Wealthfront has become one of the most recognized names in digital wealth management, in no small part because of the outspoken approach of its CEO, Adam Nash.
Nash has regularly called out traditional wealth management firms for being slow to embrace innovation. In March he authored a combative blog post accusing Charles Schwab of straying from its foundational values of putting clients first. Nash criticized its robo advisory arm Schwab Intelligent Portfolios, which requires investors to hold between 6% and 30% of their account’s value in cash, on which Schwab earns interest. Further, he questioned the smart-beta ETFs that Schwab Intelligent Portfolio allocates to, which he claimed “not surprisingly all are either proprietary Schwab ETF products or ETFs from issuers that pay Schwab to use them.”
Nash is also doing battle on the product front. Most recently, Wealthfront enhanced its daily tax-loss harvesting features such as intelligent recovery, optimized harvesting triggers, predictive deposits and tax-sensitive withdrawals. In addition, the company made it available to all Wealthfront clients.
So what’s next for Wealthfront? Nash speaks with Reinvent Wealth about what his firm is planning, other companies to watch in the digital space and the ongoing debate between the industry's incumbents and digital disruptors.
You claim to have coined 'automated investment service' and that’s how you like to refer to Wealthfront. So why has robo advisor caught on instead?
We coined the term automated investment service at Wealthfront because it is an accurate description of what we do. We take the process of investment management and fully automate it from things like the sign-up flow to rebalancing portfolios and tax-loss harvesting.
The traditional industry came up with the term robo advisor to try and mock the trend and scare people away from what they now know is inevitable. More specifically, the term robo advisor has been adopted by the financial advisor community in large part because they are threatened by new entrants like us. This attitude is a bit off because we largely serve the clients they typically won’t take: young people who don’t meet their high minimums. The last time I checked, everyone who works at Wealthfront is in fact a human, and our clients tend to agree with us that it’s a silly term.
Regarding the $64 million in additional venture capital funding Wealthfront secured in October, how has it been put to work?
Our team has been busy since October after I put a stake in the ground predicting that everyone will be using some form of automated investment services in the next five-to-10 years. We’ve rolled out new products and services every few months since then.
In December, we launched our direct indexing platform, which has been extremely well-received. The service, which is unique to Wealthfront, is tiered for accounts at $100,000, $500,000 and $1 million, and at each level we will buy the S&P 500 directly for you. This essentially replaces the U.S. stock investment pieces of a diversified portfolio while permitting for an enhanced form of tax-loss harvesting and lowering investment costs.
We’ve also extended our tax-loss harvesting service to all of our taxable accounts – another first in the industry. Outside of product, we’ve been expanding our team and hiring more top talent so we can continue innovating.
What role do strategic partnerships play in Wealthfront’s roadmap for growth? How do they fit into your business model?
As with any growing company, partnerships that make sense can play an important role for the business. We hired former Facebook executive Ali Rosenthal last October to lead our strategic partnerships and are exploring different avenues.
Last September, we announced a pilot program called 'Wealthfront for the Workplace' in which we work with Google, Palantir and the San Francisco 49ers to have them offer Wealthfront as an HR benefit. These companies tend to employ younger folks and offering Wealthfront as an HR benefit is a great way to introduce them to investing outside of just 401(k) plans.
Looking outside your own company for a minute, what developments, innovations and trends in the digital space have caught your attention? Who else is doing cool stuff in financial services?
It’s an exciting time for financial services right now, and we are finally seeing real innovation in the space. For the first time in a very long time, investors are willing to put significant capital into reimagining substantial parts of our financial ecosystem.
Thanks to Lending Club, we are seeing an innovative new approach to lending in almost every aspect of the market. Coinbase and Xapo are working to integrate Bitcoin into the financial system. CreditKarma is helping consumers take control of their credit.
How will Wealthfront compete with established giants such as Schwab, Fidelity and Vanguard, as well as other newer online advisory platforms?
In terms of competition from incumbents -- we've seen this play out in other industries before and the story is almost always the same.
One company is the first to find product market fit and takes the lead in the category, experiencing explosive growth. Other firms in the new market copy the leader and eventually large incumbents start to throw their hat into the ring. Remember, it only took Barnes & Noble a few years to respond to Amazon.
That’s the point where we are now in our segment with the entry of Charles Schwab into automated investment services. We were excited when they first announced they would be rolling out a service, but as I outlined recently in a blog post, the result of their service is truly troubling for individual investors.
At Wealthfront, we have the opportunity to bring positive change to this industry and create a large impactful company. We’ll do this by retaining our independence from Wall Street and keeping our razor-sharp focus on the client. There are 90 million millennials who are looking for something different, and we’re focused on building great services for them.
Wealthfront was the first automated investment service to claim $2 billion in assets under management. What's contributed to your firm's growth?
Wealthfront was the first to find product market fit among tech-savvy millennials in Silicon Valley. We have since taken off and now have clients in all 50 states, Washington, D.C., and even active military zip codes. In just two years alone we grew 20x -- an unprecedented growth rate. We attribute this growth to our razor-sharp focus on the millennial generation, our transparency and our overall ability to delight our clients. That delight has caused our service to spread almost entirely organically through recommendation. This has been incredible to see because money and investing is typically such a taboo subject people don’t want to discuss, but we have seen the opposite with Wealthfront. People love it so much they want to talk about it and share it with others.
You've worked at Apple, eBay, LinkedIn and venture capital firms like Greylock Partners. How did those various work experiences prepare you for helming Wealthfront and what were some lessons learned as you made the transition to the digital advisory space?
I have been very fortunate to have worked for industry-changing companies, under some of the most iconic leaders in technology: Steve Jobs. Meg Whitman. Reid Hoffman. It's not enough to just build cutting-edge technology; you need to solve real problems, delight your customers and create a company that is built to last.
At Wealthfront, we take pride in not only building innovative products, but also in our role changing an industry. Having spent time as an engineer, as a designer [and] as a strategist has helped me think about the problems and roadblocks to innovation in financial services in a much different way than someone coming from the traditional industry. For better or worse, I have that Silicon Valley optimism when it comes to reimagining and redefining financial services.
The more you learn about the traditional brokerage/advisory/investment space, the more you realize how entrenched the incumbents are in protecting their bottom lines rather than focusing on their clients. It has to change. In Silicon Valley, we tend to focus on how we can add real value to our customers first, and then find a way to use modern software to provide it.
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