Wealthfront Robo Advisor Review | InvestingTips360

Unless you really have no interest in finance or investing, you’ve likely heard of robo advisors by now. If you’ve not tried them out yourself, it’s also likely that you have a preconceived idea about them. They either lauded or loathed. We’ll get onto the market and service more generally a little later on, but first, let’s get to know Wealthfront.

Similar to Canadian giant Wealthsimple, Wealthfront is a market leader in the robo advisor space and is arguably only second to Betterment. Essentially, what robo advisors are and what Wealthfront does so brilliantly, is they invest your money for you, but it’s based on an algorithm. This doesn’t mean everyone who hands over their cash to Wealthfront has the same investments — they factor in your risk and diversify your portfolio accordingly. This might be a mix of REIT funds, stocks, and government bonds.

Wealthfront’s Chief Investing Officer is Burton Malkiel. Malkiel is a relatively well-known economist, who is the author of extremely influential and popular investing books such as A Random Walk Down Wall Street, Naked Economics, and The Elements of Investing. Being a top economist in America, he’s specialized in foreseeing economic downturns, so this is exactly who you want on your team when investing.

What are robo advisors and what are their advantages?

how robo advisors work

Everyone would like a financial advisor, there’s no doubt. Going online can be great, but you never know who you’re listening to. Speaking to a financial planner or hedge fund manager would be fascinating, if not for the huge expense. Robo advisors are trying to fulfill that middle ground by getting technology to do all the work.

The beauty of robo advisors is that you can see how they’ve performed in the past, and because they remove human intervention as much as possible, it gives an indication of how solid their investing decisions are.

Wealthfront, for example, claims a 6.21% annual return since its inception and has a 5-year return of 3.45%. These aren’t bad numbers; better than many beginner investors will do, too.

Robo advisors have a reputation for being pricey, but this isn’t always the case. Many are well under 0.4% in fees, which is better than most other managed funds. Fees are kept down because they don’t run their services on paying hugely successful fund managers for their time — they instead let the algorithm do its work. This is actually the other main advantage of robo advisors: they’re passive. No maintenance, no worrying, no researching.

Being technologically inclined also makes for great user experiences. Investing is an absolute nightmare when it comes to setting up accounts, remembering log-ins, reading fine prints, accessing funds, having to use outdated websites and so on. Robo advisors offer a single-entity approach — somewhere that has an easy-to-use app or website, integrates well with other services you may use, and generally keeps things intended for beginners.

Disadvantages of robo advisors

There are of course still limitations to this innovative service. Many, in fact. Firstly, robo advisors are not yet entirely personalized. You’re essentially reduced to a number between 1 to 10 on the scale of how open to risk you are because of course, many are looking for high returns. This doesn’t encompass your whole situation though, does it? Robo advisors won’t factor in when you’re planning to retire, exactly how liquid you need your investments, other external investments, if you need or want dividends or if you’re using this investment for your children’s inheritance. In this sense, they’re quite simple and limited — though this doesn’t mean they aren’t becoming increasingly complex.

Another disadvantage is that Vanguard and many others are equally as cheap, if not cheaper, and offer reputable management of investments. Of course, they’re not as accessible or user friendly, nor are they entirely flexible. But robo advisors are new, so they can’t claim to have longevity like some other methods.  Many experienced investors also claim that they’re quite basic in their investments, so you could do the same yourself with even cheaper fees.

How Wealthfront works and why Wealthfront focuses on college saving plans

WealthFront logo

Wealthfront can be used for all sorts of goals and needs, but saving for your child’s college is a popular use of the site. So much so that they have clear features intended for that purpose. The reason for Wealthfront’s focus on this sums up their perfect target audience: those that aren’t experienced investors but suddenly have developed a need to invest.

Wealthfront charges 0.25% in fees and has a minimum investment of $500. Whilst it doesn’t have 401k assistance or fractional shares, it does have automatic portfolio rebalancing, customer service, automated advice, many account types, and finally tax-loss harvesting. There’s also a great referral program where you can get an additional $5,000 managed for free.

For those investing large amounts, an incredibly unique feature is also available: line of credits at a very reasonable ~5% to ~6% APR. There’s also a Smart Beta open to large investments, and the 529 college savings plan is very bespoke to the situation, as it takes into account your other goals such as retirement or buying a home.

Signing up at Wealthfront is relatively easy, and there’s two-factor authentication for security.

Wealthfront Review: fees and how it compares to the competition

Wealthfront fees, as described above, are 0.25%. This management fee is very competitive in this market space. So, this is minus of the sum total of investments. For example, if you invested $100,000 in the Wealthfront system, at the 0.25% fee, that would equate to paying $225 a year — not bad for such a large investment. There are times where they have a promotion in which the first $5,000 or $10,000 is free of management fees, so this is worth keeping an eye on.

There are also some fund fees, but these are very low. Usually, between 0.06% and 0.13%. When building a portfolio, these can be added on top of the fees mentioned above. There are no trading commission fees, withdrawal fees, or transfer fees.

Regarding the classic Wealthfront vs Betterment: the management fees are exactly the same with Betterment, 0.25%. However, the ETF expense ratios can be higher at Betterment, as they range between 0.07% and 0.17%.

Wealthfront Vs Fidelity: Fidelity is another robo advisor, but their account fees are 0.35%. However, the fund expenses are included in this price, so although it may be a little more, it’s fixed.

Wealthfront Vs Ally: Ally claims to have no management fees and 0% commission on stocks & ETFs that are priced above $2, but it is in fact a bit more complex. There’s a $1 fee per bond, $0.50 per option contract, $9.95 per mutual fund trade, and $20 for broker-assisted trades fee. It is still a very strong point of Ally to have 0% ETF, stock, and management fees. This certainly makes them one of the cheapest on the market.

Overall, Wealthfront is competitively priced, but not necessarily always the cheapest. However, it can be argued that it soon pays for itself regarding the other features that exist, as explained below.

How Wealthfront helps optimize your taxes

For those with high-balance taxable Wealthfront accounts, you can benefit greatly from the tax-loss harvesting feature. Tax-loss harvesting more generally is where you reduce capital gains tax liability by selling securities at a loss. Wealthfront prays on movements in the markets for this purpose, which then, in turn, leaves more money to invest. Of course, the model is clever enough not to sell at huge losses and leave you overall worse off. It keeps your overall investment strategy as a priority, but if it can find daily opportunities to lower your tax bill, it will passively do this for you.

Other functionalities of Wealthfront

Wealthfront cash app

Source: Wealthfront blog

Cash account

If you’re not keen on investing, but you’d like to earn some interest on your savings, then Wealthfront attempts to fulfill this need. The cash account at Wealthfront combines a savings account with a checking account. They claim that you can earn more than 5 times the national average of checking and savings accounts, with an APY of 0.35% (national average of 0.07%). 0.35% won’t get you jumping off your seat in excitement, but it’s a nice place for your money to sit “until you’re ready to invest”, as they put it. There are no fees, only a minimum deposit of 41 and no market risk.

Line of credit

If you have over $25,000 in a Wealthfront account, you have access to a line of credit. The amount you can borrow is up to 30% of the value of your portfolio. It’s rather clever, because the portfolio no doubt acts as a sort of collateral, though it isn’t explicitly explained in that way. This way, they don’t need to perform any credit check or charge any fees. The only payment will be the annual interest rates, which range between 3.9% and 5.15%.


Whether you’re a proponent of passive investing or not, Wealthfront is doing something interesting here. Through using technology, they have built one of the best performing automated investment systems in North America. Users are greeted with quite a generous amount of personalization for their portfolio, though there will always be an inherent limitation there, all at a competitively cheap price.

The most exciting thing about Wealthfront is its expansion into more niche ideas. For example, their tax-loss harvesting is automated along with their specific college saving plans, because they know this is such a common cause for investing. It gives the feeling that they’re ultra customer-focused, and it will be interesting to see the next features they bring to the table.

Ultimately, the target audience of such robo advisors like Wealthfront are beginner investors or those that do not have the time or patience. You simply create your profile describing your goals, situation, and attitude to risk, chuck them some money, and they do all the work. It’s super reassuring for beginner investors because it’s made to be accessible and easy to understand, and they also take care of some things that many of its target audience would never have thought of.

If you love investing, have a large fund pool, or have very specific needs or a unique situation, then Wealthfront won’t be for you. Avid investors will argue that investing is a game of keeping costs down. Well, Wealthfront does a pretty good job of that given the depth of its services, but there’s no doubt some will find even cheaper ways to invest when doing it themselves.

James Rabinovich
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