Wealthfront is a top choice for investors looking for a simplified yet comprehensive robo-advisor that takes a modern approach to making the most of your money. Wealthfront’s suite of financial planning and investing tools helps investors at any level, and my Wealthfront review is going to explain how it all works and if this is the right robo-advisor for you.
Wealthfront Review 2023 | How Does This Robo-Advisor Stack Up?
Fees | 0.25% management fee |
Account minimum | $500 |
Average ETF expense ratio | 0.08% |
Account fees (annual, transfer, closing) | $0 |
Accounts supported | Individual and joint non-retirement accounts; Roth, traditional, rollover, and SEP IRA; trusts; 529 college savings plans; high-yield cash account |
What is Wealthfront?
Wealthfront was founded in 2011, making it one of the original robo-advisor platforms. It’s now one of the largest robo-advisors, with over $21 billion in assets under management.
Wealthfront’s approach is what it calls self-driving money. That’s automating your finances using sophisticated algorithms to determine exactly how to invest your money, manage your accounts, optimize your accounts to lower your tax liability, and more.
You get a hands-off investment experience when you use Wealthfront — it builds and invests in a portfolio for you based on your risk tolerance and goals. Wealthfront isn’t the only robo-advisor out there, but to gain an edge, its added an impressive list of features and services that make them a strong contender.
How does Wealthfront work?
When you sign up for Wealthfront, you will need a $500 minimum investment to get started. You will go through a series of questions that ask about your income and savings. Then you’re asked which kind of account you’re interested in opening: high-interest cash (better for short-term savings, long-term investing, retirement, college savings.
Wealthfront will recommend goals for you if you aren’t sure where to start. And whichever goal you chose, Wealthfront will ask you a few more questions about your timeline and goal to determine your risk tolerance — this tells them what asset allocation is best for your personalized Wealthfront portfolio.
Your Wealthfront portfolio includes exchange-traded funds (ETFs) in up to 11 different asset classes. These ETFs have a mix of U.S. stocks, foreign stock, emerging markets, dividend stocks, real estate, natural resources, emerging market bonds, Treasury inflation-protected securities, and U.S. government, corporate, and municipal bonds.
Related: Investing for Beginners | Your Guide to Start Investing
Types of Wealthfront accounts
Wealthfront wants to help you plan for the future by giving you access to a variety of different investment accounts:
- Individual, joint, and trust investment accounts
- IRAs: Traditional, Roth, and SEP
- 401(k) rollover
- 529 College Savings
If you want to move investments from another robo-advisor or traditional brokerage to Wealthfront, it helps you minimize your tax liability with a Tax-Minimized Brokerage Account Transfer.
Wealthfront features
Portfolio management
This is where you see the robo-advisor experience — Wealthfront uses algorithms to do all kinds of different portfolio management. Automatic rebalancing is one area, and Wealthfront doesn’t rebalance on a set schedule. Instead, it uses threshold-based rebalancing. That means algorithms watch for drift, and if you go over or under a certain percentage, it triggers a portfolio rebalance.
Events that can trigger rebalancing include reinvesting dividends, depositing money, if you take a distribution, or if your risk tolerance changes for any reason.
Tax-loss harvesting
Wealthfront is tax conscious when rebalancing and adding assets. Its goal is to limit your tax liability as much as possible, and it does that by minimizing short-term capital gains through robust tax-loss harvesting. It also offers the option of index funds, which have a lower turnover rate.
Accounts with balances of at least $100,000 are eligible for stock level tax-loss harvesting, also known as direct indexing. This is amped up tax-loss harvesting where Wealthfront purchases up to 500 or 1,000 stocks (depending on your account size) to take advantage of more tax-loss harvesting opportunities instead of using ETFs alone.
Another perk of stock-level tax-loss harvesting is that customers can, to some extent, include or exclude certain stocks. This is an in-road for socially responsible investing if that’s a strategy that’s important to you.
If you use TurboTax, you can enter your Wealthfront login information to import your tax-loss harvesting data.
Path financial planning
Path is a free financial planning service that, like the rest of Wealthfront’s features, is driven by technology. You connect all of your financial accounts to Wealthfront, it analyzes that data, and thenusese algorithms to predict possible future outcomes.
Path can help you plan for these goals:
- Retirement: Path compares your projected retirement income and target spending amount based on your current spending and age, and determines if and how you can maintain your current lifestyle. It gathers this information from Social Security benefits, planned retirement contributions, adjusted investment returns, etc.
- Home planning: Path projects mortgage eligibility based on your projected debt-to-income ratio (comes from linking third-party accounts), credit score, and projected down payment. It also considers how purchasing a house will affect other financial goals.
- College planning: You can create a college savings plan based on target school and monthly college savings contributions, and save for school in a 529. Wealthfront’s Path tool even walks you through opening a 529 account if you don’t have one yet.
- Time off to travel: You can create long-term travel goals based on current finances and variables like duration, income, and costs.
You can use Path to look at any number of these scenarios simultaneously and see how your financial plans affect each other. Like, how will buying a new house in the next couple of years affect how much you can save for your child’s college education? Path will make recommendations to help you reach whatever goals you have.
In addition to linking bank and investment accounts to Path, you can link your Coinbase account to track your cryptocurrency.
Wealthfront savings account
Wealthfront Cash Account is a high-interest rate savings account that currently pays 0.35% interest. It comes with up to $1 million in FDIC coverage, which is about 4x higher than most bank accounts. There’s only a $1 minimum to open a Wealthfront savings account.
Like other online bank accounts, a Wealthfront savings account charges no fees for overdrafts, stop payments, excess activity, or monthly maintenance. And there’s free ATM access at over 19,000 ATMs nationwide.
There are a few other perk of a Wealthfront savings account:
- Bill pay and automatic payments
- Customers who use direct deposit can get paid up to two days early
- When using your Cash Account to fund your Wealthfront investment account, your funds are invested immediately
- Using Wealthfront’s Autopilot tool, you can set maximum balance limits and have money automatically moved into a taxable investment account, Roth or traditional IRA, or 529 college savings account
You don’t have to be a Wealthfront investing customer to open a Cash Account, and non-investing customers aren’t charged any additional fees.
Portfolio line of credit
Customers with at least $25,000 in their Wealthfront account can borrow up to 30% of their account. There’s no application process or credit check, and interest rates are currently around 2.40% to 3.65% depending on your account size.
Autopilot
Autopilot is a free service that monitors your accounts and automatically transfers money to an investment account based on your set rules. First, you select an account to monitor, like the one you use for bills and income. Next you choose a maximum balance, which should be enough to cover your bills and regular spending. Then you choose a destination account — where your excess cash is transferred. Wealthfronot recommends one of its taxable investment accounts, like an individual brokerage account or IRA.
Smart Beta
Customers with at least $500,000 in their Wealthfront account can opt to use Smart Beta, a service that used to be known as Advanced Indexing. This feature is designed to boost expected returns by weighting securities using factors like market capitalization, value, momentum, dividend yield, market beta, and volatility.
This multi-factor model has been used since the 1970s, and it’s especially tax-efficient when you pair it with Wealthfront’s stock-level tax-loss harvesting. There’s no additional charge to use Smart Beta, and it’s part of Wealthfront’s PassivePlus suite of investing services.
Risk Parity fund
Another feature in Wealthfront’s PassivePlus program is the Risk Parity mutual fund, which is available to investors with $100,000 or more. You must opt into this fund, and it aims to give higher risk-adjusted returns through exposure to more asset classes. Mutual funds have higher expense ratios that ETFs, and Wealthfront estimates that increase is only around 0.03%.
Customer service and support
Wealthfront has email support, and account holders can get phone support Monday through Friday between 10am to 8pm EST. These are licensed product specialists who have Series 7 & 66, and some are CFAs, CFPs, or CPAs. They don’t give recommendations or give financial planning or investment advice, though. There’s also a fairly extensive library of support articles, but there are no online chat features.
Wealthfront fees
Wealthfront charges 0.25% for account management, and you will need at least $500 to open an account. There are no additional fees for opening an account, withdrawal, closing, commissions, or account transfers.
The way Wealthfront fees work is that the 0.25% annual advisory fee is deducted monthly. For example, if you have an average monthly balance of $100,000, there’s a $20.55 monthly advisory fee. Assuming there are 30 days in the month, here’s how the marth works: $100,000 x 0.0025% x (30/365) = $20.55.
Wealthfront vs. Betterment
Wealthfront’s biggest competitor is Betterment, and it has a lot of similarities, like portfolio mix, types of supported accounts, both do automatic rebalancing, and both have a high-yield savings option.
Betterment and Wealthfront both charge an annual advisory fee of 0.25%, but Betterment customers with at least $100,000 can opt for Betterment Premium. The fee is bumped up to 0.40%, but it comes with unlimited calls to Betterment’s team of CFPs and investment advice on non-Betterment accounts. Betterment also buys fractional shares for investors to eliminate cash drag.
Where Wealthfront shines is that it has slightly lower average expense ratios — 0.08% compared to Betterment’s 0.11%. Wealthfront investing also offers stock-level tax-loss harvesting on accounts with at least $100,000.
What Wealthfront is missing
Wealthfront has many powerful features, but a few things are lacking, especially compared to other top robo-advisors. The biggest is that Wealthfront does not offer fractional shares. Fractional shares let investors put their money to work immediately and prevent any cash drag. Fractional shares would also allow for a dividend reinvestment program, which Betterment has.
There’s also no in-personal financial planning support. This is common among robo-advisors, and Wealthfront, at least, has powerful planning software to fill some of that void.
Who is Wealthfront for?
Wealthfront is for investors who want a hands-off investing experience. This is passive investing, and Wealthfront does it well. Because Wealthfront offers planning services for retirement, college savings, and home planning, plus the Wealthfront savings account, it can truly help you plan for almost every aspect of your financial life.
Wealthfront pros and cons
Pros
Cons
Wealthfront review — the final word
As far as robo-advisors go, Wealthfront is a force. It’s a solid choice if you want low-cost and automated portfolio management. What’s nice about Wealthfront is that if you’re on the fence, you can start using some of it’s financial planning services for free. This is a chance to test the water and see if you like how Wealthfront operates before investing through them.
About Millennial Money Man
Bobby Hoyt is a former band director who paid off $40,000 of student loan debt in 18 months on his teaching salary and then left his job to run Millennial Money Man full-time. He helps other Millennials earn more through side hustles, save more through budgeting tools and apps, and pay off debt. He is a personal finance expert who has been seen on Forbes, Reuters, MarketWatch, CNBC, International Business Times, Business Insider, US News, Yahoo Finance, and many other personal finance and entrepreneurship media outlets.
