Nine months after reaching $1 billion in assets under management (AUM), Wealthfront has announced that they have hit the $2 billion milestone. The increase in AUM comes as the overall robo investing sector has become legitimized as a value-adding long-term investing model. Including fintech startups such as Wealthfront, Betterment, Nutmeg and Acorns, some of the larger asset managers in the world, including Charles Schwab, have entered the industry.
The appeal of robo investing services is that they provide automated financial advisory to clients at a fraction of the fees of manually managed accounts. In place of financial advisors choosing individual stocks or mutual funds for their clients, robo investing firms allocate funds into ETFs, using technology to understand customer goals and risk tolerance and to automate the investment process.
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While cheaper than financial advisors, robo investing limits potential gains to market averages minus the small fees being charged. However, with 80% of actively managed funds underperforming market indexes over the long term, the simplicity of robo investing, as well as long-term outperformance compared to gains from typical financial advisors, makes a compelling argument for the product.
In Wealthfront’s case, a three year old company, the firm’s AUM has increased by 20-fold from $100 million to the current $2 billion in the last two years. According to Wealthfront co-founder Daniel Carroll, the leap above $2 billion occurred on their biggest sign-up day ever. At $2 billion in AUM, Wealthfront rose into the top 100 of independent investment advisory firms in the US, out of a total of 30,000.