Wealthfront at a glance
Pros: Where Wealthfront stands out
Wealthfront distinguishes itself in how it manages your portfolio, offering features that are atypical among robo-advisors. You can quickly sign up for an account, and you’ll run through a few questions on your risk tolerance and timeline, and then Wealthfront gives you a portfolio. You can move on or change your responses to the questions and receive a new portfolio.
Your portfolio will pull from 11 asset classes (such as U.S. stocks, dividend stocks, real estate and U.S. government bonds) and weight them based on your risk tolerance and timeline. The primary ETFs include mostly funds from Vanguard, a low-cost leader, while secondary ETFs include many well-known players, including Vanguard, Schwab and iShares.
If you have more than $100,000 with Wealthfront, you can gain access to the robo-advisor’s in-house risk-parity fund. The fund’s goal is to achieve better returns for the risks you’re taking. It costs 0.25 percent annually, or $25 for every $10,000 invested, and Wealthfront may put up to 20 percent of larger portfolios in the fund. Wealthfront estimates that it raises the average expense ratio from 0.08 percent to 0.11 percent. While the fund creates a conflict of interest for Wealthfront, clients are able to opt out of the proprietary fund when they sign up or at any time.
If your taxable portfolio has more than $500,000, you’ll be able to access Wealthfront’s smart beta feature. This strategy weights the stocks in your portfolio to increase your return, based on a variety of factors that may drive higher gains. There’s no extra charge for this service.
Given the complexity of the strategies, Wealthfront’s website does a great job of disclosing how they work and why you might want them, so you know exactly what the robo-advisor is doing.
Robust cash management account
With robo-advisors, it’s easy to focus on the fact that they manage your investment accounts. But the better ones also add in a cash management account, and the very best make it as fully featured as the best fintech banking apps. That’s the case with Wealthfront’s cash management account.
Wealthfront’s seems to do it all – so much so that you might consider relinquishing your traditional bank account:
- Interest rates on your cash
- Bill pay, check deposit and writing
- Debit card
- Access to your direct-deposit paycheck two days in advance
- No monthly account or overdraft fees
- Unlimited free transfers
- Access to over 19,000 no-fee ATMs
You’ll also receive FDIC insurance for up to $1 million in cash through Wealthfront’s partner banks. Wealthfront’s cash management account is tops among robo-advisors.
Wealthfront’s cash account integrates well with the investment account, allowing you to transfer money and then have it invested in minutes. You can also set the cash management account to automatically transfer money to the investing account whenever you’ve built up enough cash (for example, for an emergency fund). So you can set more of your finances on autopilot.
Wealthfront’s tax-loss harvesting may be the best in the industry, and the company touts its ability to recoup the advisory fee for 96 percent of its clients in the form of tax savings. Tax-loss harvesting is available for any taxable account, not just those with a certain balance.
As a refresher, tax-loss harvesting is when you sell a losing investment to gain a tax advantage and offset other gains. It’s a time-tested (and legal) method of reducing your tax bill, and having a computer optimize your portfolio is much more efficient than having a human manage it.
Wealthfront says that over the past five years, clients in its riskier portfolios (i.e., with more stock funds) have earned an estimated after-tax benefit of six to 13 times the advisory fee. So if you’re investing in an aggressive portfolio, you’re likely to recoup your 0.25 percent fee and more.
Wealthfront also offers a more sophisticated form of harvesting for portfolios between $100,000 and $500,000. It’s called stock-level tax-loss harvesting. In its portfolios, Wealthfront replaces the U.S. stock fund with its constituent stocks, so it can take tax losses on the individual stocks rather than on the fund as a whole. (Larger portfolios have access to its smart beta program.)
Wealthfront does a good job spelling out the fees for its investing service, and it has just two: a management fee and fees for ETFs. Its management fee comes in at an industry standard 0.25 percent, or about $25 annually for every $10,000 invested. That’s serious savings over traditional financial advisors, which would typically cost 1 percent per year. But it may be even lower than this headline number, given Wealthfront’s tax-loss harvesting program (more below).
Wealthfront offers low-cost exchange-traded funds, which form the backbone of most portfolios. The cost of these ETFs ranges from 0.06 to 0.13 percent, right at the low end of the industry. The average portfolio costs 0.08 percent or $8 annually for every $10,000 you have invested. Of course, you’d pay these fees at any robo-advisor – they go into the fund manager’s pocket, not the robo-advisor’s – but Wealthfront minimizes these costs by selecting cheaper funds.
It’s worth noting that one cost typical at other robo-advisors is missing. Money managers may clip you for a transfer-out fee on your way out the door, usually running to about $75. Not here.
Comprehensive wealth-planning tool
Whether you become a paying Wealthfront customer or not, you’ll be able to access its financial planning tool. You can start building your financial plan and getting your financial accounts in order.
You can use the tool to automatically load all the information from your accounts into the planner. That’s not only brokerage accounts or retirement accounts, but also bank accounts, credit cards and even your mortgage. You won’t have to manually update anything either.
You’ll be able to project your net worth over time, establish financial goals (a house, college tuition, retirement) and see how financial decisions may affect each of these goals. Will you have enough to retire? How will buying that new car affect your overall financial picture? You don’t just get a “yes” or “no,” so you’ll see the effects on your wealth in a graphic.
To measure your potential future financial position, the planning tool pulls in third-party data on retirement spending, earnings growth, property prices and estimated college costs. Then you’ll get detailed estimates of future costs so you can make informed decisions about how to act.
It’s a spiffy tool that allows you to easily make adjustments and see the results of your decision.
Generous portfolio line of credit
Another great feature is Wealthfront’s portfolio line of credit, which allows you to take a margin loan against a portfolio’s value, much as you could at a typical brokerage. You’ll need at least $25,000 in a taxable individual, joint or trust portfolio to take advantage. You can access up to 30 percent of your account’s value and have the money deposited in one business day.
The rates are surprisingly good — based on the federal funds rate plus a markup. If you borrow less than $500,000, you’ll pay a markup of 3.6 percent. But the rate falls as you borrow more, with the markup declining to 2.35 percent for loans of more than $1 million.
You won’t need a credit check or see a hit to your credit score, and you’ll know in less than a minute. Like a margin loan, you can pay back the line of credit as you see fit, with no fixed repayment schedule. But if the value of your portfolio falls significantly, you may need to repay some of the loan or Wealthfront will liquidate some of your positions, as is typical in the industry.
Wealthfront does so much right for investors, does it at a high level and at a more than fair price. From portfolio management with sophisticated investing strategies to a fully featured cash management account to a comprehensive wealth-planning tool, Wealthfront delivers a superb robo-advisor. It adds in a few features that are rare in the space, including a portfolio line of credit and tax-loss harvesting that may pay for itself and then some. With all of these features at a reasonable cost, it’s easy to see Wealthfront becoming your one-stop financial account.
Investors looking for access to financial advisors and robust customer support should have a look at Schwab Intelligent Portfolios, especially if they can bring some serious money to the relationship. Ellevest is another low-cost pick worth considering, particularly if you’re interested in socially responsible investing.
Disclosure: Ratings are determined by Bankrate's editorial team and are based on factors that matter to individual investors, including costs, investment portfolios, account types, planning tools and many more. Opinions are our own and reviews are not influenced by advertisers.
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