Wealthfront is a top-rated robo-advisor that offers comprehensive financial services for a fraction of the cost of traditional financial planners.
Hiring a financial advisor is expensive between commission fees and trading charges, and who wants to lose some of their stock returns on extra fees?
With a simple-to-use mobile app, free financial planning tools, and a wide range of low-cost investments available, Wealthfront takes the complexity out of investing and gives you straight paths toward your goals.
We’ve put Wealthfront to the test, comparing its features, pricing, investment options, and strategies to understand how it stacks up against the competition.
As a very popular robo-advisor with some hefty competition, Wealthfront stands out as one of our favorite investing apps, making it easy to automatically invest your money.
Now let’s see what you think about them after reading our Wealthfront review!
- Wealthfront is a tax-efficient robo-advisor that automatically invests your money
- The Wealthfront mobile app is slick, making it simple to invest, update your goals, and track your progress
- Wealthfront charges a flat 0.25% management fee, about 1/4 of the cost of a traditional financial planner
- Wealthfront offers a much wider range of ETFs than most competitors, including access to REITs and natural resources
- Wealthfront has a free financial tool called “Path” to help users visualize their financial goals, including retirement
Wealthfront Pros & Cons
- Automatic investing based on financial goals and risk tolerance
- Access to very low-cost ETFs
- Tax-efficient investing features, including stock level tax-loss harvesting and Smart Beta
- Dynamic automatic rebalancing of your portfolio
- Path (planning tool for your finances)
- Super simple mobile app
- Advanced goal-setting for retirement and other financial goals
- No access to human financial advisors
- “Risk Parity Fund” carries a higher fee than other ETFs
- Cannot fully customize portfolios that are under $100k
How Does Wealthfront Work?
Wealthfront is a robo-advisory service that analyzes your financial goals to give you a customized investing plan.
It uses advanced algorithms based on Modern Portfolio Theory, meaning it allocates funds in a way that maximizes diversification while minimizing risk.
It also uses tax-loss harvesting, as well as dynamic rebalancing to help you grow your money as tax-efficient as possible.
Clients can sign up for Wealthfront for free, and access its detailed financial planning app “Path”, as well as a large library of user education materials.
To start investing, clients will need to open an investment account (retirement, brokerage, or other investment accounts), and deposit a minimum of $500 to get started.
Wealthfront will walk users through a few questions about their goals and risk tolerance, and build a customized portfolio.
Deposits will be automatically invested according to the portfolio, and managed by the robo-advisor algorithm.
Wealthfront’s onboarding experience makes it simple to get started, walking users through each step to help them start investing right away.
How Wealthfront Invests Your Money
Wealthfront automatically invests your money in a portfolio of Exchange Traded Funds (ETFs), which are low-cost, diversified funds in different market sectors.
They’re not as risky as individual stocks as they include hundreds, even thousands, of stocks or other assets within each ETF, spreading your risk across those companies and investments.
Wealthfront Investing Options (ETFs)
Wealthfront offers a wide range of ETFs across almost a dozen asset classes, building a low-cost, diversified portfolio based on a user’s risk tolerance.
The investments are unique, in that they offer access to real estate and commodity investments, while most other robo-advisors do not.
Wealthfront algorithms automatically invest funds into a mix of 6 to 8 ETFs, making it simple for users to invest without having to build their own custom portfolio.
ETFs are available in the below 11 asset classes:
- US stocks
- Foreign stocks
- Emerging market stocks
- Dividend stocks
- Real estate (REITs)
- Municipal bonds
- Corporate bonds
- US government bonds
- Emerging market bonds
- Natural resources (Commodities)
Wealthfront relies on guidance from its Chief Investment Officer, Burton Malkiel, author of “A Random Walk Down Wall Street”, and proponent of Modern Portfolio Theory (MPT).
Wealthfront’s “Risk Parity Fund” (WFRPX)
Wealthfront only offers one mutual fund, which is its own offering called the “Risk Parity Fund”, ticker symbol WFRPX.
It is only available to clients who have a taxable account in their portfolio with $100,000 or more invested. The fund is designed to provide greeted “risk-adjusted” returns over time but also carries a much higher 0.25% expense ratio, on top of the standard management fee.
It’s important to note that this fund is designed to lower risk, but dropped dramatically during the crash of March 2020, which shows that there is still significant risk by investing in the fund.
Additionally, investors that qualify for the Risk Parity Fund will need to opt out.
But be aware that Wealthfront will continue to “offer” this fund regularly to qualified investors.
Wealthfront’s Top Features
In our Wealthfront review, we won’t chince on the details- they’ve got some helpful tools that could make an impact on how you pick a robo-advisor.
Wealthfront is, beyond a doubt, a top-notch robo-advisor but also boasts a wide range of investing tools and features to help investors make smarter money decisions.
Here are a few of Wealthfront’s best features for investors:
Free Financial Planning Tool (“Path”)
Wealthfront gives all users free access to its comprehensive financial planning tool “Path”.
Users can connect their financial accounts, including external bank and investment accounts, and Path will pull together all of the data to help set financial goals.
Path helps users set accurate financial goals, including:
- Saving for College
- Buying a Home
- Taking time off to travel
In particular, the “time off to travel” goal stands out as a unique way to see if you have the funds to take a sabbatical from work without impacting your overall retirement plans.
Self-Driving Money TM (Investing on Autopilot)
Wealthfront recently launched its Self-Driving Money TM feature, allowing users to completely put their finances on autopilot.
This feature gives users the ability to set up rules for their finances, including automatic transfer to a savings account, automatic investment amounts into your Wealthfront portfolio, and set account limits.
The goal of Self-Driving Money TM is to help users set financial goals, and then let Wealthfront handle all the details. This requires having a Wealthfront Cash account, as well as an investment account for full functionality.
- a user can set up a rule to keep a minimum balance in the Wealthfront Cash account, say, $5,000, for everyday expenses and bills.
- Once the balance reaches $5,000, money is saved toward an emergency fund.
- Once the emergency fund balance is reached (say, $20,000), all extra funds are invested in the Wealthfront Portfolio
Users can also set up an automatic transfer to the investment account, to max out a Roth IRA, or grow another investing account. There are nearly unlimited possibilities with how to set up Wealthfront’s Self-Driving Money TM feature, and this sets them apart from every other robo-advisor today.
Wealthfront offers daily tax-loss harvesting, which helps lower your tax bill by selling underperforming ETFs in your taxable account and re-purchasing a similar ETF to keep your asset allocation the same. This locks in your accounts losses to help offset any taxable gains.
For accounts with a $100,000 (up to $500,000) balance in their taxable account, Wealthfront offers stock level tax-loss harvesting, now known as “direct indexing.”
Direct indexing is known as a stock level tax-loss harvesting approach that Wealthfront uses on high stock level accounts- because you’d want to keep those earnings- would want to lower their taxes and obtain more returns on stock!
Instead of owning a single ETF, Wealthfront will buy many of the underlying stocks individually, allowing for more detailed tax-loss harvesting of the individual stocks. This also allows users to exclude certain stocks from being sold off for tax optimization.
Some may use this as a way to participate in socially responsible investing (SRI), by protecting certain SRI stocks from being sold.
Wealthfront offers dynamic rebalancing, and instead of rebalancing on a set schedule, they will monitor your account, and if you drift away from your target asset allocation by a certain percentage, they will rebalance the account. Rebalancing may be the result of movements in the market, deposits into the account, dividend reinvestment, or withdrawals from your account.
Wealthfront Cash Account
Wealthfront offers banking services through its cash account, which is a no-fee checking account with up to $1 million in FDIC insurance.
This account is also linked to your investment accounts and lets you move money quickly into your portfolio, including full automation through Wealthfront’s Self-Driving MoneyTM feature.
The cash account offers standard banking services, such as bill pay, direct deposit, and free access to over 19,000 ATMs in the U.S. Cash account holders also earn some interest on account deposits, though it is slightly less than most high-yield savings accounts.
The real advantage of the cash account is the ability to set up automatic savings and investing transfers and track your progress through the Wealthfront app.
Portfolio Line of Credit
Wealthfront allows users to borrow against their taxable investment account using the portfolio line-of-credit option. The interest rates are usually below 4%, which is much lower than a credit card or personal loan.
This feature is designed to give users access to cash by borrowing against their investment portfolio.
The portfolio line-of-credit requires a taxable account (can’t borrow against retirement or 529 accounts) with at least a $25,000 balance, and users can only borrow up to 30% of their total taxable account portfolio.
Note: Borrowing against your investments carries a risk of loss, as you may be forced to sell some of your investments at the bottom of your portfolio falls dramatically. You may want to consult a financial professional before taking on a loan against your investments.
Wealthfront Smart Beta
Wealthfront clients that have large taxable investment portfolios ($500,000 or more) have access to a feature called “Smart Beta.” This is an advanced investment strategy that creates an asset allocation based on more than just market capitalization.
Smart Beta weights stocks using 5 different factors: value, momentum, dividend yield, market beta, and volatility, and essentially “builds” custom ETFs based on these factors. The goal is to build a more balanced portfolio vs. picking a few ETFs (which is still a great strategy).
529 College Savings Plan
Wealthfront is one of only a few robo-advisors that offers a 529 college savings plan on its platform.
Pricing for Wealthfront
Wealthfront follows other top robo-advisors by offering a flat-annual fee for its management services.
All Wealthfront customers pay a 0.25% annual fee based on total invested account balances within the portfolio.
This fee is on par (or lower) than other major robo-advisors, but unlike some other services, Wealthfront does not offer discounts for larger account balances.
Commissions and Fees
In addition to the management fee, clients will pay fees for the underlying investments within a portfolio. Because Wealthfront uses ETFs, the cost is typically very low, with expense ratios ranging from 0.06% to 0.13%.
As noted earlier, investors in the Risk Parity Fund pay a larger 0.25% expense ratio. For investors that open a 529 college savings account, there is an additional 0.07% annual fee as well.
There are no other account fees assessed, including withdrawals, transfers, trading, or account closure fees.
Wealthfront boasts a vast library of user education material and white papers in their help center, as well as an active blog. Topics include planning for retirement, tax, investing, college, couples, career, as well as full-detail papers on Wealthfront’s investing methodology.
Path also helps walk users through how to set goals, how to plan for retirement, and shows exactly how to save and invest to hit those goals.
Wealthfront offers access to customer service agents through email or phone support, Monday through Friday from 7:00 a.m. to 5:00 p.m. PST.
While Wealthfront does not provide direct human financial advisors for financial advice, there is support staff available to help with the platform, and all customer service representatives are licensed financial professionals.
Wealthfront is the leader among robo-advisors, offering far more features at a rock-bottom price of just a 0.25% management fee.
Its slick mobile app gives users a holistic financial picture, while its Self-Driving MoneyTM feature is a first in the industry, helping people automate their financial and investing goals.
If you are new to investing and want to make sure you are on the path toward retirement, Wealthfront is a great starting point.
As you grow your account balances over time, more features unlock, such as more tax-efficient investing, access to an affordable line-of-credit, and the ability to fully automate your finances from end-to-end.
If you have $500 or more to start investing today, Wealthfront is our top choice for robo-advisors.
How Much Do I Need to Open a Wealthfront Account?
Wealthfront has a $500 account minimum for its investing accounts (including IRAs), and a $1 account minimum to open a Wealthfront Cash account. Users can sign up for Wealthfront online for $0, and use the financial planning app “Path” for free to connect external financial accounts and set financial goals.
Users who want access to the portfolio line-of-credit will need a minimum of $25,000 in a taxable investment account.
For those who want advanced tax-loss harvesting with “direct indexing”, you will need a minimum of $100,000 in your account.
And those who want access to a Smart Beta custom-weighted portfolio will need $500,000 in a taxable investment account.
Is Wealthfront Safe?
Investing in securities always comes with the risk of loss, but also the potential for long-term growth.
That being said, Wealthfront uses multiple types of insurance to keep your funds protected, as well as following industry best practices to keep your information safe.
Wealthfront cash accounts offer up to $1 million in FDIC protection through partner banks, which is four times the coverage of standard banks.
Investment accounts are covered by SIPC insurance, protecting up to $500,000 (including up to $250,000 in cash investments) in case of fraud or theft.
As for the Wealthfront online platform, it uses bank-grade security features to protect your personal information, regularly audited by third parties to stay up on data security best practices.
Does Wealthfront Offer a Roth IRA?
Wealthfront offers a wide range of retirement accounts, including the Roth IRA, Traditional IRA, SEP IRA, and 401k Rollover IRA accounts.
While each account has its advantages, the Roth IRA allows users to invest after-tax dollars into a Wealthfront-optimized portfolio, grow tax-free, and be withdrawn at retirement without paying income taxes.
Wealthfront Alternatives to Consider
While Wealthfront is one of the best values in the robo-advisory world, it may not be the perfect app for everyone. Here are a few alternative robo-advisor apps to consider:
Betterment is Wealthfront’s top competitor, offering the same management fee (0.25%), lower account minimums ($100), and the ability to upgrade your account for access to human financial advisors.
Betterment also has a well-designed mobile financial planning app to help users set goals.
Betterment boasts many of the same features as Wealthfront, including automatic rebalancing, tax-loss harvesting, a cash management account, and access to a variety of low-cost ETFs.
Betterment does offer more portfolio options, including multiple socially responsible investing (SRI) portfolios.
Betterment is a great place for beginner investors to get started, especially since they only require $100 to open an account.
Personal Capital is a popular free financial planning app, but it also offers bespoke financial planning services for a reasonable fee.
Investors with $100,000 or more invested can connect with a Personal Capital advisor to build a custom investment plan for retirement, as well as any other financial goal along the way.
Using a hybrid robo-advisors approach, Personal Capital utilizes the best of both worlds.
Tax-efficient investing, automatic rebalancing, and low-cost ETFs are used to build a high-quality portfolio, but unlimited access to a CFP gives more peace of mind to those who want more face-to-face time with your financial planner.
Personal Capital charges a 0.89% advisory fee, which is still below industry averages (of 1% or higher).
Now that you’ve read through our Wealthfront review, doesn’t it make sense for you to add it to your arsenal to achieve financial freedom?
Wealthfront takes out all the guesswork and can be extremely lucrative for those with taxable accounts. Since they’ve incorporated tax-loss harvesting into their offerings, it makes them likely the best financial advisor company for those looking for smaller tax expenses.