Today we’re unveiling our Online Financial Advisor service, which for the first time makes sophisticated investment advice accessible and inexpensive.
Six months ago, we started hearing complaints from our Silicon Valley-based customers about the wealth managers lined up in their lobbies. These “suits” were taking advantage of the new wealth being created by the surge in IPOs. But our friends in technology companies didn’t trust the financial advisors, because of their high fees and biased advice. They started asking us if we could manage their entire portfolios in a quality way, but without all the costs.
When we heard this, we realized that our local customers wanted exactly what we wanted for ourselves. As software engineers, we wanted good, rigorous investing advice, wrapped in a low-cost, convenient package. We also wanted an interface that was, in the words of our CTO David Fortunato, “clean, pretty and fun to use.”
Judge for yourself what we created: www.wealthfront.com.
(Also check out our engineering blog where we talk about how we built the service. We use Ruby-on-Rails, HTML5, SVG, and jQuery on the frontend, Java and R on the backend, all using Continuous Deployment in a highly-regulated environment.)
Our Online Financial Advisor service delivers on everything you’d expect from a Silicon Valley company:
Implements best practices
Our service is built on the foundation of Modern Portfolio Theory (MPT), the approach favored by most every academic and investment professional to optimize a portfolio’s expected returns for any given level of risk. Historically, rigorous MPT-based financial advice has been available only through high-end financial advisors.
We design a portfolio for you that is diversified across asset classes, to lower your risk without sacrificing your returns. Through our service, your money is invested in low-cost, index-oriented ETFs, often from The Vanguard Group.
We’ve turned the financial advisor business model on its head by requiring only a $5,000 minimum and not charging an advisory fee on your first $25,000 under management. Then we only charge 0.25% on the amount over $25,000. That’s at least 75% less than what traditional advisors charge. We do not accept compensation from anyone other than you, so you can be assured we will not steer you into a higher-priced investment because we get a kickback.
Unlike traditional Wall Street firms that focus solely on lining their pockets, we aim to delight our customers, with an efficient and simple-to-use service. We know you don’t want to be bothered with a lot of investment decisions, so we use advanced algorithms and comprehensive research to limit the number of questions we need to ask to provide you a compelling, personalized plan. We continuously monitor your portfolio and periodically rebalance it to maximize your expected returns without exceeding your risk tolerance.
As software engineers, we believe information wants to be free and that you should pay only for convenience. That’s why we provide your investment recommendation before you even give us your email address. We only charge if you want us to manage your portfolio for you. We also explain why we made our investment recommendations; something that we believe has never before been done.
We’re building our business with an open-source approach. If you want to become a customer, great. If not, we’re happy to help you do it yourself using our website, our online tools and the information on our blog.
If you’ve been a regular reader of these pages, you know we are no fan of most financial services companies. They win business by inspiring fear and make profits with hidden fees. We want to be part of the social movement toward better, transparent investing. We believe that’ll benefit us in the end, and, more importantly, you.
Please let us know what you think.
About the author(s)
Andy Rachleff is Wealthfront's co-founder and Executive Chairman. He serves as a member of the board of trustees and chairman of the endowment investment committee for University of Pennsylvania and as a member of the faculty at Stanford Graduate School of Business, where he teaches courses on technology entrepreneurship. Prior to Wealthfront, Andy co-founded and was general partner of Benchmark Capital, where he was responsible for investing in a number of successful companies including Equinix, Juniper Networks, and Opsware. He also spent ten years as a general partner with Merrill, Pickard, Anderson & Eyre (MPAE). Andy earned his BS from University of Pennsylvania and his MBA from Stanford Graduate School of Business. View all posts by Andy Rachleff