{"id":1230,"date":"2015-12-05T17:42:59","date_gmt":"2015-12-05T22:42:59","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/wealthfront-why-automated-advising-and-millennials-were-made-for-each-other\/"},"modified":"2015-12-22T10:45:56","modified_gmt":"2015-12-22T15:45:56","slug":"wealthfront-why-automated-advising-and-millennials-were-made-for-each-other","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/wealthfront-why-automated-advising-and-millennials-were-made-for-each-other\/","title":{"rendered":"Wealthfront \u2013 Why Automated Advising and Millennials Were Made For Each Other."},"content":{"rendered":"

Wealthfront was created around the new wave of investors in the market: millennials.\u00a0 Andy Rachleff found that a large portion of the money floating around Silicon Valley was sitting idle in bank accounts, as millennials were skeptical of active management post-2008, but also frustrated by an ultra-low rate environment.<\/p>\n

Founded in 2011, Wealthfront\u2019s business model is simple \u2013 they offer cost-efficient\u00a0portfolio management to the masses, and they monetize that through a flat fee (25bps\/month on your account balance less the first $10,000 and any bonuses from referrals).\u00a0 They aim to create a clean user experience, eliminate excess fees and still provide valuable investing options.\u00a0 With an experienced team and a compelling investment plan, Wealthfront has raised $129.5mm in five funding rounds[1]<\/sup>, most recently valued at $700mm in 2014 on a $64mm investment led by Spark Capital [2]<\/sup>.\u00a0 The service has flourished ever since, hitting $2bn AUM in less than 3 years[3]<\/sup>.<\/p>\n

\"Screen<\/a><\/p>\n

This success is largely due to the confluence of\u00a0their business and operating models, which has led to accretive product innovation and organic sales growth. \u00a0The factors behind this can be distilled into three major categories:<\/p>\n

 <\/p>\n

The Platform: The App, The Website, The Blog<\/strong><\/p>\n

Once you enroll in Wealthfront, you have access to the full platform immediately.\u00a0 That means you can track your portfolio via the web or an app on your phone\/tablet. \u00a0With over 60% of their clientele under 35 [4]<\/sup>, this is a critical part of making the user experience as streamlined and transparent as possible.\u00a0 Wealthfront also manages an active blog<\/a>, to engage the community and discuss topical economic and market questions.\u00a0 Here, the company continues to educate their audience, with posts ranging from product exploration (\u201cTax Loss Harvesting For Everyone<\/a>\u201d) to millennial-specific personal finance (\u201cOptimizing Your MBA Financial Plan<\/a>\u201d). \u00a0Such informational posts keep the company relevant and tend to double as free marketing, as users will post or share them with friends.<\/p>\n

Ecosystem-Driven Innovation<\/strong><\/p>\n

Born of the Silicon Valley tech boom, Wealthfront works closely with tech giants and start ups to create the ideal product for its target audience.\u00a0 First, Wealthfront partnered with Palantir and Google to provide an integrated alternative for employee 401(k)s[5]<\/sup>.\u00a0 This pushed the company to create APIs which could easily interface with different employers.\u00a0 Now, all users can roll their 401(k) into Wealthfront, an additional source of revenue.\u00a0 Next, after extensive conversation with employees at Twitter, Wealthfront launched the single stock diversification service, a way for employees to strategically sell company stock through their accounts[6]<\/sup>. \u00a0These nuanced features continue to differentiate Wealthfront in the financial advising sphere, provide them with additional revenue streams and further align them with the millennials they aim to please.<\/p>\n

\"Screen<\/a>
\n<\/strong><\/p>\n

Software Scales Faster Than People<\/strong><\/p>\n

Traditional advisors charge 1-3% annually [7]<\/sup>, as each advisor must spread revenue from a limited number of accounts over a fixed salary, constrained by man hours.\u00a0 Wealthfront can afford to manage your money at approximately 1\/8 of the cost, with software and ~100 employees running the show. \u00a0Their software can service an unlimited number of clients at a fixed cost, implying the incremental cost of each account is marginal.\u00a0 This model is well-aligned with the company\u2019s goal to democratize portfolio management, and has allowed them to differentiate themselves as a consistently low cost advisor.\u00a0 Additionally, Wealthfront can then pool client funds and replicate the account size needed for private wealth management services, thus allowing retail investors to gain access to more savvy investing techniques such as tax loss harvesting and direct indexing.\u00a0 Thus, scale allows for enhanced offerings, begetting more scale and utilizing their competitive advantage: software.<\/p>\n

 <\/p>\n

\u201cWe\u2019re not very concerned about the large companies being able to keep pace … they simply can\u2019t innovate and deliver features fast enough. Instead, we\u2019re focused on defining a better way to invest for this generation”<\/p>\n

-Adam Nash, Wealthfront CEO[8]<\/p>\n

 <\/p><\/blockquote>\n

Footnotes:<\/span><\/p>\n

[1] https:\/\/www.crunchbase.com\/organization\/wealthfront#\/entity<\/a><\/p>\n

[2]http:\/\/www.reuters.com\/article\/venture-funding-wealthfront-idUSL1N0SN27E20141028#Y0gG2GqhOHuE0WG7.97<\/a><\/p>\n

[3] https:\/\/www.wealthfront.com\/two-billion#journey-to-two-billion<\/a><\/p>\n

[4]\u00a0http:\/\/fortune.com\/2015\/08\/06\/wealthfront-investing-qa\/<\/a><\/p>\n

[5]\u00a0http:\/\/techcrunch.com\/2014\/04\/02\/automated-investment-service-wealthfront-raises-35m-from-index-ribbit-capital\/<\/a><\/p>\n

[6]\u00a0https:\/\/vimeo.com\/91250594<\/a><\/p>\n

[7]\u00a0http:\/\/www.forbes.com\/sites\/rickferri\/2013\/05\/27\/the-heavy-toll-of-investment-fees\/<\/a><\/p>\n

[8]\u00a0http:\/\/techcrunch.com\/2015\/03\/03\/wealthfront-now-manages-more-than-2-billion-in-client-assets\/<\/a><\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

FinTech at its finest.<\/p>\n","protected":false},"author":610,"featured_media":1250,"comment_status":"open","ping_status":"closed","template":"","categories":[264,265,259,266,212,55,263],"class_list":["post-1230","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-finance","category-financial-advising","category-fintech","category-robo-advising","category-tech","category-technology","category-wealthfront"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/the-tom-challenge-tom-winners-and-losers-assignment\/","yoast_head":"\nWealthfront \u2013 Why Automated Advising and Millennials Were Made For Each Other. - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/wealthfront-why-automated-advising-and-millennials-were-made-for-each-other\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Wealthfront \u2013 Why Automated Advising and Millennials Were Made For Each Other. - 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