Wealthfront is betting a free stock selling feature that found success among its Silicon Valley-based clientele can broaden its appeal.
On Wednesday, the robo advice platform announced the wide release of "Selling Plan," which is aimed at clients who receive publicly traded stock from their firms as part of their compensation.
The feature has been in beta since 2014, initially developed for Twitter-employed Wealthfront clients looking to sell shares after the firm's IPO, says company spokeswoman Kate Wauck. The single stock selling service, done through Wealthfront Brokerage Corporation, grew to include employees at other tech firms including Google, Apple and Yelp.
Wealthfront, which has stuck to its roots as a direct-to-market platform while its competitors have branched out into institutional offerings, says the feature is a differentiator.
"There is about $200 billion public company stock sold each year so we're happy to go after a market that size," Wauck says, adding Wealthfront has received requests from employees at over 300 companies, spread across sectors. "We have heard very vocal demand from well outside of the Valley."
MAKES A DIFFERENCE?
Industry observers, however, wondered how much of an increase the new feature could add to Wealthfront's share of the digital advice market — its latest ADV reports $4.6 billion in AUM, still behind its rival, Betterment, which last reported over $7 billion in assets.
"For an executive who gets thousands of options a year and is selling them on a regular basis, it would be great for them," says FPPad blog founder Bill Winterberg. "But the applicability to the common employee who gets 100 or 500 stock options, I'm not so sure. It's just doesn't make a big difference for them."
Wealthfront's service does honor stock selling blackouts, and would work according to a selling schedule. Shares with lower tax rates would be sold first, and money would be set aside to cover taxes from sales.
Winterberg notes that firms usually have agreements in place with a brokerage for employees to exercise options through. To sell through Wealthfront would first require an employee to move their stock options over through ACATS.
"That takes time," he says. "If the best option is to sell, they would be better just to do it the same day and pay the one-time commission fee, rather than trying to be frugal and exposing themselves to additional market exposure and risk."
It is a feature suited for the wealthy, young tech clientele that is receiving compensation through options, says Chip Roame, managing partner of industry research firm Tiburon Strategic Advisors.
"Wealthfront has staked out its market as Silicon Valley executives and this is one of their core issues," Roame says. "I bet the economic win is in capturing the assets under management at 25 basis points. It does not need to have much applicability outside of Silicon Valley; that is a huge market."
SERIOUS TAX QUESTIONS
The feature isn’t a new service, notes Tim Welsh, president of industry consulting firm Nexus Strategies. Executives have always received advice about selling company shares.
"And every adviser usually says, 'Diversify, exercise and sell,'" Welsh quips.
Welsh is in fact concerned about the automation and broad application of such service, drawing on his own experience at Merrill Lynch, fielding calls from baristas that demanded to sell their small portion of Starbucks equity over a decade ago for $70.
"Sometimes you don't understand what you've been given, and when you turn that over to a robot that doesn't explain what will happen if you just sell, that's a real problem," Welsh says. "Selling is only half of the answer."
There would be serious tax questions and issues for a client with substantial wealth, Welsh adds, that would call into question whether the sale would make sense.
"I don't think their algorithm can take all of this into account," he says.
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