Wealthfront CEO Adam Nash, formerly a VP at LinkedIn, was a client of the fast-growing financial technology startup before taking the top job.
Today, his company -- which helps primarily younger spenders to manage their portfolios of exchange-traded funds (ETFs,) -- announced the launch of a new, artificial intelligence system that wants to help them focus on the long-term financial picture.
Since launching in 2011, Wealthfront has grown its assets under management (AUM) to nearly $3 billion, trailing just behind Betterment, a competing robo-adviser, which now counts roughly $4 billion in AUM. Both companies are currently valued at $700 million.
In addition to managing a client's passive funds for them, Wealthfront offers services like direct indexing, single-stock diversification, and tax-loss harvesting. It has a minimum investment requirement of $500, and charges a fee of 0.25 percent annually. (If you invest less than $10,000, the company will manage it for free.)
"We believe that over the next decade, artificial intelligence is poised to transform our industry. The entire fabric of the financial system will be rethought, redefined and rewired," said Nash, writing in a blog post on Thursday.
Still, integrating A.I. with finances is not necessarily anything new, notes Darrin Courtney, the principal executive advisor at CEB, a consultancy that advises financial services firms.
"There are established brick and mortar players who've been around for a long time that are using AI in the wealth channels, some of them doing it quietly for years," says Courtney. To his point, Charles Schwab has been operating its Schwab Intelligent Portfolios since last spring. IBM Watson inked a deal with the robo-adviser Marstone just last week, to produce financial advice based on cognitive computing.
"You're going to see it continue. I think it's neat, but not ground breaking," Courtney added.
While financial technology upstarts are poised to steal up to $4.7 trillion dollars of business away from banks, according to a 2015 report from Goldman Sachs, traditional players are quickly adapting, too. Companies including Charles Schwab and Vanguard have rolled out their own, automated investment arms, and continue to manage billions more in assets than the robos combined. And, as Nash concedes of his business model: "It does require capital."
To date, Wealthfront has raised nearly $130 million, from such notable investors as Index Ventures and Spark Capital.
It's meant to feel like Facebook
Clicking through the new platform, Nash points out that "you can see a little bit of Facebook" in it. That should come as no surprise, since Facebook CTO Mike Schroepfer joined the board of Wealthfront in November of last year. More directly, the company recently hired former Facebook execs Ali Rosenthal, Andy Johns and Kate Aronowitz, the latter of whom now heads up design at Wealthfront.
"Many companies in the financial services industry believe software is simply a tool that can be purchased with a large enough checkbook," Nash wrote at the time. "We believe there is huge value in having a technology culture built more like Facebook than Merrill Lynch."
The slick new platform allows users to sync with third-party financial apps and websites, such as Venmo for quick payments, Coinbase for bitcoin, or RedFin for real estate data. By pulling from these third-party APIs (application-programming interfaces) Wealthfront is able to project how any one aspect of your finances -- a regular mortgage payment, for instance -- would impact your wealth over time. It then flags some areas it views as potentially problematic. For example, Nash says that younger investors often keep too much in cash. It's also conceivable that they'd have too much stock in their employer (Wealthfront recommends keeping no more than 10 percent there.)
To produce this advice, Wealthfront depends on a team of in-house researchers, some whom hold PhDs in finance. In total, the company now has 130 employees at its San Francisco headquarters. Nash insists that Wealthfront customers love the fact that they can sit back, relax, and let the experts -- including the expert technology itself -- take care of the rest.
As many as 60 percent of the company's users are under the age of 35, and unlike some competitors, it does not currently sell its services to human financial advisors.
There are some limitations to what Wealthfront can do for customers.
"Where they tend to fall short is when your true advice needs go beyond simple allocation," Courtney said, referring to robo-advisers more generally. A small business owner, for instance, would not be able to create a pension plan through Wealthfront, or start an educational savings plan.
Challenges in building out the technology
Nash says the company has been working to roll out the new platform for the better part of the last year. One major challenge has been keeping the software transparent, without offering up so much information on the dashboard that it perplexes users.
"How do you balance transparency with the basic fact that people are not rational about their money?" Nash asks, adding that financial decisions are still emotional, after all.
To help safeguard against disappointing customers -- in the event, say, that an investment doesn't accrue as much as they'd hoped over time - Wealthfront is careful not to make promises it can't keep.
"We never promise you that you'll beat the market, or that we'll protect you during an economic downturn," he says.