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Wealthfront Gives Investors More Choice in Funds, Hints at Crypto

In a major change for the firm, Wealthfront is adding the option for investors to choose select funds for their portfolios, with 'hundreds' of ETFs soon to come.

Wealthfront is adding more choices to its list of available ETFs, including socially responsible investing (SRI) funds, as well as a build-your-own portfolio option for investors, according to a company blog post. Investors who decide to build their own portfolios will still have access to tax-loss harvesting, rebalancing and dividend reinvestment, according to the announcement. New ETFs include tech-focused QQQ, SRI-focused ESGU and Cathie Wood’s ARKK.

Wealthfront also committed to providing its investors with cryptocurrency, individual stocks and “hundreds more ETFs to choose from.” The ETFs will be available "in the coming months," according to Elly Stolnitz, a spokesperson for the firm.

The addition of individual stocks and crypto is in the "exploration phase," Stolnitz said, with the firm planning "to allow [investors] to hold cryptocurrency and individual stocks."

The move is a major expansion of the investment features available for clients and Wealthfront’s latest evolution from the “nextgen banking service” label it self-applied last year. With the new features, the firm is aiming to capture greater wallet share, said Dan Carroll, co-founder and chief strategy officer.

“Our current clients alone have over $50 billion in assets linked to Wealthfront sitting in outside brokerages,” he said in a statement. Wealthfront uses account aggregation from Plaid to enhance its financial planning capabilities, as well as get a deeper understanding of clients’ financial behaviors and assets. “Adding the ability for [clients] to invest with Wealthfront based on their values and beliefs and apply the benefit of our automation, will enable them to simplify their investment activities and pursue their goals by trusting the management of those assets to us,” he added, calling the new portfolio features “an enormous opportunity for Wealthfront.” The firm has $21.5 billion in AUM and another $3.5 billion in cash accounts, according to its most recent regulatory filings and confirmed by a company spokesperson.

"This announcement may come as a shock to many since we’ve been pretty staunch in our investing views," added Stolnitz. "We’ve come to realize that the level of investing knowledge and appetite for different investment vehicles among millennials and Gen Z has grown immensely. And we want to acknowledge that and help our audience navigate the different options in a way that differs from other financial service apps."

The firm won't be changing its hiring plans for additional service and compliance personnel around this announcement, she added.

Wealthfront touts its investing services as “no finance class needed”; however, that was before clients had the option of building their own portfolios. “We’ll recommend portfolios, offer time-tested strategies rooted in academic research and provide information at every turn,” the firm stated in the announcement. “But at the end of the day,” it concluded, “you call the shots.”

Retail investors on platforms like M1 Finance can already build their own portfolios with funds and individual stocks, allowing the service’s software to rebalance investor-built portfolios. M1 has more than $3.5 billion in assets on its platform, according to the firm. It has raised more than $153 million in venture funding, according to a company spokesperson.

Meanwhile, Betterment introduced portfolio creation capabilities for its advisor business earlier this year. It has long had SRI investment options for its clients. Betterment has $28.3 billion in AUM, according to its most recent regulatory filing.

Wealthfront is focusing on ways to attract younger clients,” said David Goldstone, manager of research and analytics at Backend Benchmarking. He called the customization “limited,” noting that it “does not directly compete with trading platforms like Robinhood and M1.”

However, Betterment clients could find more discretion over investment decisions if they invest with Wealthfront, he said. “Betterment clients can change the weights of different asset classes held in their portfolio, but cannot select which funds are used for those asset classes,” he said. “Wealthfront’s new customization features are now more robust than Betterment’s.”

Ultimately, Wealthfront is adding investment options to make the firm into more of a “one-stop shop for personal finance needs,” he concluded. “Wealthfront’s customization feature is a middle ground between a self-directed platform and model-based portfolios that are the standard of robo advisor offerings.”

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