Happy Anniversary, Wealthfront

This week marks the first anniversary of the launch of Wealthfront’s software-based financial advisor. We have come a long way in the past year toward our audacious goal to democratize access to high quality financial advice. The speed and the distance we’ve traveled are due to the tremendous support of our clients and the incredible contributions of our Wealthfront team. Thank you!

Andy Rachleff & Daniel Carroll, Wealthfront

Andy Rachleff, President & CEO and Daniel Carroll, Founder & Chief Strategy Officer

It’s always fun to take a moment and reflect on where you’ve come from and where you are going when you’ve reached a milestone.  On Dec. 1, 2011, we launched a low-cost service to create and manage diversified portfolios, using a well-established concept in finance called Modern Portfolio Theory.

Our approach got a huge endorsement this year, when the renowned economist Burton Malkiel joined our team as Chief Investment Officer. With Burt’s help and the help of another highly respected academic, Paul Pfleiderer, the C.O.G. Miller Distinguished Professor of Finance at Stanford Graduate School of Business, we made significant improvements to our risk assessment algorithms and the rigor of our asset allocation model.

Tax-loss harvesting and other features

Over the past year, we added many features to our service. Here’s a quick review:

• We added electronic bank transfer (ACH) so that you can now fund your account more conveniently.

• We added automated scheduled deposits, which allow you to use dollar-cost averaging to avoid some of the risks of the market’s highs and lows, and to enforce a savings routine on yourself.

• On Oct. 9, 2012 we added continuous tax-loss harvesting. Even high-end private wealth management accounts do not offer continuous – as opposed to year-end – tax-loss harvesting. Continuous tax-loss harvesting could add as much as 1% to your returns.

• We now offer our clients individual, joint and trust taxable accounts, and a variety of IRAs. We also support 401(k) rollovers.

• For the sake of simplicity, we now provide our service free of commissions and other ancillary fees. Compare this to other brokers and advisors who hide so many fees in their statements and disclosures that you need to be a detective to find them and a PhD to understand them.

• We offer our clients actionable, data-driven advice through our Knowledge Center on topics including college savings, which are the best tech companies to build a career, how you should be compensated, when and how to sell your stock post-IPO, the role of your home in asset allocation and whether you should make angel investments.

In a couple of cases we delivered our advice in the form of interactive tools (Our Startup Compensation Tool & the Post IPO Sales Strategy Simulator). These tools allow our visitors to review advice appropriate for their situation, and to reach inside the advice to understand why it was the best answer.

Adam Nash joins

As an aside, I believe this data-driven advice is only possible because of the technical talent we’ve attracted to our company. Wealthfront is built on a fantastic engineering team, which has been widely recognized for its technical contributions including continuous deployment. In the past year, we have succeeded in marrying that talent with world-class investment professionals.

The SEC rules prohibit us from quoting our satisfied clients or promoting their reviews. (The regulations that, in effect, protect the incumbents and make it harder for new companies to succeed are one of the great day-to-day frustrations of running a finance startup.) I’ve heard from hundreds of people at our seminars that they are trying our service, and our new assets continue to grow at a consistent rate of at least 15% a month.

This week, we announced that Adam Nash, an executive who played a key role in driving growth and product innovation at LinkedIn and eBay, joins us as our chief operating officer. Adam will oversee engineering, product and marketing at Wealthfront.

I can assure you we are not resting on our laurels. Our rate of innovation is increasing, and we plan to continue our rapid rate of new feature development. We continue to offer free seminars for companies that want to help their employees invest their savings. Talking to people in our market helps us shape our product roadmap.

Our strategy is informed by our mission to democratize access to high quality financial advice. We take this challenge very seriously. We want to build a great company by doing well for our clients.

We have a number of great new ideas in the development hopper to both improve and simplify our service, but would greatly appreciate hearing from you.  Please email me at andy@wealthfront with any enhancements or new ideas you would like to see us implement.

We look forward to many more happy anniversaries.

Disclosure

This blog is not intended as tax advice, and Wealthfront does not represent in any manner that the tax consequences described herein will be obtained or that Wealthfront’s tax-loss harvesting strategy, or any of its products and/or services, will result in any particular tax consequence.

We simulated the potential after-tax benefit of our tax-loss harvesting service using historical results and found that it added an average of at least 1.03% annually, net of commissions. We used several assumptions to create one possible approximation, but did not rely on actual client trading history, and our results should not be relied upon for predicting future performance. The results are hypothetical only. These results are based on a study Wealthfront conducted for the years between January 2000 and December 2011, assuming a Wealthfront account with an initial deposit of $100,000, additional quarterly deposits of $10,000, and periodic rebalancing. Dividends and interest were not considered. Commissions were assumed to be $2 per security trade plus $0.0025 per share traded.

For more about our tax-loss harvesting service, and a complete disclosure, see our white paper.

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One Response to “Happy Anniversary, Wealthfront”

  1. Michael December 11, 2012 at 4:53 pm #

    Excited to see the automated scheduled deposits being added to the tool. This will truly enable time diversification which is very important for this type of approach. Since we don’t have great tools of predicting the tops and bottoms of the markets, purchasing additional assets on a scheduled basis will allow users to remain diversified through the different swings of the market.

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