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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

by lzrs 5y ago

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?

robotsandcoffee 5y ago
personally my favorite feature is the "autopilot" thing, which for example dcan automatically withdraw from my checking account and invest when my checking account hits a certain threshold. so for example i can just say "if my checking account goes above $30k, deposit the rest into some wealthfront investment account." i don't think a human financial planner can do this easily? just to add to your list.
TuringNYC 5y ago
>> Yes, a financial planner can do all of this (although most don't). But when they do, they just use automated software to do it. It would be impossible to implement these strategies manually. So why even go with a financial planner when Wealthfront does the same thing, but better/cheaper? Thats the 100$B question right? Because fear. Because unfamiliarity. Also because 1% seems small, but its really more like 14% (if the average return is 7%, you're giving up 1/7 of your return!)
- whitej125 5y ago
  >> Because fear. What's funny is... whenever you call an FA (financial advisor) in a moment of panic... they answer always is "don't act emotionally and stick to the plan". Maybe a real "robo-advisor" should just be a chatbot that responds to any message it gets with "HODL". >> Because unfamiliarity. This one is going to be interesting to watch evolve and I see it becoming less of an edge for financial advisors. More and more, we are seeing retail investors gain familiarity (not saying knowledge... but at least familiarity) with financial markets through blogs, social media, etc. I think we are moving to a world of more self-directed investors than advised investors. Some interesting articles to that effect: https://www.wsj.com/articles/rich-millennials-to-financial-advisers-thanks-for-the-golf-invite-but-you-cant-invest-my-money-11636367400 https://www.wsj.com/articles/rich-millennials-to-financial-a... https://www.wsj.com/articles/fidelity-once-stodgy-and-adrift-bets-on-the-reddit-crowd-11643125668 https://www.wsj.com/articles/fidelity-once-stodgy-and-adrift... https://www.m1finance.com/blog/the-rise-of-financial-influencers/ https://www.m1finance.com/blog/the-rise-of-financial-influen...
  - sanjiwatsuki 5y ago
    I do recall that one of the features that Wealthfront had was to design their UX in a way that discouraged behaviors like frequently checking the valuations, making it annoying to make emotional transactions, etc, etc. Rather than having a human tell you to be calm, they tried to mediate behavior through UX patterns.
    - bonestamp2 5y ago
      That's interesting. I did notice that the Wealthfront UX was really well done. For example, during the onboarding they direct you to set up recurring investments and they show you in real time what that small investment might become by retirement age. That simple mechanic, which nobody else seems to do in that way during onboarding, makes it really obvious that you need to set that recurring deposit to be as high as you can possibly afford.
  - deathanatos 5y ago
mushufasa 5y ago
Many people who start off with Robos like Wealthfront actually leave once their net worth rises and pay more for human advisors. If you need to invest a small/decent amount of money into stocks, Robos work wonderfully. It's a mass production angle -- good quality service at lower cost to many people; the Ford Model T of investing. Early robot just had a couple of investment options, and now there are more options but the same concept of limited choice at scale (Mustangs, Minvans, Trucks in my example) Once you have estate planning and complicated tax issues, human advisors provide a lot of guidance to people that is hyper specific to you and your location / niche, which Robos just don't cover. Wealthfront, for example, won't arbitrate a dispute between beneficiaries of a family trust. I think lawyers are a good comparison here. If you need some standard cookie-cutter incorporation docs, there's a bunch of websites where you can get some core documents for free or a few hundred dollars. But if you're afraid of making the wrong choice, or if you're in a situation that goes beyond the common scenarios (like M&A), then you hire a lawyer to provide you personalized advice.
- lzrs 5y ago
  Yes, completely agree. That happens when all of the other estate planning costs begin to vastly outweigh the cost of investment advising. I'm no expert, but I am under the impression that although these automated strategies are a smaller part of the whole picture for high net-worth individuals, the strategies are still the same. I'm interested to see if UBS can add value in those ways you mentioned, while still using sophisticated automated strategies for cost savings purposes. Also note that Vanguard, JPM, Schwab, Fidelity etc. are getting in the robo-advising/direct indexing game.
  - jcfrei 5y ago
    I doubt they'll add much value - they don't want to cannibalize their core business even more. They'll probably just add a button that says "talk to a UBS wealth manager" when your portfolio value crosses a certain threshold.
  - borski 5y ago
    The one exception is alternative investments like real estate and private equity. Once you are HNW or at least high enough to have enough investable assets that you qualify, PE can be an attractive investment class that Wealthfront won’t touch. Also, human advisors can manage, or at least access, investments across brokerages; that is, you don’t have to worry as much about wash sale rules and can do tax loss harvesting because they can see your sales elsewhere. I have to have TLH turned off on Wealthfront because it has no way of knowing about what things I’ve sold elsewhere. Not financial advice, YMMV, etc.
paxys 5y ago
Thing is, all of these are simple enough that anyone with a tiny bit of financial knowledge or Googling can do it for themselves. Sure a lot of people don't bother, but when your investment size starts going up the 0.25%-1% commission is a LOT of money. Study after study has shown that investing in a broad market fund plus occasional (once a quarter) rebalancing is going to beat managed investing on average. So where do these products fit in really?
- lzrs 5y ago
  Well, actually a lot of these strategies are really hard to implement on your own. For example, in direct indexing you are buying hundreds of stocks in an attempt to replicate an indexing. You are also constantly rebalancing and tax-loss harvesting. You could definitely just buy an index fund, but it's not exactly comparable.
- lazide 5y ago
  The folks using WealthFront don't have enough money invested that 1% is a lot of money, and they generally very much suffer from lack of time or knowledge on how to invest properly (or willingness/ability to sit down, learn, and DIY properly either).
matteotom 5y ago
I know someone who's been doing wealth management for like 20 or 30 years now. Based on what they've told me, I'd separate clients roughly into 3 categories: 1. people who don't want to think about it - they pay for everything to be taken care of properly 2. people who want to be wined and dined - they end up paying to be taken out to dinner a few times a year and hear about what the firm is doing to survive bear markets and how they're taking advantage of bull markets 3. people who think they're smarter than everyone and want to direct everything - these people are probably moving to more self serve options, but plenty still want to tell a human what trades to make Also at a certain net worth, tax and estate planning is a huge part of the work.
- onphonenow 5y ago
  The wined and dined people also often really don't want to deal with a website and they want someone to call who can "get things done" if needed. So for wealthfront and friends, let's say a family member is closing on a property purchase. You said you'd put in $500K. Closing comes and you try to wire the money over. But wait, it doesn't work. 1) First you have to sell investments 2) Trades have to SETTLE (T+2 or more)! 3) Then and only then can you initiate an ACH transfer. 4) It can only go to your own account in some cases (T+1/T+2) 5) Then you have to go to you bank and get a wire out (retail banks often have tight cutoffs or end up delayed if going online while they "approve" this). 6) This all can be stressful on closing day (agents calling, escrow calling, bank calling, your relative calling). Now you are not days but a week late. vs Talking with someone. They enable margin account if you don't have one, you wire same day, done or you can give your guys name to everyone to help coordinate if needed if it will be a bit late.
  - borski 5y ago
    This is honestly a huge deal - when I make an angel investment, I send a text and/or wire info via the Merrill Lynch app, and I know it will be taken care of (by the same people every time) same day or next day, depending on when I send it. That plus introductions and referrals to tax accountants, estate attorneys, etc., and access to investment vehicles I otherwise wouldn’t get (easily), definitely makes the 0.7% fee worth it for me. [quick edit] Honestly, as someone who comes from an impoverished background, they also act largely as “financial therapists.” That is, I don’t make emotional decisions about money, but that doesn’t mean I don’t have tons of anxiety when I spend money on something large; they generate a wealth plan, allow me to see how my assets will change, allow me to (based on models) see if I’m overfunded, underfunded, etc., and I don’t have to do a thing other than send a text. That is insanely helpful to me, personally.
kmonsen 5y ago
But why go with wealthfront when you can buy a target date fund from vanguard? It gets you most of what you really need?
- wayne 5y ago
  Even a few months ago, I was recommending the same to friends. But late in 2021, Vanguard unexpectedly hit all their Target Date funds with large tax bills: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=366566 https://www.bogleheads.org/forum/viewtopic.php?f=10&t=366566 The speculation online is that it's because they lowered the minimum for their institution class funds, many large employer retirement funds sold their holdings of the non-institution funds, leaving everyone left with large capital gains and hence large tax bills unless you held it in a 401k/IRA. I find Wealthfront to be overkill, but this is precisely the kind of thing they'd save you from.
  - kmonsen 5y ago
    OK I see they do this every 5 years so it should not be that extreme (I only hold it in various tax sheltered accounts now). One step further is to hold the index funds and bonds yourself, that is not exactly rocket science. I would also say that if you have 6 million USD that is a bit different than most wealthfront customers I think.
  - onphonenow 5y ago
    I still don't understand why there wasn't a way to do an exchange on this conversion that avoided this! I mean, contribute the holdings of fund A to fund B etc.
  - jbullock35 5y ago
    Useful Wall Street Journal article on this point: https://archive.is/3i800 https://archive.is/3i800.
  - forrestthewoods 5y ago
    Yikes. I have a fair amount of non-tax advantaged money in a target date fund. Not sure what I should do with it now. Hrmmm.
adrr 5y ago
Does Wealthfront actually buy individual stocks? Most robo-advisors buy ETFs. So you're paying double management fees. I'm not aware of any robo-advisors that actually buy individual stocks.
- bt3 5y ago
  Yes. Once you cross a certain threshold (I think it's $100k portfolio), they'll switch you to "Direct Indexing", which automates individual stock purchases.
- borski 5y ago
  Once you cross a threshold of investable assets at which it makes sense (usually a few hundred thousand), most robots have an active indexing strategy in addition to or instead of ETFs.
pinkfairy 5y ago
This reads like an ad? Curious why you would need to coordinate trades been taxable and retirement accounts? Why would you want smart beta (that's active management)? Their direct indexing portfolio also includes a whole bunch of their own in-house risk parity garbage products that carry high fees The biggest question to me, you can trade ETFs for free now, why do you need wealthfront at all?
- xxpor 5y ago
  >Curious why you would need to coordinate trades been taxable and retirement accounts? If you treat your retirement and taxable accounts as one big pot of money, you want to place assets to take the most advantage of the retirement account. For example, they mentioned bonds. Since yield on bonds is taxable at income tax levels every year, you want to prefer holding them in the tax exempt account. Another reason is because of tax loss harvesting. To make that work, you have to avoid wash sales. The wash sale rule applies to you and every account you own, taxable, retirement, across brokers, etc. So to make TLH work, the broker needs to have a complete view. >The biggest question to me, you can trade ETFs for free now, why do you need wealthfront at all? For me, I'm on the west coast, so the market is open from 6:30 AM to 1 PM. I can't really monitor it nearly as closely as I'd really prefer. Looking at my betterment history, last year they automated 275 transactions for me. I can really only be bothered to look at the account once a month or so. Do the efficiency gains from a lower drift get me 0.25% additional value? Hard to say, but probably not. However, TLH absolutely has. I wouldn't trust myself to track that properly at all.
  - astrange 5y ago
    > Another reason is because of tax loss harvesting. To make that work, you have to avoid wash sales. The wash sale rule applies to you and every account you own, taxable, retirement, across brokers, etc. So to make TLH work, the broker needs to have a complete view. It doesn't really. They like saying that because it shows off their product, but the IRS doesn't know what's in your retirement account and probably no-one has ever gotten in trouble for this. There are robos that don't coordinate it, even.
maxclark 5y ago
I started with and was a Wealthfront customer for many years. I'm appreciative and credit them with starting my education and understanding on investing. What caused me to leave? - They aren't global portfolio aware. Bonds belong in tax advantaged accounts, then taxable. If you've maxed out your 401k/IRAs in Bonds that $ as an absolute percentage should be accounted for in your taxable portfolio construction. - They don't let you opt out of asset classes. Aka I don't want additional REITs because I have RE exposure already. - They overly hype tax loss harvesting. It's good to have, but a byproduct of portfolio management not the goal. - They launched and pushed risky products as a way to increase their fees. Once you understand what's going on under the hood this isn't complicated to manage yourself with a few ETFs/MFs. (The direct indexing is awesome and would love to have that back)
- PascLeRasc 5y ago
  You can opt out of asset classes now. I moved out of Wealthfront to save money and try to DIY but so far I've had a really hard time doing it in terms of finding time to place the buy order during the workday and doing tax loss harvesting without wash sales.
- sharx 5y ago
  I've heard that when you leave direct indexing you end up with all the individual stocks in your new portfolio, or you have to sell them and eat the capital gains tax. Was that your experience?
  - clamstar 5y ago
    You end up with a bunch of individual stocks in your new brokerage account. It's a pain. I separate account at etrade specifically for my "WF500" shares, and still just treat them as a single organism.
  - ppg677 5y ago
    Yes that was my experience. And it sucked. I had 500 individual stocks to deal with.
- 5y ago
colordrops 5y ago
Does Fidelity have robo-advising? Because all the big companies I've worked at use them for retirement funds, and I've found most of the management is heavily manual at Fidelity.
- throwawaygh 5y ago
  https://www.fidelity.com/digital-investing-and-advice/simple-investing-overview https://www.fidelity.com/digital-investing-and-advice/simple...
- dnadler 5y ago
  They do, it's called Fidelity Go. They have a similar product for advisors called AMP. I actually worked on these products a while ago, they're all very similar when it comes down to it.
zie 5y ago
* Edward Jones will do it for you for ~ 2%/yr, which is ridiculously high. * Any of the big banks or brokerages will do it for less than Edward Jones. * Almost any financial advisor will do it for about 1%/yr in fees(not ridiculously high, but not remotely cheap) or fee-based for a few hundred an hour with a 1st time setup of $4-10k, more than $10k is unreasonable. * The robo advisors(of which their are dozens with basically identical products, generally charge 0.3%/yr, some like Vanguard include Financial Advisor services. * At least one firm will do it for $200 first year and $100/yr after that, regardless of the balance of your accounts, and provide financial & tax planning/advice/etc included. They do require a little work on your part. I'm actively looking for more subscription based advisors like this, please PM me! * Bogleheads.org will do it for free as long as you follow their template.
- echelon 5y ago
  > * Bogleheads.org will do it for free as long as you follow their template. phpBB with a custom "web1" frontend reminiscent of Craigslist. That's something I haven't seen in a long time. My first impression was honestly to trust it more. Thanks for sharing!
  - zie 5y ago
    you are welcome! Come by, it's a pretty nice community and many there have been retired for a while, so they can help you see the follies before you make them, if one is smart enough to listen.
  - jacobkg 5y ago
    Bogleheads has my favorite forum feature (which I haven’t seen elsewhere) which is that their home page is all posts from all sub forums ordered by most recent so you rarely have to click around to find updates. That and absurdly good content, incredibly little drama, and almost no politics
- bonestamp2 5y ago
  > At least one firm will do it for $200 first year and $100/yr after that Can you share that one? PM me if preferred. I'm on a similar quest and so far I've found pretty much everything else you've found. My wife is a high income earner too and she's happy with the 1%/yr people that she likes, but I think we can get similar results for noticeably less. Even 0.5% would be reasonable. As you know, from $1m to $2m that 1% fee goes from $10k to $20k and they're not doing anything more for that extra $10k/yr so the value proposition starts to break down for me. $10k in one year isn't a big deal, but over 20 years that's $200k, which might affect my retirement activities and definitely impacts how much is left for my kids (which they're going to really appreciate as life is so much more expensive for their generation).
hrez 5y ago
> I've been researching robo-advisors quite a bit recently. "The Robo Report" [1] has detailed quarterly robo reports on performance, features, comparisons etc [1] https://www.backendbenchmarking.com/ https://www.backendbenchmarking.com/
moneywoes 5y ago
Why not use a Vanguard target date fund
shoyer 5y ago
My experience was that robo-investors are great until you need something special. Then they can become rather painful. Exmaple: I got divorced last year. Betterment took weeks of time and many phones calls until they were able to figure out a way to divide our assets evenly, without a large difference in cost basis. Their automatic algorithm for dividing accounts just didn't know how to handle it. If UBS figures out how to offer a higher level of service on top of robo-advising, that could be a real win.
neosavvy 5y ago
I agree that robo-advisors are great, but they do leave a lot to be desired. I’m actively working on a service that would drastically change the way people engage with robo-advisory accounts. I for one prefer to make stock selections on my own, however Wealthfront, Betterment, and Personal Capital do not allow me to manage my own investments with any of the robo-advisory features. There is a huge opportunity in the space. It would be great to talk to you about it - I’d love to hear your thoughts - any way we can connect?
- lzrs 5y ago
  sure - dm me on twitter https://twitter.com/lzrscg https://twitter.com/lzrscg
thesausageking 5y ago
That honestly doesn't sound like very much to take 0.25%. Maybe if you're starting out and have $10k to invest, but once you're in the mid six figures or more, the 0.25% adds up. If you buy and hold, it doesn't take much work and expenses for Vanguard ETFs are ~0.10%. Also, once you move to Wealthfront, it's hard to ever leave because of how they break things up (which, I'm sure, isn't unintentional).
- rrrrrrrrrrrryan 5y ago
  A big advantage of the robos is that they time the rebalancing a little better. Manually rebalancing your own Vanguard ETFs at the same time once a quarter is pretty arbitrary - it's based on what's convenient to you, but it's not necessarily what's mathematically best for your portfolio. If your allocation percentages remain very stable, you might not need to rebalance at all at the end of a quarter. If your allocations fall way out of whack, you might want to rebalance a portion of your portfolio earlier, and robos handle that timing for you. I'd be surprised if the better timing doesn't provide 0.25% of value, not to mention it's just one less thing to have to think about.
  - thesausageking 5y ago
    Rebalancing is really not that hard. If you have $500k in savings, it's definitely not worth paying $1250 for it and end up being locked into a platform that's hard to leave. In addition, Wealthfront doesn't know about all of my other holdings (house, angel investments, crypto, ...), so isn't going to do as good as I can.
rockinghigh 5y ago
ETFs do most of these items often for a lower fee (5-10bps).

by lzrs 5y ago

robotsandcoffee 5y ago

personally my favorite feature is the "autopilot" thing, which for example dcan automatically withdraw from my checking account and invest when my checking account hits a certain threshold. so for example i can just say "if my checking account goes above $30k, deposit the rest into some wealthfront investment account." i don't think a human financial planner can do this easily? just to add to your list.

TuringNYC 5y ago

>> 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? Thats the 100$B question right? Because fear. Because unfamiliarity. Also because 1% seems small, but its really more like 14% (if the average return is 7%, you're giving up 1/7 of your return!)

whitej125 5y ago
>> Because fear. What's funny is... whenever you call an FA (financial advisor) in a moment of panic... they answer always is "don't act emotionally and stick to the plan". Maybe a real "robo-advisor" should just be a chatbot that responds to any message it gets with "HODL". >> Because unfamiliarity. This one is going to be interesting to watch evolve and I see it becoming less of an edge for financial advisors. More and more, we are seeing retail investors gain familiarity (not saying knowledge... but at least familiarity) with financial markets through blogs, social media, etc. I think we are moving to a world of more self-directed investors than advised investors. Some interesting articles to that effect: https://www.wsj.com/articles/rich-millennials-to-financial-advisers-thanks-for-the-golf-invite-but-you-cant-invest-my-money-11636367400 https://www.wsj.com/articles/rich-millennials-to-financial-a... https://www.wsj.com/articles/fidelity-once-stodgy-and-adrift-bets-on-the-reddit-crowd-11643125668 https://www.wsj.com/articles/fidelity-once-stodgy-and-adrift... https://www.m1finance.com/blog/the-rise-of-financial-influencers/ https://www.m1finance.com/blog/the-rise-of-financial-influen...
- sanjiwatsuki 5y ago
  I do recall that one of the features that Wealthfront had was to design their UX in a way that discouraged behaviors like frequently checking the valuations, making it annoying to make emotional transactions, etc, etc. Rather than having a human tell you to be calm, they tried to mediate behavior through UX patterns.
  - bonestamp2 5y ago
    That's interesting. I did notice that the Wealthfront UX was really well done. For example, during the onboarding they direct you to set up recurring investments and they show you in real time what that small investment might become by retirement age. That simple mechanic, which nobody else seems to do in that way during onboarding, makes it really obvious that you need to set that recurring deposit to be as high as you can possibly afford.
- deathanatos 5y ago

mushufasa 5y ago

Many people who start off with Robos like Wealthfront actually leave once their net worth rises and pay more for human advisors. If you need to invest a small/decent amount of money into stocks, Robos work wonderfully. It's a mass production angle -- good quality service at lower cost to many people; the Ford Model T of investing. Early robot just had a couple of investment options, and now there are more options but the same concept of limited choice at scale (Mustangs, Minvans, Trucks in my example) Once you have estate planning and complicated tax issues, human advisors provide a lot of guidance to people that is hyper specific to you and your location / niche, which Robos just don't cover. Wealthfront, for example, won't arbitrate a dispute between beneficiaries of a family trust. I think lawyers are a good comparison here. If you need some standard cookie-cutter incorporation docs, there's a bunch of websites where you can get some core documents for free or a few hundred dollars. But if you're afraid of making the wrong choice, or if you're in a situation that goes beyond the common scenarios (like M&A), then you hire a lawyer to provide you personalized advice.

lzrs 5y ago
Yes, completely agree. That happens when all of the other estate planning costs begin to vastly outweigh the cost of investment advising. I'm no expert, but I am under the impression that although these automated strategies are a smaller part of the whole picture for high net-worth individuals, the strategies are still the same. I'm interested to see if UBS can add value in those ways you mentioned, while still using sophisticated automated strategies for cost savings purposes. Also note that Vanguard, JPM, Schwab, Fidelity etc. are getting in the robo-advising/direct indexing game.
- jcfrei 5y ago
  I doubt they'll add much value - they don't want to cannibalize their core business even more. They'll probably just add a button that says "talk to a UBS wealth manager" when your portfolio value crosses a certain threshold.
- borski 5y ago
  The one exception is alternative investments like real estate and private equity. Once you are HNW or at least high enough to have enough investable assets that you qualify, PE can be an attractive investment class that Wealthfront won’t touch. Also, human advisors can manage, or at least access, investments across brokerages; that is, you don’t have to worry as much about wash sale rules and can do tax loss harvesting because they can see your sales elsewhere. I have to have TLH turned off on Wealthfront because it has no way of knowing about what things I’ve sold elsewhere. Not financial advice, YMMV, etc.

paxys 5y ago

Thing is, all of these are simple enough that anyone with a tiny bit of financial knowledge or Googling can do it for themselves. Sure a lot of people don't bother, but when your investment size starts going up the 0.25%-1% commission is a LOT of money. Study after study has shown that investing in a broad market fund plus occasional (once a quarter) rebalancing is going to beat managed investing on average. So where do these products fit in really?

lzrs 5y ago
Well, actually a lot of these strategies are really hard to implement on your own. For example, in direct indexing you are buying hundreds of stocks in an attempt to replicate an indexing. You are also constantly rebalancing and tax-loss harvesting. You could definitely just buy an index fund, but it's not exactly comparable.
lazide 5y ago
The folks using WealthFront don't have enough money invested that 1% is a lot of money, and they generally very much suffer from lack of time or knowledge on how to invest properly (or willingness/ability to sit down, learn, and DIY properly either).

matteotom 5y ago

I know someone who's been doing wealth management for like 20 or 30 years now. Based on what they've told me, I'd separate clients roughly into 3 categories: 1. people who don't want to think about it - they pay for everything to be taken care of properly 2. people who want to be wined and dined - they end up paying to be taken out to dinner a few times a year and hear about what the firm is doing to survive bear markets and how they're taking advantage of bull markets 3. people who think they're smarter than everyone and want to direct everything - these people are probably moving to more self serve options, but plenty still want to tell a human what trades to make Also at a certain net worth, tax and estate planning is a huge part of the work.

onphonenow 5y ago
The wined and dined people also often really don't want to deal with a website and they want someone to call who can "get things done" if needed. So for wealthfront and friends, let's say a family member is closing on a property purchase. You said you'd put in $500K. Closing comes and you try to wire the money over. But wait, it doesn't work. 1) First you have to sell investments 2) Trades have to SETTLE (T+2 or more)! 3) Then and only then can you initiate an ACH transfer. 4) It can only go to your own account in some cases (T+1/T+2) 5) Then you have to go to you bank and get a wire out (retail banks often have tight cutoffs or end up delayed if going online while they "approve" this). 6) This all can be stressful on closing day (agents calling, escrow calling, bank calling, your relative calling). Now you are not days but a week late. vs Talking with someone. They enable margin account if you don't have one, you wire same day, done or you can give your guys name to everyone to help coordinate if needed if it will be a bit late.
- borski 5y ago
  This is honestly a huge deal - when I make an angel investment, I send a text and/or wire info via the Merrill Lynch app, and I know it will be taken care of (by the same people every time) same day or next day, depending on when I send it. That plus introductions and referrals to tax accountants, estate attorneys, etc., and access to investment vehicles I otherwise wouldn’t get (easily), definitely makes the 0.7% fee worth it for me. [quick edit] Honestly, as someone who comes from an impoverished background, they also act largely as “financial therapists.” That is, I don’t make emotional decisions about money, but that doesn’t mean I don’t have tons of anxiety when I spend money on something large; they generate a wealth plan, allow me to see how my assets will change, allow me to (based on models) see if I’m overfunded, underfunded, etc., and I don’t have to do a thing other than send a text. That is insanely helpful to me, personally.

kmonsen 5y ago

But why go with wealthfront when you can buy a target date fund from vanguard? It gets you most of what you really need?

wayne 5y ago
Even a few months ago, I was recommending the same to friends. But late in 2021, Vanguard unexpectedly hit all their Target Date funds with large tax bills: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=366566 https://www.bogleheads.org/forum/viewtopic.php?f=10&t=366566 The speculation online is that it's because they lowered the minimum for their institution class funds, many large employer retirement funds sold their holdings of the non-institution funds, leaving everyone left with large capital gains and hence large tax bills unless you held it in a 401k/IRA. I find Wealthfront to be overkill, but this is precisely the kind of thing they'd save you from.
- kmonsen 5y ago
  OK I see they do this every 5 years so it should not be that extreme (I only hold it in various tax sheltered accounts now). One step further is to hold the index funds and bonds yourself, that is not exactly rocket science. I would also say that if you have 6 million USD that is a bit different than most wealthfront customers I think.
- onphonenow 5y ago
  I still don't understand why there wasn't a way to do an exchange on this conversion that avoided this! I mean, contribute the holdings of fund A to fund B etc.
- jbullock35 5y ago
  Useful Wall Street Journal article on this point: https://archive.is/3i800 https://archive.is/3i800.
- forrestthewoods 5y ago
  Yikes. I have a fair amount of non-tax advantaged money in a target date fund. Not sure what I should do with it now. Hrmmm.

adrr 5y ago

Does Wealthfront actually buy individual stocks? Most robo-advisors buy ETFs. So you're paying double management fees. I'm not aware of any robo-advisors that actually buy individual stocks.

bt3 5y ago
Yes. Once you cross a certain threshold (I think it's $100k portfolio), they'll switch you to "Direct Indexing", which automates individual stock purchases.
borski 5y ago
Once you cross a threshold of investable assets at which it makes sense (usually a few hundred thousand), most robots have an active indexing strategy in addition to or instead of ETFs.

pinkfairy 5y ago

This reads like an ad? Curious why you would need to coordinate trades been taxable and retirement accounts? Why would you want smart beta (that's active management)? Their direct indexing portfolio also includes a whole bunch of their own in-house risk parity garbage products that carry high fees The biggest question to me, you can trade ETFs for free now, why do you need wealthfront at all?

xxpor 5y ago
>Curious why you would need to coordinate trades been taxable and retirement accounts? If you treat your retirement and taxable accounts as one big pot of money, you want to place assets to take the most advantage of the retirement account. For example, they mentioned bonds. Since yield on bonds is taxable at income tax levels every year, you want to prefer holding them in the tax exempt account. Another reason is because of tax loss harvesting. To make that work, you have to avoid wash sales. The wash sale rule applies to you and every account you own, taxable, retirement, across brokers, etc. So to make TLH work, the broker needs to have a complete view. >The biggest question to me, you can trade ETFs for free now, why do you need wealthfront at all? For me, I'm on the west coast, so the market is open from 6:30 AM to 1 PM. I can't really monitor it nearly as closely as I'd really prefer. Looking at my betterment history, last year they automated 275 transactions for me. I can really only be bothered to look at the account once a month or so. Do the efficiency gains from a lower drift get me 0.25% additional value? Hard to say, but probably not. However, TLH absolutely has. I wouldn't trust myself to track that properly at all.
- astrange 5y ago
  > Another reason is because of tax loss harvesting. To make that work, you have to avoid wash sales. The wash sale rule applies to you and every account you own, taxable, retirement, across brokers, etc. So to make TLH work, the broker needs to have a complete view. It doesn't really. They like saying that because it shows off their product, but the IRS doesn't know what's in your retirement account and probably no-one has ever gotten in trouble for this. There are robos that don't coordinate it, even.

maxclark 5y ago

I started with and was a Wealthfront customer for many years. I'm appreciative and credit them with starting my education and understanding on investing. What caused me to leave? - They aren't global portfolio aware. Bonds belong in tax advantaged accounts, then taxable. If you've maxed out your 401k/IRAs in Bonds that $ as an absolute percentage should be accounted for in your taxable portfolio construction. - They don't let you opt out of asset classes. Aka I don't want additional REITs because I have RE exposure already. - They overly hype tax loss harvesting. It's good to have, but a byproduct of portfolio management not the goal. - They launched and pushed risky products as a way to increase their fees. Once you understand what's going on under the hood this isn't complicated to manage yourself with a few ETFs/MFs. (The direct indexing is awesome and would love to have that back)

PascLeRasc 5y ago
You can opt out of asset classes now. I moved out of Wealthfront to save money and try to DIY but so far I've had a really hard time doing it in terms of finding time to place the buy order during the workday and doing tax loss harvesting without wash sales.
sharx 5y ago
I've heard that when you leave direct indexing you end up with all the individual stocks in your new portfolio, or you have to sell them and eat the capital gains tax. Was that your experience?
- clamstar 5y ago
  You end up with a bunch of individual stocks in your new brokerage account. It's a pain. I separate account at etrade specifically for my "WF500" shares, and still just treat them as a single organism.
- ppg677 5y ago
  Yes that was my experience. And it sucked. I had 500 individual stocks to deal with.
5y ago

colordrops 5y ago

Does Fidelity have robo-advising? Because all the big companies I've worked at use them for retirement funds, and I've found most of the management is heavily manual at Fidelity.

throwawaygh 5y ago
https://www.fidelity.com/digital-investing-and-advice/simple-investing-overview https://www.fidelity.com/digital-investing-and-advice/simple...
dnadler 5y ago
They do, it's called Fidelity Go. They have a similar product for advisors called AMP. I actually worked on these products a while ago, they're all very similar when it comes down to it.

zie 5y ago

* Edward Jones will do it for you for ~ 2%/yr, which is ridiculously high. * Any of the big banks or brokerages will do it for less than Edward Jones. * Almost any financial advisor will do it for about 1%/yr in fees(not ridiculously high, but not remotely cheap) or fee-based for a few hundred an hour with a 1st time setup of $4-10k, more than $10k is unreasonable. * The robo advisors(of which their are dozens with basically identical products, generally charge 0.3%/yr, some like Vanguard include Financial Advisor services. * At least one firm will do it for $200 first year and $100/yr after that, regardless of the balance of your accounts, and provide financial & tax planning/advice/etc included. They do require a little work on your part. I'm actively looking for more subscription based advisors like this, please PM me! * Bogleheads.org will do it for free as long as you follow their template.

echelon 5y ago
> * Bogleheads.org will do it for free as long as you follow their template. phpBB with a custom "web1" frontend reminiscent of Craigslist. That's something I haven't seen in a long time. My first impression was honestly to trust it more. Thanks for sharing!
- zie 5y ago
  you are welcome! Come by, it's a pretty nice community and many there have been retired for a while, so they can help you see the follies before you make them, if one is smart enough to listen.
- jacobkg 5y ago
  Bogleheads has my favorite forum feature (which I haven’t seen elsewhere) which is that their home page is all posts from all sub forums ordered by most recent so you rarely have to click around to find updates. That and absurdly good content, incredibly little drama, and almost no politics
bonestamp2 5y ago
> At least one firm will do it for $200 first year and $100/yr after that Can you share that one? PM me if preferred. I'm on a similar quest and so far I've found pretty much everything else you've found. My wife is a high income earner too and she's happy with the 1%/yr people that she likes, but I think we can get similar results for noticeably less. Even 0.5% would be reasonable. As you know, from $1m to $2m that 1% fee goes from $10k to $20k and they're not doing anything more for that extra $10k/yr so the value proposition starts to break down for me. $10k in one year isn't a big deal, but over 20 years that's $200k, which might affect my retirement activities and definitely impacts how much is left for my kids (which they're going to really appreciate as life is so much more expensive for their generation).

hrez 5y ago

> I've been researching robo-advisors quite a bit recently. "The Robo Report" [1] has detailed quarterly robo reports on performance, features, comparisons etc [1] https://www.backendbenchmarking.com/ https://www.backendbenchmarking.com/

moneywoes 5y ago

Why not use a Vanguard target date fund

shoyer 5y ago

My experience was that robo-investors are great until you need something special. Then they can become rather painful. Exmaple: I got divorced last year. Betterment took weeks of time and many phones calls until they were able to figure out a way to divide our assets evenly, without a large difference in cost basis. Their automatic algorithm for dividing accounts just didn't know how to handle it. If UBS figures out how to offer a higher level of service on top of robo-advising, that could be a real win.

neosavvy 5y ago

I agree that robo-advisors are great, but they do leave a lot to be desired. I’m actively working on a service that would drastically change the way people engage with robo-advisory accounts. I for one prefer to make stock selections on my own, however Wealthfront, Betterment, and Personal Capital do not allow me to manage my own investments with any of the robo-advisory features. There is a huge opportunity in the space. It would be great to talk to you about it - I’d love to hear your thoughts - any way we can connect?

lzrs 5y ago
sure - dm me on twitter https://twitter.com/lzrscg https://twitter.com/lzrscg

thesausageking 5y ago

That honestly doesn't sound like very much to take 0.25%. Maybe if you're starting out and have $10k to invest, but once you're in the mid six figures or more, the 0.25% adds up. If you buy and hold, it doesn't take much work and expenses for Vanguard ETFs are ~0.10%. Also, once you move to Wealthfront, it's hard to ever leave because of how they break things up (which, I'm sure, isn't unintentional).

rrrrrrrrrrrryan 5y ago
A big advantage of the robos is that they time the rebalancing a little better. Manually rebalancing your own Vanguard ETFs at the same time once a quarter is pretty arbitrary - it's based on what's convenient to you, but it's not necessarily what's mathematically best for your portfolio. If your allocation percentages remain very stable, you might not need to rebalance at all at the end of a quarter. If your allocations fall way out of whack, you might want to rebalance a portion of your portfolio earlier, and robos handle that timing for you. I'd be surprised if the better timing doesn't provide 0.25% of value, not to mention it's just one less thing to have to think about.
- thesausageking 5y ago
  Rebalancing is really not that hard. If you have $500k in savings, it's definitely not worth paying $1250 for it and end up being locked into a platform that's hard to leave. In addition, Wealthfront doesn't know about all of my other holdings (house, angel investments, crypto, ...), so isn't going to do as good as I can.

rockinghigh 5y ago

ETFs do most of these items often for a lower fee (5-10bps).