Wealthfront introduces individual stock picking

Wealthfront is introducing individual stock trading for clients, a significant change for a company that has long emphasized the value of passive investing.

Like other retail brokerage apps, Wealthfront Stock Investing offers fractional shares, zero trading commissions and a $1 minimum.

The company is hoping to stand out from others on the market, like Robinhood, by helping investors discover new investment opportunities with curated lists called “stock collections.” Similar to the way that music apps like Spotify use playlists to expose listeners to new music, Wealthfront has 35 collections, such as “Apple’s Supply Chain,” “Inflation Thrivers,” and “Blue Chip Dividend Stocks,” to show new investment possibilities.

The stocks in each collection are equally weighted by default, but users can modify the weightings or just select individual stocks from the collection. Investors can buy multiple stocks at once, and view self-directed investments alongside automated investing accounts within the Wealthfront app.

“Young investors are hungry for a smarter way to discover investment opportunities, which is exactly why we’re excited to offer the Wealthfront version of commission-free stock investing,” Dave Myszewski, Wealthfront’s vice president of product, said in a statement. “Today’s launch opens us up to a much broader audience while also increasing share of wallet among our existing clients, who have $40 billion in external brokerage accounts that they are eager to consolidate with Wealthfront.”

In a blog post, the company also says it won’t encourage frequent trading or generate revenue from payment for order flow, two practices of online brokers like Robinhood that have drawn regulatory scrutiny.  

“[Wealthfront’s stock investing] is not built for an investor who wants to constantly monitor ticker movements or trade throughout the day, which was very intentional,” a company spokesperson said in an email. “Instead we’ve created a stock product that promotes the buy and hold investing we’ve championed from the beginning.”

It’s still a significant pivot for the company, which in the past has advertised the value of its automated investing as an alternative to do-it-yourself trading. Burton Malkiel, the economist famous for arguing in favor of investing in index funds rather than individual equities, joined Wealthfront in 2012. A Wealthfront blog post titled “The Illusion of Stock-Picking Skill” by Nobel prize-winning economist Daniel Kahneman, published in 2015, argued that stock-picking is closer to a dice-rolling contest than a game of skill.

“Many individual investors lose consistently by trading, an achievement that a dart-throwing chimp could not match,” Kahneman wrote on the Wealthfront blog.

A company spokesperson said that Wealthfront’s views on investing haven’t changed, and that individual stocks should just be one portion of a larger wealth building strategy. But with clients holding $40 billion in external brokerage accounts, the company believes it can help them make smarter choices with its stock investing service.

“We’re really proud that we’ve created a more strategic stock product that focuses on making smarter investment decisions instead of trading,” the spokesperson said. “We’re still encouraging clients to buy and hold their investments, and we’re still focused on increasing the number of investments to manage risk. In fact, the product prevents clients from trading the same stock multiple times within a week.”

In a 2017 blog post, Wealthfront founder and CEO Andy Rachleff supported the idea of investing a small portion of a portfolio in individual equities.

“We recognize that our clients live in the real world, and are tempted now and then to buy stocks based on their personal expertise or a tip from a rich uncle,” Rachleff wrote. “So go ahead and buy them (by the way, consistent with our view that you should minimize your fees, we recommend that you use Robinhood to trade those stocks). We say this for the same reason doctors recommend that you not overly restrict yourself in a diet to address a health or weight problem. You’re unlikely to maintain the diet if you make the diet too restrictive. Every once in a while, you need to treat yourself.”

Now the company is offering the service directly to clients rather than pointing them toward Robinhood.

The pivot comes after UBS’ deal to acquire Wealthfront for $1.4 billion collapsed in September.

Robo-advisors in general have struggled during volatile markets after surging during the Covid-19 pandemic. Betterment recently laid off 28 employees and leased out office space in New York City, and BlackRock announced it would sell its retail robo-advised accounts to Ritholtz Wealth Management.

Related Topics: Wealthfront Inc.