I've been researching robo-advisors quite a bit recently. They are really interesting and innovative.
I'll preface by saying that I have been talking to a lot of financial planners (at top-tier institutions). They basically set you up with a good set of ETFs, hedge funds, etc. and rebalance occasionally. Sometimes they do tax-loss harvesting. They also provide a few other nice little services. But at the end of the day, their fees are over 1% unless you have an ultra high net-worth.
In comparison, Wealthfront can automate huge strategies for a fraction of the cost (0.25%). For example:
- Direct Indexing (invest in an index by buying the stocks directly instead of a fund)
- Automatic investing, rebalancing, and tax-loss harvesting (including TLHing individual stocks within an index when paired with direct indexing)
- Coordinating trades between retirement and taxable accounts for optimal tax savings
- Smart beta (a custom weighted indexing algorithm)
Yes, a financial planner can do all of this (although most don't). But when they do, they just use automated software to do it. It would be impossible to implement these strategies manually. So why even go with a financial planner when Wealthfront does the same thing, but better/cheaper?
I started with and was a Wealthfront customer for many years. I'm appreciative and credit them with starting my education and understanding on investing.
What caused me to leave?
- They aren't global portfolio aware. Bonds belong in tax advantaged accounts, then taxable. If you've maxed out your 401k/IRAs in Bonds that $ as an absolute percentage should be accounted for in your taxable portfolio construction.
- They don't let you opt out of asset classes. Aka I don't want additional REITs because I have RE exposure already.
- They overly hype tax loss harvesting. It's good to have, but a byproduct of portfolio management not the goal.
- They launched and pushed risky products as a way to increase their fees.
Once you understand what's going on under the hood this isn't complicated to manage yourself with a few ETFs/MFs.
(The direct indexing is awesome and would love to have that back)
I've heard that when you leave direct indexing you end up with all the individual stocks in your new portfolio, or you have to sell them and eat the capital gains tax. Was that your experience?
You end up with a bunch of individual stocks in your new brokerage account. It's a pain. I separate account at etrade specifically for my "WF500" shares, and still just treat them as a single organism.
You can opt out of asset classes now. I moved out of Wealthfront to save money and try to DIY but so far I've had a really hard time doing it in terms of finding time to place the buy order during the workday and doing tax loss harvesting without wash sales.
Why do bonds being in tax advantages accounts? My gut would suspect the opposite, since on average stocks will have higher return so you'll want them getting the tax break.
Bonds have defined maturities and bond indexes are made up of a mix of short, medium and long term bonds. So over the course of time, old bonds mature and pay out (taxes due).
Equity indexes have no maturity date and can limit any taxable income to dividend only which get preferential treatment in terms of taxes.
"Bonds belong in tax advantaged accounts, then taxable."
That's true when say taxable bonds are yielding 8% and municipal bonds 6%. But when taxable bonds are yielding 2% (about the current 10-year U.S. Treasury yield), the tax hit from owning them in a taxable account is small, and maybe the growth assets such as stocks belong in a Roth IRA.
The taxes are small, just like the returns. I can’t really see bonds as a an indiviy investment in an era of low interest rates. And they only go down in value if interest rates start going up.
Many people who start off with Robos like Wealthfront actually leave once their net worth rises and pay more for human advisors.
If you need to invest a small/decent amount of money into stocks, Robos work wonderfully. It's a mass production angle -- good quality service at lower cost to many people; the Ford Model T of investing. Early robot just had a couple of investment options, and now there are more options but the same concept of limited choice at scale (Mustangs, Minvans, Trucks in my example)
Once you have estate planning and complicated tax issues, human advisors provide a lot of guidance to people that is hyper specific to you and your location / niche, which Robos just don't cover. Wealthfront, for example, won't arbitrate a dispute between beneficiaries of a family trust.
I think lawyers are a good comparison here. If you need some standard cookie-cutter incorporation docs, there's a bunch of websites where you can get some core documents for free or a few hundred dollars. But if you're afraid of making the wrong choice, or if you're in a situation that goes beyond the common scenarios (like M&A), then you hire a lawyer to provide you personalized advice.
Yes, completely agree. That happens when all of the other estate planning costs begin to vastly outweigh the cost of investment advising. I'm no expert, but I am under the impression that although these automated strategies are a smaller part of the whole picture for high net-worth individuals, the strategies are still the same.
I'm interested to see if UBS can add value in those ways you mentioned, while still using sophisticated automated strategies for cost savings purposes.
Also note that Vanguard, JPM, Schwab, Fidelity etc. are getting in the robo-advising/direct indexing game.
I doubt they'll add much value - they don't want to cannibalize their core business even more. They'll probably just add a button that says "talk to a UBS wealth manager" when your portfolio value crosses a certain threshold.
The one exception is alternative investments like real estate and private equity. Once you are HNW or at least high enough to have enough investable assets that you qualify, PE can be an attractive investment class that Wealthfront won’t touch.
Also, human advisors can manage, or at least access, investments across brokerages; that is, you don’t have to worry as much about wash sale rules and can do tax loss harvesting because they can see your sales elsewhere. I have to have TLH turned off on Wealthfront because it has no way of knowing about what things I’ve sold elsewhere.
I left Wealthfront and now have about $6M in assets. I'm self-managing with mostly Vanguard funds. My experience with financial advisors has not been great.
> Once you have estate planning and complicated tax issues, human advisors provide a lot of guidance to people that is hyper specific to you and your location / niche, which Robos just don't cover. Wealthfront, for example, won't arbitrate a dispute between beneficiaries of a family trust.
I agree fully that estate planning/making a trust is something most people would benefit from a human advisor, but this is something you can target with an estate lawyer. I don't think this is something you would need advice on regular basis.
For taxes, I am guessing vast majority of people, even wealthy people, never need human advice nowadays. Anything that is just combination of W2+1099DIV+1099B+1099INT+1099NEC is handled well with robo tools. Tax loss harvesting is pretty simple (even without robo advising!) as long as you know wash sale rules and distinction between long/short term capital gains.
You can pay for both human advisors and robo-investing. A human advisor will charge 1% of assets to manage your money for you, and the results may not differ much from what the robot picks at much lower cost. I'm happy with the robot's asset allocation and I pay an expert for taxes, trusts, and so on.
* Edward Jones will do it for you for ~ 2%/yr, which is ridiculously high.
* Any of the big banks or brokerages will do it for less than Edward Jones.
* Almost any financial advisor will do it for about 1%/yr in fees(not ridiculously high, but not remotely cheap) or fee-based for a few hundred an hour with a 1st time setup of $4-10k, more than $10k is unreasonable.
* The robo advisors(of which their are dozens with basically identical products, generally charge 0.3%/yr, some like Vanguard include Financial Advisor services.
* At least one firm will do it for $200 first year and $100/yr after that, regardless of the balance of your accounts, and provide financial & tax planning/advice/etc included. They do require a little work on your part. I'm actively looking for more subscription based advisors like this, please PM me!
* Bogleheads.org will do it for free as long as you follow their template.
Bogleheads has my favorite forum feature (which I haven’t seen elsewhere) which is that their home page is all posts from all sub forums ordered by most recent so you rarely have to click around to find updates. That and absurdly good content, incredibly little drama, and almost no politics
you are welcome! Come by, it's a pretty nice community and many there have been retired for a while, so they can help you see the follies before you make them, if one is smart enough to listen.
> At least one firm will do it for $200 first year and $100/yr after that
Can you share that one? PM me if preferred. I'm on a similar quest and so far I've found pretty much everything else you've found. My wife is a high income earner too and she's happy with the 1%/yr people that she likes, but I think we can get similar results for noticeably less.
Even 0.5% would be reasonable. As you know, from $1m to $2m that 1% fee goes from $10k to $20k and they're not doing anything more for that extra $10k/yr so the value proposition starts to break down for me. $10k in one year isn't a big deal, but over 20 years that's $200k, which might affect my retirement activities and definitely impacts how much is left for my kids (which they're going to really appreciate as life is so much more expensive for their generation).
It can be hard convincing people that 1% is a big number. I assume that you are on average going to see 6-7% return after inflation. The 1% represents 15% of the return. So you give the tax collector 25% and the money manager another 15%. You can defer the taxes but the manager gets theirs once a quarter.
When you are in the $1m+ AUM, it is pretty easy to explain. You are going to be paying for your kids to go to college and one of theirs as well. Make sure you really like them.
> It can be hard convincing people that 1% is a big number.
It's true. My mom only has about $1 million saved for her retirement, which sounds big to anyone who hasn't done retirement planning, but it's really not enough. Growth aside, that's $50k/yr for 20 years. She's paying her advisor 2%/yr. That's $20k/yr, which is a big percentage of her annual income, and he does almost nothing. It makes me sick.
After you get over 1M+ AUM, your advisor should seriously think long and hard about lowering their fees, many will go down almost in half(.5%ER). Still high, but if you really desire hands-off do everything for me, it's reasonable.
Once you get to 30M+ invested NW, you can seriously think about a multi-family office and > 100M+ a family office just for you starts making sense.
Most people will have a hard time getting over 1M before retirement, so I left the other options off my original post.
I agree, 1% is pretty high, but not ridiculous like EJ's 2% fee.
Many Robo advisors throw an RIA in for free, and they are in the 0.3% ER range. It's hard to get cheaper than that.
The only subscription based one I'm aware of right now is: https://planvisionmn.com/ They give you Fidelity's eMoney platform and you manage that part of it. They just help you with the planning part.
There's Facet Wealth, who will take ~$200/month flat fee up until around 1M AUM (or with extra complexity) to do the same. You get good personal contact on a regular basis, but it feels bad to spend 2400/yr just for "yeah you're on the right track, this is it" every quarter once everything is in the appropriate vanguard target date funds and such.
It took me a while to find on their website, but: "Our prices range from $1,800 to $6,000, annually." So pretty good price-wise for a full-service AUM type service.
>> Yes, a financial planner can do all of this (although most don't). But when they do, they just use automated software to do it. It would be impossible to implement these strategies manually. So why even go with a financial planner when Wealthfront does the same thing, but better/cheaper?
Thats the 100$B question right? Because fear. Because unfamiliarity. Also because 1% seems small, but its really more like 14% (if the average return is 7%, you're giving up 1/7 of your return!)
What's funny is... whenever you call an FA (financial advisor) in a moment of panic... they answer always is "don't act emotionally and stick to the plan". Maybe a real "robo-advisor" should just be a chatbot that responds to any message it gets with "HODL".
>> Because unfamiliarity.
This one is going to be interesting to watch evolve and I see it becoming less of an edge for financial advisors. More and more, we are seeing retail investors gain familiarity (not saying knowledge... but at least familiarity) with financial markets through blogs, social media, etc. I think we are moving to a world of more self-directed investors than advised investors.
> What's funny is... whenever you call an FA (financial advisor) in a moment of panic... they answer always is "don't act emotionally and stick to the plan". Maybe a real "robo-advisor" should just be a chatbot that responds to any message it gets with "HODL".
My robo-advisor did, during the giant tumble the markets took during the beginning of this pandemic, put up a message on the site & send a pro-active communication saying, essentially, to HODL. (In more eloquent terms, of course.) I presume a human had a hand in it, ofc., as they likely understood the fear most people would feel looking at the graph.
(My mistake, really, was not buying more at the bottom.)
I do recall that one of the features that Wealthfront had was to design their UX in a way that discouraged behaviors like frequently checking the valuations, making it annoying to make emotional transactions, etc, etc. Rather than having a human tell you to be calm, they tried to mediate behavior through UX patterns.
That's interesting. I did notice that the Wealthfront UX was really well done.
For example, during the onboarding they direct you to set up recurring investments and they show you in real time what that small investment might become by retirement age. That simple mechanic, which nobody else seems to do in that way during onboarding, makes it really obvious that you need to set that recurring deposit to be as high as you can possibly afford.
The difference between 7% & 6% (1% fees) is in fact a LOT higher if one takes compounding into effect.
By Year 40:
* >$500K &
* ALMOST a quarter of the portfolio
When I was starting out, someone in my company's 401k forum mentioned this # (at that time the # was almost 40%, fees have gone down a lot since the early 2000's). And I am glad I paid attention.
I try and pass on this wisdom everytime I can. Now, you can too.
Thanks for the great elaboration on my note. FEES KILL!
All the discussion on this thread of "oh just go with a mutual fund" is insane to me. Even if funds have dropped in price from 1.5% to 1% to .7%, that is a huge number over the course of your life. The only realistic approach is super-low-cost ETFs, but those arent friendly to use or make a portfolio from. So the WealthFront layer is pretty critical IMHO.
You have $1m and on average it will earn 7% per year.
The fee is 1% of the $1m ($10k), but it is 14% of your expected gains per year (1%/7%). After fees your portfolio will go up by 6% per year instead of 7%, which is a substantial reduction.
I know someone who's been doing wealth management for like 20 or 30 years now. Based on what they've told me, I'd separate clients roughly into 3 categories:
1. people who don't want to think about it - they pay for everything to be taken care of properly
2. people who want to be wined and dined - they end up paying to be taken out to dinner a few times a year and hear about what the firm is doing to survive bear markets and how they're taking advantage of bull markets
3. people who think they're smarter than everyone and want to direct everything - these people are probably moving to more self serve options, but plenty still want to tell a human what trades to make
Also at a certain net worth, tax and estate planning is a huge part of the work.
The wined and dined people also often really don't want to deal with a website and they want someone to call who can "get things done" if needed.
So for wealthfront and friends, let's say a family member is closing on a property purchase. You said you'd put in $500K. Closing comes and you try to wire the money over. But wait, it doesn't work.
1) First you have to sell investments
2) Trades have to SETTLE (T+2 or more)!
3) Then and only then can you initiate an ACH transfer.
4) It can only go to your own account in some cases (T+1/T+2)
5) Then you have to go to you bank and get a wire out (retail banks often have tight cutoffs or end up delayed if going online while they "approve" this).
6) This all can be stressful on closing day (agents calling, escrow calling, bank calling, your relative calling). Now you are not days but a week late.
vs
Talking with someone. They enable margin account if you don't have one, you wire same day, done or you can give your guys name to everyone to help coordinate if needed if it will be a bit late.
This is honestly a huge deal - when I make an angel investment, I send a text and/or wire info via the Merrill Lynch app, and I know it will be taken care of (by the same people every time) same day or next day, depending on when I send it.
That plus introductions and referrals to tax accountants, estate attorneys, etc., and access to investment vehicles I otherwise wouldn’t get (easily), definitely makes the 0.7% fee worth it for me.
[quick edit] Honestly, as someone who comes from an impoverished background, they also act largely as “financial therapists.” That is, I don’t make emotional decisions about money, but that doesn’t mean I don’t have tons of anxiety when I spend money on something large; they generate a wealth plan, allow me to see how my assets will change, allow me to (based on models) see if I’m overfunded, underfunded, etc., and I don’t have to do a thing other than send a text. That is insanely helpful to me, personally.
This is very interesting to me. I've been working on a retirement calculator in my free time as a hobby project for a while [1], but it never really occurred to me that there is real value in allowing people to do the 'what-if' analysis more easily. It seems obvious now...
Could you see yourself using something like this if there was an easy way to compare different scenarios?
You'd make a lot of money with this, I think. A lot of people don't have financial advisors and also don't have any method (or knowledge) of how to model various scenarios; if you built this out I bet you'd have a nice little passive income tool. Would it make billions of dollars? Probably not.
I'd use it and pay for it though, especially if it factored in historic market data, automatically figured out housing increase rates for my area, etc.
If you have planned to contribute $500K then presumably your plan involves making the money liquid with the necessary few days anticipation.
Also, my Wealthfront account is offering me approximately 25% "Available to borrow". I haven't tried it yet but I assume I could grab that immediately and then sell stock to pay back the loan.
I'm not challenging your claim that having a human financial advisor can be useful. I'm sure you're right; I just didn't think your points against the robo service were very strong.
I’m a mostly-happy Wealthfront user, but there’s a negative feature of the loan that I found out the hard way. I was having some medium-level renovations done on my house, and pushing the easy button to get some cash without liquidating investments sounded good to me. That worked great! But: WF would not let me add any more to my investment account until I paid the loan back in full! This wasn’t prominent, and I’d have happily made payments for longer by dividing between the loan and investment. I missed out on much of the big upside of the past 20 months.
Having been through this a few times betterment at least did not have a way AT ALL to wire out any amount of money regardless of balance in the account. This caused an issue during a real estate transaction - somewhat to extremely painful.
If wealthfront is offering an available to borrow that is perfect (for this issue).
You do get to a point though where you are like - hey, can I transfer $x of stock to a donor advised fund on this day and are just glad it can happen.
I'm not saying the fee is worth it, just that some folks may be willing to pay it because it appears to improve quality of life, even at cost of performance.
And actually, for something like a favor of $500K to help a close, you may NOT be doing a lot of planning in advance. Sure, call me when you need it if it ends up being needed. Call comes in (days / weeks / months later) - now its a pain.
I found betterment was also slow at even just transferring cash out of their accounts to other banks. Would not recommend them for anything that needs speed.
Their margin loan feature isn't much faster in my experience. ~2 days to open the initial request, 2 days to transfer via ACH, couple more to clear. I don't remember if there was a wire transfer option or not. Overall I still appreciate how easy it was to use
The Wealthfront happy paths seem to be ACATS transfers of brokerage holdings, or $250k (per day) ACH to/from a bank. They don’t have wire transfers. They can mail checks drawn on a Green Dot cash account but only up to $25k, which probably means they don’t have cashier’s checks.
I was a happy Wealthfront & Turbotax user for a long time, but then my taxes got more complicated, I wanted to create a family bank using life insurance as a backer, do estate planning, I moved between states, needed to move IRAs around, and changed jobs recently. Those services were great when things were simple, but I totally got pushed into #1 really quickly. I already didn't want to click around in any tools and a bit of complexity quickly made hiring someone a great investment even if the fees are higher. I can schedule a call anytime I want, get very easy to interpret summaries of my portfolio, and he's helping me getting the right people to the table for a potential investment property purchase. Computers are great, but sometimes a human is good too.
>Curious why you would need to coordinate trades been taxable and retirement accounts?
If you treat your retirement and taxable accounts as one big pot of money, you want to place assets to take the most advantage of the retirement account. For example, they mentioned bonds. Since yield on bonds is taxable at income tax levels every year, you want to prefer holding them in the tax exempt account.
Another reason is because of tax loss harvesting. To make that work, you have to avoid wash sales. The wash sale rule applies to you and every account you own, taxable, retirement, across brokers, etc. So to make TLH work, the broker needs to have a complete view.
>The biggest question to me, you can trade ETFs for free now, why do you need wealthfront at all?
For me, I'm on the west coast, so the market is open from 6:30 AM to 1 PM. I can't really monitor it nearly as closely as I'd really prefer. Looking at my betterment history, last year they automated 275 transactions for me. I can really only be bothered to look at the account once a month or so. Do the efficiency gains from a lower drift get me 0.25% additional value? Hard to say, but probably not. However, TLH absolutely has. I wouldn't trust myself to track that properly at all.
> Another reason is because of tax loss harvesting. To make that work, you have to avoid wash sales. The wash sale rule applies to you and every account you own, taxable, retirement, across brokers, etc. So to make TLH work, the broker needs to have a complete view.
It doesn't really. They like saying that because it shows off their product, but the IRS doesn't know what's in your retirement account and probably no-one has ever gotten in trouble for this. There are robos that don't coordinate it, even.
They don't ask for your IRA transactions, TurboTax and other consumer products don't even try to work out wash sales between multiple brokers let alone IRAs, and Congress intentionally doesn't fund IRS investigators because they don't want them to actually enforce anything, so…
Similarly, HSAs are taxable in California but I doubt most people know this and it hasn't caused my HSA investment account to offer tax statements you could even use to report it if you wanted to. So…
I would not recommend everyone in the US move to a robo just in case you accidentally claim too many capital gains losses, no.
Even better, don't read this thread, since ignorance is a defense in tax law and you're not legally required to get your taxes perfectly right.
On the other hand, it is a federal crime (fine or imprisonment not longer than six months) to walk a dog in a national park with a leash longer than 6 feet.
The speculation online is that it's because they lowered the minimum for their institution class funds, many large employer retirement funds sold their holdings of the non-institution funds, leaving everyone left with large capital gains and hence large tax bills unless you held it in a 401k/IRA.
I find Wealthfront to be overkill, but this is precisely the kind of thing they'd save you from.
I still don't understand why there wasn't a way to do an exchange on this conversion that avoided this! I mean, contribute the holdings of fund A to fund B etc.
While true, note that the effects of tax loss harvesting are really only significant for a few years after acquiring the asset (since stocks tend to go up over time), but you will pay the Wealthfront fee for the rest of your life (especially since they do direct indexing, which makes switching away complicated).
And fwiw, tax loss harvesting sounds complicated, but it really isn't that hard to do. If I notice stocks have gone down a lot recently, I'll hop into Vanguard, and swap anything that is underwater with another similar, but not identical fund. I have one for international and one for US stocks. Took me a few hours to get a system down, and now it's a few minutes to do the harvest once every few years.
> the effects of tax loss harvesting are really only significant for a few years after acquiring the asset (since stocks tend to go up over time)
This is true only if you invest once in your life and then hold those assets forever. But if you invest every quarter then you can do TLH on those new lots individually. And since those new lots will keep coming, your TLH will always have something to work with.
> This is true only if you invest once in your life and then hold those assets forever. But if you invest every quarter then you can do TLH on those new lots individually. And since those new lots will keep coming, your TLH will always have something to work with.
That is true, but you pay a percentage fee on all of your assets (which is growing) to be able to TLH assets you've recently added (fairly static amount over time).
This is very true when you only have a handful of assets (e.g 6 ETFs), but the benefits stick around for longer when you do direct investing in stocks (e.g. rather than buying S&P 500 directly, you buy each of the 500 stocks that make up the index). Then in a given year there will almost certainly be some stocks will losses even if the index as a whole goes up.
> If I notice stocks have gone down a lot recently, I'll hop into Vanguard, and swap anything that is underwater with another similar, but not identical fund.
How much effort do you have to put in to avoiding wash sales?
It’s pretty forgiving. For example, an S&P500 ETF and a “Total Stock Market ETF” are considered different even though they are 99% correlated. There are lots of indexes from different companies that track the same thing and I wouldn’t be surprised if 2 ETFs that track 2 different “Total Stock Market” indexes also work (99.9% correlation?)
Thing is, all of these are simple enough that anyone with a tiny bit of financial knowledge or Googling can do it for themselves. Sure a lot of people don't bother, but when your investment size starts going up the 0.25%-1% commission is a LOT of money.
Study after study has shown that investing in a broad market fund plus occasional (once a quarter) rebalancing is going to beat managed investing on average. So where do these products fit in really?
The folks using WealthFront don't have enough money invested that 1% is a lot of money, and they generally very much suffer from lack of time or knowledge on how to invest properly (or willingness/ability to sit down, learn, and DIY properly either).
Well, actually a lot of these strategies are really hard to implement on your own. For example, in direct indexing you are buying hundreds of stocks in an attempt to replicate an indexing. You are also constantly rebalancing and tax-loss harvesting.
You could definitely just buy an index fund, but it's not exactly comparable.
My experience was that robo-investors are great until you need something special. Then they can become rather painful.
Exmaple: I got divorced last year. Betterment took weeks of time and many phones calls until they were able to figure out a way to divide our assets evenly, without a large difference in cost basis. Their automatic algorithm for dividing accounts just didn't know how to handle it.
If UBS figures out how to offer a higher level of service on top of robo-advising, that could be a real win.
Does Wealthfront actually buy individual stocks? Most robo-advisors buy ETFs. So you're paying double management fees. I'm not aware of any robo-advisors that actually buy individual stocks.
Yes. Once you cross a certain threshold (I think it's $100k portfolio), they'll switch you to "Direct Indexing", which automates individual stock purchases.
Once you cross a threshold of investable assets at which it makes sense (usually a few hundred thousand), most robots have an active indexing strategy in addition to or instead of ETFs.
I agree that robo-advisors are great, but they do leave a lot to be desired. I’m actively working on a service that would drastically change the way people engage with robo-advisory accounts.
I for one prefer to make stock selections on my own, however Wealthfront, Betterment, and Personal Capital do not allow me to manage my own investments with any of the robo-advisory features. There is a huge opportunity in the space.
It would be great to talk to you about it - I’d love to hear your thoughts - any way we can connect?
personally my favorite feature is the "autopilot" thing, which for example dcan automatically withdraw from my checking account and invest when my checking account hits a certain threshold. so for example i can just say "if my checking account goes above $30k, deposit the rest into some wealthfront investment account." i don't think a human financial planner can do this easily? just to add to your list.
That honestly doesn't sound like very much to take 0.25%. Maybe if you're starting out and have $10k to invest, but once you're in the mid six figures or more, the 0.25% adds up.
If you buy and hold, it doesn't take much work and expenses for Vanguard ETFs are ~0.10%. Also, once you move to Wealthfront, it's hard to ever leave because of how they break things up (which, I'm sure, isn't unintentional).
A big advantage of the robos is that they time the rebalancing a little better. Manually rebalancing your own Vanguard ETFs at the same time once a quarter is pretty arbitrary - it's based on what's convenient to you, but it's not necessarily what's mathematically best for your portfolio.
If your allocation percentages remain very stable, you might not need to rebalance at all at the end of a quarter. If your allocations fall way out of whack, you might want to rebalance a portion of your portfolio earlier, and robos handle that timing for you.
I'd be surprised if the better timing doesn't provide 0.25% of value, not to mention it's just one less thing to have to think about.
Rebalancing is really not that hard. If you have $500k in savings, it's definitely not worth paying $1250 for it and end up being locked into a platform that's hard to leave.
In addition, Wealthfront doesn't know about all of my other holdings (house, angel investments, crypto, ...), so isn't going to do as good as I can.
Does Fidelity have robo-advising? Because all the big companies I've worked at use them for retirement funds, and I've found most of the management is heavily manual at Fidelity.
They do, it's called Fidelity Go. They have a similar product for advisors called AMP. I actually worked on these products a while ago, they're all very similar when it comes down to it.
Super interesting. Wealthfront has approximately $27 billion USD in AUM according to this article [0].
Meanwhile the leading robo-advisor in Canada, WealthSimple recently raised funds at a $5 billion CAD valuation, on a $7.7 billion USD AUM [1].
I have felt for a while like the robo-advisory market is in roadrunner mode - has run past the edge of the cliff but hasn't quite yet fallen. Maybe this is the first sign that the party's ending.
Robo-advisory was a dead business 5+ years ago. The game quickly had to expand to add services on top of the core robo offering. Now the big guys like Vanguard, Fidelity, Schwab all have their own robo-flavors. Its become table stakes. In that context, this deal makes sense.
UBS has a $2.6tr+ wealth management division - they need the sexy fintech frontend.
$27B and $8B AUM are both peanuts, and I imagine not a big factor in determining valuation for these robo-advisors. Corporations are likely more interested in the number of users, demographic breakdown (mostly well-off millennials), their financial data, credit profiles and upsell opportunities.
This. The amount of money they manage is a mouse fart in a hurricane when it comes to such low fee business as robo advisory. That a robo advisor can get $5bln valuation on having $8 bln of assets speaks either to the silliness of the valuation or that the value is not in the assets managed (likely a combination of both factors).
It probably depends on what adjacent financial products they are selling and how good of a job they are doing at selling those to existing customers. Wealthfront is always suggesting different financial products, cards, etc. There is little money in managing your money since these are mostly served by large funds like Vanguard, but there is a lot of money in referrals selling you other products. It's possible Wealthsimple is doing much better?
For what it's worth, Wealthsimple exited the US market last year and transferred all their US customers to Betterment. They seem to still be adding new products in Canada though (like a Venmo-like cash transfer system.)
They *just* launched, and they've been pushing a lot in University towns. I don't know how successful it'll be, but every single one of my friends has WS Cash, and if I ever had to send them cash I'd first ask if they'd use Cash since it's so much simpler than Interac.
Unfortunately, most people say no right now since the WS Cash Card is really weak (so no point in using it) and it takes a couple of days for you to withdraw money from WS Cash to your bank account.
There is no way this catches up to e-transfer in popularity. Everyone in Canada knows about venmo and cashapp and the various other scam versions of e-transfers that people are forced to use in America and they laugh at them for it.
E-transfers are literally the best part about Canadian banking.
They don't need to catch up to e-Transfers to be successful. I'm not sure what their numbers but if they manage to be the app of choice for university students and young adults alone, it would be a massive win for them. I know people who have started to pay their rent using WS Cash, and I'm sure when they graduate they'd like to continue doing so. There's also the Cash Card directly tied to this account, which they get transaction fees from, as well as associated WS Trade/Invest.
I'm not trying to be a shill, I personally wouldn't invest in WS since I think they're incredibly overvalued. But E-Transfer is very dated and has a lot of problems, and there is potential for a competitor to come up and replace it.
Wealthsimple now has in house advisors who email and call you to discuss your account. There is nothing 'robo' about the business model anymore and instead they are just focused on growing AUM by talking to people and convincing them to move more of their savings/TFSA/RRSP over to them.
https://canadiancouchpotato.com/ is my go to!
They put out amazing content over the years and have a great set of model portfolios for those just getting into investing.
I'm honestly shocked at how primitive the big firms' offerings are. For example, JPMChase's bank account is smart enough to see a payroll deposit and give you a comment modal suggesting that you invest the money with JPM's investment platform (YouInvest/whatever)
Log into the investment platform and you're back in 1993. They literally have no drip-investment style offering. They want to charge you 100bps to "manage" your money, or you get a broken/buggy online broker with barely any functionality.
Why the heck isnt JPMChase buying one of these platforms?!?
> Why the heck isnt JPMChase buying one of these platforms?!?]]
Broadly speaking, the retail market can be segmented on two axes: net worth and involvement.
Low net worth, high involvement are day traders: they are profitable through fees, PFOF, et cetera. High net worth, high involvement doesn’t tend to exist long enough to specialise in; they’re, professionals, have better things to do or lose their money.
Low net worth, low involvement is patient capital. Not super profitable per se. But the most likely to develop into the last category: high net worth, low involvement; the money maker.
Robo-advisers targeted the third category. They got more of the first. Those not only bolted to crypto and Robinhood. They also incurred higher costs to the firm while promising less development potential to the fourth category. The actual third category participants, to a large degree, don’t need much more than was available in 1993, or at least are savvy enough not to find themselves paying for it.
>> The actual third category participants, to a large degree, don’t need much more than was available in 1993, or at least are savvy enough not to find themselves paying for it.
I'd disagree with this. In 1993, you couldnt do fractional shares, or auto-invest, or pie-based investments. In 1993, you couldnt purcahse $500/wk of BRKB/AMZN/TSLA because there was no product like that short of paying a mutual fund 150bps. You couldnt tax-loss harvest (like with WealthFront)
You can get that now with M1, FolioFN (GS), ShareBuilder (RIP). It is low investment and high-stickiness.
You're noting net work and involvement and profit, but I think stickiness is another factor to focus on.
> In 1993, you couldnt do fractional shares, or auto-invest, or pie-based investments. In 1993, you couldnt purcahse $500/wk of BRKB/AMZN/TSLA because there was no product like that short of paying a mutual fund 150bps. You couldnt tax-loss harvest (like with WealthFront)
Fractional shares are a day-trading tool. Apart from that, yes, you're citing real innovations. (Others include a dramatic reduction in trading costs and ETFs.) To the broader point, none those are unique (any more) to the robo-advisers.
Absolutely not, polar opposite. If i'm a buy-and-hold investor who wants to set-it-and-forget it invest auto every week, Fractional share purchase are the only real way to consistently purchase. How would you buy AMZN every pay period if a single share is more than your entire investment amount.
> How would you buy AMZN every pay period if a single share is more than your entire investment amount
Most long-term, low-involvement investors wouldn't. They'd buy an ETF. The exertion of selection effect for Amazon versus the rest of the market is a high-involvement action.
And if you invest monthly, what do you do, buy 1 share (different amount per month)? Or do you just give up and go to Vanguard/Fidelity/etc? This is sort of my point, how is something as basic as repeat-invest not available on the world's biggest bank?
> JPM's investment site, as far as I can see, cannot even repeat-purchase an ETF
Do you mean automatic deposits and investments? That's table stakes. They offer it. They aren't advertising it because fire-and-forget is 99% of the pitch of the wealth management industry. (That they're messaging it badly is in no way challenged.)
With respect to smaller dollar amounts, the traditional answer was mutual funds. Those usually have $1 minimums. They were historically shit when it came to fees, but now typically come in below 50 bps for broad-market funds.
Yes, M1 offers what ShareBuilder used to offer, except with community pies, etc. https://www.m1finance.com/how-it-works/invest/ You set the portfolio, set the auto-amount, and forget about it.
FolioFN got purchased by GS.
ShareBuilder was purchased by CapitalOne and flushed down the toilet immediately.
My take (as a previous employee at Betterment): Wealthfront/Betterment/et al came out to much fanfare and the promise of disrupting the traditional wealth management industry.
At first, it seemed like they were right. AUM growth was looking like a hockey stick...this caused some panic at the big firms' who hurried to launch their own offerings (this is like 2015-ish) which were minimal at best, and still mostly just "marketing products" - a thin roboadvisor veneer designed to drive users into their traditional businesses.
Over the next 2-5 years and up to now, it is becoming/has become obvious that roboadvisors are not, in fact, going to disrupt the industry and it's rather a race to the bottom in pricing with razor thin (or non-existent) margins...so the actual robos have largely stagnated and the big firms stopped investing into their own solutions.
Agree in general, and I think they were great M&A opportunities for the big firms. Think of Banking+Lending+Investments as a natural stack over much like Photo+Music+Games+News+CloudStorage are in the FAANG world. They keep the user sticky. Once you've got Photo+Music+Games+News+CloudStorage in the Apple ecosystem, or in the Google Ecosystem, for example, you're way less likely to leave.
Yet in banking, there arent great stacks where you can keep your relationship across the board. For JPMC, an acquisition of a Betterment or WealthFront (or others) would be a drop in the bucket.
They can’t compete at scale for small potato clients. They want high net worth people to work with a guy. Ie the stereotypical dentist.
Honestly it’s probably a good thing. Chase is pretty awful at basic retail banking. Really only makes sense if you live in Manhattan or something where there are like 3 mega banks in every corner.
I'm surprised to hear this take. I find Chase to be the best bank I've ever worked with -- personal accounts, business accounts, everything. Customer service is top notch. Website is great. I'd love to hear your choices for a top retail bank.
Yes, i'm in the NY area, so true on branch location issue. But how often do you have to visit a branch if you have good systems? The branch is usually for when systems fail.
Not the best lending bank, and def not the best investment platform. I'm not sure why they cant be all three (organic or m&a) given the high synergy.
I fully agree with GP, my experiences with Chase have been quite poor even in the NYC region.
Ahead of buying a home in ~2015, I was holding a lot of cash, and Chase upgraded me to Chase Private Client. Seemed good at the time, perks like free museum visits and such, and they said I could retain the status for at least a year even after reducing my account balances.
Private Client sucked. My "private banker" was irritating at best. Constant sales pressure shilling their investment products, which had a 1% management fee, on top of being a basket of a hundred different actively-managed mutual funds which also had their own high fees. Hard pass.
I looked up my "private banker" on LinkedIn and he was literally a parking attendant at his previous role.
I moved out of NY not long after this, and switched out of Private Client, although I did keep a small amount in a lower Chase tier.
A while into the pandemic, I started getting emails from Chase about how "my local branch" was closing (always some random Chase location in Manhattan). Happened repeatedly for different branches, sometimes ones I'd only visited a single time while running errands somewhere in the city. This despite the fact that when I moved out of NY many years ago, I fully updated my address in Chase's systems, and they should surely know I do not live in NY anymore.
The best banks for most individuals are almost always small regional banks or credit unions.
The credit union I use has 7% lines of credit, mortgage rates that are consistently within 5 basis points of the lowest and average hold time to an agent <3m. But… their business banking is weak and it’s not really a good place for a high net worth person.
I think big banks tend to never be great customer experiences becuase the internal incentives aren’t there. Retail banking is a sales funnel, and why would a brilliant leader want to run retail? It would be a pay cut. The “brand name” of a major bank used to mean you could cash your checks anywhere, etc. that’s all dead.
The money lives at interactive brokers, the cash flows through etrade, wells Fargo has never met a mortgage it didn't want a piece of, and chase rents me a safe deposit box.
I suspect you are on to something. Maybe they were waiting for valuations to return to earth? The make versus buy decision was much harder when these platforms were richly valued.
I could a lot of acquisitions in the coming months as capital moves out of growth at all costs fintech space and startups need a lifeline.
I think the "build" can be considered a clear failure at this point, it would take 10min on the JPM "platform" to see that. Not acquiring ShareBuilder was a major loss, especially given that CapitalOne purchased ShareBuilder, took the customers, and killed the platform. Not sure why the platform couldnt have been spun off to JPM (?except perhaps competition?)
GS purchased FolioFN, which was a lesser player, but still a decent platform. JPM is going to have to gulp down M1 Finance and pay for being so slow to the acquisition game <-- My prediction!
Online brokerages selling order flow are very profitable, so even the "buy" decision seems like a no-brainer given the obvious monetization route. DRIP-style investment is even stickier -- you set it and forget it. Make it part of the Premier/Sapphire tiers and people dont want to move at all.
No doubt building is always harder than it looks and it looks like JPM tried to build with Finn and stopped awhile back. GS seems to also have Marcus which is still going at least?
I wouldn't count JPM out though. I'd imagine they have been bulking up on cash by taking on debt for future acquisitions while interest rates were/have been low. They know this game well.
Now that interest rates are starting normalize - they can now go pick the best of the best them - be it HOOD, SOFI, etc. at more reasonable valuations (or at least 50%+ of their 2021 peaks).
Does HOOD at $50B make more sense or maybe just wait until it hits $8B. Plus the DAUs are more stabilized now that the hype has died down. And you get Dodd Frank compliant/audited accounting data instead of VC style EBITDA/DAU only data?
In addition they can pick based on who's app is actually the most sticky/metrics and get to see all the apps internal metrics while doing "due diligence for a potential aquisition".
Wealthfront was an attempt to automate that while adding some bells and whistles on top; tax loss harvesting, smart beta, etc.
Curious to see how they succeed as part of UBS. I thought Marcus/Goldman was going to buy them personally, so a bit surprised UBS is getting in on this game.
When I looked at it the fees were way to high to justify to bogelheads.
What is strange to me about robo advisors is that they are still charging a management fee instead of a flat fee. The algorithms are really basic and don’t have any real time changes so it seems weird to charge 25-50 basis points for what’s basically just an interview and time based rebalancing with some formulas that aren’t really better than existing ETFs.
I’ve been expecting this to just be a feature for vanguard and fidelity since the “advise” could just be client side automation rules that nobody wants to build.
I'm not sure about that. Targets funds fees are generally a percent not flat, you have less control over your money (which if you're doing a robo-advisor you probably have somewhat bespoke investing requirements) and they only make sense for tax-advantaged accounts (see [1]).
Plus, people invest for reasons other than dated retirement targets.
boglehead here. Switched off of Wealthfront awhile back. AFAIK they wouldn't outperform a three-fund portfolio.
I actually wouldn't mind a platform that uses my brokerage as a backend and lets me do % allocations on 3~4 funds, automatically identifies rebalance opportunities and tax loss harvesting. Basically nudging me like 3~5x per year. I'd pay a flat fee to do that.
I have a google sheet where I keep track of each fund I’ve bought and sold. From there I added a column with gain/loss for each tax lot with remaining shares, and a script that runs once a day to email me if there’s an opportunity for tax loss harvesting. It works pretty well.
I like the idea of rebalance opportunity notifications, but it’s harder to get retirement funds into a google sheet with all the automatic contributions that happen…
Back in 2015 I put some of my money into wealthfront, despite the market doing well at the time, my wealthfont fund which was heavily stock balanced did somewhat poorly. This was over a year's time so not short lived by any means. I pulled my money out and invested into stocks I chose and never looked back(typically get 10-15% returns a year). I would like to hear other people's perspectives about how their wealthfront funds did as my colleagues did the same as me and left wealthfront as well.
> This was over a year's time so not short lived by any means.
1 year of investment data is useless. An investor will be invested for their lifetime, we barely have decent data for 1 investor's invested lifetime(about 50 years). A decade comparison is arguably the bare minimum, you really want 20 years, as investments tend to be cyclical by a decade or so.
I can't speak for Wealthfront, but managed "funds" are typically balanced across high and low risk securities. Thus they will obviously lag behind even index funds like SPY/QQQ. Where managed funds tend to show benefits is in times of high volatility or downturns. Ask yourself how many downturns you've seen in the age of Wealthfront. Because I count 0. And 10-15% yearly returns aren't exactly impressive in the last 12 years. SPY stomped those numbers: https://finance.yahoo.com/quote/SPY/performance/
Depending on strategy you can do ok, I'm up over 20%/year going back 15ish years. There's certainly a lot of luck involved but also tolerance for volatility.
It's not a flex, I'm just saying that it's not super rare for people to get those returns. If you're really doing 45% that's above and beyond though and would be curious what your strategy is.
Nothing to sell here unless you want to invest in my next company. I do pay all the taxes I owe. The curse of good luck is I don't have much reason to believe my future returns will continue to be so good.
Not GP, but there's no secret sauce here. VTSAX is up 25% each of the last three years, and it's hardly unique. The market has been doing well. Things that track the market will also do well.
The (US) market has done 11% annualized in the last 15 years. 20% is not just "traking the market". It's the difference between going from $1m to less than $5m or more than $15m.
Now, if "15ish years" means "12 years and 9 months, from the exact bottom" then yes, the annualized return has been over 18%.
well it helps that stocks have mostly gone up in the past 7-8 years :) but I typically avg. about 10% a year, one year was a down year but most years its about that.
I ran a very similar experiment. I don't recall the exact dates, but something like 2016 - 2018, and left Wealthfront as a result. I was under the threshold that incurs management fees, but Wealthfront was outperformed by S&P, at least over my time frame.
I never held anything with them during a market downturn, so I do wonder what that might look like. Potentially the lower returns would be justified by the existence of a hedge or holdings in lower-risk assets.
> Back in 2015 I put some of my money into wealthfront, despite the market doing well at the time, my wealthfont fund which was heavily stock balanced did somewhat poorly. This was over a year's time so not short lived by any means. I pulled my money out and invested into stocks I chose and never looked back(typically get 10-15% returns a year).
exact same sequence. I was surprised how poorly it underperformed.
I believe I've gotten lucky, but I moved all my money from Fidelity (making, 7% I think?, in a money market? I couldn't understand their UI so I don't recall) to Wealthfront. It currently shows and it's made 15% - 35% over 2 years.
That's not the same. Money doesn't just appear all at once ready to dump on the market, we get and invest it every paycheck. So average cost basis over time gets higher as you make purchases
annualized return is annualized return, his strategy gave him < 9% annualized return and that is being generous, saying he's invested for 4 years not 5.
if you look at SPX returns over the last four years, 2018 was a negative year but each year after was between 16% and 28%. also 2017 was over 19%.
I mean that applies to anyone in this thread more than me specifically. I'm not saying Wealthfront is the best option, just that I've been fine with it as someone who knows nothing about investing and didn't want to keep throwing money into a savings account. And if we're being picky about time, I'm closer to 4 years in Wealthfront and was up 50% all time a few weeks ago. Still not the best, but better than savings.
really interesting takeaways from the Wealthfront landing page[0]:
* every example is shown as a smartphone app - not a single "desktop-oriented" screenshot to be found. I guess we are finished with the days where every service has an app. Now, every service is an app.
* In the first example, an investment portfolio is shown where roughly 10% of the holdings is in a group called "single stock bets." Yikes! Though maybe this a case of "know your audience"? maybe they are trying to convert the hordes of GME-pumpers to try something a bit less risky?
* lots of emphasis on "emerging markets", "socially responsible funds", crypto. I've always heard the best long-term advice is to simply throw your money into an ETF tracking the s&p500 or nasdaq, but clearly wealthfront is targeting those who want some emotional connection to their savings.
all in all, seems like a cool service, especially if it helps convince those to begin saving who would otherwise not be saving.
> * In the first example, an investment portfolio is shown where roughly 10% of the holdings is in a group called "single stock bets." Yikes! Though maybe this a case of "know your audience"? maybe they are trying to convert the hordes of GME-pumpers to try something a bit less risky?
Don't read too much into marketing materials.
It's likely that they surveyed a lot of potential customers and found a significant number were afraid that Wealthfront wouldn't allow them to choose individual stocks. So that factoid filtered its way over to the graphics design department, who were told to prominently display something about how you can still buy individual stocks.
I don't think having 10% of your equity investments in single stock bets is a yikes-worthy level of irresponsibility. It may not be the best way to perfectly optimize your long-term return, but for the vast majority of people it won't mean the difference between retiring comfortably and destitution—especially if actively managing a portion of your portfolio encourages a higher level of overall saving.
Re: the first example - Wealthfronts dashboard aggregates all your investments (if you give it access). The "single stock bet" is being pulled from the user's Robinhood account. The other two investments (with the purple icon) are through Wealthfront.
> * every example is shown as a smartphone app - not a single "desktop-oriented" screenshot to be found. I guess we are finished with the days where every service has an app. Now, every service is an app.
Their desktop experience isn't bad though! Other commenters have mentioned how garbage Wells Fargo/JP Morgans investment dashboards are and wealthfront thankfully takes user experience on both platforms seriously
Maybe they were trying to differentiate themselves from the offerings of a potential acquirer and prepping themselves for aquisition - particularly perhaps once they realized they weren't going to be able to beat the legacy banks.
Wealthfront used to have only a very limited portfolio options that used relatively best practices bogglehead-lite-ish, but I think ran into users constantly wanting customization, regardless of its "optimality".
Yes - this is the problem with all "we know best" style platforms.
Example: networking gear that supplies a dhcp server. You shouldn't have to put in the IP address range. It should just be yes or no, so no admin ever needs to know what dhcp even really does. It satisfies 80% of customers.
...but someone wants your own custom DHCP server, with custom IPs so that it can support your legacy printers, with reserved ranges of static IPs because the ghosted profile wants a printer at 172.16.12.2 etc. etc. etc. and that customer is willing to buy $1B of equipment, so you do add the customization. The slippery slope begins to acquire more customers.
When I think of what a FinTech darling Wealthfront was when it came out, all I can see this is as a colossal flop.
For what it's worth...
About a year ago I opened a robo-advisor account at SoFi and another at Wealthfront and pitted them against each other with high-risk/default settings and a weekly deposit.
The SoFi one has been outperforming the Wealthfront one all year long (by 1-2%; nothing life changing) which surprised me but it also made me feel that all the magic AI/ML under the covers that WF promoted didn't exist and no one was managing anything.
Stock returns over a single year are meaningless and not what they optimize for. Their "optimization" isn't perfect (MPT has some silly assumptions) but it's made for 30 years from now.
Has it continued to outperform Wealthfront during the past couple of weeks, where the markets have been trending more downward? Curious if SoFi has a higher-risk 'high-risk' setting than Wealthfront, in which case you might expect them to take more of a hit when the markets go down.
Anyone know of any other product offer that will take excess after direct deposit and invest it for you?
I've called Fidelity and Betterment and both do not offer an automated way like wealthfront does. Really sad to see wealthfront being the only player in that space.
Edit: by automated I mean something like "everything over $10k after bills, invest". It takes a couple of clicks per month manually, but it's been pretty relieving not having to do that every month.
[Disclaimer] I'm the founder of farther finance (https://www.farther.com) - the first digital family office.
We offer this to our clients at farther - set a minimum amount to keep in your bank account, everything over set minimum gets swept to your investment accounts and invested based on how you set them up and any relevant regulatory stuff (like max IRA contribution amounts) or goal amounts.
Quick note - We focus on holistic management for pretty significant wealth (compared to the target client for most offerings) and all of the stuff that comes with that - more intricate planning around events, alts, families, collabs with CPAs, attorneys etc. That's best achieved with a hybrid approach - an advisory team boosted by tech - so advisors are part of the deal! If you're interested, feel free to PM me and I'll connect you with one of our advisors.
Betterment had that until a month ago: "Two-Way Cash Sweep", though that swept into their cash reserve account, not the investment accounts. They said that less than 1% of users had it enabled, and so discontinued it.
Is there really that much utility in automating that? It takes a few clicks to move money from a checking account in Schwab/Fidelity to a target date fund or index ETF.
There is. Logging into those accounts is a pain in the ass, and requires active effort to remember doing. Automating things like bill-pay, deposits, and other "set it and forget it" tech is the best thing since sliced bread.
Just to be clear, we are talking about clicking on a bookmark, letting the password manager fill in the login info, and the clicking login or pressing enter?
>requires active effort to remember doing
Checking up on one's assets is something that should be on a periodic to do list. We even have devices that can be scheduled to alert us when it is time.
You can try to argue that this is stuff that people _should_ be doing, but it's always nice to build technology that acknowledges the tendency for humans to avoid doing repetitive, boring, manual work, rather than pretend that not be the case.
> Just to be clear, we are talking about clicking on a bookmark, letting the password manager fill in the login info, and the clicking login or pressing enter?
Close, you forgot the part where you need to locate your 2FA device, possibly connect it to a charger and wait for it to boot if needed, and then of course actually get the 2FA code and type it into the website.
edit: Oh, and I forgot the part where if you need to boot the device, you probably have to type in the password.
Ah, that's nice, I hate sites that don't do that -- which includes the one I am currently forced to use. Hilariously, the mobile app allows using the fingerprint scanner instead of entering my password -- but still requires me to enter the 2FA code every time, which of course is on the same device, so it's not doing anything other than just wasting my time.
Should people not be remembering to login to their accounts on a monthly or at least bimonthly basis to save statements/verify transactions/check to make sure they are not being stolen from?
I glance at account balances about once a week just out of habit. More than that requires brain power that I either lack or am too lazy to use unless I plan ahead.
I have an easy setup that’s close to what you want. From fidelity I got my account and routing number. I took that to my payroll provider (ADP) and changed my direct deposit instructions to send a fixed amount per paycheck to my checking account, and everything over to my fidelity account. I still have to login every two weeks and buy shares with whatever was just deposited but it’s very easy with the app. It looks like that could also be automated, but only for automated buys of mutual funds. I only use ETFs so haven’t played with that portion. This setup works really well for me!
Maybe I'm misunderstanding, but nearly every bank I've ever used offers this feature. I currently have auto-transfers and auto-investments set up in Fidelity. If you receive a paycheck, you can easily set up Fidelity so that it automatically transfers $xxxx dollars per month to whatever account you like. You can also set up each account to automatically purchase $xxxx dollars worth of whatever equity you want.
I have a brokerage account at Fidelity, which I can write checks on, but I only use the account for investing. I guess theoretically you could use it as a primary bank account? I have some auto-transfers into the account each month, that automatically get invested, and some auto-transfers out to non-Fidelity accounts so I can invest proceeds in things Fidelity doesn't offer.
If you pay for M1 pro ($125/year) you can set a "smart rule" to automatically transfer above $x from your spend (checking) account to an investment account, and automatically invest it.
Wealthfront (and this goes for the rest of Wall Street) are analog businesses.
They thrive on mass producing a fixed set of products. Those products are ETFs, Mutual Funds... or in Wealthfront's case... a rebalancing strategy based on a 1960's white paper called Modern Portfolio Theory.
Each of these players spends a ton trying to mass market these products. You have financial advisors pitching mutual funds, asset managers shilling the virtue of their shiny new ESG ETFs... and robo-advisors all promising a set-it-and-forget-it panacea. Wealthfront got commoditized. Betterment at first... but then the discount brokers came in (Vanguard, Fidelity, etc) and just had a much more effective channel (advisors!) to the end investor. If you are just selling a singular product and that product is successful, you are going to get copied and beaten by competitors with better marketing channels.
Wall Street will some day transform from an analog industry of mass production to a digital one of mass personalization. The building blocks for said transformation are slowly becoming ubiquitous (fractional shares support, commission free trading, etc). Super excited to watch this happen.
The current norm is that many products are focusing on the statistically optimal approach - low fee, market returns - and they're competing on price and order execution which benefits individual investors.
And the future is about giving investors more ways to damage their returns by actively trading and arbitrarily customizing their strategy.
If I were to guess, I'd say that world will be more expensive again for most (or a lot) of individual investors. The costs of the whole machinery and the capital necessary to maintain it will have to go somewhere.
Mass personalization in investment would only really work if it makes sense to truly personalize investments given the huge uncertainties involved. But I am sure people will happily sell this and find willing buyers.
Sorry for the possible off-topic, but can anyone explain to me how the robo-advising is different/better/worse than constant passive investing into popular ETFs, e.g. $SPY, $BND, $VOO, etc.?
I mean that’s literally where the money ends up anyway. I have a small amount in Wealthfront to check it out. With my “10/10” risk allocation, my money is all in vanguard funds.
45% VTI
20% VEA
19% VWO
14% VIG
2% VETB
They do also offer some services such as “tax loss harvesting” that you can’t really do on your own, but I don’t really know if it’s worth their fee.
Really, I think one of the best investing strategies is to buy and hold a variety of Vanguard funds and stop thinking about it.
* tax co-ordinated investing - looks at both your taxable and tax exempt/deffered accounts and directs funds appropriately (for example, puts more tax inefficient assets in your tax exempt accounts)
You can of course do this on your own as well, so it's up to you to decide whether the additional fee is worth it or not. Also, not all robo advisors offer the same features - but most offer automatic rebalancing at a minimum.
Automatic rebalancing is not that useful as long as you're contributing, because that rebalances on its own.
Betterment's tax loss harvesting is good… unless you're expecting your tax rate to go up next year, in which case you want to harvest gains… also, it'd be better to not lose money in the first place. Since they have alternate portfolios like "smart beta" now which try to do that, their features conflict with each other.
The main problem is that every robo uses the same Modern Portfolio Theory based investing which despite being "modern" is from 1960.
Not a comprehensive comparison, but I've been doing monthly investments into robo-advisors (Wealthfront and SoFi) as well as ETFs (SPY and VOO) for 2 years now. The returns are quite similar to ETFs, sometimes higher or lower depending on the markets.
2 things come to mind:
1. These target the large majority of people with no will or interest in researching/picking/managing their own ETF investments.
2. Robo advisers re-balance your ETF portfolio (in much the way an individual ETF would).
One friend told me it was his way of "outsourcing investment research", whether or not that justifies these platform's "low fee" and their returns vs. DIY is another issue.
I wish the US had something better than Plaid to track various account balances. That’s all I use Wealthfront for, now UBS owns all the data and has my logins.
Tracking multiple account balances has gotten less easy as more accounts offer 2-factor. There really ought to be some kind of standard for granting scoped read-only data auth to authorized 3rd parties for financial info, but presumably every business wants to wall their gardens with delusions about consumers not having to work with multiple companies and backwards notions that friction keeps people in instead of driving them out.
I’ve been using a client based tool (Moneydance) for 10+ years and some banks did support special accounts that had read only access to ofx APIs. It was kind of nice as I didn’t have to worry about my passwords as much.
It’s gotten worse over the years as banks have stopped support for open APIs. I guess because of plaid-type integrators that make custom interfaces. I’ll likely quit my bank (usaa) as they got rid of any api access unless you go through third parties.
I’m not willing to give my account credentials to a third party like plaid where the downside is draining most of my liquid assets and investments.
It feels like there should be some libre tool that automates downloading OFX through the web interfaces and keeps up with the breakage, at least for popular banks. Integrate with procmail and the like to deal with snake oil 2FA, etc.
I’ve tried gnucash a few times but it was just too much work for not enough rewards. I’ve contemplated just making my own scrape to database script because all I really want is a ledger I can query.
Moneydance has been decent enough and I think I’ve paid $100-150 in 10+ years for an initial version and then an upgraded one.
The download functionality of Moneydance and GNUCash is via "OFX Direct Connect", which is an older non-HTTPS protocol to download OFX data from a bank. But as web culture took over with things like Plaid, banks have become more wary about serving up a bespoke protocol that (I believe) authenticates in plain text, or at the very least doesn't support snake oil 2FA and the like. For example, Capital One 360 used to serve it up, but they turned it off in the past several years.
Meanwhile, all banks seem to have the functionality to download .ofx/.qfx files through their web interface. I believe this is what Plaid et al retrieve. Of course using Plaid is horrible because not only are you giving out your credentials, but you're also giving away your private financial data to a surveillance company. But you can personally download the OFX files from the web interface for use with Moneydance (etc), and given the way OFX works you don't even need to be careful about overlapping date ranges (eg download the last year of transactions every month).
Of course that becomes a bit tedious and doesn't give Moneydance (or whatever) access to your recent transactions (it would be very convenient to `tail /var/log/bank` rather than having to login manually). So I'm wondering if anyone has written a libre package that aims to do the web scraping approach for various popular banks that don't support Direct Connect.
OFX supports SSL/TLS as the protocol. Doesn’t directly support 2fa, but I don’t care as it’s read only downloads of data.
I still manually download csv or qif files, but that’s much less convenient than automatic imports. I like the idea of an open standard and wish banks would throw them away instead of improving them. OFX was issued in the 90s so the fact it runs at all is at least something.
Betterment has ~$30bn AUM. Neither that nor Wealthfront's $27bn AUM are considered a lot in that industry. My brother-in-law works at a midwestern wealth advisor most have ever heard of that manages $10bn. There are a lot of small firms the $1-$10bn range.
And those advisors typically take 1+%/yr. At 0.25%, Wealthfront would have had to have $40bn AUM to have equivalent revenue, not to mention WF took $200M in VC money to build it.
Interesting, the figure does seem quite low to me. Boglehead passive investing has worked really well for the past dozen years. I expect the next 10-15 to be much more challenging given the extremely high starting valuations and end of the low interest rate and QE tailwind. I've been building algotrading models to help tackle the challenge of when to hedge at https://grizzlybulls.com
Website is built with NextJs. The models are all built with NodeJs--custom backtester framework, and the execution framework and data fetchers are also in Node and leverage a few open source libraries and currently only works with Interactive Brokers.
We just launched mid December, and currently have 16 paying subscribers and 178 free members. MRR about $2500. The Platinum plan can be either implemented via API, email notifications or a managed account in which case after some legal paperwork, we set up a second user in Interactive brokers with trading authority that executes trades based on the signals (hedging via ES futures).
Managed accounts must first be set up on Interactive Brokers by the client, with a margin account + futures trading permission. Then a second user must be added with Limited Trading Authorization: https://www.investopedia.com/terms/t/trading-authorization.a.... Interactive Brokers has some standard forms to establish the contract. Once all that's set up, I run a parallel instance of my bot with your account in the cloud. Please send me a "Contact Us" or an email if you are interested and want to know more details.
1. It seems likely your models work internally with probabilities vs binary buy/sell decisions. Why do you not have the option to expose this probability, vs just simple buy sell signal? I would think this would pair very nicely with asset allocation. Have you investigated performance when using a sliding asset adjustment (even if just sp500 future & cash) that corresponds to model confidence, vs the binary win/lose bet system? Does slippage from frequent adjustment dominate the gains, no matter the adjustment threshold?
2. At a lazy glance, it seems trivial to boost performance with leverage on buy + shorting on sell, assuming the model really retains its backtest-heavy predictive power. Is this ignored just to remove black swan risk, or is there something more fundamental?
Obviously a 0 leverage buy sell signal is very marketable and low friction, fitting for a SAAS product, but it seems you could do even better with skills you obviously would possess if actually capable of making such a "god" level market predictor. Your posts are full of other seemingly more complicated strategies with somewhat contradictory capital levels throughout the years so it further adds to the main crux of confidence here: That you discovered a top 1% hedge fund caliber model individually as a mid tier SWE early retiree and suddenly offer it to all for an attractive price, without already being sure you can fuck off to a private island with the power of 50%+ CAGR, ignoring the rest of the world. You are also very sparse on details regarding your "proprietary anti-overfitting" methodology, when overfitting is of course the well-memed downfall of 99% of algo trading techniques that claim to meaningfully beat the market. To say nothing of the backtesting window conveniently starting after 2008, lack of VIX hourly data or not.
Disclaimer: I've spent the last 8 hours or so digging through your entire SA, reddit, and HN post history. Initially I dismissed your site as 80% likely scam, 19% naïve backfitted and overfitted waiting-to-be-raped-by-bear-market drivel, etc. But now I'd say I'm operating on a more optimistic 5-10% chance there is something legit here. You might actually just have researched sufficiently in all the right places, implemented a legitimate edge through extensive pareto culling via the yet virgin power of code, and had the perfect balance of libertarian desires to motivate you and yet progressive ideals to democratize it. As well of course as this being a genuine passion project that you are excited to share with others.
I currently work overemployed at FAANG, capital accumulation focused, but I've always held attempting to pareto market timing with a ~99-1 EMH assumption as my main FIRE project in the back of my mind for the past couple of years. I came to the weak conclusion with my pareto^pareto research of the idea that attempting to limit drawdown via algorithmic tactical allocation on SP futures (for liquidity) via macro + TA indicators seemed the best method. So, I am very intrigued to see someone who essentially appears to be me born 5 years earlier doing that exact thing.
Rereading this, I don't mean to come as aggressive/hateful; regardless of how the future treats your models this is a very thought provoking and exciting project!
Thanks for the detailed response, I'll do my best to answer:
1. Internally, the model does work on a sort of weightings / probability system but it's not so simple as boiling down to a single probability figure, i.e. if it hits over 60% we trigger buy or less than 40% trigger sell. Instead there are a few phases in signal change identification starting with an attempt to classify overall fundamentals and market move and moving down to the more granular indicators based on each level of abstraction. Certain low level indicators mean very different things based on the higher level classifier output. However, I could feasibly attempt to boil down to some sort of confidence or probability figure and expose it. I'll need to do some rigorous internal testing to ensure that it conveys accurate information first, but it's a good suggestion.
2. I think the fairest way to report the results is with a 1x/0x (long with no leverage on buy signal, market neutral on short) and then let the users decide whether to use leverage or to short the market during sell signals. Personally I have used leverage here and there and I tend to dial it up or down based on how well the model seems to be performing at a given time. However, I think it's important to note that no model can ever be 100% free from overfitting, and while a great deal of effort has been made to generalize and widen params and heuristics, there's bound to still be some and even I don't know to what degree. This, plus the fact that algotrading becomes more competitive every year means that I think it's prudent to conservatively expect returns somewhere in the 50-100% wide range of the past, which could also mean drawdowns a bit larger than the backtest shows. And of course, black swan risk is ever present. Finally, the models only go back to 2009, so we don't have great data to indicate how they might perform in a more harsh bear market such as 2007-2009 or 2000-2003. This is an unfortunate coincidence as one of the key indicators, Vix Futures, only came to be in late 2004 and the earliest I could find intraday data broken into distinct contracts (not just continuous front month) was early 2009.
As far as my occasional contradictory past reporting of my own financial position. There's a couple reasons this could be--at times I've included less liquid assets (private company shares, family business interest, 401k, home equity, etc), and at others I've only reported what's immediately available to me and highly liquid (bot account + emergency fund, etc). I feel I've probably erred on the side of sharing too much personal financial details over the years, but it is what it is. Secondly, I've not always been a stable investor. I hate to admit that back in the day I was a bit of a WSBer at times. Never consistently, but sometimes I'd get caught up in the FOMO and make a rash (and often too large) bet on an earnings report or something and (though I won a few times) usually end up losing my ass. As such my net worth was pretty volatile between 2013-2018. I've since given that all up and the bot has helped assuage my inner gambler. I also used to follow some other folks' timing systems back then and learned the hard way that most don't work, so all skepticism is warranted. Even I like to keep a skeptical mind about the future of my own models which is why I reported the wide range of expected outcome above
Instead of getting good at 1 big tech job making 300k in 20-30 hours a week you get good at 2-3 and make 800k+ in 60 hours a week.
Though I think the actual best way to optimize labor-to-income is F500 Cloud SRE via B2B contract, but its hard to have to balls to pivot to that after spending so long perfecting SWE interview skills.
Wait so you literally work at multiple companies? How do you manage meetings and deadlines and things like that? Surely that creates conflicts between them.
Not sure how well this ever works in practice, but I just realized you could work remotely for drastically different time zones if your employers were spread across multiple countries.
My first experience with Wealthfront was an IRA. After a short period (<year), I realized it was rather simplistic to take a predictable regular deposit and split it across a few ETFs to stay on track for their recommended portfolio. I ended up opening a taxable account to take advantage of tax-loss harvesting (materially more difficult to do myself). I'd be curious what proportion of their AUM sits under taxable vs retirement accounts.
Nonetheless (forgive the plug), I ended up building a simple app that would help me automate the thinking of balancing my portfolio. Here's an example using a Wealthfront-genereated portfolio (ETFs + targets): https://correctmyportfolio.com/scenario/share/YISu5jI3
Turns out figuring out where to optimize a portfolio to a target without selling, or other rules (like sell thresholds, cash buffers, etc.) is a bit more complicated than Excel would allow.
I had a lot of money in Wealthfront. It was not a good experience.
First they auto-opted me into some actively managed hedge fund thingy they cooked up. As part of this auto-optin, they caused a non-trivial taxable event. And the fees increased.
When I decided to bail and move my assets elsewhere, I was then left with 500 individual stock equity positions to deal with. What a mess. Took me a long time to sort out that mess and to get my assets into a more manageable situation for an individual. Of course to consolidate I had to take the tax event once they converted to long-term capital gains. I did a lot of this during spring of 2020 which was not a good time to be mucking with stock positions. I lost a fair amount of money.
Finally the tax-loss harvesting is not aware of outside accounts and technically you might be violating tax rules. My accountant ultimately told me over the phone that current reporting rules essentially make this unenforceable though...but he refused to put that in an email.
I am a huge fan of the checking/budgeting features of Wealthfront. Does anyone know of a good competitor in case I'll have to jump ship?
For those who don't use it, it allows you to create categories and automatically deposit money into those categories at some interval. Then you can easily transfer between those categories.
I use this so that I can put some money away for expected expenses like taxes and a new car and also to budget for fun so I known what I can actually afford.
I wonder if Wealthfront advised its members to sell all growth stocks and buy value stocks or just hang onto cash for a little while. I wonder if any advisors did this.
How much better has wealth front done vs SPY, fee adjusted?
Imho all robo advisers are a waste of money. If they were actually effective they’d use their own services themselves as opposed to sell them to retail.
The latest crop of businesses really are marketing value adds.
I use Wealthfront. Performance vs SPY is comparable, but it can depend on your risk preferences. I like it because it abstracts away the underlying securities & I don’t have to worry about it. I also like their feature that lets you borrow against your portfolio at a fairly low rate (less than 4% for me), which is a painless way to tap into credit if you need to for pick a reason. I think it’s a great option for anyone looking to keep investing as simple as possible.
The comparison isn’t really performance. It’s more fee adjusted returns. Obviously Wealthfront likely has an index itself that it uses, but the fees are 10X (0.03 for Fidelity be around 0.3 for Wealthfront).
The biggest benefit of Wealthfront is automated tax loss harvesting, not stock picking.
The biggest cost of Wealthfront is that when you leave you either (a) keep a humongous pool of individual stocks to eventually unwind or (b) liquidate and incur unnecessary capital gains.
The tax savings I get from them is much more than the annual fee. I converted the portfolio to 100% US stocks btw. Sure I can harvest losses myself but that introduces emotion and watching the market carefully.
These investing middlemen have all been obviated by automation. No one is beating the 0.03% to 0.15% expense ratios for index ETFs/Target Date Retirement Funds from Vanguard/Schwab/Fidelity.
Agreed completely. I don’t know how anyone can justify 10 times the fees using wealthfront for non trivial amounts of money.
I personally have many friends who are very happy with betterment and wealthfront which is good. When I ask them about their returns in the past couple years they say that the stocks have done amazingly.
When I tell them SPY would’ve given them higher returns and lower fees they’re skeptical, and lo and behold when I actually show them they’re shocked.
I don't know what are Wealthfront's fee, but not everyone wants to put all their eggs in SPY. Wealthfront (and other similar services) let you pick a risk score, and based on that invest in lots of different things. Most people have very diversified Wealthfront portfolios. They also claim to help with tax harvesting. Since SPY had an amazing run it performed better than your friends' accounts, but it doesn't mean it will keep outperforming in the future. It's a riskier investment.
Now, obviously you can also create a very diversified portfolio by yourself. That's totally fine if you know what you're doing and OK spending the time doing it.
A target date fund suffices for most people. And I would need evidence to believe that Wealthfront's fees are offset by the tax savings and increased complexity for 95% of people.
You assume that most people who want to invest even understand what SPY is, what a proper allocation looks like between stocks and bonds, what tax-loss harvesting or rebalancing is, etc. For those folks, robo-advisors provide a huge value-add in making it really simple to invest responsibly. If they were to do it on their own, they probably wouldn't know where to begin.
Schwab at least has terrible UI and doesn't always have accurate numbers. (For example, their GL/share for one of my mutual funds reports the wrong price/share, using the same value for every purchase, while viewing the history tab I can see the actual prices from reinvested dividends...)
Not saying they aren't saving you the fees, but not a lovely experience.
For the informed investor, yes, however they are a giant step above the "financial advisors" (mostly insurance salesman) that uninformed investors otherwise would end up with.
If you otherwise wouldn't invest or would go to a non-fiduciary advisor, then the fee is worth it.
If you know what an index fund is, how to purchase index funds, and know which index funds to invest in, by definition, you are not an "uniformed investor." You might argue "... rabble rabble you should know these things..." but that doesn't change that a large portion of the population doesn't and is extremely overwhelmed by it.
I've never used Wealthfront personally but I assume its basically like a bank account - just transfer money in and everything else is taken care of for you. That's a really, really valuable service and it's well worth the small fee for some percentage of population. Otherwise they'd 1) not invest and lose out on gains and dividends or 2) lose massive amounts of money buying financial products sold to them by "financial advisors" with a 6% load and 1% fee. (Not an exaggeration)
Is it a service for me? No. But not every service is something I'd be interested in, that's ok.
My little cousin wanted to save more for retirement and heard about IRAs. He asked me how to set up and IRA and recommendations on what company to use. I recommended Fidelity with just an s&P 500 index to start. He got really overwhelmed even though I offered to help him click-by-click. He decided not to set up the IRA until he found Wealthfront. He loves the simplicity and that everything is taken care of for him. He's really happy he can save for retirement without worrying about doing something "wrong." Now, my cousin is a smart guy, so I think he'll move past Wealthfront eventually once he learns more, but it's really useful for him now.
One US strategy that can beat ETFs is the part where the first $3k in capital losses per year can be applied against income.
So if you owned every stock in the index directly, one could cycle the losers around a bit (there will be at least some each year) to maximize this write off against income.
Setting aside whether TLH is saving money or simply borrowing it from future tax liabilities, how much is 3k in capital losses worth to you? At what point does the 0.25 expense ratio cost more than the benefit to you?
By my calculations, the breakeven AUM is around $240k, assuming you always have 3k cap gains to offset.
It’s more of an argument for how lots of individual holdings could beat an ETF, in USA anyway. If your commissions are free anyway. Lots of paperwork tho.
For all I know, these robo-advisers just buy you ETFs.
At $100k AUM they start “direct indexing,” buying shares as well as ETFs. I only started in 2020 but so far they’ve harvested 3.6x their own fees. I would not have spent time doing that, so it’s gravy.
Except you are still going to pay those taxes when you do sell, you are just delaying the taxable event so I wouldn't consider that money actually saved.
What is the situation where that is actually useful? Take me for example, I invested for 5 years in VTI and then sold it for a downpayment. What would their TLH do for me in that situation because I didn't need to offset cap gains in those middle years and the end year both get hit with cap gains.
Doesn't seem to do anything except charge a higher fee and create more irs paperwork in that situation.
True, if you cash out that soon you only get use of the tax money for a little while. I like TLH for the same reason I like a traditional 401(k). Right now I’m getting a Bay Area tech salary and RSUs, and I want to defer some taxes until I’m in a lower bracket.
If we’re talking about the first $3k of losses applied to income account instead of capital account, it is saving you taxes by turning capital losses into income losses where the tax benefits are greater.
Their computer sells stuff and then buys stocks that are heavily correlated to the sold stock.
Later, it unwinds the imbalance to avoid realized gains and wash sales. Doing that without impacting long-term returns is one of their biggest value adds.
My point is that even if it was literally the same stock, unless you know that you bought at the relative bottom all you’re doing is needlessly incurring loses.
For example you’re better off just buying the dip, then selling, and paying taxes (even with harvesting) and repurchasing assuming the stock recovers and you don’t mind fronting the capital
You can do it using basket ETFs. The IRS doesn't consider them "exact" replicas. So if VOO drops, you can harvest using SPY and maintain the same exposure, then switch back to VOO a month + few days later.
> Same reason why you trust a doctor, despite doctors underperforming (intelligent) self-directed health and nutrition research.
I’m skeptical of this claim. What’s “intelligent” research mean?
Index funds are literally sit it and forget it. Even easier than robo advisers. With year retirement funds you even get auto balancing with the same ease.
That's a bold statement considering the anti-vaccine climate today. The value in doctors isn't necessarily what they've learned but instead what trends they've seen personally and local to your area.
I do agree human financial advisors are mainly a tool for comfort. I've got one and most of our conversations instigated by him are relationship-building and not necessarily aggessive-fund-strategy type talk.
>Imho all robo advisers are a waste of money. If they were actually effective they’d use their own services themselves as opposed to sell them to retail.
Ok, but even if you pick an equivalently risky proposition with a robo adviser you’d inherently make less money due to the fee differential.
Furthermore if robo advisers really could make more money on a risk adjusted basis it would literally make them more money to use their own service than to sell it.
Other than robo advisors, what service exists where I can schedule a weekly transfer and automatically invest across 6-8 asset classes? (Many 401k providers do this, but I’m not aware of any post-tax investment accounts other than robo advisors)
If there’s a single ETF that will do what Wealthfront and others are doing, I’d switch away in a heartbeat if the fees were lower.
I don't know how much the "I can schedule a weekly transfer and automatically invest across 6-8 asset classes" is worth to you.
But if you go from $50k to $500k with them you will be paying ten times as much (depending on the fee structure, of course). At some point, it may not be worth it.
Robos are actively managed, just not by human, and their fees reflect this. If they’re not actively managed then they make even less sense since they’re more expensive than indices that have better historical returns…
I'll preface by saying that I have been talking to a lot of financial planners (at top-tier institutions). They basically set you up with a good set of ETFs, hedge funds, etc. and rebalance occasionally. Sometimes they do tax-loss harvesting. They also provide a few other nice little services. But at the end of the day, their fees are over 1% unless you have an ultra high net-worth.
In comparison, Wealthfront can automate huge strategies for a fraction of the cost (0.25%). For example:
- Direct Indexing (invest in an index by buying the stocks directly instead of a fund)
- Automatic investing, rebalancing, and tax-loss harvesting (including TLHing individual stocks within an index when paired with direct indexing)
- Coordinating trades between retirement and taxable accounts for optimal tax savings
- Smart beta (a custom weighted indexing algorithm)
Yes, a financial planner can do all of this (although most don't). But when they do, they just use automated software to do it. It would be impossible to implement these strategies manually. So why even go with a financial planner when Wealthfront does the same thing, but better/cheaper?