12 ms·
What's The End Goal for Wealthfront and Betterment? (2016)
- Johnie 10y agoThe failure of articles like this is that they take a snapshot of a company at a point in time and assume that the company's business model and reach doesn't change. This is the same mistake that many analyst make on early stage companies. Companies evolve over time and grow in terms of scale. Take a look at Facebook and Google as an example.
- geori 10y agoLOL! This is exactly why Wall St can't make early stage investments. Clearly these are speculative bets on Wealthfront being as large as a mutual fund. The fact that the author doesn't see this means they're overvaluing a mutual fund manager and thinking that an algorithm can't come close to matching that performance. These startups have two major cost advantages over incumbents: 1) no researchers 2) no salespeople. They have higher profitability, so they'll be better equipped to spend on sales & marketing to achieve fast growth. This leads me to think that at least one of these companies is going to grow to the size of a large mutual fund and "WIN".
- fullshark 10y agoI think their growth has slowed though. At least I remember them bragging about 3 billion under management a year ago.
- krallja 10y agoThis article is from January 2016, by the way.
- fullshark 10y agoMakes sense, is there any data from 2017?
- krallja 10y agoBetterment has $8B as of March 16, 2017: SEC form ADV page 8, "Regulatory Assets under Management" https://www.adviserinfo.sec.gov/IAPD/content/ViewForm/crd_iapd_stream_pdf.aspx?ORG_PK=149117 https://www.adviserinfo.sec.gov/IAPD/content/ViewForm/crd_ia... edit: Wealthfront $5B https://adviserinfo.sec.gov/IAPD/content/ViewForm/crd_iapd_stream_pdf.aspx?ORG_PK=148456 https://adviserinfo.sec.gov/IAPD/content/ViewForm/crd_iapd_s...
- fullshark 10y agoThanks. That seems healthy but not enough based on this blog's conjecture. I'd guess they are eventually acquired if I were to bet on their future.
- krallja 10y agoI think acquisition is a totally legitimate exit strategy, as long as they're aware of the direction they are heading.
- asr 10y agoAlways great when someone is willing to go out and collect actual info -- this comment was worth more than the article. Thank you!
- teej 10y agoWealthfront has raised ~$100M and Betterment has raised ~$200M. If they are only burning $4M/year to grow as fast as they are, they are doing fantastically well. I suspect though that the author's burn rates are off by an order of magnitude.
- hn_throwaway_99 10y agoAgreed. I know the author was trying to be conservative, but I wouldn't be surprised if fully loaded employee costs were about double his estimates.
- krallja 10y agoAlso, both Betterment and Wealthfront have grown AUM since this article was written: https://news.ycombinator.com/item?id=13959061 https://news.ycombinator.com/item?id=13959061
- sulam 10y agoYeah, he's taking salary, and a conservative salary at that, as cost to the business. The cost to the business is generally much higher, 1.5x to 2x depending on benefits. He should probably double the number he's using.
- mfrykman 10y agoIn the article, it states that Chase is offering 0% funds, yet Betterment claims that their "All-in Actual Cost" for a 100k fund is better than Chase's due to cash drag and a lower expense ratio. (Found here: https://www.betterment.com/comparison/schwab-intelligent-portfolios/ https://www.betterment.com/comparison/schwab-intelligent-por...) This is confusing and hard to fact check. Who do I believe?
- toomuchtodo 10y agoNeither option is better than a Vanguard account with one of their target date funds (or funds targeted by level of aggressiveness). Vanguard is a mutual company; they exist for the benefit of their users. Hard to compete against that. Disclaimer: moved from Betterment to Vanguard
- Ductapemaster 10y agoCould you explain a bit more? Are you making a better ROI? I currently have a Betterment account and would consider switching if there's a good reason.
- kobeya 10y agoI would be very surprised if either wealth front or betterment has better ROI than Vanguard. One exists for the purpose of sucking you dry, the other is a mutually owned cooperative with a mission to drive down costs and a history of doing so. Unfortunately as far as I'm aware wealthfront and betterment don't provide aggregate performance information (although if it were in their favor I'm sure they would).
- toomuchtodo 10y agoBetterment weights more heavily towards international allocations, so my returns have been lower than a fund more US-centric. That's not why I moved though; Betterment just raised their fees, which were somewhat acceptable before (0.15% of assets under management) but are now out of line with the value they provide (0.25%). Those fees were on top of the ETF fees for the funds they assembled your portfolio with.
- lquist 10y agoGurley's post [1] (from 2014) gives one possible end goal: "Learning about Yu’e Bao gave us an epiphany that Jack Ma likely had years ago. If you want to truly disrupt the financial services industry, perhaps you need to stop attacking the transactional experience and launch a competitive product on the asset gathering side. Once you have the assets, all the disruptive things that Silicon Valley types want to do will be easy. The hardest part has been getting access to the funds." [1]: http://abovethecrowd.com/2014/06/18/disrupting-finance-from-above-wealthfront/ http://abovethecrowd.com/2014/06/18/disrupting-finance-from-...
- pbk1 10y agowhy don't Silicon Valley firms partner with existing smaller banks looking to do more with their balance sheets? seems like if their ideas are truly disruptive it would be a win-win for both parties.
- leereeves 10y agoBanks are heavily regulated and the government forbids such investments. > The FDIC permits insured state banks and their subsidiaries to undertake only safe and sound activities and to make investments that do not present a significant risk to the deposit insurance funds https://www.fdic.gov/regulations/laws/bankdecisions/InvestActivity/index.html https://www.fdic.gov/regulations/laws/bankdecisions/InvestAc...
- bunderbunder 10y agoThere's still room for innovation and partnerships with startups, though, even if they can't do something wildly disruptive*. For example, I originally found out about CreditKarma because my bank had partnered with them in order to incorporate a credit monitoring widget into their online banking portal.
- jonwachob91 10y agoThey don't have to make risky investments in these companies. They could collect the deposits and provide them to betterment/wealthfront, while they split the fees. The robo-advisors could cut their acquisition team and focus on the algorithms and the small banks could cut their advisor staff. It's basic synergy. It's a risk free method for partnering small banks with innovative companies.
- nateberkopec 10y agoI haven't switched to a roboadvisor product for a few reasons, but one of them is that saving for retirement is a decision you make on a 30+ year timeline. Most startups hardly last 3 years, much less 30. Why would I trust my money to an industry where the typical case is a flameout in only a few years?
- tehlike 10y agobuffet's advice will work for some 30 year horizon just fine.
- lukejduncan 10y agoIt's a fair concern. Both Wealthfront and Betterment are Broker dealers and they have legal obligations in the event of going out of business. Wealthfront spells it out as: "In the unlikely event Wealthfront were to cease doing business, your account would be held by our brokerage partner until you transferred your account to a new broker or chose to liquidate your account to receive a check." https://support.wealthfront.com/hc/en-us/articles/211004083-What-would-happen-to-my-account-if-Wealthfront-were-to-be-acquired-go-public-or-cease-doing-business- https://support.wealthfront.com/hc/en-us/articles/211004083-...
- harmegido 10y agoThis is the same concern I had, though it's important to point out that if you had money in Betterment/Wealthfront and they went under, it would just be an inconvenience as you'd retain your investments.
- mabbo 10y agoIf their companies go under, it shouldn't affect your assets- that's not part of their balance sheet. You can move then elsewhere after they flame out, and have paid only 25 bps for a few years in the meantime.
- aphextron 10y agoI tried out these services, and it just freaks me out too much having $50,000 sitting in an iPhone app. I get that they are insured and legit, but it's just too much money for me to hand over to a startup.
- twblalock 10y agoDon't you have a broker, or a 401k?
- sulam 10y agoEvery single one of my brokerage accounts and banking accounts has an iPhone app. You probably know this, but the money doesn't actually "[sit] in the app", whatever that would mean. It is invested in stocks, bonds, mutual funds, etc -- the app simply gives you a view into where it all is and the current value. :)
- Analemma_ 10y agoI don't use them, but I can tell their strategy is working. My broker (through work) is Fidelity and lately they've been throwing up pop-ups on login, and sending me emails, urging me to try their low-cost funds that they insist are cheaper and better than Vanguard. They're definitely feeling the heat; I don't think companies like this push their low-fee funds on you unless they're up against the wall.
- pscsbs 10y agoDoesn't this mean that Vanguard's strategy is working, not Wealthfront/Betterment?
- lewisl9029 10y agoWhile we're on the topic of robo-advisors, I'd love to see a robo-advisor that lets clients customize a portfolio allocation and just advises them on when and what to trade to keep their portfolio balanced on a regular schedule, for a fixed fee. That is, instead of these so-called robo-advisors that are actually robo-managers, in the sense that they manage your portfolio and trade on your behalf, and are compensated as such, for a percentage of the entire value of your portfolio. I'm sure there is enough space in the market for both types of products, the robo-advisor and the robo-manager. Personally, I'd prefer the former.
- Spooky23 10y agoMy 457 plan has a Morningstar service that does this, but it won't tell you proactively. You answer their questions or pick a portfolio and they update a report monthly that will tell you what to buy/sell to line up with your target.
- bwood 10y agoShameless plug, but I'm actually working on a product that does exactly that. It started as a personal tool that integrated with my brokerage account to take the hassle out of rebalancing and knowing which trades to make with my monthly contributions. It currently only works with Questrade, but I'm looking at adding support for more brokerages. https://rebalancr.com/ https://rebalancr.com/
- prdonahue 10y agoInteresting. Btw, suspect you'll have trouble getting people to sign-up using such a flight-by-night custodian. Maybe take a look at Interactive Brokers? Also, would encourage Questrade to fix this: Mixed Content: The page at 'https://www.questrade.com/' https://www.questrade.com/' was loaded over HTTPS, but requested an insecure image 'http://ads.yahoo.com/pixel?id=2459149&t=2' http://ads.yahoo.com/pixel?id=2459149&t=2'. This content should also be served over HTTPS. (index):1 Mixed Content: The page at 'https://www.questrade.com/' https://www.questrade.com/' was loaded over HTTPS, but requested an insecure script 'http://www.questradeaffiliates.com/scripts/track.js' http://www.questradeaffiliates.com/scripts/track.js'. This request has been blocked; the content must be served over HTTPS.
- narrator 10y agoWhy can't I buy VTI and dividend reinvest? I compared that to Betterment since 2004 and it wins handily. What am I missing? Tax loss harvesting sounds fancy but what's the actual bottom line benefit after fees?
- zazpowered 10y agoVTI is less diversified, you basically only have US stocks. I probably wouldn't mind being only invested VTI but some people want more diversification.
- matwood 10y agoYeah, I would consider VTI to be one of my portfolio pillars along with international, bonds, and REITs.
- Veratyr 10y agoBetterment maintains a more diversified portfolio and optimizes it for a few things like downside risk, explained here: https://www.betterment.com/resources/investment-strategy/portfolio-management/portfolio-optimization/ https://www.betterment.com/resources/investment-strategy/por...
- sulam 10y agoI don't use a robo-advisor, but TLH saves me 6 figures in taxes every year. Sadly I'm not comfortable disclosing the size of my portfolio. It's big enough to have an account with most bankers, but not big enough to require dedicated staff. :)
- matwood 10y ago> but TLH saves me 6 figures in taxes every year. This is a bit misleading since the only way to save 6 figures on capital gains every year from TLH is to have realized > 6 figure loss at some point in the past. The offset on regular income is also maxed at 3k/year. The losses/gains must also be in a taxable account. https://www.bogleheads.org/wiki/Tax_loss_harvesting#Using_a_loss_from_one_tax_lot_to_offset_the_capital_gains_from_another https://www.bogleheads.org/wiki/Tax_loss_harvesting#Using_a_... TLH can be useful in certain situations (like yours), but I think generally it is oversold by the likes of Wealthfront and Betterment.
- scurvy 10y agoIf you want a good robo advisor with no fees, check out Wise Banyan. I'm a client, but a happy one and that's my only relationship with them.
- zazpowered 10y agoI use Wisebanyan as well and would recommend it
- aorth 10y agoAccording to a link about performance from a comment above, Wise Banyan has done pretty well over the last three years. https://senzu.io/investing/robo-advisors https://senzu.io/investing/robo-advisors
- neogodless 10y agoBut... you don't want to make long-term (or even short-term) investment decisions based on recent past performance.
- deelowe 10y agoMarket is up many 10s of percent. Everyone has done well over the past few years.
- pscsbs 10y agoWiseBanyan seems to be employing strategy (3): "Have a relatively low amount of AUM, charge low fees, and employee very few people." According to LinkedIn, WiseBanyan only seems to have 20-30 employees compared with Betterment's 200-250 and Wealthfront's 150-200.
- zazpowered 10y agoIf you guys want to see a comparison of historical performance and fees of the top robo-advisors check this out https://senzu.io/investing/robo-advisors https://senzu.io/investing/robo-advisors
- cheriot 10y agoThe article's scenarios top out at 16B AUM , but vanguard is at 4T with a T. Their problem is not lack of TAM.
- _wgnp 10y agoSince this is a community of programmers, you might be interested in doings things like this yourself instead. There are a couple of options: - Quantopian (http://quantopian.com/ http://quantopian.com/): Python based, kinda a little bit open source (backtesting only), live trades on Interactive Brokers or Robinhood. Has a big community for stocks. - QuantConnect (http://quantconnect.com/ http://quantconnect.com/): .NET based, more open source (includes live trading), live trades on Interactive Brokers, has a similarly sized community but the community's attention is spread to other asset types like Forex as well. Both have numerous example algorithms you can clone and run without much trouble. An example vaguely suited to investing: https://www.quantopian.com/posts/modern-portfolio-theory-minimum-variance-portfolio https://www.quantopian.com/posts/modern-portfolio-theory-min...
- fauigerzigerk 10y agoAlso Quantiacs: https://www.quantiacs.com https://www.quantiacs.com
- frgtpsswrdlame 10y agoI'd just like to quote an old comment here: >One thing I see every once in a while on HN is people with the belief that they can spend a week or two knocking out an algorithmic trader and start raking it in. In order to break this illusion I would recommend: http://financial-math.org/ http://financial-math.org/ http://www.quantresearch.info/ http://www.quantresearch.info/
- nhorob67 10y agoThank you for this. My thoughts exactly
- nhorob67 10y agoThank you for this. My thoughts exactly
- Veratyr 10y agoTotally agree. I was aiming more for those who just want to rebalance their portfolios every month or something like that, though I acknowledge that the services I linked to do have communities interested in active trading.
- jjn2009 10y agoCharles Scwab does take fees in a way, their robo advisor requires a certain percentage of your account be cash. This cash in turn is invested for their own profits.
- eeeeeeeeeeeee 10y agoThis article didn't mention it specifically, but Betterment already put in a rate hike. You used to be able to get 10 basis points if you had over 100k and they just increased that to 25 in a really underhanded way. I had been using Betterment for about 2 years when they did this. I had been happy with Betterment but it's clear that they want to get as many people in under the low rates and slowly increase it on you, knowing that you can't easily move it around to another provider (especially if you're dependent on their tax loss harvesting etc).
- deleted 10y ago[deleted]
- suresk 10y agoYeah, that was really disappointing. I'd bought into the Betterment kool-aid, and shortly after funding my account, I saw their 'price increase buried in an unrelated product announcement' email. I think these companies (Betterment, WealthFront, etc) are struggling with really high customer acquisition costs that take quite a while to break even on. I'm sure that not many people noticed/cared enough to transfer out (I'm doing it now, it isn't a small task), so they came out way ahead on it. Unfortunately, I think it will be easy for them in a year or two, when they need more quick revenue, to look back and say "Hey, not many people said anything when we raised fees by 67%, what's another 10 bps or so?"
- eeeeeeeeeeeee 10y agoYep, I agree. I signed up based on the rates at the time, thinking they wouldn't change THAT often. But it sounds like this is going to become more common. I'm in the process of moving everything to Vanguard.
- frgtpsswrdlame 10y agoI think that he's definitely right about consolidation and then acquisition. I work in HNW wealth management and I think that there needs to be better education on what for example a young person's IRA should look like. An ideal robo-advisor would make buy recommendations, ask you to never sell, and use education along the way to help prevent you from making the same mistakes most people fall trap to. I also think that if any of these companies have a desire to stay around for a while they need to be targetting the IRAs of young, high-income programmers. With a good fee and good education and assistance they can probably retain these customers, encourage them to max out contributions into their IRA (you should!!) and slowly build up a long tail of decent-sized accounts from people that may have only been interested from a tech perspective initially.
- mattzito 10y agoSorry for the naive question - but if you're contributing to a 401k, aren't you ineligible for tax-deductible contributions to an IRA? If so, it would seem like an even better business would be getting into administering 401k plans cheaply with employers and then keeping people on the platform post-employment.
- beisner 10y agoI'm pretty sure that contributing to a 401k doesn't make you ineligible to contribute to an IRA, but making over a certain amount of money annually does.
- MarkPNeyer 10y agoAdding to this: Not a lawyer etc but I don't think a 401k prevents you from making IRa contributions either. Never heard of that. As for income limits, you can still contribute to your IRA if your income is above the limit (I think that's 125k or so) but the contributions will no longer be tax deductible. Once you're past that limit, you may as well convert from regular to Roth IRA (this is called a backdoor conversion) so that your money grows tax free.
- 10y ago
- yalogin 10y agoI looked into these companies but couldn't find a reason to invest through them. I don't understand what value these guys bring. If I am already paying a commission for each fund I don't know why I shypay these guys a cut again. Eventually I think these guys will and must come up with their own funds. Else it does not make sense for them.