By developing a plan around your personal goals and helping you achieve them, Wealthfront is an automated investing service—otherwise known as a robo-advisor—that promises to make financial planning and investing easy.
At the center of their platform is sophisticated software named Path, which they claim executes “complex, time-tested strategies quickly and more frequently than a person ever could.” This way, they’re able to build a diversified portfolio that reduces risk and helps lower the taxes you pay, while allowing you to avoid trading commissions, hidden fees, and financial advisor salaries.
Can Wealthfront really help you live the life you want, reach your goals, and make confident financial decisions? Is a robo-advisor like this even your best option? Let’s help you find some actionable answers by addressing the basics.
What Is a Robo-Advisor?
Although specifics will vary, in the Beginner’s Guide to Robo-Advisors, we explain that these services—which are required to be registered with the SEC—use complex software algorithms to automatically invest clients’ money based on their individual needs (e.g., saving for retirement, college, or buying a home; their age, risk tolerance, etc.).
This money is commonly invested in exchange-traded funds (ETFs), which—putting it in terms of candy—“is like an Easter basket, and the stuff inside is a mix of stocks, bonds, and investment types. Candy experts fill the basket based on what candy is selling well for the biggest candy companies on the market (biggest candy companies = an index).”
Mark Kennedy at The Balance reports that, although they trade like equities on the stock market, ETFs are easy to purchase, cost-effective, come with lower capital gains taxes than mutual funds, are simple to track and manage, and are straightforward to understand.
On the other hand, he emphasizes ETFs could be a disadvantage for long-term traders, and can sometimes come with low trading volume. This is why it’s always important to speak with a professional before investing.
With these high-level details in mind, let’s zoom in and take a look at Wealthfront’s functionality.
How Does Path by Wealthfront Work?
Let’s briefly break everything down into bite-sized pieces:
Modern Portfolio Theory
While we’re obviously not provided with much detail about Wealthfront’s proprietary algorithms, their Full Disclosure tells us they’re “based on Modern Portfolio Theory, for which the Nobel Prize was awarded in 1990.”
According to Investopedia, MPT was originally hypothesized by Harry Markowitz to quantify “the benefits of diversification, also known as not putting all of your eggs in one basket.”
“In other words,” they report, “Markowitz showed that investment is not just about picking stocks, but about choosing the right combination of stocks among which to distribute one's nest egg.”
Therefore, Wealthfront’s automated investing software applies this thinking when choosing which ETFs to invest your money in.
Wealthfront’s Path Service
Before investing, though, Wealthfront’s Path service—dubbed “financial planning at your fingertips”—promises to help you make more informed assumptions related to important aspects like social security, inflation, and investment returns.
This starts by connecting to your accounts and assessing your basic financial health. Path will then “analyze your past behavior” using “your real transaction history to calculate a rolling 12-month average of how much you’ve been saving and spending.”
From there, depending on your specific goals (retirement, home ownership, college, etc.), the software will show you what’s possible for your future. Then, if you end up saving less or your finances otherwise change, Wealthfront will already recognize this from analyzing your data, and will then adjust their advice accordingly.
Retirement – Here, you can receive tailored advice about which tax-advantaged accounts are best to grow your money, as well as how much to save and invest. When the time comes, they’ll even “help allocate your savings across accounts, including those outside Wealthfront.” Accounts include Traditional IRA, Roth IRA, SEP IRA, and 401(k) Rollover.
Savings – Instead of letting your money stagnate in a standard savings account, the company’s Individual, Joint, and Trust accounts could help your money work harder for you across seven asset classes.
Home Buying – Provides insight into what you can afford today, as well as create a budget that can help you achieve home ownership, while keeping your other goals on track.
Path uses real-time price integration through Redfin, actual bank inputs (e.g., “your location, net worth, credit score, and debt-to-income ratio”) to estimate the mortgage you’ll qualify for, as well as “closing costs, property tax, mortgage payments, insurance, and maintenance costs.”
Then, if you decide you want to move to a different neighborhood or city, into a different sized home, or into a less/more expensive home, the system will automatically tell you how this impacts your finances.
Saving for College – Wealthfront helps you invest in a tax-advantaged 529 College Savings account and create a personalized plan to meet your realistic monthly goals. This includes a breakdown of tuition and expenses (accounting for inflation) by the time your child reaches college, as well as whether or not they’ll qualify for financial aid (and if so, how much).
Regardless of which option you choose, Wealthfront’s PassivePlus suite promises to help “deliver more returns without more risk.” This includes automated tax-loss harvesting, direct indexing, and advanced indexing.
Wealthfront’s Website & App Functionality
Despite all the technology going on in the background, Wealthfront seems to make everything seamless from a user perspective, and customers can have their account set up in a matter of minutes.
You’ll start by answering a set of basic questions, such as: What’s your primary reason for investing? What are you looking for in a financial advisor? This is followed by current age, annual pre-tax income, other income/dependents in the household, total value of cash and liquid investments, and risk tolerance.
Afterward, you’ll be presented with a list of recommended accounts, based on your answers, which can be changed at any time.
When testing Wealthfront’s signup process, the company recommended a 529 College Savings Plan, a Joint Savings Account, and a SEP-IRA after just a few questions and a couple of minutes. Credit: Wealthfront, Inc.
You can check or uncheck options based on your needs, and then press the purple Open Accounts button at the bottom of the screen to proceed. Then, you’ll enter remaining details, such as first/last name and password, as well as verify your mobile number.
From there, you’ll answer specific questions about the account(s) you’ve chosen. After completion, Wealthfront’s “portfolio optimizer will select the optimal set of ETF investments to track the performance of your investment plan while staying within your invested amount.”
Finally, the Wealthfront iOS and Android app offer some useful on-the-go functionality and tracking, although it largely appears to be an extension of their desktop site.
Like Wealthfront’s desktop site, their mobile app allows clients to manage and track investment and home savings, as well as college and retirement accounts. Credit: Wealthfront, Inc.
How Much Does Wealthfront’s Services & Their Portfolio Line of Credit Cost?
Wealthfront’s retirement, investment, and home purchase accounts come with a flat 0.25 percent annual advisory fee. On the other hand, their College 529 accounts come with all-in fees of no more than 0.46 percent.
Unlike a lot of other robo-advisors, Wealthfront offers a line of credit on any individual, trust, or joint investment account of $100K or more. According to their website, it takes no more than 30 seconds to apply, and you can have your money (up to 30 percent of your total account) in as little as one business day.
There are no credit checks and no application fees; you simply pay interest on the amount you borrow (which will vary depending on account size) on your schedule:
- $100,000 - $499,999: 3.60%
- $500,000 - $999,999: 2.85%
- $1,000,000: 2.35%
Have additional questions? A Wealthfront representative can be reached at 844-995-8437.
What Can We Learn From Wealthfront Online Customer Reviews?
Across popular personal finance and investing websites like NerdWallet, InvestorJunkie, Investopedia, and The Simple Dollar, Wealthfront’s robo-advising services seemed to come with mostly positive feedback and overall five-star ratings.
Specifically, NerdWallet mentioned that the service might be ideal for investors who want a hands-off experience, automatic rebalancing, and low management fees (or free, if under $10K), while both they and InvestorJunkie thought Wealthfront's only downside was that they don’t support fractional shares.
Michael Gardon at The Simple thought the company is ideal for long-term passive investors with low account balances, and for those who want a reputable robo-advisor. However, if you have over $100K, he notes that you might have less expensive (although not necessarily better) options.
Between iTunes and Google Play, we encountered nearly 5,000 customer reviews for Wealthfront’s apps, who gave it a cumulative average rating of about five stars. Common compliments referenced ease of use and effective investing, while complaints often revolved around bugginess.
Wealthfront Inc., based out of Redwood City, CA and in business since 2008, held a D+ rating with the Better Business Bureau, based on just one customer review and two closed complaints, as of 1/29/18.
Wealthfront vs. Betterment, Acorns, & Other Robo-Advisors
In the Robo-Advisor guide cited earlier, we outlined that the main differences between each of these companies are typically their fees, their portfolios, and their services offered.
Let’s look at some of Wealthfront’s most popular competitors (many of which the HighYa team has written about over the years) through this lens:
|Wealthfront||Free under $10K; 0.25% annual fee for $10K+||ETFs||Retirement (Traditional IRA, Roth IRA, SEP IRA, and 401(k) Rollover), investment savings, home buying, college (529 Savings), portfolio line of credit|
|Acrons||$1/mo for $5K and under, 0.25% annually for $5K+||ETFs||Automated investing using spare change from accounts|
|Betterment||0.25%-0.40%||ETFs||Financial planning, retirement, rollovers, trusts, tax loss harvesting|
|Blooom||$10/mo||N/A||401(k) management and monitoring|
|Ellevest||0.25%-0.50% per year||ETFs||Women-focused investing, 401(k) rollovers, IRA transfers, private wealth management|
|Schwab Intelligent Portfolios||Free||ETFs||Brokerage (Individual, Joint Tenant with Rights of Survivorship, Tenants in Common, Community Property, Custodial), revocable trust, retirement IRAs (Roth, Traditional, Rollover, SEP, SIMPLE)|
|TD Ameritrade||0.30% per year||ETFs||Retirement, wealth generation, college, expense savings|
|WiseBanyan||Free; optional products and services available||ETFs||401(k) and 403(b), retirement IRAs (SEP, Roth, traditional), home buying|
Clearly, there are a lot of options available. How can you choose the one that best meets your needs?
Largely, that’s what it’s going to come down to. For example, are you interested in something other than ETFs? Of the options above, OpenInvest (equities) is currently the only game in town, as is their values-based approach to picking investments.
What about a more personalized approach to financial planning? Vanguard. Absolute simplicity? A basic service like Acorns (account change) or Bloom (401(k)) might best meet your preferences, but they’re also among the most limited options above.
Taking everything we’ve learned and zooming in on Wealthfront, what’s the bottom line?
Our Final Thoughts About Wealthfront
In the end, Wealthfront is one of the longest-running robo-advisors in business, with some of the least expensive fees in the industry, one of the broadest service ranges at any investment amounts, and comes with an almost wholly positive online customer and professional reputation. Furthermore, they’re the only one currently offering a portfolio line of credit.
Given this, as long as you’re OK with a simple, hands-off approach to your investing, it really seems like you can’t go wrong. In a worst-case scenario, you can invest less than the $5K threshold for a free account and find out if it meets your needs, and if not, you won’t have paid a cent in the process.
5 out 6 people found this review helpful
I've had a few weeks with Wealthfront, and still not sure what goes on here. Out of six weeks of investment, I had two positive days. Even when 80% of my assets were positive, my portfolio was still losing money. I asked their support and was sent to some investment methodology link that might as well have well been written in Mandarin. I'll be pulling my money out and moving elsewhere. Not sure yet, but if someone can't explain why my account is up or down, then time to move on.
Bottom Line: No, I would not recommend this to a friend
17 out 20 people found this review helpful
First and foremost, I want to say that out of all of my accounts, Wealthfront has performed the worst. Even with an up market, this account is in the negative when all other accounts are in the green.
My main problem with this company is that I transferred my retirement Roth IRA over to a Wealthfront Roth IRA. Or so I thought. When I tried to transfer the funds over to my other brokerage due to Wealthfront's poor performance, I was informed that Wealthfront had opened my account as a Traditional IRA. When I confronted them about the situation, I was told they do not have a department to handle this and I could email their cashier group. I told them I needed to speak to someone but once again was not given that option. After many frustrating emails, I realized they were not going to help me get the account fixed.
I now see I made a HUGE and expensive mistake going with Wealthfront. Please beware of this company and look into other investment avenues for your hard earned money.
Bottom Line: No, I would not recommend this to a friend