Wealthfront sparks robo price war, drops account minimum to $500

The combative robo-adviser takes a shot at competitors for their fee structures

Jul 8, 2015 @ 12:05 pm

By Alessandra Malito

In an effort to raise the stakes in the competition between automated online investment platforms, Adam Nash, chief executive of Wealthfront, announced that the robo-adviser was slashing its $5,000 account minimum to just $500.

Through his announcement, which Mr. Nash posted on the blogging site Medium, he called out his competitors for charging monthly fees for small accounts.

"Unlike the many banks and brokerage firms that came before us, Wealthfront refuses to build our business by preying on clients with small accounts," Mr. Nash wrote in his blog post. "We believe that, given a fair shake, people bold enough to scrape together the savings for their first investment account will build those accounts over time."

He went after two companies in particular in his post: Betterment, which is Wealthfront's biggest competitor, and Blooom, an automated investment platform for 401(k) plans. Mr. Nash claimed that Betterment was gouging investors by charging a $3 monthly fee for accounts without auto-enrollment, while Blooom charges $1 per month on small accounts.

Jon Stein, the chief executive of Betterment, rebuked Mr. Nash's assertions with a response, arguing that the Wealthfront CEO's post was misleading and incorrect. He backed up the $3 monthly fee for accounts that do not have auto-enrollment, saying that there are operational costs associated with having an account, and if it is not being maintained, then Betterment cannot amortize those costs.

"Our belief is that if you don't know how you're paying for advice, you should be concerned," Mr. Stein said in his response. "Good, unconflicted advice and service should never be free, because they cost money to provide."

The news garnered a lot of conversation on Twitter — some seemed excited about the new minimum, while others took issue with the tone of Mr. Nash's post .

Chris Costello, the co-founder and chief executive of Blooom, said that Mr. Nash was focusing on the wrong things.

"Adam is making a mistake by making it about price," Mr. Costello said. "By drawing attention to price, he is effectively devaluing the good Wealthfront is doing right now.

"I would say if Adam was really interested in helping everyone, have no minimum," he added.

Betterment and Blooom, among other platforms, do not have account minimums.

Mr. Nash said in an email that if clients do not have $500 to invest, then they should be saving it in a savings account at a bank.

"Unlike some other companies out there who will employ any tactic to get another dollar out of consumers, at Wealthfront, we've always believed that the first step in financial security is having an emergency fund," Mr. Nash said.

Customers should put money in a savings account first, "continuing to save until you can comfortably participate in the market," he said.

This is not the first post by the Wealthfront chief that has gained massive attention. In March, Mr. Nash wrote a fiery post accusing Charles Schwab & Co. of deceiving investors by touting a free retail automated investment platform, Schwab Intelligent Portfolios, while require investors to hold a certain portion of their portfolio in cash.

With his most recent post from the Wealthfront CEO, however, several competing robo executives argued that the real discussion should be on the quality of what automated investment companies offer to investors.

"This is getting a little ridiculous," said Mike Kane, the chief executive of Hedgeable, another online investment platform. "This is a race to the bottom on price, but not on quality and product. We think there should be a huge discussion on products, not a discussion on price."

Mr. Kane also said customers don't necessarily correlate “cheapest” with offering the most value.

Others argued that alluding to the fact that smaller accounts do not cost something to maintain is dishonest.

"It seems disingenuous to not admit it costs something to serve those smaller accounts," said James Osborne, a financial adviser with Bason Assets in Lakewood, Colo. "Then let's have a conversation about who is in fact paying for it."

Mr. Nash said in an email that Wealthfront, which was praised by the Department of Labor secretary Thomas Perez, is able to lower its minimum and provide the same services to all portfolios because of its direct indexing platform, which combines exchange-traded funds and stocks based on the size of an account.

His message has underlying truth to it, said Brad Leimer, a financial technologist and the head of innovation at Santander Bank, North America, who added there needs to be more transparency when it comes to the fees that investors pay for financial services.

"I'm not seeing this public dialogue of fees at this level," Mr. Leimer said. "I wish more people would actually see it and have that debate with their own providers so that they are understanding again what dollars pulled out of a small account really mean."

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