CEO of leading automated advisor says millennials get the firm’s approach to passive investing.
Wealthfront is a registered investment advisor, but unlike the more traditional types, it’s a fully automated investment service sitting at the center of a nascent—and quickly growing—world of online advisory businesses. In little more than two years, the Palo Alto-based firm has grown to manage more than $800 million in assets, finding a solid niche among the younger generation of investors. Wealthfront also was named ETF.com’s “ETF Strategist of the Year” for 2013 in March.
The company’s CEO, Adam Nash, tells us that the secret to Wealthfront’s success lies in automation—a trait that baby boomers seem generally uneasy with, but that the newer generations are embracing like never before. Nash talks about what’s driving this segment’s growth, and how appetite for passive long-term investment solutions is at the core of what the company is doing right.
ETF.com: From your perspective, what’s driving this impressive growth in the online advisory business?
Adam Nash: Wealthfront is actually a relatively new service—we launched it in December 2011—but in just under 2 ½ years, we grew rapidly to be the largest and fastest-growing company in this space. We’ve really seen an incredibly rapid adoption of this type of automated investment service. In just a little more than a year, we’ve grown over 700 percent, from less than $100 million in assets last year to over $800 million in March.
There are a lot of people asking a couple of questions. First, “What’s the right way to think about this space”? There are different new technologies and new businesses in this space. And then there’s also “Why is this happening now”?
The way we look at the market, we see three ways or at least three groups of services out there. There are traditional advisors, there are technology-enabled advisors, and then there’re automated investment services.
Each of them has new entrants and existing players, but the great thing about this industry is that you learn a lot from your clients, and we’re learning about why this is happening now from them. You learn a lot from the data of who’s using the service and why, and what’s different than you expected.
ETF.com: So, what is that client data telling you about the demand for automated advice? Who is the typical or average Wealthfront client? What kind of investor are you attracting the most?
Nash: Millennials. About 60 percent of our clients are under 35 years old; 90 percent are under 50. Are they tech savvy? If you’re under 35, you grew up with technology and software, so you don’t have strange feelings towards it. What we’re seeing is a pretty big mix of people’s attitudes towards this market.
People who are over 50, or are approaching retirement, have a heavy bias towards talking to a human advisor. People under 35, or Gen Y, have a heavy bias toward an automated solution. They're not worried about retirement, they have a long career. They’re focused on their passions, which has become one of the defining characteristics of that generation.