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I've often wondered about precisely the author's issue – why do wealthfront, betterment, et. al. charge a percentage of assets under management? Is it just that

I've often wondered about precisely the author's issue – why do wealthfront, betterment, et. al. charge a percentage of assets under management? Is it just that no competitor has offered a flat rate yet, or is there intrinsically more work involved in trading larger sums? To this one point: > All these cases neglect to mention that you will probably only see the maximal gain if you are maximally messing up already, by needlessly churning your account to generate capital gains. As Vanguard’s founder advises: Don’t just do something; stand there. The author is listed as "Former Director of Product @ Facebook". If he received a portion of his compensation in Facebook stock, he needed to sell out of that position regularly to avoid being over invested. That should have had generated more in capital gains than tax loss harvesting could offset.

x0x0 11y ago
Because why not charge high prices if suckers pay them.
- kenferry 11y ago
  There are something like 10 robo advisors. If a competitor could undercut wealthfront and get more business, why wouldn't they?
  - hayksaakian 11y ago
    if the increase in businesses does not offset the decrease in prices lets say you charge X instead of Y% now assume that on average, others are charging 2X after calculating individual percentages if you only get 30% more clients charging X instead of 2X you're actually making less money.
    - gohrt 11y ago
      The entire VC-based economy is designed around using capital investment to buy time to grow your audience with low proces.
gohrt 11y ago
> That should have had generated more in capital gains than tax loss harvesting could offset. only in the year he sold after the IPO. RSU vests are taxed as ordinary income.
- deleted 11y ago
  [deleted]
- aoeuasdf1 11y ago
  Yes, but employee stock purchase plans (~50% of the time) result in large capital gains.
thisisit 11y ago
I think the sub heading makes it clear on author's issue - Weatherfront's real costs. While they write tons of stuff on how they are anti Wall Street and are cheaper options, they actually are misleading people with standalone numbers instead of showing them compounded ones. A trick which is prevalent in Wall Street companies. > To this point >> All these cases neglect to mention that you will probably only see the maximal gain if you are maximally messing up already, by needlessly churning your account to generate capital gains. As Vanguard’s founder advises: Don’t just do something; stand there. It talks about the comparison Wealthfront seems to make. As he says in the earlier para: > They appear to reach these numbers simply by adding the maximum possible tax alpha to VTI’s return. A simple backtesting shows wealthfront shows them they would have come out ahead. What it doesn't consider is achieving it in realtime will require a lot of other trades to be done. Example, a company being removed and new one added to S&P. This will cause a change in weightage and calculation. In an index fund, as you have bought the component you need not bother with the churn of companies. While in "direct indexing" you will have to actively manage the portfolio and adjust it accordingly. This will cause brokerage and fees applied to your account for the trades.
lmm 11y ago
I think the idea is that it aligns incentives. If your adviser makes more money the more money you have, it's in their interest to make you more money. Compare e.g. letting agents, recruiters, ... More cynically, it means you're cheaper when your potential clients are just starting out, and people tend to stick with the investment manager they started with.
- hooo 11y ago
  Not entirely aligned since it's a % of assets and not the % of gain. They will make money even if they're losing you money.

x0x0 11y ago

Because why not charge high prices if suckers pay them.

kenferry 11y ago
There are something like 10 robo advisors. If a competitor could undercut wealthfront and get more business, why wouldn't they?
- hayksaakian 11y ago
  if the increase in businesses does not offset the decrease in prices lets say you charge X instead of Y% now assume that on average, others are charging 2X after calculating individual percentages if you only get 30% more clients charging X instead of 2X you're actually making less money.
  - gohrt 11y ago
    The entire VC-based economy is designed around using capital investment to buy time to grow your audience with low proces.

gohrt 11y ago

> That should have had generated more in capital gains than tax loss harvesting could offset. only in the year he sold after the IPO. RSU vests are taxed as ordinary income.

deleted 11y ago
[deleted]
aoeuasdf1 11y ago
Yes, but employee stock purchase plans (~50% of the time) result in large capital gains.

thisisit 11y ago

I think the sub heading makes it clear on author's issue - Weatherfront's real costs. While they write tons of stuff on how they are anti Wall Street and are cheaper options, they actually are misleading people with standalone numbers instead of showing them compounded ones. A trick which is prevalent in Wall Street companies. > To this point >> All these cases neglect to mention that you will probably only see the maximal gain if you are maximally messing up already, by needlessly churning your account to generate capital gains. As Vanguard’s founder advises: Don’t just do something; stand there. It talks about the comparison Wealthfront seems to make. As he says in the earlier para: > They appear to reach these numbers simply by adding the maximum possible tax alpha to VTI’s return. A simple backtesting shows wealthfront shows them they would have come out ahead. What it doesn't consider is achieving it in realtime will require a lot of other trades to be done. Example, a company being removed and new one added to S&P. This will cause a change in weightage and calculation. In an index fund, as you have bought the component you need not bother with the churn of companies. While in "direct indexing" you will have to actively manage the portfolio and adjust it accordingly. This will cause brokerage and fees applied to your account for the trades.

lmm 11y ago

I think the idea is that it aligns incentives. If your adviser makes more money the more money you have, it's in their interest to make you more money. Compare e.g. letting agents, recruiters, ... More cynically, it means you're cheaper when your potential clients are just starting out, and people tend to stick with the investment manager they started with.

hooo 11y ago
Not entirely aligned since it's a % of assets and not the % of gain. They will make money even if they're losing you money.