The automated advisory is looking to become the next generation’s Charles Schwab.
Wealthfront, the all-ETF fully automated investment advisory, hit $1 billion in assets under management this week—a milestone that speaks to the growing demand for automated solutions among younger investors born in the final two decades of the 20th century.
In some ways, the Palo-Alto based company has become the poster child for the growing world of online advisories due to its focus on cutting-edge technology and low-cost investing that’s centered on ETFs. Wealthfront today manages a third more assets as its closest competitor, according to estimates—a feat it has achieved in less than 2 ½ years.
Secret is automation
The company’s CEO, Adam Nash, recently told ETF.com in an interview that the secret to Wealthfront’s success lies in its focus on millennials and automation. Having already been through two financial crises in recent years, millennials—those born within the 1980-2000 time period—are looking for low-cost, passive solutions that hinge on neither face-to-face interaction with an advisor nor promises to outperform the market, Nash says.
“There’s a big generational shift around passive investing,” Nash said in the interview. “What they’re looking for is a low-cost, automated solution, and they love index funds and this idea they’ll do better than most investors if they just have a diversified portfolio that’s low cost.”
Today 60 percent of the firm’s clients are under 35 years old and 90 percent of them are under 50. The millennial generation of investors today represents 90 million people, with an aggregate net worth of more than $2 trillion, according to Wealthfront estimates, which is to say there’s still a lot of untapped potential.
Hopes of becoming the next Schwab
The goals certainly aren’t small. In the interview we did in late May, Nash said Wealthfront could be the next Charles Schwab. If the asset-gathering pace is any indication, he might very well be on to something.
After all, Wealthfront reached its first $1 billion in assets in less than half the time it took Schwab to do so, as Nash pointed out in a blog posted on the company’s website today. That said, Schwab achieved its asset gathering 40 years ago, when $1 billion meant a lot more than it does today.
“People forget that when Charles Schwab launched its discount brokerage, it was widely disparaged as: ‘Why would anyone place a trade over the phone?’” Nash said in the ETF.com interview. “It was May 1975. But those early Schwab customers were in their 20s and 30s.”
“Charles Schwab grew up with the baby boom, and now has more than $2 trillion in assets,” he added. “We see Wealthfront the same way. We’re targeting a different generation, but we really believe that this generation thinks differently about investing.”
In a blog posted on Wealthfront’s website today, Nash noted that the company’s accomplishment would not have been possible if it weren’t for its focus on millennials and product innovation.