The rise of machine-enhanced financial advisors – or “Robo-Advisors” – lead to the spawn of many different investing products. Wealthfront is one of the most popular, offering automated investing plans alongside financial advice. The platform calls itself “financial planning, redefined,” but is it right for everyone? Here’s our take on Wealthfront, and who it works best for.
Is Wealthfront available in Canada?
No, currently Wealthfront is NOT available to Canadians. However, Canadians have a very similar platform they can use as an alternative: Wealthsimple.
What is Wealthfront?
Wealthfront is a completely online investment platform powered by a robo-advisor. With a minimum investment of $500, you can get started using both their investment service, as well as a suite of planning tools. Their guidance programs include homeownership, early retirement, travel goals, college savings, and more.
The self-guided financial planning work comes from the company’s 2019 acquisition of Grove, a financial planning startup which helped users set goals and develop strategies to achieve them. Each path is supported by the platform’s three core options: Invest, Save and Borrow. Working together, the three tools allow users to see how much money they have in hand, a projection of where their investments are going, and how much they can afford to borrow.
Although Wealthfront can’t (and doesn’t) take the place of a traditional bank, their roadmap foresees a future where consumers could use the app as a regular banking space, instead of a tool to manage money and plan for future growth. Potential additions the company wants to add include bill payment, emergency fund savings and investment portfolio contributions.
How Does Wealthfront Investing Work?
Once a user opens their account and makes the $500 minimum investment into their account, they are given a series of questions about how they want to invest. This includes their attitudes towards market risk, and when they want to access their money. From there, a portfolio of exchange-traded funds (ETFs) is presented to align with the risks and target access date. Each investment plan comes from a mix of 11 asset classes including U.S. stock, foreign stock, emerging markets, and Treasury inflation-protected securities. In most portfolios, the robo-advisor will only select between six to eight options.
Although the portfolio is tailored to the individual, users cannot customize it to choose the funds or stocks they want. However, when the user gets to over $100,000 in investments, they can convert to a stock-based portfolio, and restrict the robo-advisor from choosing certain stocks.
One of the biggest appeals to Wealthfront are their low account management fees. Regardless of portfolio size, the platform only charges a 0.25% account management fee, which is significantly lower than both human advisors and other robo-advisor platforms.
Another unique option is in the range of accounts users can open within Wealthfront. The account types include the traditional IRA, Roth IRAs, Self-employed IRAs and 401(k) rollovers. Users can even open a 529 education savings account, although it comes with a higher fee structure than the other investment accounts.
How Does Wealthfront Banking Work?
Wealthfront also offers a high-yield cash savings account called Wealthfront Cash. It’s FDIC insured up to $1 million, offers unlimited free transfers, has no fees, and only requires a minimum deposit of $1 to open an account. The best use case for Wealthfront Cash is for short-term savings accounts and for emergency funds.
Although Wealthfront offers many different investment vehicles and options, it shouldn’t be considered an alternative to traditional banking products quite yet. Many of their road mapped features have not been implemented into the platform, and cash not invested is treated as de-facto savings.
Those who are planning to use Wealthfront should go into it as an advising platform with a goal of saving money and growing wealth. Until bill payment and emergency savings are added, this should be considered primarily for investments, and secondary for finding and closing loans.
Where Wealthfront Excels
As a whole, Wealthfront is arguably one of the best robo-advisors available in the marketplace. With a low advisor fee, smart portfolios based on a complete market view, and easy accessibility, Wealthfront is a great platform for new investors to set goals and understand how their exposure to risk can drive future returns.
Additionally, this platform excels for all types of investors – not just beginning investors, or those who want a “set and forget” style of investing. With the option of converting to a stock portfolio with $100,000 in assets, even high-wealth investors can benefit from this unique approach to the robo-advisor investing.
For both types of investors, this platform is equally impressive for its ability to discover tax-savings. The robo-advisor works daily to complete tax-loss harvests, which identifies opportunities to sell investments at a loss. This lets investors offset their gains from profitable investments, while still growing their wealth. Tax information can import directly into TurboTax each year, making it easy for investors to incorporate that information into their tax returns.
Where Wealthfront Lacks
Although there’s a lot of upside to Wealthfront, there’s also some downside as well. First, none of the portfolio options allow for partial user-direction, meaning individuals can’t pick their own stocks or ETFs. While there is an option to tell the robo-advisor which stocks not to invest in, it doesn’t grant complete control. This can frustrate some users as they try to create a portfolio with their personal gains in mind.
Additionally, while the technology in of itself works great, it does not provide any human interaction or help. While many different robo-advisor platforms require users to meet with a real financial advisor at least once, Wealthfront is completely automated. This can frustrate users who run into snags, or want to get a little more help and insight on their investment strategies. However, it’s a tradeoff since this is what allows them to offer such a great platform for low/zero fees.
Who Gets the Most From Wealthfront?
At the end of the day, new investors who are looking for the right opportunity to start growing their wealth would benefit most from Wealthfront. With an easy-to-understand platform that takes minutes to start, Wealthfront offers young investors the opportunity to start saving early, invest in portfolios that reflect their goals and strategies, and allows them to learn how to invest by watching the robot. Combined with a low management fee, Wealthfront is the right place to start investing, and let wealth grow to actualize real results.
Alternative to Wealthfront for Canadians
Wealthfront is a US based company and is not available to Canadians. The best alternative to Wealthfront for Canadians is Wealthsimple.