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

+ Zoom

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.

0
Comments

What do you think?

View comments

Recommended for you

Latest news & opinion

Wells Fargo's move to boost signing bonuses could give it a lift

Wirehouse is seen as trying to shore up adviser ranks that took a hit after banking scandal

New Jersey fines David Lerner Associates for nontraded REIT sales

Firm will pay $650,000 for suitability, compliance and books and records violations.

Report predicts $400 trillion retirement savings gap by 2050

Shortfall driven by longer life spans and disappointing investment returns.

Wells Fargo will ramp up spending to lure brokers

Wirehouse, after losing 400 brokers in first quarter, is bucking trend among rivals who have said they are going to cut back on spending big bucks recruiting veteran advisers

DOL fiduciary rule pushes indexed annuity carriers to develop new products

Insurers are introducing fixed-rate deferred annuities with income guarantees to circumvent BICE.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print