Robo adviser Wealthfront now offering loans, not just advice

Clients with at least $100,000 can take out loans of as much as 30% of their account value

Apr 19, 2017 @ 4:37 pm

By Bloomberg News

Now the robots are coming after more than your investment adviser.

Wealthfront Inc. said in a blog post Wednesday that it will offer loans, calling the move a first among robo-advisers, which are known for wealth management using automated investing platforms. Through a partnership with RBC Capital Markets LLC, clients with at least $100,000 can take out loans of as much as 30 percent of their account value, using their portfolios as collateral.

"This is consistent with our strategy, which is to take basically every major service that a private wealth manager offers to wealthy clients and use software to offer it to some people who can't afford the minimums," Andy Rachleff, Wealthfront's CEO, said in a phone interview.

The product launch is the latest in a series for the Redwood City, Calif.,-based firm, which co-founder Mr. Rachleff rejoined in November. Other announcements in the past year by Wealthfront, which oversees almost $6 billion, include a 529 college saving plan and an enhanced financial planning platform called Path.

To get a loan, Wealthfront's clients must meet the balance requirement in a taxable account, which eliminates the majority of its customers. The credit program could introduce more risk for the firm, according to George Pearkes, an analyst at Bespoke Investment Group.

"If the portfolio drops, then the loan becomes less secure — it's like buying stocks on margin," Pearkes said. "It also depends what type of assets are in their portfolio, what the person's cash-flow situation is and how much other debt they have."

There is skepticism over how much of a competitive advantage the offering will provide. Other robo-advisers have looked into lending as well, but decided to focus on different services first. Josh Brown at Ritholtz Wealth Management said big firms could easily add the feature.

"It's nothing that Schwab couldn't do tomorrow," he said.

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