Malkiel Named CIO Of Online, ETF-Only RIA

November 20, 2012

Burt Malkiel, keeping the indexing revolution alive, will serve as chief investment officer of a low-cost, ETF-only online RIA called Wealthfront.

Burton Malkiel, the investment-world legend and author of the seminal work on indexing “A Random Walk Down Wall Street,” was named chief investment officer of Wealthfront, a California-based ETF-friendly “online” investment advisor focused on the tech-savvy Silicon Valley community.

Wealthfront has a minimum account size of $5,000 and manages clients’ first $25,000 free. When a fee kicks in at the $25,000 asset level, it amounts to 0.25 percent, or $25, for each $10,000 under management. It achieves that by efficiently providing its services online using the tenets of modern portfolio theory as the backbone of its asset allocation plans.

As CIO, Malkiel will help Wealthfront improve its services, including the choice of asset classes, the way it allocates among different classes, the choice of securities and the methods by which it evaluates risk and applies those evaluations to client portfolios, the company said in a blog it published on its website last week.

“I love Wealthfront’s mission and vision,” Malkiel said in the blog. “Software-based advice is the only way in which the little guy can get professional financial advice without paying an arm and a leg for it.”

Wealthfront’s advisory fee, which is separate from fund expense ratios, is considerably lower than what many advisors charge, though there’s downward pressure on what advisors charge, just as there’s downward pressure on expense ratios.

The firm puts together its low-cost portfolios using only ETFs, which helps keeps overall costs low by virtue of their relatively low expense ratios, their tax efficiency and the fact that they’re typically low-turnover index funds.

The firm manages taxable personal investment accounts, individual retirement accounts and 401(k) rollovers.

A Wealthfront spokeswoman declined to say how much the four-year-old firm has under management.

The firm was founded in 2008 by Andy Rachleff, a former general partner of Benchmark Capita and now chief executive officer of Wealthfront; and by Daniel Carroll, who serves as Wealthfront’s chief strategy officer.

Malkiel, who is also a Princeton University professor emeritus of economics, will also meet with select groups of Wealthfront clients, and offer investing insights to clients and the public, the registered investment advisor said.

Among the specific tasks Malkiel will help with is the development of Wealthfront’s continuous online tax-loss-harvesting tool.

The firm said its research suggests that by continuously focusing on tax-loss harvesting, investors can double the benefits of end-of-year harvesting, adding perhaps 1 percentage point of returns each year.

Malkiel also serves as the chairman of the index committee at AlphaShares, a firm that designs indexes focused on various pockets of the Chinese investment universe.


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