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Is Wealthfront a Safe and Legitimate Company? Is Wealthfront Scam or Fraud?
Wealthfront Complaints and BBB Rating (2022)
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About Wealthfront
Wealthfront, Inc. is another in a long line of "next generation" investment solutions for individual investors who want automated asset management and investment advice at a low cost. The company was founded in 2008 by Dan Carroll and Andy Rachleff (co-founder of Benchmark Capital, a venture capital firm responsible for early stage funding of successful startups such as Dropbox, Twitter, Uber, Snapchat, and Instagram).
Wealthfront started as a mutual fund analysis company called kaChing, then transitioned into a wealth management
company. In 2012, the company began tax-loss harvesting for accounts over $100,000, and in 2013 introduced
"Direct Indexing," a tax-loss harvesting platform that purchases the individual securities of an investment
portfolio. Wealthfront has grown rapidly in the past four years and currently manages about $20 billion in
customer assets.
As with similar companies such as Betterment that offer automated investment management for a small annual fee,
Wealthfront utilizes high-tech computerized solutions for diversification and allocation that simplify portfolio management for individuals. Other competitors in this area include mutual fund companies such as Fidelity and Vanguard who manage client accounts for a low annual management fee and use technology and generic financial planning tools to keep those fees low.
Wealthfront differentiates itself from competitors by focusing on and promoting their Daily Tax-Loss Harvesting and Tax-Optimized Direct Indexing services to clients who might otherwise not have large enough accounts to qualify for such benefits. These strategies seek to maximize annual investment returns by utilizing selective asset sales for losses to offset portfolio gains and thereby reduce the tax effect on a portfolio.
Is Wealthfront Safe and Legitimate?
Wealthfront is a legitimate online investment portfolio manager. They are registered investment advisors with the Securities and Exchange Commission (SEC). The SEC governs the securities industry and enforces its rules and regulations as well disciplines companies convicted of fraud and other offenses.
The company is also a member of the Financial Industry Regulatory Agency (FINRA), a non-governmental agency authorized by Congress to ensure that the securities industry operates fairly and honestly.
The fact that Wealthfront in its current business model is only since 2012 is a slight cause for concern. However, with SIPC insurance in place investors can be assured that their
accounts are protected.
Wealthfront and Competitors
Is Wealthfront Insured?
Wealthfront is a member of the Securities Investor Protection Corporation (SIPC), which insures individual securities accounts up to $500,000, of which a maximum of $250,000 in cash. This insurance only takes effect in the event Wealthfront goes bankrupt. It does not insure an investor against loss of principal due to negative market conditions that cause portfolios to lose value.
Is Wealthfront a Scam?
Like many companies trying to differentiate themselves from competitors in the crowded field of investment management and financial advising, Wealthfront focuses on a narrow slice of the investment strategy spectrum—tax efficiency. Maximizing the tax efficiency of a portfolio by minimizing taxable gains is one strategy to improve total return of a portfolio.
The company also bases its investment strategy on Modern Portfolio Theory (MPT) first developed by Nobel Prize-winning economists Harry Markowitz and William Sharpe. This approach advocates diversification among asset classes but is not necessarily the proper investment strategy for all investors. Therefore, investing in Wealthfront may not be appropriate for all investors, and certainly, investors with tax-deferred or tax-free accounts such as IRAs may not benefit from investment strategies that focus on tax-efficiency.
For those who have relatively straightforward financial situations and prefer the ease and efficiency of the kind of asset management offered by Wealthfront, the company's approach may be sufficient.
Wealthfront Complaints, BBB Rating
Current Wealthfront BBB rating is "F", which, of course, is not great. You could see the details
under this link.
There is only one negative review at BBB website, which for a young business with hundreds of thousands of
customers, is great.
Competitors
Wealthfront's 5-star rated competitor, M1 Finance is
absolutely FREE. That's right - you can invest with this broker without paying any commissions or fees.
M1 Finance Promotion
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Is Wealthfront Safe Conclusion
Wealthfront, Inc. is a legitimate investment advisor focused on a specific niche of asset management — tax efficiency. It offers low-cost portfolio management that is competitive with
other discount brokers and computerized asset management programs. The company's investment approach offers a valid strategy that
may be appropriate for many investors.
Chad Morris is a financial writer with more than 20 years experience
as both an English teacher and an avid trader. When he isn’t writing
expert content for Brokerage-Review.com, Chad can usually be found
managing his portfolio or building a new home computer.
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