Wealthfront launches custom portfolios, explores offering cryptocurrencies and individual stocks

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For the first time in the company’s history, Wealthfront is giving clients the ability to self-select the investments in their automated portfolios.

Investors can adjust the holdings in one of the robo advisor’s model recommendations or build a portfolio from scratch, according to a blog post on Wealthfront’s website. Products are limited to a selection of ETFs chosen by Wealthfront’s investment team, but the company is looking to expand the list over time and eventually include cryptocurrencies and individual stocks.

It’s a significant pivot for the digital advice company, which currently manages more than $21 billion across 394,000 accounts, according to its most recently filed form ADV. In June 2020, Wealthfront CIO Burt Malkiel published a blog post criticizing the rise of day trading in the pandemic and detailing research on how trading individual securities underperforms index investing.

But Wealthfront has received significant demand from existing clients for the ability to tweak portfolios by removing an asset class or adding a specific ETF, says vice president of communications Kate Wauck. Making the platform more flexible can also make it easier for clients to move assets in a held-away brokerage over to Wealthfront to take advantage of tax-loss harvesting, automated rebalancing and tax-minimized withdrawals, she adds.

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The robo-advisor also sees an opportunity to expand its client base by tapping into the surge of new investors flocking to do-it-yourself trading apps, she says.

“We noticed, especially last year, that the risk appetite among both millennials and Gen Z as well as just overall interest investing is really at an all-time high right now,” Wauck says. “Instead of fighting the trend and telling people it’s not necessarily the right way to invest, we figured it was better to embrace it and bring folks into our ecosystem and teach them about passive investing.”

More than 10 million new brokerage accounts were opened in 2020, and 27% of them went to DIY stock trading app Robinhood, according to J.D. Power. But with COVID-19 vaccinations becoming more readily available, people will soon start returning to old hobbies, Wauck says.

“We’ve all been bored sitting around during COVID, and [stock trading] had become a great form of entertainment for mainy people,” she says. “Our belief is this trend will soften a bit and people will go back to their normal lives, but they’ll still know about the market and they’ll still be investing. That’s a great place for us to come in.”

The new approach can help Wealthfront broaden its appeal among investors who fear they will miss out on gains while domestic equity markets are up sharply; then, the firm can try to convert them into clients focused on long-term financial goals, says Scott Smith, director of advice relationships at research firm Cerulli Associates.

“In the best case, these investments are successful over time. Alternatively, the clients may suffer some losses and then adopt the low-cost diversification through ETFs [strategy] fundamental to [Wealthfront’s] platform,” he says. “Hopefully these lessons aren’t too costly for those who start off with high allocations to individual stocks or cryptocurrencies.”

While it’s laudable to give consumers more choice with their portfolios, Wealthfront has a responsibility to keep clients from pursuing self-defeating options, Smiths adds.

Wealthfront is registered as an RIA, is held to a fiduciary standard and is not looking to become another stock trading app, Wauck says. The only investment products currently allowed are ETFs that have been vetted by the robo advisor, such as tech sector index QQQ, Cathie Wood’s ARKK fund or a variety of SRI strategies.

That could change in the near future, however. The company is currently vetting partners to bring cryptocurrencies and individual stocks to its platform. There aren’t yet specifics on what a product or service will look like, but the idea is to provide a framework for people to consider digital assets like Bitcoin alongside more traditional assets in their portfolio, Wauck says.

Wealthfront competitor Betterment first introduced Flexible Portfolios in 2018, giving clients the ability to adjust asset weight classes. Over time the company has continued to open the platform, allowing investors to select SRI portfolios and build custom models.

Betterment does not currently have plans to offer cryptocurrencies, according to vice president of communications Joe Ziemer.

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