UBS Acquires Wealthfront for $1.4B
reuters.com
reuters.com
I'll preface by saying that I have been talking to a lot of financial planners (at top-tier institutions). They basically set you up with a good set of ETFs, hedge funds, etc. and rebalance occasionally. Sometimes they do tax-loss harvesting. They also provide a few other nice little services. But at the end of the day, their fees are over 1% unless you have an ultra high net-worth.
In comparison, Wealthfront can automate huge strategies for a fraction of the cost (0.25%). For example:
- Direct Indexing (invest in an index by buying the stocks directly instead of a fund)
- Automatic investing, rebalancing, and tax-loss harvesting (including TLHing individual stocks within an index when paired with direct indexing)
- Coordinating trades between retirement and taxable accounts for optimal tax savings
- Smart beta (a custom weighted indexing algorithm)
Yes, a financial planner can do all of this (although most don't). But when they do, they just use automated software to do it. It would be impossible to implement these strategies manually. So why even go with a financial planner when Wealthfront does the same thing, but better/cheaper?
Thats the 100$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!)
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-a...
https://www.wsj.com/articles/fidelity-once-stodgy-and-adrift...
https://www.m1finance.com/blog/the-rise-of-financial-influen...
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.
My robo-advisor did, during the giant tumble the markets took during the beginning of this pandemic, put up a message on the site & send a pro-active communication saying, essentially, to HODL. (In more eloquent terms, of course.) I presume a human had a hand in it, ofc., as they likely understood the fear most people would feel looking at the graph.
(My mistake, really, was not buying more at the bottom.)
say you have $100k invested
the 1% fee for that will be $1k
the earnings will be $7k
By Year 40:
* >$500K &
* ALMOST a quarter of the portfolio
When I was starting out, someone in my company's 401k forum mentioned this # (at that time the # was almost 40%, fees have gone down a lot since the early 2000's). And I am glad I paid attention.
I try and pass on this wisdom everytime I can. Now, you can too.
Here is a NerdWallet article on this topic: https://www.nerdwallet.com/blog/investing/millennial-retirem...
AND
My attempt at recreating their math (TL;DR: It matches, almost): https://docs.google.com/spreadsheets/d/1QTa4XBIUgnLCt_lo6x0n...
edit: for formatting
All the discussion on this thread of "oh just go with a mutual fund" is insane to me. Even if funds have dropped in price from 1.5% to 1% to .7%, that is a huge number over the course of your life. The only realistic approach is super-low-cost ETFs, but those arent friendly to use or make a portfolio from. So the WealthFront layer is pretty critical IMHO.
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.
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.
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.
I agree fully that estate planning/making a trust is something most people would benefit from a human advisor, but this is something you can target with an estate lawyer. I don't think this is something you would need advice on regular basis.
For taxes, I am guessing vast majority of people, even wealthy people, never need human advice nowadays. Anything that is just combination of W2+1099DIV+1099B+1099INT+1099NEC is handled well with robo tools. Tax loss harvesting is pretty simple (even without robo advising!) as long as you know wash sale rules and distinction between long/short term capital gains.
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?
You could definitely just buy an index fund, but it's not exactly comparable.
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.
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.
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.
Could you see yourself using something like this if there was an easy way to compare different scenarios?
I'd use it and pay for it though, especially if it factored in historic market data, automatically figured out housing increase rates for my area, etc.
Also, my Wealthfront account is offering me approximately 25% "Available to borrow". I haven't tried it yet but I assume I could grab that immediately and then sell stock to pay back the loan.
I'm not challenging your claim that having a human financial advisor can be useful. I'm sure you're right; I just didn't think your points against the robo service were very strong.
If wealthfront is offering an available to borrow that is perfect (for this issue).
You do get to a point though where you are like - hey, can I transfer $x of stock to a donor advised fund on this day and are just glad it can happen.
I'm not saying the fee is worth it, just that some folks may be willing to pay it because it appears to improve quality of life, even at cost of performance.
And actually, for something like a favor of $500K to help a close, you may NOT be doing a lot of planning in advance. Sure, call me when you need it if it ends up being needed. Call comes in (days / weeks / months later) - now its a pain.
https://support.wealthfront.com/hc/en-us/articles/3600392637...
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.
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.
And fwiw, tax loss harvesting sounds complicated, but it really isn't that hard to do. If I notice stocks have gone down a lot recently, I'll hop into Vanguard, and swap anything that is underwater with another similar, but not identical fund. I have one for international and one for US stocks. Took me a few hours to get a system down, and now it's a few minutes to do the harvest once every few years.
This is true only if you invest once in your life and then hold those assets forever. But if you invest every quarter then you can do TLH on those new lots individually. And since those new lots will keep coming, your TLH will always have something to work with.
That is true, but you pay a percentage fee on all of your assets (which is growing) to be able to TLH assets you've recently added (fairly static amount over time).
How much effort do you have to put in to avoiding wash sales?
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)
Equity indexes have no maturity date and can limit any taxable income to dividend only which get preferential treatment in terms of taxes.
That's true when say taxable bonds are yielding 8% and municipal bonds 6%. But when taxable bonds are yielding 2% (about the current 10-year U.S. Treasury yield), the tax hit from owning them in a taxable account is small, and maybe the growth assets such as stocks belong in a Roth IRA.
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?
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.
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.
Similarly, HSAs are taxable in California but I doubt most people know this and it hasn't caused my HSA investment account to offer tax statements you could even use to report it if you wanted to. So…
Even better, don't read this thread, since ignorance is a defense in tax law and you're not legally required to get your taxes perfectly right.
On the other hand, it is a federal crime (fine or imprisonment not longer than six months) to walk a dog in a national park with a leash longer than 6 feet.
* 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.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!
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).
When you are in the $1m+ AUM, it is pretty easy to explain. You are going to be paying for your kids to go to college and one of theirs as well. Make sure you really like them.
Once you get to 30M+ invested NW, you can seriously think about a multi-family office and > 100M+ a family office just for you starts making sense.
Most people will have a hard time getting over 1M before retirement, so I left the other options off my original post.
It's true. My mom only has about $1 million saved for her retirement, which sounds big to anyone who hasn't done retirement planning, but it's really not enough. Growth aside, that's $50k/yr for 20 years. She's paying her advisor 2%/yr. That's $20k/yr, which is a big percentage of her annual income, and he does almost nothing. It makes me sick.
Many Robo advisors throw an RIA in for free, and they are in the 0.3% ER range. It's hard to get cheaper than that.
The only subscription based one I'm aware of right now is: https://planvisionmn.com/ They give you Fidelity's eMoney platform and you manage that part of it. They just help you with the planning part.
Thanks!
"The Robo Report" [1] has detailed quarterly robo reports on performance, features, comparisons etc
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.
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?
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).
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.
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.
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...
https://www.canadianportfoliomanagerblog.com/blog/
https://community.rationalreminder.ca/
https://www.finiki.org/wiki/Main_Page
https://www.financialwisdomforum.org/forum/index.php
https://canadiancouchpotato.com/
Also, we have Ben Felix's podcasts - Rational Reminder
Unfortunately, most people say no right now since the WS Cash Card is really weak (so no point in using it) and it takes a couple of days for you to withdraw money from WS Cash to your bank account.
E-transfers are literally the best part about Canadian banking.
I'm not trying to be a shill, I personally wouldn't invest in WS since I think they're incredibly overvalued. But E-Transfer is very dated and has a lot of problems, and there is potential for a competitor to come up and replace it.
UBS has a $2.6tr+ wealth management division - they need the sexy fintech frontend.
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?!?
I could a lot of acquisitions in the coming months as capital moves out of growth at all costs fintech space and startups need a lifeline.
GS purchased FolioFN, which was a lesser player, but still a decent platform. JPM is going to have to gulp down M1 Finance and pay for being so slow to the acquisition game <-- My prediction!
Online brokerages selling order flow are very profitable, so even the "buy" decision seems like a no-brainer given the obvious monetization route. DRIP-style investment is even stickier -- you set it and forget it. Make it part of the Premier/Sapphire tiers and people dont want to move at all.
I wouldn't count JPM out though. I'd imagine they have been bulking up on cash by taking on debt for future acquisitions while interest rates were/have been low. They know this game well.
Now that interest rates are starting normalize - they can now go pick the best of the best them - be it HOOD, SOFI, etc. at more reasonable valuations (or at least 50%+ of their 2021 peaks).
Does HOOD at $50B make more sense or maybe just wait until it hits $8B. Plus the DAUs are more stabilized now that the hype has died down. And you get Dodd Frank compliant/audited accounting data instead of VC style EBITDA/DAU only data?
In addition they can pick based on who's app is actually the most sticky/metrics and get to see all the apps internal metrics while doing "due diligence for a potential aquisition".
Broadly speaking, the retail market can be segmented on two axes: net worth and involvement.
Low net worth, high involvement are day traders: they are profitable through fees, PFOF, et cetera. High net worth, high involvement doesn’t tend to exist long enough to specialise in; they’re, professionals, have better things to do or lose their money.
Low net worth, low involvement is patient capital. Not super profitable per se. But the most likely to develop into the last category: high net worth, low involvement; the money maker.
Robo-advisers targeted the third category. They got more of the first. Those not only bolted to crypto and Robinhood. They also incurred higher costs to the firm while promising less development potential to the fourth category. The actual third category participants, to a large degree, don’t need much more than was available in 1993, or at least are savvy enough not to find themselves paying for it.
I'd disagree with this. In 1993, you couldnt do fractional shares, or auto-invest, or pie-based investments. In 1993, you couldnt purcahse $500/wk of BRKB/AMZN/TSLA because there was no product like that short of paying a mutual fund 150bps. You couldnt tax-loss harvest (like with WealthFront)
You can get that now with M1, FolioFN (GS), ShareBuilder (RIP). It is low investment and high-stickiness.
You're noting net work and involvement and profit, but I think stickiness is another factor to focus on.
Fractional shares are a day-trading tool. Apart from that, yes, you're citing real innovations. (Others include a dramatic reduction in trading costs and ETFs.) To the broader point, none those are unique (any more) to the robo-advisers.
Absolutely not, polar opposite. If i'm a buy-and-hold investor who wants to set-it-and-forget it invest auto every week, Fractional share purchase are the only real way to consistently purchase. How would you buy AMZN every pay period if a single share is more than your entire investment amount.
Most long-term, low-involvement investors wouldn't. They'd buy an ETF. The exertion of selection effect for Amazon versus the rest of the market is a high-involvement action.
Oh, and if they wanted to invest $300/pay period into the S&P 500, note that SPY is currently at 440. https://www.ssga.com/us/en/intermediary/etfs/funds/spdr-sp-5... so absent fractional shares, you cant...
And if you invest monthly, what do you do, buy 1 share (different amount per month)? Or do you just give up and go to Vanguard/Fidelity/etc? This is sort of my point, how is something as basic as repeat-invest not available on the world's biggest bank?
Do you mean automatic deposits and investments? That's table stakes. They offer it. They aren't advertising it because fire-and-forget is 99% of the pitch of the wealth management industry. (That they're messaging it badly is in no way challenged.)
With respect to smaller dollar amounts, the traditional answer was mutual funds. Those usually have $1 minimums. They were historically shit when it came to fees, but now typically come in below 50 bps for broad-market funds.
FolioFN got purchased by GS.
ShareBuilder was purchased by CapitalOne and flushed down the toilet immediately.
I'm aware that these investments often go south. I've seen HSBC's foray into "Fintech" and it was rough.
Honestly it’s probably a good thing. Chase is pretty awful at basic retail banking. Really only makes sense if you live in Manhattan or something where there are like 3 mega banks in every corner.
Yes, i'm in the NY area, so true on branch location issue. But how often do you have to visit a branch if you have good systems? The branch is usually for when systems fail.
Not the best lending bank, and def not the best investment platform. I'm not sure why they cant be all three (organic or m&a) given the high synergy.
Ahead of buying a home in ~2015, I was holding a lot of cash, and Chase upgraded me to Chase Private Client. Seemed good at the time, perks like free museum visits and such, and they said I could retain the status for at least a year even after reducing my account balances.
Private Client sucked. My "private banker" was irritating at best. Constant sales pressure shilling their investment products, which had a 1% management fee, on top of being a basket of a hundred different actively-managed mutual funds which also had their own high fees. Hard pass.
I looked up my "private banker" on LinkedIn and he was literally a parking attendant at his previous role.
I moved out of NY not long after this, and switched out of Private Client, although I did keep a small amount in a lower Chase tier.
A while into the pandemic, I started getting emails from Chase about how "my local branch" was closing (always some random Chase location in Manhattan). Happened repeatedly for different branches, sometimes ones I'd only visited a single time while running errands somewhere in the city. This despite the fact that when I moved out of NY many years ago, I fully updated my address in Chase's systems, and they should surely know I do not live in NY anymore.
The credit union I use has 7% lines of credit, mortgage rates that are consistently within 5 basis points of the lowest and average hold time to an agent <3m. But… their business banking is weak and it’s not really a good place for a high net worth person.
I think big banks tend to never be great customer experiences becuase the internal incentives aren’t there. Retail banking is a sales funnel, and why would a brilliant leader want to run retail? It would be a pay cut. The “brand name” of a major bank used to mean you could cash your checks anywhere, etc. that’s all dead.
The money lives at interactive brokers, the cash flows through etrade, wells Fargo has never met a mortgage it didn't want a piece of, and chase rents me a safe deposit box.
Why use e-trade (or ibkr) at all in this situation? What does this whole thing mean?
[0] https://media.chase.com/news/jpmorgan-chase-enters-agreement...
My take (as a previous employee at Betterment): Wealthfront/Betterment/et al came out to much fanfare and the promise of disrupting the traditional wealth management industry.
At first, it seemed like they were right. AUM growth was looking like a hockey stick...this caused some panic at the big firms' who hurried to launch their own offerings (this is like 2015-ish) which were minimal at best, and still mostly just "marketing products" - a thin roboadvisor veneer designed to drive users into their traditional businesses.
Over the next 2-5 years and up to now, it is becoming/has become obvious that roboadvisors are not, in fact, going to disrupt the industry and it's rather a race to the bottom in pricing with razor thin (or non-existent) margins...so the actual robos have largely stagnated and the big firms stopped investing into their own solutions.
Isn't that the point of automation? Doesn't the saying go, "your margin is my opportunity"?
Yet in banking, there arent great stacks where you can keep your relationship across the board. For JPMC, an acquisition of a Betterment or WealthFront (or others) would be a drop in the bucket.
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.
What is strange to me about robo advisors is that they are still charging a management fee instead of a flat fee. The algorithms are really basic and don’t have any real time changes so it seems weird to charge 25-50 basis points for what’s basically just an interview and time based rebalancing with some formulas that aren’t really better than existing ETFs.
I’ve been expecting this to just be a feature for vanguard and fidelity since the “advise” could just be client side automation rules that nobody wants to build.
Plus, people invest for reasons other than dated retirement targets.
[1]: https://www.wsj.com/articles/vanguard-target-retirement-tax-...
I actually wouldn't mind a platform that uses my brokerage as a backend and lets me do % allocations on 3~4 funds, automatically identifies rebalance opportunities and tax loss harvesting. Basically nudging me like 3~5x per year. I'd pay a flat fee to do that.
I like the idea of rebalance opportunity notifications, but it’s harder to get retirement funds into a google sheet with all the automatic contributions that happen…
You must be one of:
1. lucky 2. a genius 3. a crook 4. haven't invested on a long enough timeframe.
Everybody invested in broad market index funds has been making those returns the last few years.
He's either not really getting 20% or is cheating on his taxes.
Source: I have a personal relationship with my auditor, and I'm pretty sure he hates me because I don't willfully cheat on my taxes.
The (US) market has done 11% annualized in the last 15 years. 20% is not just "traking the market". It's the difference between going from $1m to less than $5m or more than $15m.
Now, if "15ish years" means "12 years and 9 months, from the exact bottom" then yes, the annualized return has been over 18%.
exact same sequence. I was surprised how poorly it underperformed.
if you look at SPX returns over the last four years, 2018 was a negative year but each year after was between 16% and 28%. also 2017 was over 19%.
Just going to move it all to $DOGE now anyways.
I never held anything with them during a market downturn, so I do wonder what that might look like. Potentially the lower returns would be justified by the existence of a hedge or holdings in lower-risk assets.
1 year of investment data is useless. An investor will be invested for their lifetime, we barely have decent data for 1 investor's invested lifetime(about 50 years). A decade comparison is arguably the bare minimum, you really want 20 years, as investments tend to be cyclical by a decade or so.
* 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.
They love these stocks because they usually have a big short interest. The broker can lend them out and keep the profits for themself.
Only IKBR does some sharing of securities lending profits.
That's 10% of the entire portfolio spread out over (presumably) multiple individual stocks, which seems reasonable to me... is it not?
Example: networking gear that supplies a dhcp server. You shouldn't have to put in the IP address range. It should just be yes or no, so no admin ever needs to know what dhcp even really does. It satisfies 80% of customers.
...but someone wants your own custom DHCP server, with custom IPs so that it can support your legacy printers, with reserved ranges of static IPs because the ghosted profile wants a printer at 172.16.12.2 etc. etc. etc. and that customer is willing to buy $1B of equipment, so you do add the customization. The slippery slope begins to acquire more customers.
Don't read too much into marketing materials.
It's likely that they surveyed a lot of potential customers and found a significant number were afraid that Wealthfront wouldn't allow them to choose individual stocks. So that factoid filtered its way over to the graphics design department, who were told to prominently display something about how you can still buy individual stocks.
Their desktop experience isn't bad though! Other commenters have mentioned how garbage Wells Fargo/JP Morgans investment dashboards are and wealthfront thankfully takes user experience on both platforms seriously
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.
@ 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
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.
`It’s important to note that you can only automate investments into Vanguard mutual funds.`
https://support.vanguard.com/tutorials/automatic-investments
Just to be clear, we are talking about clicking on a bookmark, letting the password manager fill in the login info, and the clicking login or pressing enter?
>requires active effort to remember doing
Checking up on one's assets is something that should be on a periodic to do list. We even have devices that can be scheduled to alert us when it is time.
Close, you forgot the part where you need to locate your 2FA device, possibly connect it to a charger and wait for it to boot if needed, and then of course actually get the 2FA code and type it into the website.
edit: Oh, and I forgot the part where if you need to boot the device, you probably have to type in the password.
Also, macOS/iOS automatically fill in SMS 2FA which is nice.
Don't use SMS 2FA, though.
We offer this to our clients at farther - set a minimum amount to keep in your bank account, everything over set minimum gets swept to your investment accounts and invested based on how you set them up and any relevant regulatory stuff (like max IRA contribution amounts) or goal amounts.
Quick note - We focus on holistic management for pretty significant wealth (compared to the target client for most offerings) and all of the stuff that comes with that - more intricate planning around events, alts, families, collabs with CPAs, attorneys etc. That's best achieved with a hybrid approach - an advisory team boosted by tech - so advisors are part of the deal! If you're interested, feel free to PM me and I'll connect you with one of our advisors.
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.
Mass personalization in investment would only really work if it makes sense to truly personalize investments given the huge uncertainties involved. But I am sure people will happily sell this and find willing buyers.
And the future is about giving investors more ways to damage their returns by actively trading and arbitrarily customizing their strategy.
45% VTI
20% VEA
19% VWO
14% VIG
2% VETB
Really, I think one of the best investing strategies is to buy and hold a variety of Vanguard funds and stop thinking about it.
https://investor.vanguard.com/investment-products/mutual-fun...
* automatic rebalancing
* tax loss harvesting
* tax co-ordinated investing - looks at both your taxable and tax exempt/deffered accounts and directs funds appropriately (for example, puts more tax inefficient assets in your tax exempt accounts)
You can of course do this on your own as well, so it's up to you to decide whether the additional fee is worth it or not. Also, not all robo advisors offer the same features - but most offer automatic rebalancing at a minimum.
Betterment's tax loss harvesting is good… unless you're expecting your tax rate to go up next year, in which case you want to harvest gains… also, it'd be better to not lose money in the first place. Since they have alternate portfolios like "smart beta" now which try to do that, their features conflict with each other.
The main problem is that every robo uses the same Modern Portfolio Theory based investing which despite being "modern" is from 1960.
It’s gotten worse over the years as banks have stopped support for open APIs. I guess because of plaid-type integrators that make custom interfaces. I’ll likely quit my bank (usaa) as they got rid of any api access unless you go through third parties.
I’m not willing to give my account credentials to a third party like plaid where the downside is draining most of my liquid assets and investments.
Moneydance has been decent enough and I think I’ve paid $100-150 in 10+ years for an initial version and then an upgraded one.
Meanwhile, all banks seem to have the functionality to download .ofx/.qfx files through their web interface. I believe this is what Plaid et al retrieve. Of course using Plaid is horrible because not only are you giving out your credentials, but you're also giving away your private financial data to a surveillance company. But you can personally download the OFX files from the web interface for use with Moneydance (etc), and given the way OFX works you don't even need to be careful about overlapping date ranges (eg download the last year of transactions every month).
Of course that becomes a bit tedious and doesn't give Moneydance (or whatever) access to your recent transactions (it would be very convenient to `tail /var/log/bank` rather than having to login manually). So I'm wondering if anyone has written a libre package that aims to do the web scraping approach for various popular banks that don't support Direct Connect.
I still manually download csv or qif files, but that’s much less convenient than automatic imports. I like the idea of an open standard and wish banks would throw them away instead of improving them. OFX was issued in the 90s so the fact it runs at all is at least something.
How does Betterment compare these days?
And those advisors typically take 1+%/yr. At 0.25%, Wealthfront would have had to have $40bn AUM to have equivalent revenue, not to mention WF took $200M in VC money to build it.
How does your platinum plan work?
We just launched mid December, and currently have 16 paying subscribers and 178 free members. MRR about $2500. The Platinum plan can be either implemented via API, email notifications or a managed account in which case after some legal paperwork, we set up a second user in Interactive brokers with trading authority that executes trades based on the signals (hedging via ES futures).
1. It seems likely your models work internally with probabilities vs binary buy/sell decisions. Why do you not have the option to expose this probability, vs just simple buy sell signal? I would think this would pair very nicely with asset allocation. Have you investigated performance when using a sliding asset adjustment (even if just sp500 future & cash) that corresponds to model confidence, vs the binary win/lose bet system? Does slippage from frequent adjustment dominate the gains, no matter the adjustment threshold?
2. At a lazy glance, it seems trivial to boost performance with leverage on buy + shorting on sell, assuming the model really retains its backtest-heavy predictive power. Is this ignored just to remove black swan risk, or is there something more fundamental?
Obviously a 0 leverage buy sell signal is very marketable and low friction, fitting for a SAAS product, but it seems you could do even better with skills you obviously would possess if actually capable of making such a "god" level market predictor. Your posts are full of other seemingly more complicated strategies with somewhat contradictory capital levels throughout the years so it further adds to the main crux of confidence here: That you discovered a top 1% hedge fund caliber model individually as a mid tier SWE early retiree and suddenly offer it to all for an attractive price, without already being sure you can fuck off to a private island with the power of 50%+ CAGR, ignoring the rest of the world. You are also very sparse on details regarding your "proprietary anti-overfitting" methodology, when overfitting is of course the well-memed downfall of 99% of algo trading techniques that claim to meaningfully beat the market. To say nothing of the backtesting window conveniently starting after 2008, lack of VIX hourly data or not.
Disclaimer: I've spent the last 8 hours or so digging through your entire SA, reddit, and HN post history. Initially I dismissed your site as 80% likely scam, 19% naïve backfitted and overfitted waiting-to-be-raped-by-bear-market drivel, etc. But now I'd say I'm operating on a more optimistic 5-10% chance there is something legit here. You might actually just have researched sufficiently in all the right places, implemented a legitimate edge through extensive pareto culling via the yet virgin power of code, and had the perfect balance of libertarian desires to motivate you and yet progressive ideals to democratize it. As well of course as this being a genuine passion project that you are excited to share with others.
I currently work overemployed at FAANG, capital accumulation focused, but I've always held attempting to pareto market timing with a ~99-1 EMH assumption as my main FIRE project in the back of my mind for the past couple of years. I came to the weak conclusion with my pareto^pareto research of the idea that attempting to limit drawdown via algorithmic tactical allocation on SP futures (for liquidity) via macro + TA indicators seemed the best method. So, I am very intrigued to see someone who essentially appears to be me born 5 years earlier doing that exact thing.
Rereading this, I don't mean to come as aggressive/hateful; regardless of how the future treats your models this is a very thought provoking and exciting project!
What does this mean?
Though I think the actual best way to optimize labor-to-income is F500 Cloud SRE via B2B contract, but its hard to have to balls to pivot to that after spending so long perfecting SWE interview skills.
1. Internally, the model does work on a sort of weightings / probability system but it's not so simple as boiling down to a single probability figure, i.e. if it hits over 60% we trigger buy or less than 40% trigger sell. Instead there are a few phases in signal change identification starting with an attempt to classify overall fundamentals and market move and moving down to the more granular indicators based on each level of abstraction. Certain low level indicators mean very different things based on the higher level classifier output. However, I could feasibly attempt to boil down to some sort of confidence or probability figure and expose it. I'll need to do some rigorous internal testing to ensure that it conveys accurate information first, but it's a good suggestion.
2. I think the fairest way to report the results is with a 1x/0x (long with no leverage on buy signal, market neutral on short) and then let the users decide whether to use leverage or to short the market during sell signals. Personally I have used leverage here and there and I tend to dial it up or down based on how well the model seems to be performing at a given time. However, I think it's important to note that no model can ever be 100% free from overfitting, and while a great deal of effort has been made to generalize and widen params and heuristics, there's bound to still be some and even I don't know to what degree. This, plus the fact that algotrading becomes more competitive every year means that I think it's prudent to conservatively expect returns somewhere in the 50-100% wide range of the past, which could also mean drawdowns a bit larger than the backtest shows. And of course, black swan risk is ever present. Finally, the models only go back to 2009, so we don't have great data to indicate how they might perform in a more harsh bear market such as 2007-2009 or 2000-2003. This is an unfortunate coincidence as one of the key indicators, Vix Futures, only came to be in late 2004 and the earliest I could find intraday data broken into distinct contracts (not just continuous front month) was early 2009.
As far as my occasional contradictory past reporting of my own financial position. There's a couple reasons this could be--at times I've included less liquid assets (private company shares, family business interest, 401k, home equity, etc), and at others I've only reported what's immediately available to me and highly liquid (bot account + emergency fund, etc). I feel I've probably erred on the side of sharing too much personal financial details over the years, but it is what it is. Secondly, I've not always been a stable investor. I hate to admit that back in the day I was a bit of a WSBer at times. Never consistently, but sometimes I'd get caught up in the FOMO and make a rash (and often too large) bet on an earnings report or something and (though I won a few times) usually end up losing my ass. As such my net worth was pretty volatile between 2013-2018. I've since given that all up and the bot has helped assuage my inner gambler. I also used to follow some other folks' timing systems back then and learned the hard way that most don't work, so all skepticism is warranted. Even I like to keep a skeptical mind about the future of my own models which is why I reported the wide range of expected outcome above
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.
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.
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.
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.
I personally have many friends who are very happy with betterment and wealthfront which is good. When I ask them about their returns in the past couple years they say that the stocks have done amazingly.
When I tell them SPY would’ve given them higher returns and lower fees they’re skeptical, and lo and behold when I actually show them they’re shocked.
I feel these companies survive on sheer inertia
Now, obviously you can also create a very diversified portfolio by yourself. That's totally fine if you know what you're doing and OK spending the time doing it.
However generally they harvest only a few % of your portfolio
When the market crashes, I expect their autorebalancer to make a killing.
It's been hard to compete with "stick all your money into the biggest US companies" for the last few years, but those years weren't typical.
I’ve yet to see evidence that any actively managed fund, including robo advisers, outperform SPY on a risk adjusted and fee adjusted basis.
Not saying they aren't saving you the fees, but not a lovely experience.
Robo and human financial advisors provide emotional hand-holding and comfort.
Same reason why you trust a doctor, despite doctors underperforming (intelligent) self-directed health and nutrition research.
I’m skeptical of this claim. What’s “intelligent” research mean?
Index funds are literally sit it and forget it. Even easier than robo advisers. With year retirement funds you even get auto balancing with the same ease.
That's a bold statement considering the anti-vaccine climate today. The value in doctors isn't necessarily what they've learned but instead what trends they've seen personally and local to your area.
I do agree human financial advisors are mainly a tool for comfort. I've got one and most of our conversations instigated by him are relationship-building and not necessarily aggessive-fund-strategy type talk.
That comparison isn't really a good way to evaluate based on since it doesn't account for risk, only reward.
Furthermore if robo advisers really could make more money on a risk adjusted basis it would literally make them more money to use their own service than to sell it.
If there’s a single ETF that will do what Wealthfront and others are doing, I’d switch away in a heartbeat if the fees were lower.
But if you go from $50k to $500k with them you will be paying ten times as much (depending on the fee structure, of course). At some point, it may not be worth it.
Vanguard has more active management products, actually. Besides their Windsor fund, S&P 500 is an actively managed index.
An index ETF sure, but it might be worth paying for tax optimization over that.
If I’m wrong feel free to walk me through a 10 year period where any robo advised fund of your choosing has better return, risk and fee adjusted.
The biggest benefit of Wealthfront is automated tax loss harvesting, not stock picking.
The biggest cost of Wealthfront is that when you leave you either (a) keep a humongous pool of individual stocks to eventually unwind or (b) liquidate and incur unnecessary capital gains.
For the informed investor, yes, however they are a giant step above the "financial advisors" (mostly insurance salesman) that uninformed investors otherwise would end up with.
If you otherwise wouldn't invest or would go to a non-fiduciary advisor, then the fee is worth it.
If you know what an index fund is, how to purchase index funds, and know which index funds to invest in, by definition, you are not an "uniformed investor." You might argue "... rabble rabble you should know these things..." but that doesn't change that a large portion of the population doesn't and is extremely overwhelmed by it.
I've never used Wealthfront personally but I assume its basically like a bank account - just transfer money in and everything else is taken care of for you. That's a really, really valuable service and it's well worth the small fee for some percentage of population. Otherwise they'd 1) not invest and lose out on gains and dividends or 2) lose massive amounts of money buying financial products sold to them by "financial advisors" with a 6% load and 1% fee. (Not an exaggeration)
Is it a service for me? No. But not every service is something I'd be interested in, that's ok.
My little cousin wanted to save more for retirement and heard about IRAs. He asked me how to set up and IRA and recommendations on what company to use. I recommended Fidelity with just an s&P 500 index to start. He got really overwhelmed even though I offered to help him click-by-click. He decided not to set up the IRA until he found Wealthfront. He loves the simplicity and that everything is taken care of for him. He's really happy he can save for retirement without worrying about doing something "wrong." Now, my cousin is a smart guy, so I think he'll move past Wealthfront eventually once he learns more, but it's really useful for him now.
So if you owned every stock in the index directly, one could cycle the losers around a bit (there will be at least some each year) to maximize this write off against income.
Tax loss harvesting really only works in the long run if you know which stocks won’t recover.
I’m not in US, but what are the rules about buying back a stock that you just sold?
In Canada, it’s a 30d wait for the loss to count, but you can buy back another similar company/index the next minute and your loss still counts.
If the price of oil craters and you sell your -10% Exxon and buy -10% Chevron, you’re not timing the market but you are crystallizing a loss.
Or change between Solactive and MSCI-based index funds because they’re “only” 95% identical.
Later, it unwinds the imbalance to avoid realized gains and wash sales. Doing that without impacting long-term returns is one of their biggest value adds.
For example you’re better off just buying the dip, then selling, and paying taxes (even with harvesting) and repurchasing assuming the stock recovers and you don’t mind fronting the capital
By my calculations, the breakeven AUM is around $240k, assuming you always have 3k cap gains to offset.
For all I know, these robo-advisers just buy you ETFs.
What is the situation where that is actually useful? Take me for example, I invested for 5 years in VTI and then sold it for a downpayment. What would their TLH do for me in that situation because I didn't need to offset cap gains in those middle years and the end year both get hit with cap gains.
Doesn't seem to do anything except charge a higher fee and create more irs paperwork in that situation.
One of the benefits is tax-loss harvesting. (https://www.investopedia.com/terms/t/taxgainlossharvesting.a....) This is essentially free alpha. You can do it yourself but it's a pain to do correctly.