Wealthfront has lured new investors with an enticing offer: free management on the first $10,000 invested. But the robo-advisor, which manages over $10.5 billion in assets, also plays well for larger balances and, in particular, large-balance taxable accounts. Plus, it now offers robust financial planning tools to help people set and reach their goals, as well as a lending service, where customers with $100,000 or more invested can borrow against their account.
Wealthfront also offers direct indexing, a service that uses individual securities to single out tax-loss harvesting opportunities, on balances over $100,000. Combined with the daily tax-loss harvesting that Wealthfront provides on all taxable accounts, the company says the service can add up to 2% to annual investment performance.
Wealthfront also manages 529 college savings plans, an account option that few competitors offer.
- Management fee: 0.25%, but first $10,000 is free
- Account minimum: $500
- Promotion: NerdWallet readers can get $15,000 managed for free
Wealthfront is best for:
- Hands-off investors.
- Free management on small balances.
- Taxable accounts.
- Automatic rebalancing.
- 529 college savings plan management.
Wealthfront at a glance
|Account management fee||First $10,000 managed for free (NerdWallet readers get $15,000 managed free); 0.25% after that.|
|Investment expense ratios||ETF expense ratios average 0.08%.|
|Account fees (annual, transfer, closing)||None|
|Portfolio mix||ETFs from 11 asset classes (portfolios generally consist of 6 to 8). Individual stocks held in larger accounts.|
|Automatic rebalancing||Free on all accounts.|
|Customer support||Phone support Monday-Friday 11 a.m. to 8 p.m. Eastern; email support.
Where Wealthfront shines
Investments: Wealthfront has some heavy hitters behind its investment strategy, including Chief Investment Officer Burton Malkiel, senior economist at Princeton University and author of “A Random Walk Down Wall Street,” an investing classic. The company’s methodology includes giving investors a streamlined questionnaire to identify risk tolerance, then employing exchange-traded funds in up to 11 asset classes.
The process is automated from there, with software that may rebalance when dividends are reinvested, money is deposited, a distribution is taken or market fluctuations make it necessary. Wealthfront uses threshold-based rebalancing, meaning portfolios are rebalanced when an asset class has moved away from its target allocation, rather than on a quarterly or yearly schedule.
Wealthfront’s investment mix covers U.S. stocks, foreign stocks, emerging markets, dividend stocks, real estate and natural resources, as well as emerging markets bonds, Treasury inflation-protected securities and U.S. government, corporate and municipal bonds. The typical portfolio includes seven to eight asset classes, and real estate is not included in taxable accounts.
Management fees: The first $15,000 invested with Wealthfront is managed for free if you sign up through NerdWallet. After you pass that threshold, that $15,000 is still managed for free, but assets invested beyond that are charged a flat advisory fee of 0.25%.
The company’s biggest independent competitor, Betterment, also charges 0.25% for its digital service. (For a full description of that company’s services and fees, read our Betterment review.) Betterment has chosen to offer its fee break on large balances rather than small, waiving management fees on assets in excess of $2 million. That means the vast majority of investors will pay slightly less at Wealthfront.
Wealthfront also has a referral program. If you invite friends and they fund an account, the company will waive fees on an additional $5,000 for each of you. Investors who use NerdWallet’s Wealthfront promotion receive the same deal, getting free management on $15,000 rather than $10,000.
Tax efficiency: Wealthfront offers daily tax-loss harvesting on all taxable accounts. New clients who transfer in assets may benefit from its Tax-Minimized Brokerage Account Transfer service. That service incorporates existing investments into the Wealthfront portfolio where possible and holds transferred securities that can’t be incorporated until capital gains become long-term.
For accounts with balances of $100,000 or more, Wealthfront offers tax-optimized direct indexing, which is essentially beefed-up tax-loss harvesting. The basics: It’s harder to use tax-loss harvesting when you’re buying an index, so Wealthfront replicates the U.S. stocks index by buying the stocks held in it directly — up to 1,001 of them. Then its software can look for individual tax-loss harvesting opportunities. That tax savings can be reinvested, which compounds the potential impact of the service.
And for taxable accounts with balances over $500,000, the robo-advisor offers “advanced indexing,” where it weights the stocks in a portfolio based on various factors, including low volatility and high dividend yield, to further power potential returns, all for the same advisory fee that applies to all accounts.
Financial planning: Wealthfront’s Path tool (for mobile and desktop) helps people plan for buying a house, retirement, college and general savings goals. For example, if you’re looking to build a retirement savings plan, the tool pulls in your current spending activity from your linked accounts, analyzes government data on spending patterns for people as they age, and then crunches the numbers to estimate your actual spending in retirement. The Path tool also incorporates long-term Social Security and inflation assumptions in its retirement-plan calculations.
Path’s home-planning tool incorporates your financial situation, home prices and mortgage rates to give you an estimate of how much house you can afford to buy. The tool lets you adjust your savings timeframe to see different results, because you’ll be able to afford a bigger mortgage, say, 10 years from now than you can right now. The tool also offers tips for how much to save each month and the best accounts to save in. Plus, you can do some virtual house-hunting via the app’s connection to the real-estate company Redfin.
College savings: Wealthfront’s Path tool also lets parents pick the college they want their child to go to, then projects college costs, estimates financial aid, and develops a monthly savings plan. Parents can link an outside 529 college-savings account or open one through Wealthfront, which is one of the few robo-advisors to manage 529 college savings plans. The service will walk users through opening a 529 account, recommend a savings goal and manage the account — slowly skewing conservative as the child approaches college age — for an all-in fee of no more than 0.46%, depending on investment expense ratios. The offer to manage the first $10,000 free extends here, too. The plan is sponsored by Nevada.
Investors should carefully evaluate Wealthfront’s 529 offering compared with their own state-sponsored plan, especially if your state offers a tax deduction or credit to residents who contribute; choosing the Wealthfront 529 would mean giving up that tax benefit.
Line of credit: Wealthfront customers who have at least $100,000 in their account can borrow up to 30% of the value of their portfolio, without filling out an application, undergoing a credit check or paying any fees. Wealthfront currently charges annual interest rates of between 3.5% and 4.75%.
Where Wealthfront falls short
Cash balance: Wealthfront doesn’t buy fractional shares of exchange traded funds, which prevents the company from investing your entire deposit. Also, it maintains a cash balance equal to the fees you’re projected to owe over the next year, so accounts are likely to experience a small level of cash drag. The percentage held in cash isn’t nearly as high as Schwab’s allocation, which is a minimum of 6%, but it’s worth noting for investors who would prefer the fractional shares offered by other robo-advisors.
How Wealthfront stacks up
Wealthfront is a key force in the online advisor industry, and offers competitive fees, free management of balances under $15,000 (with NerdWallet’s reader promotion) and one of the strongest tax-optimization services available from a robo-advisor. It’s also one of the only online advisors that has remained strictly a robo-advisor, with no human advice offering.
The comparison to Betterment — which offers human advice via in-app messaging, and a premium plan that includes phone support from human advisors — hinges on what kind of advice you’re looking for and which type of account you have. Wealthfront is likely the best choice for taxable accounts and clients who don’t need or want human advisors. And keep in mind that Wealthfront has been expanding its digital advice offering — their retirement, home and college tools are robust. Still, for clients who do want the option of speaking with a human advisor, Betterment is worth considering.
Wealthfront vs. similar robo-advisors
Is Wealthfront right for you?
Wealthfront is one of the lowest-cost online advice solutions, and giving it a try comes with little commitment thanks to the company’s offer to manage $10,000 for free ($15,000 for NerdWallet users). The direct indexing service also makes it hard to beat for taxable accounts. And their digital financial planning tools are useful and easy to use.
We also appreciate the addition of 529 plans to the account roster, as parents could benefit from college savings guidance. But investors should thoroughly investigate whether they’re passing up tax perks offered in-state before using an out-of-state alternative like this.