Wealthfront Review 2021: Pros, Cons and How It Compares

With Wealthfront, you get low-cost access to a diverse investment lineup, excellent planning tools and a variety of tax-saving strategies.

Tiffany Lam-BalfourMarch 22, 2021
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Our Take

5.0

NerdWallet rating 

The bottom line: Wealthfront is a force among robo-advisors, offering a competitive 0.25% management fee, free management of balances under $5,000 (with NerdWallet’s promotion) and one of the strongest tax-optimization services available from an online advisor.

Wealthfront

on Wealthfront's website

on Wealthfront's website

Fees

0.25%

management fee

Account Minimum

$500

Promotion

$5,000

amount of assets managed for free

Pros & Cons

Pros

  • First $5,000 managed free (NerdWallet promotion).

  • Low ETF expense ratios.

  • Daily tax-loss harvesting.

  • Automatic rebalancing.

Cons

  • No fractional shares.

  • No large-balance discounts.

Compare to Other Advisors

Wealthfront
Betterment
SoFi Automated Investing
NerdWallet rating 
NerdWallet rating 
NerdWallet rating 
Fees

0.25%

management fee

Fees

0.25%

management fee

Fees

0%

management fee

Account Minimum

$500

Account Minimum

$0

Account Minimum

$0

Promotion

$5,000

amount of assets managed for free

Promotion

Up to 1 year

of free management with a qualifying deposit

Promotion

Free

career counseling plus loan discounts with qualifying deposit

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Full Review

Wealthfront offers the kind of holistic financial advice and automated investment management that appeals to new and experienced investors alike: helpful planning tools, diversified — and hands-off — portfolios and advanced tax optimization strategies.

Wealthfront is best for:

  • Hands-off investors.

  • Taxable accounts.

  • Free financial tools, even if you don't have a Wealthfront account.

  • 529 college savings plan management.

Wealthfront at a glance

Account minimum

$500 for investment accounts, $1 for cash accounts, $0 for financial planning.

Account management fee

0.25% (first $5,000 managed free for NerdWallet readers).

Investment expense ratios

ETF expense ratios average 0.08%.

Portfolios that include the Wealthfront Risk Parity Fund have an average expense ratio of 0.11%.

Account fees (annual, transfer, closing)

None.

Portfolio mix

  • ETFs from 11 asset classes (portfolios generally consist of 6 to 8).

  • Portfolios over $100,000 are eligible for stock-level tax-loss harvesting (direct indexing), which allows for customization as individual stocks can be excluded for whatever reason, including socially responsible investing (SRI).

  • Portfolios over $100,000 can opt-in for WFRPX, the Wealthfront Risk Parity Fund, in taxable accounts.

  • Portfolios over $500,000 are eligible for smart beta.

Accounts supported

  • Individual and joint non-retirement accounts.

  • Roth, traditional, rollover and SEP IRAs.

  • Trusts.

  • 529 college savings plans.

  • High yield cash account (not charged management fee).

Tax strategy

  • Daily tax-loss harvesting free for all taxable accounts.

  • Stock level tax-loss harvesting (direct indexing) on accounts over $100,000.

  • TurboTax customers can easily import tax-loss harvesting data from Wealthfront.

Automatic rebalancing

Free on all accounts.

Human advisor option

None.

Savings account/cash management account

The Wealthfront Cash Account offers high interest checking. The cash account offers a competitive yield and is covered by up to $1 million in FDIC insurance. The account requires just $1 to get started.

Customer support options (includes website transparency)

Licensed product specialists (have Series 7 & 66 and some are CFAs/CFPs/CPAs) available to provide support or product information via phone or email (they do not make recommendations or give advice).

Phone support Monday-Friday 8 a.m. to 5 p.m. Pacific; and all emails are responded to within one business day.

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 six to eight asset classes.

Customers with $100,000 or more in a taxable account can select Wealthfront's Risk Parity Fund, a proprietary mutual fund the company says offers greater exposure to asset classes with higher risk-adjusted returns. The fund's expense ratio is lower than other risk parity funds, but as it is a more actively managed fund its costs are slightly higher than the other index funds Wealthfront employs, bringing the weighted average expense ratio of portfolios that include the Wealthfront Risk Parity Fund to 0.11%. (See below for a possible caveat about this fund.)

And for taxable accounts with balances over $500,000, the robo-advisor offers multifactor smart beta, where it weights the stocks in a portfolio based on various factors, including volatility and dividend yield, to further power potential returns. This all for the same advisory fee that applies to all accounts.

Management fees: Wealthfront charges 0.25% for management, though the first $5,000 invested is managed for free if you sign up through NerdWallet. 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. We also have a full comparison of Wealthfront vs. Betterment.)

Wealthfront also has a referral program. If you invite friends and they fund an account, the company will waive fees on $5,000 for each of you.

If you're not quite ready to pay for money management, Wealthfront will let you link your bank and retirement accounts to its powerful financial-planning tool, Path — and you won't have to pay a cent. If you decide you want Wealthfront to manage your money for you, you'll start paying the 0.25% fee. Keep reading for more on how Path works.

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.

iOS-dashboard

For accounts with balances of $100,000 or more, Wealthfront beefs up its tax optimization services with stock level tax-loss harvesting or direct indexing. 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 1,000 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.

Another portfolio perk accompanies stock level tax-loss harvesting — to a degree, customers can customize their portfolio by excluding any unwanted individual stocks for whatever reason, including SRI.

If you're a TurboTax user, when you file your taxes you can enter your Wealthfront account login information to import your tax-loss harvesting data.

Financial planning: Wealthfront's free Path tool (for mobile and desktop) helps people plan for buying a house, retirement, college and general savings goals — and you don't have to open a Wealthfront account to use it.

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.

In addition to bank and investment accounts, you can link your Coinbase account to track your cryptocurrency holdings.

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 time frame to see different results, because you may be able to afford a bigger mortgage, say, in 10 years 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 (and, if you already own a home, check your current home's value) via the app's connection to the real-estate companies Zillow and Redfin.

Wealthfront also offers Time Off for Travel, a travel-planning tool that helps investors figure out how much time they can afford to take off, how much they can spend on travel, and how that spending could affect their ability to reach other goals.

iOS-college

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 offer its own 529 college savings plan.

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 plan is sponsored by the state of 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 $25,000 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 2.40% and 3.65% (rates change frequently and depend on account size).

High-interest savings: In 2019, Wealthfront launched the Wealthfront Cash Account, a savings account that currently pays 0.35% interest, competitive with many online banks. Most notable about the account is that through white-label agreements with several banks, Wealthfront is able to offer up to $1 million in FDIC coverage, four times more insurance than the average bank account. Like other savings accounts, money deposited in the Wealthfront Cash Account is not subject to investment risk. The account charges no fees. If you also have a Wealthfront investment account, the investment management fee doesn't apply to money in the cash account.

Wealthfront Cash has many features, including a debit card, bill pay and automatic payments. Users who direct deposit their paycheck can get paid up to two days early and those using their Wealthfront Cash Account to invest in a Wealthfront Investment Account can get their funds invested within minutes. The Autopilot tool allows users to set a maximum account balance in their Wealthfront Cash Account or other checking account and automatically move additional cash into a Wealthfront taxable investment account, traditional IRA, Roth IRA, or 529 college savings account.

One thing to keep in mind: It's possible to open a joint cash account, but only one owner will be able to log into the account; the other person will have read-only access. (Wealthfront says it plans to roll out joint access on cash accounts in the future.)

Where Wealthfront falls short

Risk Parity Fund: Risk parity is a strategy for allocating capital across multiple asset types, with the aim of giving your portfolio some added diversification. Wealthfront's Risk Parity Fund uses complex financial instruments called total return swaps and leverage (borrowing power) to adjust and respond to volatility in an effort to generate better returns for a given level of portfolio risk. The WFRPX fund recently reached its three-year anniversary, and Morningstar data show that the fund has underperformed against both comparable funds and its own benchmark index over that time frame.

Wealthfront says its risk parity strategy is appropriate for investments with a time horizon of five years or more, as it tends to smooth out in the longer term. And since the fund would make up only a piece of your investment portfolio, Wealthfront says performance should be evaluated on the overall portfolio instead of on the fund itself.

As with any investment, past performance is not indicative of future results. Still, you might not want to pay extra for that track record so far. Investors who don't want exposure to this fund can opt out or choose not to invest in it in the first place.

Cash balance: Wealthfront doesn’t buy fractional shares of ETFs, 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.

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 $5,000 free of charge for NerdWallet users. 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.

Key terms in this review

Robo-advisor

Wealthfront is a robo-advisor, also known as an automated investing service or online advisor. Robo-advisors use computer algorithms and advanced software to build and manage your investment portfolio, and are much cheaper than an in-person human financial advisor.

529

529 plans provide tax-free investment growth and withdrawals for qualified education expenses. Parents who start saving in a 529 account when their children are young can take advantage of those tax savings, as well as compounded returns and — in some states — a tax deduction on contributions. Wealthfront is one of few robo-advisors that offers its own 529 plan, but investors should thoroughly investigate whether they’re passing up tax perks offered in-state before using an alternative like this.

Fractional shares

Fractional shares let investors purchase stock or other investments based on a dollar amount they select rather than the price of a whole share. This may be particularly advantageous for investors who are working with limited money but want to build a highly diversified portfolio. Wealthfront doesn’t buy fractional shares of ETFs, which may prevent the company from investing your entire deposit. That means there could be uninvested cash in your portfolio that isn’t earning a return.

Tax-loss harvesting

Tax-loss harvesting is an investment strategy that can significantly reduce capital gains taxes. In taxable accounts, the practice involves selling losing investments to offset the gains from winners. Wealthfront offers daily tax-loss harvesting on all taxable accounts and also stock-level tax-loss harvesting (also called direct indexing) for portfolios over $100,000 — making it worth a look for those with high-balance taxable accounts. Wealthfront says stock-level tax-loss harvesting is an enhanced form of tax-loss harvesting that looks for movements in individual stocks to harvest more losses and lower your taxes even more than basic harvesting.

Expense ratio

An expense ratio is an annual fee charged by mutual funds, index funds and ETFs, as a percentage of your investment in the fund. If you invest in a mutual fund with a 1% expense ratio for example, you’ll pay the fund $10 per year for every $1,000 invested. If high, these fees can significantly drag down your portfolio returns, but the expense ratios of the funds used in Wealthfront’s portfolios are low. Expense ratios are paid in addition to your asset management fee.

Automatic rebalancing

Automatic rebalancing is regular rebalancing of your portfolio in response to market fluctuations or other factors that shift your portfolio out of its intended investment allocation. The market moves and over time, your allocation will move, too. So if your target was having 60% in stocks and 40% in bonds and stocks are doing well, you could end up having 70% in stocks, which may be more risk than you are comfortable with. With automatic rebalancing, the computer monitors your allocation and will automatically adjust your investment if it gets out of line.  Wealthfront offers this service.

on Wealthfront's website