Wealthfront boots researchers off platform for violating terms of service

Digital adviser objects to BackEnd Benchmarking's methodology, but competitors don't seem to mind

Apr 24, 2018 @ 2:39 pm

By Ryan W. Neal

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.

(More: Robos with the best and worst portfolios over the last two years)

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."

(More: Wealthfront cutting costs on its risk parity mutual fund)

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.

(More: It may be too early to write off robo start-ups)

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."

0
Comments

What do you think?

View comments

Upcoming event

Nov 19

Conference

New York Women Adviser Summit

The InvestmentNews Women Adviser Summit, a one-day workshop now held in six cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Most watched

INTV

How advisers can be a gamechanger for women investors

Why women defer to men when it comes to finances and how advisers can combat this phenomenon and make a difference for female investors, according to Heather Ettinger, founder and CEO Luma Wealth Advisors.

INTV

How the 2020 elections could impact ESG investing

Joseph Keefe, president of Impax Asset Management, on the elections and how advisers can build a bridge to the next generation of clients with ESG investing.

Latest news & opinion

Schorsch, AR Capital to pay $60 million to settle SEC charges

The former REIT czar and his firm wrongfully obtained millions linked to REIT mergers.

CFP Board postpones enforcement of its revised fiduciary standard

Board's new Code of Ethics and Standards to be enforced next June, in line with the SEC's Reg BI

Charles Schwab reportedly in talks to buy USAA brokerage, wealth management business

The deal would net Schwab roughly $100 billion in new assets.

Advisers scramble to help retirees navigate looming Fed rate cut

The Fed's first interest-rate cut in a decade has advisers warning against chasing the bait of risk over safety.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print