Wealthfront is a popular robo-advisor company that manages over $11.4 billion in client assets. As an SEC-registered investment advisor, Wealthfront is considered one of the top companies in the industry.
While it has proven itself as a trustworthy robo-advisor, Wealthfront isn’t the best investment management firm for everyone and caters to investors who take a hands-off approach or are concerned with investment taxes.
Wealthfront requires an account minimum but offers low account-management fees and tax strategies to save you money. Learning more about how this robo-advisor helps customers build their investment portfolios will help you determine if it’s the right company for you.
Table of Contents
- 1 What Is Wealthfront?
- 2 How Does Wealthfront Work?
- 3 Who Is Best Suited for Wealthfront?
- 4 What Are Wealthfront’s Features?
- 5 What Are Wealthfront’s Fees?
- 6 Pros and Cons of Wealthfront
- 7 Is Wealthfront the Best Robo Advisor for You?
What Is Wealthfront?
In the past, investors had the choice to manage their own portfolios or provide funds to a financial advisor so they could invest on their behalf. Robo-advisors are an innovative investment strategy that combines both options into one. As a robo-advisor, Wealthfront uses software to help investors move their funds around for the best growth and diversification.
Wealthfront isn’t the only robo-advisor option on the market today. Betterment is a brokerage firm that also offers this service. However, Betterment differs from Wealthfront because it also allows customers to connect with human financial advisors. It’s important to understand Wealthfront’s investment process to ensure it meets your needs before signing up.
How Does Wealthfront Work?
To become a Wealthfront investor, you must first complete a questionnaire about your risk tolerance and investment goals. With this information, Wealthfront develops an investment strategy that meets your needs.
When you deposit money into your Wealthfront account, it’s automatically invested into exchange-traded funds (ETFs) and moved around to reflect fluctuations in the market. ETFs are traded on the market, just like stocks. The robo-advisor follows an investment strategy that’s determined by your savings goals and risk tolerance.
Who Is Best Suited for Wealthfront?
Wealthfront is a simple way to make your money work to reach your investment and savings goals. However, the system isn’t for everyone. Wealthfront may be best suited for investors who are:
- Saving for college.
- Looking for a passive investment strategy.
- Concerned about tax losses.
- Equipped with at least $500 to invest.
- Comfortable without human financial advisor consultations.
Since robo-advisors are a unique way to invest, they’re best suited for investors who are comfortable allowing the software to move money around for them based on algorithms, patterns, and market information.
What Are Wealthfront’s Features?
Wealthfront investors benefit from many features that allow them to invest their money, make progress toward their financial goals, and strategically grow their funds.
You can access your Wealthfront account from the company’s website or mobile app. Investment apps are convenient because you can quickly glance at your investment’s performance from anywhere. Both platforms are easy to use and require minimal navigation from your account dashboard.
When you fund your Wealthfront account, it allocates your money to ETFs based on your personal risk tolerance. The system also automatically rebalances your portfolio for free when it begins to steer too far away from your target allocation strategy.
If you change your risk tolerance score, the robo-advisor also changes your strategy over time to reflect your new tolerance level. Your investment strategy may also slowly change if you tell the system to restrict certain stocks or if you transfer in additional accounts.
Multiple Types of Accounts
Wealthfront supports a variety of accounts, including:
- Individual brokerage accounts.
- Joint brokerage accounts.
- Traditional individual retirement accounts (IRAs).
- Roth IRAs.
- SEP IRAs.
- Rollover IRAs.
- Trust accounts.
Wealthfront also allows you to open a 529 college savings account, which is a unique feature not usually offered by robo-advisors.
Tax-loss harvesting is another unique feature within the Wealthfront investment system. It strategically sells your investment funds when they decline in value. The money is then reinvested in a similar fund to offset any capital gains you accumulated. This lowers your tax liability while still allowing you to earn a profit from your investments.
College Savings Management
Wealthfront is also one of the only robo-advisors to allow investors to open a 529 college savings account. This account helps investors save money for college. Wealthfront assists in calculating college expenses and setting savings goals through the college savings management feature.
PassivePlus is the term Wealthfront uses to refer to its automated features. When you sign up for Wealthfront, the PassivePlus investment strategy is implemented and includes:
- Tax-loss harvesting and stock-level tax-loss harvesting to lower your tax liability.
- Risk parity to diversify your risk and increase your returns when your account balance is $100,000 or higher.
- Smart beta to weigh the stocks in your portfolio and strategically increase your return once your account reaches $500,000.
The automated rules within the PassivePlus system are set up to deliver results on individual, joint, and trust accounts managed through Wealthfront.
What Are Wealthfront’s Fees?
You must deposit a minimum of $500 to open a Wealthfront account. The fees associated with your account include:
- Portfolio management fee: 0.25% of your portfolio.
- Trade and transfer fee: $0.
- ETF investment expenses: Range from 0.06% to 0.13%.
If you refer friends or family members to Wealthfront and they fund an account, $5,000 of applicable fees are waived for you and the investor you referred. If your portfolio is enrolled in the smart beta plan because your balance is $500,000 or higher, additional fees may apply.
Pros and Cons of Wealthfront
Wealthfront has many features that are beneficial to investors but the company may not be the best choice for every investor due to some of the software’s disadvantages.
- The robo-advisor’s algorithms and automated calculations are backed by an expert investing team’s analysis.
- Wealthfront offers a tax loss advantage strategy to reduce your tax liability.
- The Path system offers free financial planning for all investors.
- You can conveniently manage your college savings plan with your other investments.
- You can’t speak to a human financial advisor about your Wealthfront accounts.
- At $500, Wealthfront has a higher minimum account balance than other robo-advisors.
- Values-based investing isn’t offered as an option.
- You can’t customize your investment strategy for smaller accounts.
- There are no fractional shares offered through Wealthfront.
Is Wealthfront the Best Robo Advisor for You?
If you’re a beginner investor who feels comfortable without a human financial advisor, Wealthfront may be the right robo-advisor for you. Keep in mind, you must also have at least $500 to fund your account and be ready to pay the account management fees. With no customizable investment strategies or manual trading options, you must be comfortable relying on the robo-advisor’s algorithms to invest in a Wealthfront account.
Wealthfront is a popular robo-advisor because of its affordable fees. If you’re looking for a company to manage your portfolio with automatic rebalancing and the option to implement a college savings plan, Wealthfront may be right for you.
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