Wealthfront doesn't allow accounts to be opened for research purposes, according to leaders of BackEnd Benchmarking, a research firm that opened accounts at most of the largest digital advisers to measure and benchmark performance in a quarterly "Robo Report."
Wealthfront closed BackEnd's original account in 2016 due to a dispute with its methodology, said Ken Schapiro, president and founder of BackEnd. Since then, BackEnd created two more accounts in individuals' names, and Wealthfront has closed one of them.
Vanguard also closed one of Backend's accounts on its Personal Advisor Services robo-adviser in the early days of the report, but the firm has since allowed the researchers to retain their accounts. No other company featured in the Robo Report has closed an account, which are all opened in the name of individuals, according to Mr. Schapiro.
Wealthfront includes language in its user agreement that prohibits the use of accounts for commercial purposes or competitive analysis. A Wealthfront spokeswoman said BackEnd Benchmarking, which shares common management and ownership with Condor Capital, violated this provision by using Wealthfront to sell a report.
"More importantly, they were misrepresenting the data from Wealthfront and giving false information to reporters," the spokeswoman told InvestmentNews in an email. "We tried to find a resolution, but could not, so we exercised our right to close the account. We publish all of our return data publicly, which is something no other firm does, including Condor Capital."
Though the Robo Report was started as a project at Condor Capital, it was transferred to BackEnd Benchmarking, which is a separate entity, Mr. Schapiro said. He added that returns from Wealthfront accounts will still be included in future reports and labeled as separate accounts.
"We think these accounts represent the Wealthfront strategy in which they are invested, as they are discretionarily managed by Wealthfront," Mr. Schapiro wrote in an email.
While Wealthfront is taking a zero-tolerance approach to competitors opening accounts, the practice is quite common and most allow it.
Charles Schwab does not have similar language in the use agreement for its Intelligent Portfolio product, and company spokesman Michael Cianfrocca said the company participates in the BackEnd Benchmarking report.
"We think third-party reports like that one can add objectivity and transparency to the process of choosing an investing firm which is a good thing for investors," he said in an email.
TD Ameritrade had no comment and Vanguard did not respond to a request for comment. A Betterment representative confirmed that they do not have language preventing competitors from opening accounts and that the company welcomes anyone to become a customer.
Some digital advice firms share Wealthfront's frustrations with the Robo Report's methodology, saying the accounts opened don't align with typical consumer behavior and are not taking advantage of the platform's other features.
Craig Iskowitz, the founder and CEO of Ezra Group Consulting, questioned the value of a report that focuses on performance benchmarking. Advisers have spent years trying to move the conversation away from performance and towards goals and holistic advice, and focusing on market performance is ultimately "worthless information."
"What's more important are features that help people interact with the robo platform like they would with their own human adviser," Mr. Iskowitz said. "When it comes to performance, it's next to useless because it's going to be different in a couple of years."
As for Wealthfront kicking off BackEnd's researchers?
Companies have the right to allow competitors to open accounts or not, and Wealthfront's decisions really do not make him think positively or negatively about the firm, Mr. Iskowitz said.
"I think it's funny. What do you have to hide?" Mr. Iskowitz added. "On the other hand, you don't have any control over [the report] and you're not a willing participant in that competitive analysis. I understand it."