Online advice platform Wealthfront has raised $64 million in its latest round of venture capital funding, bringing its total cash reserves to $100 million, the Silicon Valley-based company announced today. With the new funding, Wealthfront has now raised more capital than other prominent robo advisor platforms, including LearnVest and Betterment. The company now manages $1.5 billion.
The funding was led by Jeremy Philips, founder and managing partner of venture capital firm Spark Capital Growth, perhaps best known for previously serving as News Corp.’s executive vice president, focusing on digital strategy and acquisitions. The financing also includes new investor Dragoneer Investment Group as well as existing investors Index Ventures, DAG Ventures, Greylock Partners, Ribbit Capital and the Social+Capital Partnership.
WealthManagement.com spoke with CEO Adam Nash about the new funding, the future of the company, and whether advisors should fear robo advisor platforms.
WealthManagement.com: What does this new funding mean for Wealthfront and how will it be used?
Adam Nash: We raised money earlier this year, and we actually haven’t spent a dollar of it yet. Let’s not kid ourselves; we’re competing with some very large incumbents. And we wanted to chart a path where we could stay independent, stay focused on our clients, and focus on the innovation that’s lead us to be the leader in this category to date. We’re going to be investing it in more products and services, more engineers and data scientists.
WealthManagement.com: Do you have any plans to offer your technology to advisors, as some competitors have?
AN: Our basic position is that our relationship is directly with our clients. Frankly there’s no way to enter into partnerships and intermediary relationships without potentially having conflicts with your clients.
I’m on the record saying that I think within the next decade, everyone will be using some form of automated investment service. But for Wealthfront, we’re really happy to be growing the business—focusing directly on our clients.
WealthManagement.com: Some big names are getting into the online advice space—Schwab, Vanguard, etc. How is Wealthfront going to compete?
AN: The larger companies have more money; they have more locations; they have more people. The one thing they don’t have is focus. They have huge businesses with lots of revenue lines and lots of different types of customers. For us, being 100 percent focused on a client-centric solution is what we think is going to build the best business for our clients.
The great thing about this industry is that it’s large enough to have its own history of new entrants. And one of the reasons we’re such fans of Charles Schwab and Vanguard is that these are not old companies from 100 years ago. These are companies that have grown up with the baby boom generation. We think given the 90 million Americans in the millennial generation that there is more than enough opportunity to build a really large, independent new company that’s solely focused on the financial services that they’re looking for.
WealthManagement.com: What will happen to these investors on the platform when they accumulate more assets? Will they eventually switch to an in-person advisor?
AN: Remember, Wealthfront has accounts as low as $5,000 but also accounts over $10 million and everything in between. We see this entire trend as not a question of age, per se, or amount of money. It’s more about the expectation that this new generation has grown up with software. They trust it in a different way than previous generations did. I think in the future you’ll see that for some of these services, even when there’s a human involved, people will trust it if software has done the math.
WealthManagement.com: Should advisors be afraid of online advice platforms?
AN: Our average client has about $90,000 with us. Most online services don’t have accounts that size. That being said, that type of account isn’t economic for the vast majority of the industry. The minimums of most traditional advisors and wealth managers are in the hundreds of thousands if not millions, and in some cases even higher.
I don’t think advisors have to fear Wealthfront; I do think that the next decade is going to see an incredible level of innovation and technology. It’s going to matter which advisors have good relationships with their clients, know how to use technology and know how to grow their business. I think you’re going to see a lot of advisors build successful practices by focusing on a geographic area or a type of problem that they’re specialists in.
WealthManagement.com: Why do you bring Schwab up in your blog post? Do you compare yourself to Schwab and how so?
AN: When we dug into Charles Schwab history, we really found a lot to admire. This is a company that’s not out of Wall Street. It launched in the ‘70s, and its early customers were in their 20s and 30s—they were small accounts. Forty years later, Charles Schwab’s average customer’s in their 50s and they have over $200,000 per client.
We see a parallel to what Wealthfront is doing with millennials. We think there’s an opportunity to build a business here, just the way that Charles Schwab did 40 years ago. We think the opportunity in the future for Wealthfront is just as big, if not bigger. Schwab took six years to get to $1 billion; we took two and half.