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Wealthfront reveals plan to evolve its automated advice

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Wealthfront is planning for a future beyond its robo advisor roots.

Speaking at a fintech conference in New York, Wealthfront CEO Andy Rachleff spoke for the first time publicly about his company’s big bet on software: an ambitious plan to evolve from investment and planning advice to serving as a central financial hub for its clients.

“Our vision is to deliver a service where you direct deposit your paycheck and we automatically pay your bills, automatically top off the emergency funds and then route money to any investing platforms that meet your goals,” Rachleff said.

The firm said its Path financial planning software, which it released in 2017, was the next step in the evolution of its services toward that goal. Wealthfront is looking into offering its customers checking and savings as well.

Charting that course is how the independent robo advisor will stay relevant to its young, wealthy clients as they age and their finances become more complex, Rachleff said during an onstage discussion at CB Insights’ Future of Fintech conference.

“You will never have to worry about your finances again,” Rachleff said. “Nobody wakes up and says, ‘I want to worry about my finances.’”

The firm’s mostly millennial clientele is less concerned about saving for retirement and more concerned with buying a first home, he said. Can they take off for six months to travel? What about paying off student loans? Wealthfront aggregates data from financial services accounts and third-party firms to analyze the feasibility of such plans, he said.

Rachleff brushed off a question regarding a recent Schwab survey’s finding that 75% of the firm’s millennials clients want human interaction.

“That’s because Schwab has almost no millennial users,” he quipped, adding that 85% of clients at Wealthfront are under the age of 45.

Wealth advice in the future will likely be driven by a platform that can manage finances without a client having to interact with an advisor, Rachleff said. At least, that’s the demand he's heard from clients: “We pay you to not to have to talk to you,” he said. “That’s heresy to the incumbents.”

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Rachleff took his moment on stage to boast of his firm’s leanness and growth, noting that it enjoys a 90% gross margin and that it doesn’t spend money on advertising, unlike its peers in the digital advice space, which he said was dominated by marketing rather than services beneficial to clients.

“All our revenue goes toward the bottom line,” he said.

Rachleff also touted that Wealthfront was focused on technology and that 60% of its workforce are engineers. The second largest independent robo closed a $75 million round of funding in January and has amassed $11 billion in assets under management since launching in late 2011.

Rachleff said at the time that the new round should be “more than enough” to see them through to becoming profitable. He added that the company aspires to become like Vanguard.

However, not every new Wealthfront offering has been welcomed. The firm launched its Risk Parity fund in February — a proprietary mutual fund modeled after the Bridgewater Associates’ famed All Weather fund — to significant backlash from the industry.

Critics focused on how the fund automatically signed up qualified accounts (clients with taxable investment accounts starting at $100,000) raising questions about how Wealthfront would determine suitability. Others wondered if the firm was moving toward a more active investing model with higher in-house fees.

“The fund was not necessarily the lowest cost ETF,” Rachleff said, “and we’ve addressed that. Fortunately, the vast majority of our clients like it. A few of the pundits didn’t.” The fund now has more than a billion dollars invested, he added.

Rachleff also addressed the inevitable comparison of independent robo advisors like Wealthfront to incumbent digital advice platforms, which have in short order amassed billions more in assets.

One issue he had with it, he explained, was that it didn’t allow for future growth. “Every tech product is adopted on a particular route, no matter how great the product is, it doesn’t immediately overtake the market,” Rachleff said.

Another issue is that it doesn’t account for rate of change. He acknowledged an incumbent digital platform might have $100 billion in assets, but only a fraction would be from new growth.

“This is a marathon,” Rachleff said. “I bet on the rate of change.”

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