Buzz
It’s always important to be mindful of the fees and pricing for financial products, but now it’s more critical than ever. The latest update: Wealthfront, a roboadvisor known for its affordable passive investing strategies, will soon introduce a 0.25 percent advisory fee for all new users, and wealthy investors will be automatically enrolled into a new fund with a 0.50 percent fee.
Beginning April 1, Wealthfront will phase out its advisory fee-free management on the first $10,000 of investments and will apply a 0.25 percent management fee annually to new investors, regardless of account size. “Existing clients who currently benefit from $10k managed for free will retain this benefit for life,” a Wealthfront representative confirmed. According to the website, there are no “account-opening fees, withdrawal or account-closing fees, trading/commission fees, or account transfer fees.”
Considering this, it might be a good time to explore other options. Robos still remain one of the most affordable choices for beginner investors, but it’s wise to compare fees. Betterment, another robo, charges 0.25 percent, placing both at the lower end of the fee spectrum, as noted by NerdWallet. WealthSimple, another robo, doesn’t charge on the first $5,000 managed for one year, then applies a 0.5 percent fee up to $100k and 0.40 percent afterward. Ellevest, a robo founded by former Bank of America executive Sallie Krawcheck, charges 0.25 percent on the first $50,000 under management.
As I mentioned here, you could also attempt to replicate the robo’s asset allocations independently, as they are generally made public on the companies’ websites.
Wired initially reported on the company's fee change, highlighting only the 0.50 percent fee associated with the new “Risk Parity” fund for wealthy investors. According to the company’s website, investors with taxable investment account balances of at least $100,000 are eligible to invest in this fund, which carries an expense ratio of 0.50 percent.
When asked about the article and the new investment fees, the spokeswoman expressed uncertainty about the source of some of the information. She clarified that the Risk Parity fund is part of Wealthfront’s PassivePlus investment features, which you can read more about here and here. In essence, the Risk Parity fund “aims to balance the risk budget of your portfolio more intelligently by providing more exposure to asset classes with higher risk-adjusted returns.”
Although you should exercise caution with actively managed funds, keep in mind that a taxable account balance of $100,000 is required for investment. It’s worth noting that the spokeswoman mentioned Wealthfront will automatically allocate 20 percent of your assets to the Risk Parity fund if you have $100k invested, with no action required on your part unless you opt out of the fund.
So, if you’re a Wealthfront investor, stay informed about the changing fee structure and continue with passive investing. However, keep in mind that the fee remains relatively low compared to similar products available to investors with smaller account balances.
