charged annually. This number should be low, equating to less than .23% annually.
• Expense ratios: Many mutual funds, index funds, and ETFs have low-to-no expense ratios. Your robo-advisor should invest in funds that do not have high expense ratios. It’s also important to know the average expense ratios by fund type.
• Available account types: Robo-advisors should have retirement accounts for tax advantages and taxable accounts to cater to both passive and active investors.
• Available investments: What does the robo-advisor like to invest in? Most use a combination of low-cost index funds and ETFs.
• Tax-loss harvesting: Robo-advisors should be able to identify losing investments and cut losses by eliminate taxes you would owe on capital gains.
• Rebalancing: Automated investing also means remembering goals and bringing back allocations when necessary. Robo-advisors should check this daily and ensure they are investing with your goals in mind.
• Human advisors: Some free robo-advisors do not offer any financial advice from a human, so this isn’t always important, but if you are new to investing and want to ensure your money is spent right, you may want this option.
• Socially responsible investing: Most robo-advisors have a quiz or survey at the beginning to understand your SRI or socially responsible investing type. These are values that may exclude some industries, such as fossil fuels or guns.