Wealthfront is offering its planning services for free, effectively unbundling its software, and giving millions of Americans access to a financial roadmap.
The second largest independent robo is betting the firm can steer users into fee-based accounts after they interact with its software to come up with a financial plan. The freemium software uses the firm’s automated advice engine, Path, according to the firm.
“We realized we needed to get our financial planning service into more hands after we found engagement with Path is directly correlated to clients saving more of their income,” says Dan Carroll, co-founder of Wealthfront, in a statement.
The new strategy comes as competitors have created hybrid solutions, pairing traditional pure-play digital products with human advisors. Vanguard Personal Advisor Services, Schwab Intelligent Advisory and Betterment Premium have gained market share in recent years after adding a personal touch.
“The announcement comes at a pivotal time when the future of financial planning is up for grabs,” according to a company spokeswoman.
In contrast, Wealthfront remains committed to pure-play automated planning and has increased client assets to $11.5 billion, according to its Form ADV. Call centers staffed with CFPs canutizlied by other firms cost consumers upwards of 2% in management fees, says a spokeswoman.
A managed Wealthfront account comes with a 25 basis point fee, according to the firm.
“The market has been shifting toward advice and planning for over a decade,” says Dennis Gallant, a senior analyst for Aite’s wealth management group. “Firms are making adjustments to address that competitiveness in the environment.”
With lower overhead than its competitors, Wealthfront is able to bring down the cost of its products, he says. “As they achieve scale based on their model, they can effectively provide advice at a much lower cost,” Gallant says. “The move reflects the lower margins.”
As some of the largest financial institutions like Morgan Stanley and UBS tack on traditional robo services, the independents robos have added a slew of new offerings to address the competition.
Richard Chambers is the CEO of Richard F. Chambers & Associates, a global advisory firm for internal audit professionals, and also serves as senior advisor of risk and audit at
Joe Nestlerode is a partner at Alpha FMC with over 28 years of industry experience in senior technology and business roles in the wealth management industry.
He has overseen large strategic engagements including M&A, advisor platform development, client portal design and development and capability optimizations across front-, middle- and back-office functions. Prior to joining Alpha FMC, he was a product and technology executive for the RIA, IBD and 1099 channels at Wells Fargo Advisors.
Could an economic downturn slow the industry's record-setting pace of acquisition deals? Sure, experts say, but not by much.
The Redwood City, California-based robo has added a handful of new features in the past few months to keep pace with competitors. The most recent involves a
“What’s the hook to get someone to engage?” Gallant says. “If the process is easy that usually leads to a follow through.”
In October, Wealthfront first announced it would offer free financial planning to all individuals in the U.S. The freemium service lets users that do not have a Wealthfront account sync financial information on the platform. The firm's financial advice engine, Path, can calculate ideal spending and savings rates, make savings recommendations and helps map out a plan for retirement, according to a spokeswoman.
“For most people, any planning is better than none,” Gallant says. “But, what’s convincing the client to take the first mouse click?”
