Wealthfront Review: Is Wealthfront a good robo-advisor for your financial needs?

Until quite recently, I managed all my investments myself. I had done so since high school, even committing years of my career to the field.

When it comes to investing, fees matter in a very significant way. If you know what you’re doing, the time it takes to manage your own portfolio can be worth the cost savings for doing so. But as the time commitment grows, you need to value that too.

So, as my investments increased, I turned some of my portfolio over to Wealthfront®.

Wealthfront is one of the lower-cost robo-advisors on the market, with a robust tax-optimization offering. As your taxable assets grow – those that don’t sit in a retirement account or other tax-advantaged vehicle – the importance of “tax drag” (the loss of potential income due to taxation) increases alongside it. Since tax optimization can be more time-consuming than other aspects of portfolio management, I decided to have Wealthfront manage some of my portfolio with tax optimization in mind.

If you’re looking for a robo-advisor to manage your investment accounts, save you time, and rebalance your portfolio as needed, you may want to consider Wealthfront. Here’s what I’ve found out from using their service.

What is Wealthfront?

Wealthfront is a robo-advisor offering three fully automated software services: free financial planning, investment management, and short-term cash management. It uses technology, portfolio theory, and algorithms to match investment selections to an individual’s financial goals and risk tolerance. The company was founded in 2011 and is the fourth-largest robo-advisor on the market. It currently manages $25 billion in assets (as of June 2021). In January 2022, it was acquired by UBS.

Wealthfront’s features include:

• Free software-based financial planning powered by its automated advice engine, known as Path, that can instantly give answers to over 10,000 financial questions
• Wealthfront cash account, a high-yield savings account, has no fees, and is covered by FDIC insurance up to $1 million
• Investment features that offer stock-level tax-loss harvesting, smart beta and risk parity
• Portfolio line of credit that allows clients to borrow funds

When it comes to Wealthfront’s core product, investment management, its strategy is developed by industry-leading professionals. Their Chief Investment Advisor, Burton Malkiel, is the author of A Random Walk Down Wall Street and a senior economist at Princeton University.

When you sign up with Wealthfront, you answer a questionnaire that helps the company determine your financial goals and risk tolerance. They need to know a little bit about you to choose appropriate investments for you (or for your situation).

How does Wealthfront make investing less hard?

Hands-off portfolio management, so you don’t have to think about your portfolio all the time. If you set up auto deposits from your checking account or direct deposit; Wealthfront will continue to invest your assets for you, in line with your goals. Wealthfront keeps your investment portfolio balanced, reinvests any dividends, and minimizes your tax burden. (Even with a robo advisor, you should always carefully monitor your investment portfolio.)

Wealthfront helps manage your financial goals with free financial planning. Every robo-advisor offers some interface to help you track your goals. But Wealthfront advisers take it to the next level by offering their services for free, whether or not you invest with Wealthfront. Saving for college? Choose a college you think your child may attend and your child’s age. It will estimate their cost of attendance, including how much you might expect in financial aid, and guides you on how much to save. They can offer similar customized guidance on your home buying and retirement goals.

Wealthfront offers a low minimum investment and an opportunity for no-fee management through a referral program (more on that below). The minimum investment at Wealthfront is $500 and it charges a flat annual advisory of 0.25 percent (of invested assets) (July 2022).

How Wealthfront works

Wealthfront only has one investment approach. You don’t have to opt into a higher level as your assets grow, but they will add specific services for customers with more significant invested assets. They offer a variety of investment accounts, including individual and joint accounts; Roth, traditional, SEP and rollover IRAs; trusts; and college savings plans.

Based on your goals and risk tolerance, Wealthfront provides a personalized portfolio.

The strategy is based on passive investing, which is rules-based and designed to reduce risk using lower-cost exchange-traded funds (ETFs) over the long term. Active investing – where a financial advisor chooses individual stocks and bonds – can cost more and may deviate significantly above or below market benchmarks . Even pros can make emotional decisions that hurt returns.

Wealthfront rebalances your portfolio to keep risk in line with your tolerance for risk when you add or withdraw money to your account or have dividends to reinvest. They also rebalance when each asset class has drifted from its target allocation by a certain percentage. Some robo-advisors only rebalance quarterly or monthly.

If you have taxable investments (that aren’t in a tax-deferred account), Wealthfront will do daily tax-loss harvesting. This means they take advantage of small losses by selling assets that have fallen below their purchase price, swapping them for an alternative option in the same asset class. This creates a recorded loss that can be used to offset any gains and potentially reduce your tax liability.

You can track your investments and progress towards goals in Wealthfront’s mobile app. One helpful feature is that you can connect all your other investment accounts and see progress across accounts and total net worth all in one place.

Additional strategies may be available for those with an investment account balance of $100,000 or more, including stock-level tax-loss harvesting, smart beta, and risk parity.

Wealthfront management fees

Wealthfront offers a simple fee structure. The company charges the same flat fee, regardless of investment size.

If you sign up for Wealthfront via someone’s referral link, you and the referrer will both receive  $5,000 of assets managed for free, even if the initial balance is below $5,000.

Wealthfront competitors

Wealthfront entered the market in 2011, three years after its largest competitor, Betterment®. Betterment manages $26.7 billion (June 2021) in assets.

Other robo-advisors include Wealthsimple®, Ellevest®, WiseBanyan®,  Personal Capital®, and Stash®. Some traditional investment companies, like Vanguard® and Charles Schwab®, also offer robo-advisor services. And there are also micro-investment services like Acorns®.

Why consider Wealthfront

Wealthfront’s tax-loss harvesting alone can make it an appealing choice for those who are interested in tax minimization strategies. For new and established investors alike, Wealthfront has a lot to offer. Here’s what you should consider:

• Low-cost management: With an affordable flat fee, Wealthfront offers professional investment management at a significantly lower cost than a traditional advisor. Wealthfront’s cost is on the low side compared to many of its robo-advisor competitors. This can be a big deal over the long term.
• Hands-off portfolio management: Wealthfront, like other robo-advisors, allows you to automate your investments, so you’re less likely to make emotional decisions, although you should still monitor your investments.
• Potential to reduce tax bill: Many robo-advisors offer tax-loss harvesting, but Wealthfront strives to stand out with its daily tax-loss harvesting for every taxable account, regardless of size. Some others only undertake tax-loss harvesting quarterly or when you sell assets. Wealthfront also offers stock-level tax-loss harvesting for accounts over $100,000.

Who might benefit more from other options

Wealthfront might not be the most suitable choice for you if you want to be able to ask a professional about your investments or other financial decisions. They have stayed firmly rooted in the “robo” aspect of robo-advising and don’t offer a way to connect with flesh-and-blood advisors. If you’re looking for advice, you may wish to look for a local investment advisor, such as a CERTIFIED FINANCIAL PLANNER professional, who comes highly recommended by your friends or co-workers.

Wealthfront’s daily tax-loss harvesting may be an advantage both to investors with taxable investments and those with tax-deferred investments, but Betterment may offer a bigger potential benefit to investors with more tax-deferred investments. Because Betterment offers the ability to buy fractional shares, Betterment might allow more of your money to stay invested in the market.

Key takeaways on Wealthfront

Wealthfront is one of the lower-cost robo-advisor offerings on the market. It can make investing hands-off and offers an easy way to build a financial plan, invest and manage your short-term cash, solely through software. If you’re a new investor looking to minimize costs or an established investor worried about taxes, Wealthfront can be an excellent choice.

“Wealthfront” is a registered trademark of Wealthfront, Inc.

“Betterment” is a registered trademark of Betterment Holdings, Inc.

“Wealthsimple” is a registered trademark of Wealthsimple, Inc.

“Ellevest” is a registered trademark of Ellevate Financial, Inc.

“WiseBanyan” is a registered trademark of WiseBanyan, Inc.

“Personal Capital” is a registered trademark of Personal Capital Corporation

“Stash” is a registered trademark of Stash Financial, Inc.

“Vanguard” is a registered trademark of The Vanguard Group, Inc.

“Charles Schwab” is a registered trademark of Charles Schwab & Co., Inc.

“Acorns” is a registered trademark of Acorns Grow, Inc.