Initial public offering (IPO) windfalls for engineers and other tech workers are not uncommon in Silicon Valley, but they often leave recipients with a diversification problem: a portfolio with a heavy concentration in one stock. To help solve it, Wealthfront, the automated investment platform, is creating another service traditionally reserved for human wealth managers.
Employees at publicly traded companies can now use Wealthfront to sell the stock they receive in their company's IPOs in an orderly fashion via Selling Plan—an automated service that lets employees either set the cash aside or reinvest it into a Wealthfront portfolio.
Selling Plan is free and Wealthfront doesn’t charge commissions. A company spokesperson said the goal is for people to redirect their money into a Wealthfront portfolio, which charges a 25 basis point management fee.
The Silicon Valley-based robo advisor is hoping Selling Plan will help tap into a new revenue stream, especially from technology firms that often include stock options as part of their compensation packages. Wealthfront said there is about $200 billion in IPO-issued stock sold each year.
The move also positions Wealthfront to capitalize on upcoming IPOs. Snapchat, Spotify and Uber are just a few of the blockbuster IPOs expected in 2017.
In a blog post, Wealthfront said the idea came from Twitter employees who needed help selling their concentrated company stock positions during the company’s IPO.
“The executives of Twitter had plenty of good options because they qualified for services from Private Wealth Managers, but the rank and file were left out in the cold,” wrote Houman Fardin, Wealthfront’s head of strategic partnerships, and Roberto Medri, the director of data science. After building a prototype, the company expanded it to other Bay Area technology companies before deciding to make it a full-fledged feature.
Wealthfront said it has received demand for the feature from employees at 300 different public companies from all sectors. To currently sell company stock, employees have to work with a traditional broker mandated from the stock administrator and often pay hefty commission fees. Wealthfront said Selling Plan will also optimize tax impact.
“We’re proud to have built a service that requires no effort on the part of your employer. We take all the hassle out of the process by handling everything on our end,” Fardin and Medri said. “It’s just another example of how software can deliver a better solution than traditional approaches.”