UBS Acquires Wealthfront for $1.4B
I've been researching robo-advisors quite a bit recently. They are really interesting and innovative.
I'll preface by saying that I have been talking to a lot of financial planners (at top-tier institutions). They basically set you up with a good set of ETFs, hedge funds, etc. and rebalance occasionally. Sometimes they do tax-loss harvesting. They also provide a few other nice little services. But at the end of the day, their fees are over 1% unless you have an ultra high net-worth.
In comparison, Wealthfront can automate huge strategies for a fraction of the cost (0.25%). For example:
- Direct Indexing (invest in an index by buying the stocks directly instead of a fund)
- Automatic investing, rebalancing, and tax-loss harvesting (including TLHing individual stocks within an index when paired with direct indexing)
- Coordinating trades between retirement and taxable accounts for optimal tax savings
- Smart beta (a custom weighted indexing algorithm)
Yes, a financial planner can do all of this (although most don't). But when they do, they just use automated software to do it. It would be impossible to implement these strategies manually. So why even go with a financial planner when Wealthfront does the same thing, but better/cheaper?
Super interesting. Wealthfront has approximately $27 billion USD in AUM according to this article [0].
Meanwhile the leading robo-advisor in Canada, WealthSimple recently raised funds at a $5 billion CAD valuation, on a $7.7 billion USD AUM [1].
I have felt for a while like the robo-advisory market is in roadrunner mode - has run past the edge of the cliff but hasn't quite yet fallen. Maybe this is the first sign that the party's ending.
[0] https://www.roboadvisorpros.com/robo-advisors-with-most-aum-...
[1] https://financialpost.com/investing/wealthsimple-valuation-s...
I'm honestly shocked at how primitive the big firms' offerings are. For example, JPMChase's bank account is smart enough to see a payroll deposit and give you a comment modal suggesting that you invest the money with JPM's investment platform (YouInvest/whatever)
Log into the investment platform and you're back in 1993. They literally have no drip-investment style offering. They want to charge you 100bps to "manage" your money, or you get a broken/buggy online broker with barely any functionality.
Why the heck isnt JPMChase buying one of these platforms?!?
A lot of you likely invest in a boglehead style.
Wealthfront was an attempt to automate that while adding some bells and whistles on top; tax loss harvesting, smart beta, etc.
Curious to see how they succeed as part of UBS. I thought Marcus/Goldman was going to buy them personally, so a bit surprised UBS is getting in on this game.
Back in 2015 I put some of my money into wealthfront, despite the market doing well at the time, my wealthfont fund which was heavily stock balanced did somewhat poorly. This was over a year's time so not short lived by any means. I pulled my money out and invested into stocks I chose and never looked back(typically get 10-15% returns a year). I would like to hear other people's perspectives about how their wealthfront funds did as my colleagues did the same as me and left wealthfront as well.
really interesting takeaways from the Wealthfront landing page[0]:
* every example is shown as a smartphone app - not a single "desktop-oriented" screenshot to be found. I guess we are finished with the days where every service has an app. Now, every service is an app.
* In the first example, an investment portfolio is shown where roughly 10% of the holdings is in a group called "single stock bets." Yikes! Though maybe this a case of "know your audience"? maybe they are trying to convert the hordes of GME-pumpers to try something a bit less risky?
* lots of emphasis on "emerging markets", "socially responsible funds", crypto. I've always heard the best long-term advice is to simply throw your money into an ETF tracking the s&p500 or nasdaq, but clearly wealthfront is targeting those who want some emotional connection to their savings.
all in all, seems like a cool service, especially if it helps convince those to begin saving who would otherwise not be saving.
When I think of what a FinTech darling Wealthfront was when it came out, all I can see this is as a colossal flop.
For what it's worth...
About a year ago I opened a robo-advisor account at SoFi and another at Wealthfront and pitted them against each other with high-risk/default settings and a weekly deposit.
The SoFi one has been outperforming the Wealthfront one all year long (by 1-2%; nothing life changing) which surprised me but it also made me feel that all the magic AI/ML under the covers that WF promoted didn't exist and no one was managing anything.
470k accounts and $27B AUM, ~$60k per account.
@ 25bps that would be ~$70M revenue but there is some discounting so it is probably closer to $60M
2021 was a good year for the market, a great time to be acquired.
They raised in 2014 @ $750M then 2017 @$500M
Anyone know of any other product offer that will take excess after direct deposit and invest it for you?
I've called Fidelity and Betterment and both do not offer an automated way like wealthfront does. Really sad to see wealthfront being the only player in that space.
Edit: by automated I mean something like "everything over $10k after bills, invest". It takes a couple of clicks per month manually, but it's been pretty relieving not having to do that every month.
Wealthfront (and this goes for the rest of Wall Street) are analog businesses.
They thrive on mass producing a fixed set of products. Those products are ETFs, Mutual Funds... or in Wealthfront's case... a rebalancing strategy based on a 1960's white paper called Modern Portfolio Theory.
Each of these players spends a ton trying to mass market these products. You have financial advisors pitching mutual funds, asset managers shilling the virtue of their shiny new ESG ETFs... and robo-advisors all promising a set-it-and-forget-it panacea. Wealthfront got commoditized. Betterment at first... but then the discount brokers came in (Vanguard, Fidelity, etc) and just had a much more effective channel (advisors!) to the end investor. If you are just selling a singular product and that product is successful, you are going to get copied and beaten by competitors with better marketing channels.
Wall Street will some day transform from an analog industry of mass production to a digital one of mass personalization. The building blocks for said transformation are slowly becoming ubiquitous (fractional shares support, commission free trading, etc). Super excited to watch this happen.
Sorry for the possible off-topic, but can anyone explain to me how the robo-advising is different/better/worse than constant passive investing into popular ETFs, e.g. $SPY, $BND, $VOO, etc.?
I wish the US had something better than Plaid to track various account balances. That’s all I use Wealthfront for, now UBS owns all the data and has my logins.
Honestly surprised this is so low. Have they been doing poorly?
How does Betterment compare these days?
Interesting, the figure does seem quite low to me. Boglehead passive investing has worked really well for the past dozen years. I expect the next 10-15 to be much more challenging given the extremely high starting valuations and end of the low interest rate and QE tailwind. I've been building algotrading models to help tackle the challenge of when to hedge at https://grizzlybulls.com
My first experience with Wealthfront was an IRA. After a short period (<year), I realized it was rather simplistic to take a predictable regular deposit and split it across a few ETFs to stay on track for their recommended portfolio. I ended up opening a taxable account to take advantage of tax-loss harvesting (materially more difficult to do myself). I'd be curious what proportion of their AUM sits under taxable vs retirement accounts.
Nonetheless (forgive the plug), I ended up building a simple app that would help me automate the thinking of balancing my portfolio. Here's an example using a Wealthfront-genereated portfolio (ETFs + targets): https://correctmyportfolio.com/scenario/share/YISu5jI3
Turns out figuring out where to optimize a portfolio to a target without selling, or other rules (like sell thresholds, cash buffers, etc.) is a bit more complicated than Excel would allow.
I had a lot of money in Wealthfront. It was not a good experience.
First they auto-opted me into some actively managed hedge fund thingy they cooked up. As part of this auto-optin, they caused a non-trivial taxable event. And the fees increased.
When I decided to bail and move my assets elsewhere, I was then left with 500 individual stock equity positions to deal with. What a mess. Took me a long time to sort out that mess and to get my assets into a more manageable situation for an individual. Of course to consolidate I had to take the tax event once they converted to long-term capital gains. I did a lot of this during spring of 2020 which was not a good time to be mucking with stock positions. I lost a fair amount of money.
Finally the tax-loss harvesting is not aware of outside accounts and technically you might be violating tax rules. My accountant ultimately told me over the phone that current reporting rules essentially make this unenforceable though...but he refused to put that in an email.
Wealthfront’s announcement: https://blog.wealthfront.com/wealthfront-has-agreed-to-be-ac...
I am a huge fan of the checking/budgeting features of Wealthfront. Does anyone know of a good competitor in case I'll have to jump ship?
For those who don't use it, it allows you to create categories and automatically deposit money into those categories at some interval. Then you can easily transfer between those categories.
I use this so that I can put some money away for expected expenses like taxes and a new car and also to budget for fun so I known what I can actually afford.
I wonder if Wealthfront advised its members to sell all growth stocks and buy value stocks or just hang onto cash for a little while. I wonder if any advisors did this.
Tim Ferris is laughing on this one. So many intro with WealthFront for a long time...
Congratulations to Andy and the whole team. Quite the execution.
How much better has wealth front done vs SPY, fee adjusted?
Imho all robo advisers are a waste of money. If they were actually effective they’d use their own services themselves as opposed to sell them to retail.
The latest crop of businesses really are marketing value adds.
See: https://longbets.org/362/
Other people have done similar bets and they all lose on a risk adjusted, fee adjusted basis.