Is Wealthfront Worth It?

Similar to Betterment, Wealthfront was also established 11 years ago. The fact that both robo-advisors have been around for exactly the same time, allows us to make an even better comparison.

Find out which one provides the better service, more competitive fee structure and more advanced functionalities.

In this Wealthfront review, we will examine the platform’s main benefits as well as, why in the recent years, it is slowly leaning towards being named the №1 robo-advisory platform.

Wealthfront | Financial Copilot

Wealthfront is one of the pioneers in the robo-advisory niche. However, an interesting fact is that it started as a mutual funds analysis firm.

Soon after that, it moved to the private wealth management business and started 2013 with $97 million in AUM.

For just a year, the assets under management grew by 450% which was a clear sign to the founders that there is a potential to develop the business even further.

Today, the company manages assets worth more than $10 billion.

The main philosophy of the company is based on the idea that the financial industry was not designed to be fair.

Or in other words – most individuals are unable to take advantage of professional investment consultants which makes it hard for them to compete on financial markets.

As it clearly states on its website, Wealthfront believes that “everyone deserves an equal chance to succeed” which is why the company tries to bring sophisticated investing to the average individual and level the playing field.

Wealthfront App

​Is Wealthfront Worth it?

The clear answer to this question is: yes, it does!

If you want a more in-depth explanation of why Wealthfront is worth trying, then we should focus on two main aspects – comparison with other robo-advisors and actively-managed funds.

Compared with other automated investment management companie​s and for the small fee that you will be charged each year, Wealthfront will provide you with one of the most complete and best-performing services on the market.

When compared with the active fund management, the results are even more convincing.

Wealthfront provides a thorough explanation, backed with scientific researches, on why passive money management is achieving better performance when compared to active fund managers (more information is available here).

And if so, why should one pay the excessively high fees, typical for the active money management funds? The answer is simple – there is no reason.

Wealthfront Investment Strategy

Considering the fact that the Chief Investment Officer of the company is Burton Malkiel, one of the most prominent figures in the investing world and author of the best-seller “A Random Walk Down Wall Street”, it is no surprise why Wealthfront employs a passive investing strategy.

Wealthfront Dashboard

​Wealthfront’s investment methodology is based on 5 steps

  • ​Asset classes identification
  • ​Finding the best ETFs to represent each asset class
  • ​Apply MPT
  • Determine the investor’s risk tolerance to tailor the allocation
  • Periodical portfolio rebalancing

The process is fully automated. The software rebalances the portfolio depending on different cases, such as dividend reinvesting, new money deposits, market fluctuations, etc.

The important thing here is that Wealthfront employs a threshold-based rebalancing methodology.

This means that, instead of on a certain period, the portfolio is rebalanced each time when a particular asset goes out of its target allocation.

This allows for stricter control over the assets and significantly improves portfolio performance.

​Wealthfront invests in a variety of ETFs, covering three main categories

  • Stocks - U.S., foreign, emerging markets and dividend-growth
  • Bonds – U.S. government, emerging markets, corporate and municipal
  • Inflation assets – real estate, natural resources and Treasury Inflation-Protected Securities (TIPS)

Recently, Wealthfront started the Risk Parity Fund – another investible vehicle, suitable for individuals with more than $100 000 in their accounts.

The fund targets clients that prefer investments in instruments with higher risk-adjusted returns.

Wealthfront describes its investment strategy very thoroughly in this section of its website.

Wealthfront Fee Structure

In terms of its pricing model, Wealthfront falls in the same category with Betterment.

Although it is not as cheap as entirely free robo-advisors like M1 Finance and WiseBanyan, its fee structure suits well even investors with less capital:

  • ​Annual advisory fee - 0.25% per year of all assets under management (deducted monthly)
  • ​Minimum account balance - $500 ($100 000 for Stocks Tax-Loss Harvesting and $500 000 for Smart Beta)
  • ​Wealthfront Risk Parity Mutual Fund – 0.25% expense ratio
  • 529 accounts – 0.42% - 0.46% per year (more info here)
  • Minimum account balance to be able to invest in the Risk Parity Mutual Fund - $100 000

For the 0.25% annual fee, users get professional robo-advisory service with periodical rebalancing and dividend reinvesting. There are no fees for transactions or trades.

There are, however, the traditional ETF management fees, but the good thing with Wealthfront is that the average expense ratio for the instruments they invest in is just 0.08%.

See also: M1 Finance Review

Wealthfront | Fees, Cost

Who is Wealthfront Best for?

It is not surprising that Wealthfront is suitable for all hands-off investors, who see the benefits of the passive investment philosophy.

However, there are some special cases that really distinguish Wealthfront from its competition:

​Free financial tools even without having an account

Those, who want to experiment with projections about their financial future can do it without even having to set-up an account with Wealthfront.

This is something that very few other robo-advisors really offer.

Wealthfront

​529 college saving accounts

This type of account is not present in any of the other robo-advisors, at least at those with similar fee structures.

This provides additional flexibility and helps Wealthfront attract clients with long-term goals.

How to Create an Account with Wealthfront?

Starting with Wealthfront is pretty easy. The whole process can be summarized in 3 steps:

Questionnaire

First of all, you are required to answer some questions for the platform to identify your risk profile and preferences.

Investment plan

After you have answered the questions, the platform will propose you specially-tailored investment plan with detailed information on what instruments will be included in your portfolio, as well as their weights.

Account opening

This is also a pretty straightforward process (more information is available here).

Wealthfront supports various types of accounts, such as regular taxable accounts, joint and trust accounts, IRAs (Traditional, Roth, SEP), 401(k) rollovers and 529 accounts.

Like it is the case with all other robo-advisors, Wealthfront also requires from its clients to have a valid U.S. citizenship, SSN, permanent U.S. address and to reside in the U.S. at the given moment.

Wealthfront Alternatives

It is safe to say that currently, Wealthfront has one main competitor that challenges it for the number 1 place among automated investment management firms and that is Betterment.

Yet, it remains hard to say which one is clearly the better option with Wealthfront gaining a slight advantage.

However, when compared to solutions like M1 Finance, WiseBanyan and Personal Capital, Wealthfront really tops the list.


​Wealthfront

M1 Finance

​Betterment

​Personal Capital

​Management Fee

​0.25%

​0%

​0.25%

​0.89%

​Account Minimum

​$500

​$100

​$0

​$100,000


Is ​Wealthfront Worth It? Review Summary

In a nutshell, there is only one possible answer to the question: ”Is Wealthfront worth it?”

The truth is that the robo-advisor has slowly, but steadily grown into the best all-around solution on the market.

Thanks to some slight advantages here and there, it even tops Betterment.

So if you wonder which is the best robo-advising solution out there, start from Wealthfront. You may not even seek additional options.

However, if you are also a trader, then have a look at Webull's trading and investment app. Webull also offers a free stock worth up to $1,000 for any new accounts.

​Pros

​Cons

​Small management fee of 0.25%

​Platform is not as user-friendly as others

​Free tax-loss harvesting for all accounts


​Free automatic portfolio rebalancing


​529 account

​Free financial planning tools


​Wealthfront Alternatives

​App

Review

​Type

Webull

​Trading App

Robinhood

Trading App

Coinbase

Digital Currencies

Personal Capital

Wealth Management

Acorns

Money Savings

​Betterment

​Money Manager

M1 Finance

Automated Investing