I just finished reading an article about a debate between the Wealthfront CEO and Ric Edelman. It intrigued me enough to go to the Wealthfront website and see what they are all about. I answered their questions about a $150,000 portfolio and then was significantly underwhelmed as they spit out their version of a diversified portfolio featuring nothing but Vanguard funds. I was also appalled by the lack of depth in their query.
If this is “robo-investing” at its current best then I can’t believe it will survive. I certainly would not pay even ¼ of one percent for this kind of puerile output. It is certainly not “advice” in any sense I would trust. IMHO it is overly simplistic but not so different from prevalent broker dealers who maintain 6-10 portfolios and then find a justification for ramming their prospects and clients into one of them.
In seeing the solution Wealthfront proposed, I was even skeptical about both their mean variance optimization machinery and their ability to really find relatively low correlated asset classes for their solution.
IMHO this experience serves to reinforce the age old adage of “buyer beware”. IMHO this isn’t investment advice or investing. This is throwing stuff on the wall of ignorance to get .25% revenue enhancement regardless of the lack of merit of the solution proposed. This is what trying to buy advice cheap will get the unsuspecting cheapskate. However, since much that passes for active management and advice isn’t really all that much better I guess cheaper holds more sway per se.
I tested their web site a second time and manually input a maximum risk tolerance – 10 – with some effect on the percentages allocated but no change in the funds selected. Now my biggest holding was to be emerging market stocks. Since any indexed emerging market fund would hold stocks or indexes of particular countries that were not timely to be held why would anyone with a sentient brain want to do that?
It so happens all my investing is in IRA’s so there is no taxable element to my results. That is why I seek and find the best and highest paying dividend stocks and Limited Partnerships I can to fulfill my financial needs. This robo-investor didn’t care to ask about any of that and presumably could care less. They obviously don’t care about behaving in a fiduciary manner or about providing customized advice of any kind. IMHO they appear to be just a throwback in cheap clothing.
Oh, one last thought, the website touts – and this appears to be their only Unique Selling proposition – that investors trust them to manage 1.8 Billion in assets. Since they don’t appear to be managing anything, two things immediately come to mind. First, is the old PT Barnum statement that a sucker is born every minute. Second is one from an old colleague to the effect that if biggest were best elephants would rule the world.