New Competitors

Wealthfront, a private company that has received funding from DAG Ventures and other venture capital firms, represents the other end of the spectrum of personalized advice. The company counts Burton Malkiel, a Princeton professor whose book "A Random Walk Down Wall Street" helped popularize passive investing, as its chief investment officer, a role that chiefly focuses on evaluating asset classes and allocation strategies that underpin the firm's automated process. (See the Financial Advisor story, Online Advisors: Competitive Threat?)

About 60 percent of its clients are under the age of 35, and it charges a fee of 25 cents per $100 invested for its services, and levies no fees at all for accounts under $10,000.

Both Wealthfront, and its competitor Betterment, are heavily courting young workers whose memories of the financial crisis make them skeptical that anyone can have insights into where the stock market is headed. So far, that message has been resonating with its clients. (See the Financial Advisor story "The Rise of the Robo Advisors.")

"Unless you're at the stage and scope that you need to be playing crazy tax games, it doesn't make sense to talk to a wealth manager," said a young Stanford business school graduate whose company was acquired by a large technology company last year. He didn't want to use his last name because he didn't want to draw attention to himself.

Adam Nash, Wealthfront’s chief executive, used to work at both LinkedIn and eBay and said that his clients are mostly found in San Francisco, New York, and other places where "young people are able to make money."

They tend to put more trust in technology than in people, Nash said. "They don't really believe that a person is going to be watching their money 24/7, but they believe that a computer is," he said.

 

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