The reasons for Wealthfront’s durability are clear. Wealthfront has low investing minimums, reasonable management fees, a clean and user-friendly interface, a cash management account with competitive yields, and a growing array of value-added features. Plenty of worthy competitors exist, to be sure, but it’s difficult to find glaring fault with Wealthfront and its offerings.
Does that mean you should open a Wealthfront account and transfer your taxable brokerage assets at your earliest convenience? Perhaps. But first, familiarize yourself with what Wealthfront is all about and how it stands apart from the competition.
Wealthfront offers several types of investing accounts powered by its robo-advisor algorithm: a general (taxable) account, three types of Individual Retirement Account (IRA), and a college investing account (529 education savings plan).
Wealthfront also offers a cash management account and low-cost portfolio line of credit, which investors can leverage to borrow against the value of their securities.
Individual Investing Account (Taxable Brokerage Account)
Wealthfront’s original investing account is a taxable product known simply as the individual investing account (or “general investing” account).
With a flat management fee equal to 0.25% of assets under management (AUM), the individual investing account allocates investment balances across a diversified mix of low-cost index-based and sector exchange-traded funds (ETFs), many backed by household names like Vanguard and Schwab. These funds fall into six broad categories:
- U.S. stocks
- Foreign stocks
- Emerging markets
- Dividend stocks
- Natural resources
- Municipal bonds
Wealthfront’s algorithm automatically allocates client balances to a handful of fund options in each category (usually two to three). Over time, the algorithm rebalances these allocations to ensure they remain in line with clients’ stated investment objectives and risk tolerance, always via commission-free trades.
All Wealthfront accounts come with built-in tax minimization capabilities. For accounts with balances under $100,000, this occurs via standard tax-loss harvesting. Wealthfront strategically sells out of positions that have generated losses during the preceding tax year to offset capital gains produced by rebalancing transactions.
Accounts with balances greater than $100,000 use stock-level tax-loss harvesting, a more sophisticated tax minimization strategy. Wealthfront’s algorithm purchases up to 500 stocks from the S&P 500 index and 1,000 stocks from the S&P 1500 index and reduces or adds to these positions as necessary to offset capital gains produced elsewhere.
Because Wealthfront clients can manually exclude any S&P stocks from inclusion in stock-level tax harvesting, and thus from the portfolio as a whole, this has the added benefit of enabling socially responsible investing (SRI) strategies. If you don’t want to invest in fossil fuel companies or tobacco firms, for example, you don’t have to — just exclude those names and Wealthfront won’t touch them.
Retirement Accounts (IRAs)
Beyond their tax benefits and federally mandated annual contribution and withdrawal restrictions, Wealthfront’s retirement accounts work a lot like its taxable investing accounts, complete with the same robo-advisor algorithm, asset mixes, and tax minimization strategies.
Clients can open more than one retirement account with Wealthfront, although not more than one type of retirement account under the same name. For most clients, one Roth IRA and one traditional IRA is sufficient. Self-employed clients can add SEP IRAs if needed.
College Investing Account (529 Education Savings Plan)
Wealthfront offers a 529 education savings plan, a tax-advantaged account for investors looking ahead to private school or higher education expenses. Contributions grow tax-free and can be withdrawn without triggering state or federal income tax when used for qualifying education expenses.
Assets held in Wealthfront’s plan are allocated and managed by Wealthfront’s robo-advisor algorithm and customized based on the account holder’s time horizon and risk tolerance.
Wealthfront does advise prospective 529 plan holders to investigate their home state’s 529 plan, which may offer greater tax benefits — such as tax-deductible contributions up to an annual threshold — than Wealthfront’s nationally available option.
Cash Account (Cash Management Account)
Wealthfront offers a cash management account that stands toe-to-toe with the best free checking accounts around. Known as the Cash Account, it has a negligible required minimum deposit and a yield that’s well above the national big-bank average — currently 0.35% APY — in line with top high-yield checking accounts.
Cash Account users can take advantage of:
- A free debit card that works at tens of thousands of fee-free ATMs nationwide
- Direct deposit up to two days early with a qualifying payer
- The ability to send one-time or recurring checks in the Wealthfront app
- Mobile check deposit in the app
- The ability to make online and in-store purchases with Apple Pay or Google Pay
- Peer-to-peer transfers via Paypal, Venmo, and the Cash App
- Virtually no account fees, including no withdrawal overdraft or excess activity fee — a big impediment to everyday use in traditional savings and money market accounts
- Up to $1 million in FDIC insurance, four times the required minimum
- Automatic transfers to your individual investing account through Autopilot, a smart transfer feature — just specify a maximum Cash Account balance and Wealthfront transfers the excess, less a $100 buffer, without any action on your part
Portfolio Line of Credit
Wealthfront’s portfolio line of credit is a low-cost borrowing tool for clients with individual investing account balances of $25,000 or more. There’s no credit check required and no impact to your credit score when you draw on your line. Draws are capped at 30% of the investment account value, or $3,000 for every $10,000 in assets.
Wealthfront’s portfolio line of credit has a variable interest rate on par with home equity products: currently 2.40% to 3.65%, depending on balance and subject to change with prevailing rates. There’s no fixed repayment term or amount, but interest accrues continually, so it’s financially advantageous to repay draws quickly.
While draw balances remain outstanding, Wealthfront automatically applies inbound transfers to your individual investing account — no need to pay a separate bill or manually allocate transfers to your line of credit.
Wealthfront’s appeal is rooted in reasonable management fees on all balances, above-average cash account yields, multiple types of tax-advantaged accounts, and low-cost portfolio leverage, among other differentiators.
- Reasonable Management Fees on All Balances. Wealthfront charges a flat management fee equal to 0.25% of assets under management (AUM), regardless of account balance. This is appreciably lower than some competing robo-advisors and an order of magnitude lower than fees charged by full-service human financial advisors, which can average to 1.00% AUM or more.
- Very Good Cash Account Yields. Wealthfront’s cash management account (Cash Account) has an above-average yield: 0.35% APY on all balances. This is higher than most big-bank savings accounts and some competing cash management accounts as well.
- Free Debit Card for Cash Management Account Holders. All Wealthfront Cash Account holders are entitled to a free debit card accepted by millions of merchants. Because the Cash Account is a free checking account that’s not subject to the federally mandated savings withdrawal cap of six withdrawals per cycle, the debit card makes it practical to use as an everyday spending account.
- Several Types of Tax-Advantaged Accounts Available. Wealthfront offers traditional IRAs, Roth IRAs, and SEP IRAs. Collectively, these appeal to a wide range of retirement investors, including self-employed folks.
- Socially Responsible Investing Flexibility for Higher-Asset Investors. Although Wealthfront doesn’t offer an entirely separate socially responsible investing plan, it does allow higher-asset investors — those with at least $100,000 under management with Wealthfront — to exclude individual stocks that don’t meet their criteria.
- Saving and Investing Is Super Easy With Autopilot. Wealthfront’s Autopilot feature makes low-balance, “set it and forget it” investing easy. Simply set a maximum balance on your Cash Account to ensure that Wealthfront puts your excess funds to good use in the market.
- Portfolio Line of Credit Offers Low-Cost Secured Leverage. Wealthfront’s portfolio line of credit offers a source of secured leverage at low cost. Rates are comparable to home equity loans and lines of credit and far lower than rates on unsecured personal loans — the most common source of leverage other than credit cards for consumers who don’t own real estate.
Wealthfront’s drawbacks include a fee scale that disadvantages high-asset investors, limited flexibility for lower-asset investors, and relatively few fund options.
- Management Fee Is Flat for All Balances. Wealthfront’s flat management fee — 0.25% AUM — on all balances is something of a double-edged sword. On the one hand, it’s good for lower-asset investors for whom the flat dollar-amount fees charged by competitors like Acorns and Stash are quite high in percentage terms. On the other, it’s not great for high-asset investors who’d benefit from the sorts of tiered fee structures popular in the asset management world.
- Investors With Balances Under $100,000 Can’t Purchase Individual Stocks or Non-Stock Instruments. Wealthfront doesn’t offer much asset-buying flexibility for less wealthy investors. If your balance is under $100,000, you can’t hold individual stocks in any Wealthfront investment account. You must content yourself with Wealthfront’s fairly thin lineup of ETFs instead. And no Wealthfront investors can purchase forex, futures, or options. For that, a full-service brokerage is required.
- Relatively Few ETF Options. Wealthfront’s limited ETF selection bears repeating. Although its ETFs carry low expenses and are generally quite highly rated by independent analysts, they simply don’t offer the degree of strategic choice that more sophisticated investors demand. “Diversified but basic,” you might call it.
- No Socially Responsible Investing Option for Lower-Asset Investors. Wealthfront clients with under $100,000 in investable assets can’t take advantage of the platform’s core socially responsible investing feature: the ability to exclude individual stocks from your portfolio. Those seeking true socially conscious investing need to look to platforms that offer broader access to SRI funds and strategies.
Wealthfront isn’t appropriate for all investors or financial situations, though. Importantly for investors seeking hands-on help, Wealthfront can’t replicate the relationship between full-service wealth management professionals and their clients. It doesn’t have in-house human financial advisors or portfolio managers and offers little in the way of personalized advice.
This isn’t a problem for investors comfortable with a more hands-off approach to investing. But it does bear repeating, if only so that hands-on investors aren’t caught off-guard by what they find at Wealthfront.