
Wealthfront: Silicon Valley Tech at Wall Street Prices - prostoalex
https://medium.com/@blakeross/wealthfront-silicon-valley-tech-at-wall-street-prices-fdd2e5f54905
======
frinxor
the short of it: Wealthfront markets itself as cheaper than vanguard etfs, but
they actually charge 0.25% + ETF fees on top of that.

one of my favorite quotes:

"Here it is: If you open a retirement account, and you invest some of your
paycheck each month into a Vanguard Target Retirement Fund, and you just…leave
it…you just leave it right there until retirement…

…you don’t do anything when the folks on CNBC announce that the sky is
falling; you don’t do anything when Cousin Eddy calls from a secure
underground bunker in the badlands and says that the fed is printing money and
it’s time to liquidate and ammo up; you don’t think it’s a sign that your
parrot said “fuhgeddaboutit” but you thought she said “get a nugget” and
surely that must mean a gold nugget? and you looked online and noticed that
the price of shiny yellow metal was crashing and wait your parrot is also
yellow and I’ll be damned if that isn’t a sign to buy…

… no, if you just leave it there to compound over decades…"

~~~
lewisl9029
Buy and hold forever is generally great advice, until it isn't.

I'd much rather not have 30%+ of my life savings wiped out in a single
recession with the rest of the market.

In my humble opinion, thoroughly backtested trading algorithms based on hard
statistics is the only rational way to participate in the market. The market
is fundamentally an irrational entity, and investors should be looking for
ways to systematically protect themselves from the market's irrational mood
swings.

Check out Quantopian:

[https://www.quantopian.com/home](https://www.quantopian.com/home)

Even a trivial moving average crossover algorithm like the one I currently
have deployed can give you surprisingly robust protection against severe
downswings, and outperform the overall market significantly over the long term
despite the small losses caused by false positives.

[http://i.imgur.com/ZhN0QIp.png](http://i.imgur.com/ZhN0QIp.png)

~~~
7Figures2Commas
Your overall point is not a bad one, but investors don't need "thoroughly
backtested trading algorithms" to protect themselves. Frankly, many of the
people who use "thoroughly backtested trading algorithms" don't do as well as
they supposedly should.

It is, on the other hand, entirely possible for an average investor to learn
basic technical analysis concepts and apply them _visually_ to charts. At a
minimum, for instance, if you can draw a trend line on a price chart and
identify when price breaks important trend lines, you can easily avoid losses
from major declines without having to write a single line of code or spend
more than 5-10 minutes a day checking on your portfolio.

A decent book in this vein is _The Visual Investor_ [1].

[1] [http://www.amazon.com/The-Visual-Investor-Market-
Trends/dp/0...](http://www.amazon.com/The-Visual-Investor-Market-
Trends/dp/0470382058/)

~~~
pinky1417
There's not a shred of evidence that technical analysis is anything but a
charlatan's tool - same as trying to time the market. Technical analysis is
bound to yield only losses for the investor and fees for the broker. The
evidence points strongly against technical analysis as a method for building
wealth - . And buying during upswings / selling during declines guarantees you
lose.

Long-term value investing performs best, low cost index funds perform well,
Wealthfront will underperform due to fees, and technical analysis will turn
even a billionaire into a millionaire.

~~~
7Figures2Commas
There is plenty of charlatanism in the world of technical analysis, just as
there is in the world of fundamental analysis. But you're missing a key point:
"technical analysis" is not monolithic. There isn't a single set of rules and
indicators, all applied the same way over the same time periods. Most
investors (and traders) lose money because of lack of discipline, poor money
management, etc. This is true whether technical analysis is used or not.

Instead of creating a straw man argument, let's discuss something simple:
trend lines. And let's discuss the most fundamental truth about trend lines:
it is absolutely impossible for the current trend to reverse without key trend
lines being broken.

Don't take my word for it. Pull up a chart of the S&P 500. The bull market
that ended in late 2007 was easily identified by the breaking of long-term
trend lines. And the bear market that ended in 2009 was easily identified by
the breaking of trend lines as well. Just by use of trend lines alone (and no
other technical indicators) you could have identified key turning points in
the market.

How you act upon this information, if at all, is your choice. But that has
nothing to do with technical analysis. That's investment/trading strategy.

~~~
forgetsusername
> _The bull market that ended in late 2007 was easily identified by the
> breaking of long-term trend lines. And the bear market that ended in 2009
> was easily identified by the breaking of trend lines as well._

Trends are broken in periods surrounding major market corrections, indeed. How
many false positives are there in between, in which you're turning over your
portfolio for no reason?

~~~
7Figures2Commas
Not all trend lines are created equal. Some are more important than others.
You too are confusing technical analysis with investment/trading strategy. The
breaking of a short or intermediate term trend line does not inherently call
for "turning over your portfolio."

Depending on where you are in a trend, the breaking of a short-term trend
line, for instance, could set up an opportunity to add to an existing position
when the trend resumes.

~~~
pinky1417
Ahh, you can't have it both ways. Does a simple trend line, e.g. 12 month
moving average, suffice to tell you to get in or out of a stock ("the bear
market that ended in 2009 was easily identified by the breaking of trend
lines")? Or does it have to be the right trend line? Moreover, how do I know
what trend line to choose? I can choose great trend lines with the benefit of
hindsight.

Also, forgetusername's point on false positives remains critical. Breaking
trend lines is only a useful if it's right most of the time.

My advice to anyone who wants to be an enterprising investor (i.e. put more
time into investing and try to achieve higher returns) is to read Ben Graham's
The Intelligent Investor. Instead of trading based on the emotions in the
market, invest by choosing great companies that are bargains.

~~~
7Figures2Commas
A moving average is _not_ a trend line. It's difficult to have a meaningful
discussion if we are talking about two different things.

As for false positives, nobody reasonable will tell you that they don't exist.
But again, there's a difference between short, intermediate and long-term
trend lines. Even under the most unfavorable scenarios, anybody with a modicum
of knowledge of trend lines would have been out of the market before the 2008
crash and back in the market by early 2010 because major trend lines were
broken. Incidentally, I was one of those people.

As for your advice: there's nothing wrong with fundamental analysis. Although
many people fail to make money using it (just like technical analysis), it's
worth noting that quite a few savvy professionals use fundamental and
technical analysis together.

------
jycool
As much as I think the article makes great points (tax-loss harvesting seems
oversold, and Vanguard is a much cheaper way to get a target date fund than
Wealthfront), I gotta raise my hand here and point out the absurdity of this
argument against proportional fees. Wealth management is like any business-- a
combination of fixed and variable costs. And like many businesses, it
amortizes those fixed costs against basically a variable fee structure because
the value of the service to the customer (debatable as it may be for some
investment products) is proportional to the account size. It's not an SV vs WS
thing. Nobody charges according to the marginal cost of the service. Why does
Airbnb charge a percentage of the rental cost? Why does Uber get a percentage
of the fare? Why does the restaurant charge me the same for a burger at 10pm
as a burger at 7pm (after all, the staff are already being paid for the day
and ingredients already purchased)? It might sound good to say "hey, the
software's not working any harder so the marginal cost is zero", but that
doesn't work in almost any business.

~~~
jackgavigan
_> Why does the restaurant charge me the same for a burger at 10pm as a burger
at 7pm (after all, the staff are already being paid for the day and
ingredients already purchased)?_

Actually, it's not uncommon for a food vendor to drop its prices at the end of
the day, e.g.
[https://www.itsu.com/about/sale](https://www.itsu.com/about/sale)

That doesn't invalidate your point, though.

I'd also suggest that the risk associated with a transaction should also be
factored in. The cost of processing small (e.g. $100) and large ($100,000)
transactions may be the same but the potential cost to me if I drop the ball
is several orders of magnitude larger.

~~~
mrgordon
Yeah good points.

Additionally, Vanguard is making money through securities lending which is
also proportional and can offset much or all of the expense ratio.

"In 2012 securities lending enhanced annual fund returns by more than 1 basis
point for over 60% of Vanguard's participating funds, by more than 5 basis
points for nearly a third of funds, and by more than 10 basis points for over
15% of funds."

------
blufox
From The little book of common sense investing by John Bogle.

"Thus, the recent era not only has failed to erode, but has nicely enhanced
the lifetime record of the world’s first index fund—now known as Vanguard 500
Index Fund. Let me be specific: at a dinner on September 20, 2006, celebrating
the 30th anniversary of the fund’s initial public offering, the counsel for
the fund’s underwriters reported that he had purchased 1,000 shares at the
original offering price of $15.00 per share—a $15,000 investment. He proudly
announced that the value of his holding that evening (including shares
acquired through reinvesting the fund’s dividends and distributions over the
years) was $461,771. "

~~~
sharkweek
For some absolutely insane reason I sometimes get the feeling that I can
outpick a fund with individual stocks, because "Hey, I follow this whole tech
world really closely! Surely I can pick some big winners!"

It has been a somewhat expensive lesson that I have absolutely no clue what's
going on, but every once in a while I just can't help but try. I keep a little
fun money in individual equities, and the rest now sits safely in funds. My
aggregate individual funds always lose out to what has been relatively steady
fund performance.

~~~
maaku
I suggest doing what I do: invest your time in speculative bets (startups),
and invest your take-home pay in index funds.

------
somberi
A father, who is a banker shows his son "This is our Yacht and those are our
brokers''". Son asks "Dad, where are the customers' yachts?".

A book, written in 1930s, based on this quip still remains one of my favourite
books about Wall street. Link: [http://www.amazon.com/Where-Are-Customers-
Yachts-Street/dp/0...](http://www.amazon.com/Where-Are-Customers-Yachts-
Street/dp/0471770892)

------
arbitrage314
Wealthfront is indeed a ripoff for the well-informed.

For most folks, though, something that makes saving simple is something that
will lead to HUGE gains over not having that thing in the first place.

Without Wealthfront, most people would simply let that money sit in a checking
account or in a user-made nondiversified portfolio (most people don't
understand the incredible benefits of diversification, including myself most
days, which is why we work at startups :) ).

Therefore, I still believe the value of Wealthfront is positive, and likewise,
I believe the value of most financial planners is positive.

~~~
U6Gf8WQP
> Wealthfront is indeed a ripoff for the well-informed.

Do you feel that this is universally true or situation-dependent? I consider
myself reasonably informed and Wealthfront appears to be a strong, if not the
strongest, option for my financial situation (young, most of my net worth is
in a taxable account, direct indexing, regular expected capital gains to pair
with tax losses).

~~~
maaku
First of all, you are probably not taking full advantage of tax-efficient
accounts. Are you contributing your maximums, including back door strategies?

Second, you can do substantially better than Wealthfront with even an
extremely lazy portfolio. Heck, put all of your funds into a Vanguard target-
date fund (the laziest of the laziest) and you will do better than
Wealthfront, with only 15 min of effort per year to rebalance.

The kind of tax loss harvesting Wealthfront does is usually a pseudo-benefit.
You're usually in a better position just holding until you need distributions
for retirement. On paper it sometimes works out, but only when you make
assumptions that generally involve timing the market to harvest without loss
while avoiding wash sale rules.

That said, if you can't be trusted or can't trust yourself to buy a simple
lazy portfolio and hold for decades, then by all means pay the 0.25% annual
fee to have someone else take the management keys away from you. As one of my
coworkers said, Wealthfront is lazy advice -- telling someone to use
Wealthfront is easy to do and usually gets that person into a better position
than they otherwise would be, and requires minimal effort from me in advising
them. But it is not the optimal solution out there and anyone can easily do
better if they are willing to learn and capable of exerting self control.

~~~
sopooneo
Just for my understanding, if all your investments are in a "Vanguard target-
date fund" then why would you have to spend _any_ time per year rebalancing?
Isn't that what the target date funds do for you?

------
Kiro
I don't understand the three first paragraphs (about A/B testing). I install
an app costing me 1 dollar and then the developer use this profit to install
an app ruining him/her? What?

~~~
kenferry
He's noting the irony of how punishing "your" (the developer's) margins are,
vs how easily you hand your hard-fought cash over to the high-margin
wealthfront.

------
troydavis
If you do want financial advice as an hourly service, it exists. In the US,
look at the National Association of Personal Financial Advisors:
[https://www.napfa.org/](https://www.napfa.org/).

Many provide hourly consulting, just like you'd pay an attorney or accountant.

By far the biggest risk of doing this is not having a constant presence during
bear markets to coach you to stay the course. If you're actually comfortable
enough in the amount of risk you've taken, this is less of an issue.

The best doc I found on where or how wealth managers can add value was written
for wealth managers (by Vanguard, which provides custodial services):
[http://www.vanguard.com/pdf/ISGQVAA.pdf](http://www.vanguard.com/pdf/ISGQVAA.pdf)

Page 4 has the table. The biggest benefit - in their analysis, up to 1.5% of
possible value added - is coaching. Deciding what's right for you depends on
understanding what parts of planning and executing you're actually comfortable
taking primary responsibility for.

------
rgarcia
Here's my understanding: if you use Wealthfront direct indexing, you mostly
hold stocks, so you pay a minimal amount in ETF fees. This means your expense
ratio is pretty close to the Wealthfront fee of 0.25%.

If you put everything in a Vanguard target retirement fund, your expense ratio
is something like 0.18%. [1]

So as long as tax loss harvesting adds a tiny fraction of a percent (~0.07%)
to your returns, it seems optimal to use Wealthfront, no?

[1]
[https://personal.vanguard.com/us/funds/snapshot?FundId=0699&...](https://personal.vanguard.com/us/funds/snapshot?FundId=0699&FundIntExt=INT)

~~~
asift
This is correct. Also, tax-loss harvesting isn't the only benefit of direct
indexing. Charitable gifting of highly appreciated securities is a potentially
huge benefit that direct indexing has over ETFs (even better given that it
doesn't ratchet down your basis like TLH or create wash sale issues).

------
dataker
Wealthfront markets itself as an innovative fintech startup, but I see it as
nothing but an asset mgt company that hired some developers to "prop it up".

Not to commit an ad hominem, but I don't see tech-driven founders and/or a
very strong engineering culture.

[https://www.wealthfront.com/management](https://www.wealthfront.com/management)

~~~
robzyb
I work in the finance industry and only today found out about both Wealthfront
and Betterment.

Betterment is utterly awesome. Truly a product I'd expect to see from an
innovative fintech startup.

Wealthfront is... not.

~~~
7Figures2Commas
So you just learned about Wealthfront and Betterment today and somehow you've
determined that Betterment is "utterly awesome" and Wealthfront isn't? I hope
that whatever your role in finance, it isn't related to due diligence.

~~~
robzyb
I might've been a bit too black-and-white with my comment, let me clarify...

Betterment _seems_ utterly awesome. Truly a product I'd expect to see from an
innovative fintech startup. Wealthfront did not.

It was clear that Betterment cared about making a beautiful _consumer-driven_
product. It was also clear that they've spent some time reimagining how
personal finance works. Simplifying it.

I also can't help but note that the fact that Betterment made me so excited
(it really did) so quickly probably speaks very well of it. But then again,
I'm a sample of 1.

(Incidentally, I read your HN profile and rather liked the story in your
'about')

------
throwaway3830
So about a month ago I inherited just short of $30k. I don't need it right
now, and don't plan on using it until either I buy a house (maybe 5 years
away?) or retire.

My plan was to invest it with Betterment, because I felt like that was the
easiest and cheapest "set and forget" solution. But would there be substantial
upside in going directly with a Vanguard fund instead? I'm really new to this
and the convenience of a dedicated interface like Wealthfront/Betterment feels
valuable to me, but if I'm leaving substantial money on the table doing that
I'd rather go to the extra effort of figuring something else out.

~~~
mooreds
If you plan to use the money in less than 5 years, put it in a savings account
t. I like capital one 360 (formerly Ing Direct), but any one will do.

The most important part of investing is knowing your time horizon--stocks or
stocks and bonds are just too risky for any time.hirozion less than 5 years.

~~~
gjm11
If you plan to use the money in less than 5 years _and know you will need
about 30k_ then put it in a savings account or something of the kind.

On the other hand, if you have no specific plans for that money, and you would
just like as much money as possible in 5 years' time, on average you are
likely (on past performance) to have more in 5 years if you put it into the
stock market than if you put it into a savings account.

(And if you know that in 5 years' time you will desperately need about 100k
and have no other way of getting that money, go to a casino or something.
Fortunately, that's a rather uncommon situation.)

------
swang
OK I don't know shit about investing/financing and would like to change that.
Where do I start? I read the article and nod my head and go, "OK ETFs!" But
then I go and there are tons of them. Is the one he suggested the one I'm
suppose to go with regardless?

~~~
otterley
My favorite is _A Random Walk Down Wall Street_ by Burton G. Malkiel, the
cofounder of Vanguard. Dispels a tremendous number of myths; at the end of the
day you'll learn to KISS.

[http://amzn.com/0393340740](http://amzn.com/0393340740)

~~~
AreaGuy
Incidentally, Malkiel is currently the Chief Investment Officer of
Wealthfront.

------
vasilipupkin
Let's say we kill proportional fee and replace it with a fixed fee. Well, then
people with lower balances will end up most likely paying more than they do
now. Another issue, it is proportionally harder to execute a larger portfolio
than a smaller one. So, proportional fee makes sense. Having said that, yes,
it is true that it is not clear to me why as a Vanguard customer I should
switch part of my portfolio to Wealthfront.

~~~
gphil
The only thing any investor can control with any certainty is fees and taxes,
so you might as well focus your effort on minimizing these. For the most part,
Vanguard funds are the best at this that I know of.

~~~
matwood
Vanguard definitely led the way, but Fidelity (maybe others) has low fee funds
similar to Vanguard. Last time I checked, Fidelity looked like they priced
their funds by doing Vanguard price minus .01 point.

~~~
kmonsen
Really? This is quite new and contradicts that:
[http://www.marketwatch.com/story/best-target-date-funds-
fide...](http://www.marketwatch.com/story/best-target-date-funds-fidelity-vs-
vanguard-2015-04-15)

~~~
matwood
Not all funds obviously. I also use a boggle head portfolio so the target date
funds are not much interest. For example, the total stock market index from
Fidelity and Vanguard.

FSTMX .10%
[http://financials.morningstar.com/fund/expense.html?t=FSTMX&...](http://financials.morningstar.com/fund/expense.html?t=FSTMX&region=usa&culture=en_US)

VTSMX .17%
[http://financials.morningstar.com/fund/expense.html?t=VTSMX&...](http://financials.morningstar.com/fund/expense.html?t=VTSMX&region=usa&culture=en_US)

~~~
hchenji
Why not the ETF version (VTI) of VTSMX that has only 5bp ER?

~~~
matwood
Also a great choice if in an account that allows ETF purchases. The point was
VG forced much of the industry to at least try to offer lower cost index
funds, and others have reluctantly followed.

Schwab has one with a .04%.
[http://etfdb.com/etf/SCHB/](http://etfdb.com/etf/SCHB/)

------
pbreit
Key point: 99.9% of US individual investors would be wise to make a Vanguard
Life Strategy or Target Retirement fund a core holding.

Otherwise, the screed was a little nasty (a bit nastier than the Wealthfront
post).

------
w23j
Here is a shot at a back-of-the-envelope calculation of the sum of fees paid
in his first example. I hope I haven't misunderstood.

    
    
      var gain = 1.08; var fee = 0.0025; var feeSum = 0; var s = 100000;
      for (var i = 0; i < 35; i++) { s *= (gain - fee); feeSum *= gain; feeSum += s * fee; if ((i + 1) % 5 == 0) console.log('year: ' + (i + 1) + ', saved: ' + s + ', fees: ' + feeSum);}; 
    
      year: 5, saved: 145240.0514760841, fees: 1823.9448097195082
      year: 10, saved: 210946.72552775557, fees: 5329.071699986484
      year: 15, saved: 306379.13274362596, fees: 11677.706523607205
      year: 20, saved: 444985.2101088223, fees: 22746.568357507604
      year: 25, saved: 646296.7482230144, fees: 41538.4561823357
      year: 30, saved: 938681.7298073637, fees: 72821.71593023202
      year: 35, saved: 1363341.8275688116, fees: 124120.0285076505

------
caseyf7
Has anyone seen actual performance of Weathfront portfolios? You would think
people would publish their results, but they've been hard to find.

~~~
timcederman
Here you go - with risk level 6:
[http://i.imgur.com/5nchgSq.png](http://i.imgur.com/5nchgSq.png)

This compares to 14.4% for VFIAX (Vanguard 500) in the same time period.

In addition to the lower return, it's 0.37% in fees compared to 0.05%.

~~~
maaku
And the 500 index has a lower return from being top heavy. You would have
gotten even better ROI with a broad market index like VTI.

~~~
timcederman
These are not my only two investment vehicles.

------
icedchai
So Wealthfront is for people who can't open their own Vanguard account and set
up automated transfers/investments?

------
digitalzombie
There's a PBS video about this. It also talk about Vanguard being a very good
mutual fund and every other mutual funds are making bank off of you through
fees.

The video also advocate either Vanguard mutual funds or ETF.

~~~
rjst
Yes, Vanguard is way ahead in this. However, if you’re not American, it’s not
always the best choice, as your returns may be lower because of tax issues.

------
akeefer
This post kind of misses the main point of services like Wealthfront. You're
paying 0.25% in exchange for automatic rebalancing, asset class
diversification, and tax optimization. If the combination of those factors is
going to increase your yearly return by 0.25% or more (say, from 6.8% to
7.2%), it's worth it. If they won't, it's not.

It's silly to focus entirely on the fee aspect: the point of using Wealthfront
is not because it's lower-cost, it's because you expect it to be better-
performing from a total-return perspective. They may oversell themselves, and
that's a valid criticism, but the OP fails to really analyze the raison d'etre
of Wealthfront as a service. Comparing it to a single Vanguard ETF is not a
proper comparison.

The Vanguard target retirement fund for 2035, for example, includes four
underlying ETFs (US stock, international stock, US bonds, international
bonds), whereas Wealthfront portfolios typically have more like six or seven
asset classes (differentiating between developed and emerging international
markets, and adding in natural resources and real estate). Left to my own
devices, I don't have the time or inclination to do the research necessary to
do that sort of additional asset diversification myself, determining the ideal
allocation and then avoiding too much drift while not incurring too much tax.
I also don't have the time to deal with tax loss harvesting, which might not
matter for retirement accounts, but does make a difference for taxable
accounts: you're likely incurring some taxation issues when it comes to
portfolio rebalances, for example, since that necessarily involves asset
sales. If you have $100k in wealthfront, you're paying $250/year in fees. If
tax loss harvesting can only harvest $1k in losses during the year that offset
(or at least avoid) $1k in capital gains, that still pays for the wealthfront
fees by itself (if you assume 15% federal and 10% CA state tax on long-term
capital gains). So, sure, the fees you pay wealthfront compound over time, but
so does the money you pay in taxes. (You do eventually pay the taxes on that
gain, of course, but the money you save now compounds over time, so you still
come out significantly ahead).

So the question is: does additional asset class diversification plus tax
optimization yield at least a 0.25% increase in your total return (net of
taxes and fees) in an average year? I believe it does in my case, hence why I
have my money with them. It's not because I'm some idiot taken in by slick
marketing who can't do math and doesn't know about Vanguard ETFs:
Wealthfront's core market is really people who _can_ do math and understand
what they're getting for their 0.25%.

Similarly, you can quibble over asset-based fees over fixed fees, but that
also misses the point: as long as they make me more money than I pay them, I
come out ahead. If I come out ahead, why would I be complaining? If I don't
come out ahead, then there's still no point in complaining: just don't use the
service. Capitalism at its finest.

Again, it's sad that the OP and most of the comments in this thread don't even
attempt to tackle the real value proposition here. Just saying "Stick it in a
Vanguard ETF and you'll pay less in fees" is not at all addressing whether or
not the core value proposition is valid.

~~~
hchenji
> whereas Wealthfront portfolios typically have more like six or seven asset
> classes

Why does increasing the number of asset classes guarantee a higher overall
return? Is there any proof or intuition? Will increasing the number to 10
asset classes guarantee that you will consistently outperform VOO or VTI or
VUG?

~~~
domdip
Because to some extent the asset classes are uncorrelated. This is the basis
of Modern Portfolio Theory, and the reason you don't just dump everything into
the highest-return class (e.g., stocks).

For a simplified model, check out Kelly gambling

[https://en.wikipedia.org/wiki/Kelly_criterion](https://en.wikipedia.org/wiki/Kelly_criterion)

~~~
hchenji
Interesting, I did not know about that.

So with that logic, shouldn't Betterment with its 12 asset classes and 0.15%
fees for >$100k invested be more optimal?

~~~
domdip
Maybe. More asset classes shouldn't hurt, although at some point they may not
help much (new ones may be highly correlated to some combination of the
previous ones) and lower fees are nice. For bigger portfolios WF's single-
stock approach may add enough value to compensate for these. I'm sure both
companies have simulations proving they're better...

------
kenferry
I've often wondered about precisely the author's issue – why do wealthfront,
betterment, et. al. charge a percentage of assets under management? Is it just
that no competitor has offered a flat rate yet, or is there intrinsically more
work involved in trading larger sums?

To this one point:

> All these cases neglect to mention that you will probably only see the
> maximal gain if you are maximally messing up already, by needlessly churning
> your account to generate capital gains. As Vanguard’s founder advises: Don’t
> just do something; stand there.

The author is listed as "Former Director of Product @ Facebook". If he
received a portion of his compensation in Facebook stock, he needed to sell
out of that position regularly to avoid being over invested. That should have
had generated more in capital gains than tax loss harvesting could offset.

~~~
gohrt
> That should have had generated more in capital gains than tax loss
> harvesting could offset.

only in the year he sold after the IPO.

RSU vests are taxed as ordinary income.

~~~
aoeuasdf1
Yes, but employee stock purchase plans (~50% of the time) result in large
capital gains.

------
rgbrgb
> the financial advisor who treats his esteemed clients to FREE! luxury box
> seats at the big game ( __* when you pay him $10,000 a year).

Always be suspicious of lavish gifts from someone who's services you employ...
often means you're overpaying. We see this in real estate all the time. A
broker who just made $80k on a week's work will often send their client a $200
gift card or take them out to a fancy dinner to "celebrate" (and alleviate
guilt?).

------
hundt
The author's points about advertising and hidden fees are well-taken.

Regarding "Stop charging proportional fees": if Vanguard, who charges
proportional fees, is operating "at cost" as the author claims, then what is
all that extra money paying for? The implication is that technology could be a
game-changer because it unlinks the size of the effort from the size of the
effect, but surely that is already happening with Vanguard's 12-digit funds.

------
hchenji
Does anyone here use wisebanyan? They claim $0 fees and still do the robo
advising (i.e., solving the portfolio allocation problem).

------
vasilipupkin
Wealthfront should compete not just on trying to execute the same old indices,
but on creating new indices on the fly. For example, REIT Index Sans Illinois,
Emerging Markets Sans Russia, etc. Infinite number of possible index
portfolios. Anyone want to build that? send me a message

~~~
robbiemitchell
I believe that's what Motif is doing.

~~~
vasilipupkin
Yes. But with absolutely insane commission levels. I would like a Vanguard
like product that lets me do it

------
leadhacks
I ran some numbers and Blake's idea could bring the cost down by 40-60%

[https://medium.com/@bluf/the-robotraders-versus-blake-
ross-a...](https://medium.com/@bluf/the-robotraders-versus-blake-
ross-a51ce36a8ae4)

------
gohrt
> the kindly rabbi who performed your bris

mohel performs a bris, not a rabbi

> It’s why you’re receiving 2% cash back on your credit card while your
> neighbor pays 12% on his.

This is mostly because merchants pay a fee, and the CC company kicks it back
to you.

> I’m not asking why Wealthfront helps itself to such margins, which is
> obvious and perfectly normal, but rather why the market bears it

AirBnB and Uber and real estate agents do the same thing [price-proportional
fees, not cost-proportional fees or flat fees]...

Anyway, it's not as bad Blake rants about. Flat fees hurt the least-wealthy
customers.

1\. It's progressive. Wealthier customers pay more. That's good for sociery.

2\. It's not inherently a scam, anymore than airline tickets or home sales.
Ultimately, they compete in the market, and have to price competitively.
Companies will lower prices to attract customers (if competition arrives), but
maintain their profit to stay in business.

~~~
mooreds
Where are the lower prices alternatives to AirBnB and Uber? If they existed,
would you be using them?

------
Bostonian
Has someone created a web site that uploads your portfolio and makes tax loss
harvesting suggestions for a fixed fee?Competition is what brings prices down.

------
mooreds
I would love to see the proportional fee killed. Even Vanguard charges this
(though their fees are smaller, they are still a percentage). But the fact is
the effort required to manage $10M is not 10x the effort required to manage
$1M (especially with software). So why do we pay 10x as much? Because we
always have!

That's the opportunity in front of Silicon Valley with regards to wealth
management.

~~~
srj
Vanguard does reduce the fee in many of its funds as the investment amount
becomes larger. The tiers are Investor, Admiral, Institutional, and
Institutional Plus. Some of these you can get in a 401k plan negotiated by
your employer. VIIIX for example is an S&P fund with a 0.02% expense ratio.

~~~
mooreds
Yes, I know about this.

I realized after posting the comment that the way to get a fixed price index
fund (where the fee is not tied to the asset size) is just to buy stocks
directly. Once you pay the one time commission, you own the stock forever with
no yearly management fee.

Of course, that comes with other costs (you have to adjust yourself when the
index changes, commission when you sell, etc).

~~~
srj
Which index? If it's an S&P500 one that's 500 stocks to buy. What happens when
companies enter the S&P500 or exit it? You would need to trade again which
means more commission fees.

What if one company in the index grows considerably while another one falls in
value? Do you rebalance between those two? More commissions. Index funds hide
all of this and I would guess it winds up cheaper particularly if you include
effort.

------
spacecowboy_lon
Not sure that 100,000k account for $20 a month is that good a deal. I have
about that in my UK TD ISA and don't pay any account charges

------
jsprogrammer
>There are other options available that would enable you to stop working years
earlier

The only real option that enables people, on average, to stop working is
automation.

