July 9, 2015
Wealthfront is the world's largest automated investment service with over $2.5 billion in client assets. It manages a diversified, continually rebalanced portfolio of index funds on customers’ behalf at a very low cost and in an extremely tax-efficient manner.
The company was born with the idea of offering friendly pricing. It does not charge fees on the first $10,000 and charges only 0.25% annually on assets in excess of $10,000. There are no trading commissions, no account maintenance fees and no additional monthly fees. Now, they are raising the bar by lowering the minimum amount required to open a Wealthfront account to just $500. The company explains in its FAQ "Our account minimum is $500 now, which entitles you to a periodically rebalanced, diversified portfolio of low cost index funds enhanced with our daily tax-loss harvesting service (for taxable accounts)."
In a Wealthfront blog titled Bringing Sophisticated Financial Advice to More Investors, Wealthfront's VP of Product and Growth, Elliot Shmukler wrote, We lowered our minimum in response to numerous requests from young investors. A year ago, 60% of our clients were under age 35. Lately, the rate at which we attract young investors has increased dramatically, which has increased the frequency of requests for a lower minimum.
At first, we were surprised to see this surge in demand for a lower minimum. After all, there are a number of investment services from startups that have lower minimums. However, as we evaluated these services, we noticed that they have fallen prey to the excessive monthly fees that plague the traditional investment industry. said Elliot.
Adam Nash, Wealthfront’s President and CEO, wrote an amazing piece on this news in Medium titled It’s Time to Kill the Monthly Fee for Small Accounts. He took a jab at banks and also other companies that make life hard for customers with their high pricing. He also explained Betterment’s pricing structure and the problem therein:
Depositing less than $100 per month, Betterment will cost a flat $3 per month. That means an investor opening an account at $100 would be paying an annual management fee of 36% in the first year. In the second year, this fee would be even higher since the account loses value and the fee doesn’t drop. At $250, it would be 14.4% and at $500, it would be 7.2%.
As a closing remark in the blog post, Adam Nash said, The world doesn’t need another Wall Street.