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After Betterment's $100 million VC raise makes 25 newspapers, Wealthfront unveils 3.0 on blog and Twitter

The big Redwood City robo is staying in character by touting 'artificial intelligence,' in synch with Facebook's CEO, but whether it's a real delineation or simple evolution is hard to tell

Tuesday, April 19, 2016 – 9:35 PM by Sanders Wommack
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Adam Nash: We're firm believers that artificial intelligence applied to your actual behavior will provide far more powerful advice than what traditional advisors offer today.

Brooke’s Note: There is a Pepsi/Coke quality to the rivalry between Betterment and Wealthfront. See: Wealthfront CEO flames Betterment’s 'outrageous’ fees and 'abhorrent’ ways; Betterment strikes back labeling the screed a Trumped-up PR play. Once Betterment made the stunning announcement March 31 that it had raised another $100 million, Sanders and I kept a vigil on Wealthfront’s blog, the place where it makes its announcements, expecting a response. We didn’t have to wait long at all. The Wealthfront retort boils down to this: We are going to out-robo our robo competition by keeping the faith that advice is best automated and that it can be automated with greater reliance on artificial intelligence, which is to say: more automation.

Just two days after robo-advisor Betterment Inc. announced a venture capital cash infusion of $100 million, Wealthfront announced that it was taking the “robo” in its robo-advisor to the next level.

CEO Adam Nash announced on the Redwood, Calif. firm’s blog on March 31 that Wealthfront Inc. is evolving from the use of robo algorithms written by human beings to ones authored by robots, an iteration Nash calls Wealthfront 3.0.

“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,” Nash wrote on the company blog. “In order to meet this future, we need to start building for it now.” See: Wealthfront responds with force to Schwab CEO’s robo announcement.

Though such a statement might have been regarded as mere robo-CEO rhetoric two years ago, today it has a pioneering ring. After all, a critical mass of robo founders, including New York-based Betterment, are pursuing strategies that involve a higher quotient of human involvement provided by human advisors. In Betterment’s case, it is aggressively building a 401(k) business in addition to what may be something akin to an RIA custodian.

But Wealthfront continues to double down on one channel: a retail robo sold directly to investors. This makes it all but inevitable that the firm, with its $3 billion of assets under management, would try to reverse-engineer the human element of the RIA industry. See: Wealthfront’s high-net-worth cat leaps out of the bag — keeping it one robo 'pivot’ ahead of Schwab

All I want is a simple AI

Artificial intelligence is the hot Silicon Valley buzzword these days. Witness Go Master Lee Se-Dol’s crushing defeat at the virtual hands of Google’s DeepMind AI last month — an achievement Nash referenced in his post — that only stoked concerns that Silicon Valley is capable of cooking up something much more powerful and disruptive than average RIA can compete with. See: How RIAs can compete with super-RIAs, robo-RIAs and the 'phono’- and faux-RIA market of 2015 and beyond.

On Jan. 27, Facebook CEO Mark Zuckerberg wrote on his own Facebook page: “My personal challenge for 2016 is to build a simple AI — like Jarvis from Iron Man — to help run my home and help me with work.”

During the keynote at Facebook’s F8 developer conference last week, Zuckerberg said artificial intelligence will eventually be able to understand its intakes, such as content from video or photos, and speak to users in fluent, human-sounding language. The company announced the beta launch of Bot Engine on Apr. 12, a personal assistant service on Messenger that will help users with tasks such as finding out the weather or making dinner reservations.

For now, Wealthfront’s 3.0 serves clients access to cosmetic upgrades and outside account tracking tools.

But the role artificial intelligence plays, or will play, in Wealthfront’s service is still unknown. Such upgrades didn’t appear to accompany version 3.0’s larger aesthetic overhaul and there are still many lingering questions about its ultimate implementation.

Name your algorithm

Wealthfront doubled the size its engineering team in 2015 and made a few key hires in the lead up to version 3.0’s release. In November, the firm announced that Facebook’s chief technology officer, Mike Schroepfer, would join its board, touting, among other things, his experience with artificial intelligence. It was the third hire of a Facebook A-lister in the past year. See: Wealthfront takes on another Facebook vet — a clue that going dark in Palo Alto doesn’t mean going away

Wealthfront is still in the process of finalizing its AI engineering team. A posting on the company’s job board as of late last week sought candidates with extensive AI experience, and several current listings ask for candidates with experience using big data and machine learning systems.

Combine this with in a dearth of available details about Wealthfront’s larger vision, some in the industry are skeptical about the true importance of the announcement.

“WF’s blog post is remarkably low on substance. They don’t say what the AI will actually do,” writes a former executive of a robo-advisor who is now with a new startup, in an email to RIABiz.

“I do not think companies should be able to claim that they use AI unless they are willing to name the specific algorithms. Companies and journalists play too loosey-goosey with the term,” he writes.

Wealthfront did not respond to a request for comment.


The firm’s blog post announcing the introduction of artificial intelligence offered few details other than to say that some of the more basic functions are in the offing. For example, Nash wrote that clients should soon expect analysis on the sufficiency of their emergency funds and advice on stock diversification.

The post did, however, drop one hint about how Wealthfront plans to engineer a replacement for the personal relationship between client and traditional advisor. The future, Nash says, will be improved through objective, data-driven analysis.

“We’re firm believers that artificial intelligence applied to your actual behavior will provide far more powerful advice than what traditional advisors offer today,” he writes. “The reason is quite simple: actions speak louder than words. Observed behavior can’t be fudged on the phone or lied about in person. More importantly, observed behavior may reveal insights about ourselves that we aren’t even consciously aware of.”

Scott Smith, an analyst with Boston-based Cerulli Inc., sees Wealthfront’s 3.0 launch as involving form as much as function. See: Robo-deal catapults Goldman Sachs into defined contribution business that’s as downmarket as it gets

“It’s just a product evolution to make more bells and whistles and make it fancier and prettier,” he says.

And, although clients expect cosmetic changes in the robo arena, Wealthfront’s success will revolve around bringing its client acquisition costs down, Smith says. The costs in the robo business can be as high as $1,000, he adds.

Press the green button

Indeed, whatever AI innovations the future brings, Wealthfront’s rollout of version 3.0 seems ideally tooled for bringing in more assets from current clients. The single biggest change for users is an asset-tracking function that is currently integrated with 20 banks and brokerages. With access to this data, Wealthfront is able to compare a user’s outside asset management to how Wealthfront would treat the same money.

The service estimates how much these other accounts are losing because of basic investment no-nos such as high fees, uninvested cash and tax inefficiency. It then offers simple solutions to these problems, such as buying a diversified index or selling a high-fee fund. See: An X-ray of one affluent, educated and sophisticated investor’s portfolio shows how it was chewed up by fees

Of course, because no bank or brokerage on the platform offers a tax loss harvesting service, every account inevitably shows investors losing hundreds or thousands of dollars because the assets aren’t with the robo firm.

To remedy this problem, Wealthfront suggests users move out of Vanguard, Fidelity or Wells Fargo, for example, and into automated investing. To assist with that change, a lime-green “Help me transfer my account” button is placed beneath the 30-year asset comparisons.

In the works

With only the bones of version 3.0 available for use, Wealthfront’s latest iteration currently feels more “robot” than “advisor.” See: The ironic reason robo-advisors aren’t gorging on assets — a determination to dictate bloodlessly to millennials

There appear to be a few software hiccups tied to the rollout. A reporter was advised by the software to put idle cash to work by purchasing “$NaN” worth of a cheap, balanced funds. A Wealthfront customer service representative confirmed that the company was dealing with difficulties syncing integrated accounts and that there was “no timeline” for the release of the additional features teased in the blog post.

There also didn’t appear to be the same level of sophisticated, holistic portfolio analysis that a client would receive at an account integration robo like San Francisco-based Future Advisor. See: Why BlackRock’s purchase of FutureAdvisor for $152 million could be a deal of destiny Future Advisor, however, charges 50 basis points versus 25 basis points at Wealthfront.

And with just 20 outside firms to link accounts to, the service is limited in its ability to give many users a picture of their financial health.

More account integrations should be coming, including several millennial-centric alternative financial firms. Nash claims Wealthfront will soon establish links with Venmo, the peer-to-peer cash transfer app; Coinbase, the Bitcoin Exchange; Redfin; and Lending Club. See: How Bitcoin is penetrating RIA portfolios by looking riskier to ignore than embrace

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Top Executive: Andy Rachleff

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