KaChing out, Wealthfront in

Makeover at investment platform involves more than a name change

Oct 19, 2010 @ 4:09 pm

By Jeff Benjamin

In a move away from the association with “fast money” — and to help penetrate the financial adviser market — KaChing Group Inc. has changed its DBA.

As part of a total makeover for the year-old online platform, KaChing, , has changed its name to Wealthfront Inc. The company has also raised its investment minimum, and stepped up standards for money managers participating on the platform.

“We realized that the KaChing name was associated with fast money, and that's not what this is about,” said Andy Rachleff, Wealthfront president and chief executive.

KaChing attracted $100 million in assets on a platform that lets investors select their own separate account managers. The new business model will shift away from encouraging investors to search on their own for money managers. Instead, the company will recommend financial advisers who match specific investment profiles.

“We learned that individual investors don't know how to find and don't want to find their own money managers,” said Mr. Rachleff.

“Most people spend more time analyzing a flat-panel TV than they spend looking for an investment manager,” he said. “So, now we're recommending managers, instead of letting people search for managers.”

While investors are still free to browse the list of 27 managers on the platform, a basic investor profile survey is designed to match the individual to a group of three appropriate strategies on the platform.

The company's evolution also includes a $10,000 minimum platform investment, an increase from $3,000.

Standards for money managers have also been increased. They will be required to have a track record of at least three years, up from one year, and must be registered investment advisers.

To help expand the platform to the financial intermediary market, Wealthfront has hired Kris McCabe, formerly of Fidelity Investments, to build a sales force.

According to Mr. Rachleff, the average money manager on the platform has $600 million under management outside of the Wealthfront platform.

While the platform isn't designed to be an investible index, as a group, the managers on the platform from its inception on Oct. 19, 2009 through Sept. 309 out-performed the S&P 500.

An equally weighted investment across managers on the platform over the past year would have gained 11.1%, net of fees.

That compares with a 4.9% gain by the S&P 500 over the same period.

“When the market is up, our managers are up more, and when the market is down our managers are down about the same,” Mr. Rachleff said. “That is the beginnings of proof that we are getting pretty good at identifying managers for this platform.”

An increasingly diverse group on managers have signed on to the platform, including some traditional asset management firms and at least one hedge fund.

“Our business is investment management and I'm not sure we should care about the package,” said Alan Reid, founder and chief executive of Forward Management, a $4.4 billion asset management firm that recently joined the Wealthfront platform.

The Forward Large Cap Equity Fund Ticker:(FFLAX), managed by David Ruff, is the first registered mutual fund to be made available as a separate account on the Wealthfront platform.

Mr. Reid views the platform as just another way of providing investors access to his firm's strategy.

“Right now, the regulators are beating up on mutual funds and the '40 Act fund is like a Model T,” he said. “But [Wealthfront] is one of those innovations I think is worth taking a look at.”


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