Wealthfront Socially Responsible Investing Review: Is It Worth It? (2024)

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Socially responsible investing has become the talk of the investment world as more investors now seek to invest in funds and companies that exhibit socially responsible practices. In September 2021, Wealthfront launched its socially responsible portfolio, enabling investors to start putting their money in stocks they consider ethical.

But the main question here is, does Wealthfront have what it takes? With all the other robo-advisors available in the market, is this the best platform to entrust with your money?

The truth is, even as we invest in socially responsible portfolios, we still want to make profits.

Therefore, we need a platform that will not be one-sided but rather focus on the two issues that matter most – social responsibility and performance.

This Wealthfront socially responsible investing review intends to dissect the Wealthfront investment platform to determine whether it is the ideal platform for you.

Let’s dive right in!

Table of Contents

  • What is Wealthfront?
  • How Wealthfront Works
  • How to Use Wealthfront
  • Wealthfront Investment Options
  • Investment Fees
  • Wealthfront Socially Responsible Investing
  • Is Wealthfront socially responsible?
  • Choosing your Portfolio
  • Wealthfront ESG Quality Score
  • How does Wealthfront Make Money?
  • Advisory Fee on Investments
  • 529 College Savings Plan
  • Portfolio Line of Credit
  • Cash Accounts
  • Wealthfront Socially Responsible vs Classic: What the Difference?
  • So which is better between Wealthfront Classic and the SRI option?
  • Is Wealthfront the Best Platform to Invest in for SRI?
  • FAQs
  • What is the difference between Wealthfront portfolio classic and socially responsible?
  • What are the cons of using Wealthfront?
  • What happens if Wealthfront goes out of business?
  • Is Wealthfront a fiduciary?

What is Wealthfront?

Wealthfront Socially Responsible Investing Review: Is It Worth It? (1)

Sometimes you just want to make things easier, so you think of automating your investments. Wealthfront is one of those platforms that help you do just that.

Wealthfront is a famous robo-advisor whose main focus involves strategies that minimize taxes on capital gains. Since its launch in 2008, the platform has grown to become one of the market’s favorite robo-advisors.

It has become the tool for most investors seeking automated financial or investment guidance.

In fact, Forbes Advisors gives Wealthfront a 4 stars rating, on its list of the best robo-advisors, alongside Personal Capital and Axos Invest.

The company is based in Palo Alto, California, and has over the years rolled out several financial tools and services that all seek to make your investments effortless.

How Wealthfront Works

Wealthfront Socially Responsible Investing Review: Is It Worth It? (2)

As mentioned above, Wealthfront is a robo-advisor that helps you automate your investments and financial advice based on your risk tolerance and investment goals.

It seamlessly allows you to use your money to make more money through its cutting-edge technology.

And, while it’s mainly known for its tax minimizing strategies, its sustainable portfolio is also doing significantly well.

Once you sign up for this platform, its first step is to determine how you would love your money to make more money for you.

For instance, you can open an account with Wealthfront for:

  • Long-term Investing – This allows you to open a taxable investment account
  • Retirement Plan – Here, you open an IRA (individual retirement) account, either the traditional one, SEP IRA, or Roth IRA.
  • College Saving Plan – Wealthfront offers investors the 529 college savings plan.
  • Bank Account – You can open a Wealthfront Cash account, paying a 0.35% APY.

All these help the platform decide on the best portfolio to offer you.

In case you choose the first option (long-term investing), you’ll need to answer more questions to help Wealthfront better tailor your portfolio. These will include your age, priorities, and the likelihood of selling stocks out of fear when the market takes a plunge).

The platform recommends a portfolio of funds tailored to match your priorities and risk tolerance from the answers you give.

See Related: Most Unethical Banks You Need to Avoid

How to Use Wealthfront

Before you start investing or saving with Wealthfront, you need to first sign up for the platform. Luckily, Wealthfront sign-up process is incredibly easy. In fact, the platform gives a sign-up estimate time of four minutes.

Within those four minutes, you’ll have opened your investment account and are ready to start making money. The sign-up process will go as highlighted above.

You answer several questions regarding your priorities, the type of investment you wish to make, and how you can handle or approach risk. Your tolerance level is calculated on a 0 to 10 scale before the platform recommends the portfolio that suits you best.

To sign up for Wealthfront, simply click this link.

See Related: Ethical Dividend Stocks to Invest in Today

Wealthfront Investment Options

Generally, Wealthfront offers investors three portfolio options to choose from:

  • Classic portfolio
  • Socially responsible portfolio
  • Direct Indexing

The classic portfolio is the original portfolio on this platform, while the socially responsible one is the newcomer that’s taking the market with a blow. On the other hand, direct indexing is a portfolio designed to generate tax savings for investors with accounts funded by over $100,000.

Generally, all you need to start investing with Wealthfront is $500. This is one of the most pocket-friendly minimum balances in the market – although there are a few other robo-advisors with slightly lower minimums.

See Related: Oracle Corporation ESG Profile (ORCL): Is It Sustainable?

Investment Fees

Wealthfront usually doesn’t have any account opening, closing, withdrawal, transfer, or commission fees. This makes it one of the cheapest platforms to operate or invest in.

The only charges you’ll incur in Wealthfront for investment accounts include:

  • The 0.25% annual advisory fees, are charged on the total assets the platform is managing for you.
  • An expense ratio of between 0.25% for the mutual funds and ETFs in your SRI portfolio.

When you invest more than $100,000, you’ll note that these fees represent some of the lowest in the market. For this reason, the platform becomes an excellent option for new investors and startups.

For example, if your account maintains an average balance of $100k every month, your monthly advisory fee will be $20.55. The calculations here have assumed a 30-days month and a 365-days year.

This will be $100,000*0.0025* (30/365) = $20.55.

The expense ratio that Wealthfront charges are for the Wealthfront Risk Parity Mutual Fund. This can represent even up to 20% of the portfolio.

As for the 529 college savings accounts, fees differ slightly. Get more information on this here.

See Related: Important Socially Responsible Investing Pros and Cons

Wealthfront Socially Responsible Investing

Wealthfront Socially Responsible Investing Review: Is It Worth It? (3)

Is Wealthfront socially responsible?

Yes, it definitely is.

However, as you will realize, Wealthfront entered the socially responsible investing game quite late. The platform finally rolled out its SRI portfolio in September 2021.

This means that you can now use your favorite robo-advisor to make socially responsible investments.

Wealthfront’s simple SRI portfolio includes thoroughly screened funds for ESG (environmental, social, and governance) issues.

Meaning it invests the money in companies that promote socially and environmentally sustainable practices.

While the platform was initially founded as a mutual fund analysis firm, it has changed course over the years to become one of the best robo-advisors, offering the best independent financial advice. Today, this robo-advisor has made that big step into socially responsible investing, which might be a core driver of future investments.

Once you are signed in to Wealthfront and pick the socially responsible portfolio, your portfolio will include some of the following funds:

  • US Stocks: iShares ESG Aware MSCI USA ETF
  • US Bonds: iShares ESG Aware US Aggregate Bond ETF
  • Emerging Markets: iShares ESG Aware MSCI EAFE ETF
  • Corporate Bonds: iShares ESG Aware US Corporate Bond ETF

The platform does extensive research to ensure that you have the best socially responsible ETFs for any assets class you choose.

However, you should note that not every asset class has socially responsible ETFs. In some of these cases, Wealthfront removes such assets entirely.

Some of these unrepresented asset classes include Divided Stocks, Real Estate, Emerging Bonds, etc. In other cases, instead of entirely removing the asset class, the platform uses similar ETFs as found in the Classic portfolios.

A Good example of such asset classes includes the TIPS (Treasury Inflation-Protected Securities) and the Municipal Bonds.

See related: What is Sustainable Investing? How to Get Started

Choosing your Portfolio

Wealthfront Socially Responsible Investing Review: Is It Worth It? (4)

When your aim is to invest in a socially responsible portfolio, choosing the right funds gives you significant peace of mind. Wealthfront helps you to do just that, allowing you to only include funds in your portfolio that support your values.

The biggest advantage with Wealthfront is that the investing process is automated. This includes buying and selling of the stocks. This means that you can have some peace of mind, as the platform handles your trades and makes you money.

Additionally, with Wealthfront, you get to enjoy the platform’s automated tax-efficient rebalancing feature, as well as its Tax-Loss Harvesting service. These two incredible features of the platform ensure that the portfolio you choose makes you money with minimal effort from your side.

With Wealthfront, you have a choice of including funds in your portfolio based on what you consider socially responsible. The platform does not make that choice.

Meaning, that although the platform recommends for you the funds that best suit your needs, the ultimate decision is yours.

Now, this is investing with freedom. Another advantage with Wealthfront is that you can shift portfolios. That’s right!

If you have already invested in the Classic Portfolio, you can easily convert your investments into socially responsible ones. Making the switch is incredibly easy.

See Related:

Wealthfront ESG Quality Score

As you might have already noted by now, Wealthfront does more than just screen for ESG issues when helping you build a portfolio. The platform also considers funds that will bring favorable returns, even as they focus on social responsibility. This way, your values get to help you make money.

Some platforms or funds concentrate too much on achieving the socially responsible investing goal, forgetting that the investors still need to see returns for their money.

Consequently, some platforms will offer minimal returns on investments, which won’t be too attractive to investors in the long run.

As for Wealthfront, it chooses funds and ETFs that can track indices favoring companies and funds with higher ESG ratings while ensuring a low tracking error.

However, you should note that sometimes, ESG screens and ratings might not always be the perfect indicators of how socially responsible a stock is. Nevertheless, companies that possess higher scores tend to do better in maintaining our planet than those with lower scores.

See Related: FarmTogether Review: Is It Legit or Worth It?

How does Wealthfront Make Money?

As we mentioned above, Wealthfront doesn’t charge any fees for account opening, transfer, closing, withdrawals, or commissions.

So how does the platform make money?

Well, Wealthfront is designed to offer fund management services and investment products for retailers. In this light, the company charges advisory fees on its investment products, receives interest on loans, as well as fees on their debit cards. Additionally, Wealthfront receives compensations from Green Dot Bank, its partnering bank.

Let us take a closer look at each:

Advisory Fee on Investments

The platform charges a 0.25% advisory fee on an investor’s account balance every month.

Therefore, if an account maintains a monthly balance of $100,000, the advisory fee will amount to $100,000* (0.25/100) * (30/365) = $20.55.

Generally, Wealthfront claims that it charges less than a quarter of what most other platforms in the industry charge. This would mean that many platforms will charge an advisory fee of about 1% per month.

529 College Savings Plan

For investors who want to stack some money somewhere for their child’s college education, the 529 college savings plan works best. It is a tax-advantaged method of saving money.

Wealthfront charges an advisory fee of 0.25% on these savings accounts, an amount that is charged only on savings exceeding $25,000.

Additionally, the platform gets some money from administration fees, which range between 0.01% and 0.05%.

Still, account holders have to incur annual 0.11% to 0.15% underlying ETF expenses, which all add to the platform’s income.

Portfolio Line of Credit

As of 2017, Wealthfront has a Portfolio Line of Credit option. Through this, users can borrow money from Wealthfront and repay it later with interest.

Luckily with this line of credit, you don’t need to provide extra security/collateral for the loans. Your account balance acts as the collateral. The platform also uses your account balance to assess your risk of defaulting.

Account-holders with over $25,000 in their accounts get to enjoy a line of credit automatically. The interest rates on these loans range between 2.4% and 3.65% based on the account balance.

A qualified user can borrow even up to 30% of their Wealthfront account balance.

The interest charged forms part of the platform’s income.

Cash Accounts

The platform offers its users three cash account types. These include Individual accounts, Joint, and Trust accounts.

Cash accounts allow users to conduct various money transactions such as deposit paychecks, pay bills, make payments with Wealthfront debit card, and even earn interest on the account balances.

Wealthfront has two main ways to make money off these cash accounts. The first way is by investing the money left on these accounts, and the second is by collecting fees on their debit card payments.

When you put money on your Wealthfront Cash Account, the platform won’t let the money just stay there idle.

Since it will be paying you interest at the end of the year, it lends this money to various institutions such as banks, giving them enough money to pay you and be left with some.

This way, you as the customer are happy, and Wealthfront has also made some money.

However, you should know that Wealthfront Cash Account doesn’t operate like the traditional checking and savings accounts or a high-yield account.

Rather, it is simply a cash account operated by a brokerage firm.

See Related: Proven Ways to Start Investing in Apartment Complexes

Wealthfront Socially Responsible vs Classic: What the Difference?

Wealthfront offers two different options for investing, Socially Responsible and Classic. But what is the difference between them, and which one is right for you?

The Socially Responsible investment option at Wealthfront is designed to help investors align their portfolios with their values. This option allows you to select individual companies based on criteria including employee treatment, environmental impact, and more.

On the other hand, the Classic investment option uses objective measures of each company’s financial performance to choose which stocks to invest in.

So which is better between Wealthfront Classic and the SRI option?

Ultimately, the choice between these two investment options comes down to your personal preferences and priorities.

Here are some of the benefits of going with the Wealthfront Socially Responsible option:

  • You’re able to invest in a way that reflects your personal values
  • Socially responsible investments have historically outperformed the market
  • You can sleep well at night knowing you’re investing in companies that share your same values

Here are some of the benefits of going with the Wealthfront Classic option:

  • You can focus on what you’re good at and leave the investment management to us
  • Low fees: our Classic account has some of the lowest fees in the industry
  • Tax optimization: we’ll help you minimize taxes on your investments, so you can keep more of your money
  • Diversification: with Wealthfront, you can invest in a diverse mix of assets, including stocks, bonds, and real estate

Is Wealthfront the Best Platform to Invest in for SRI?

Based on the facts seen above, the platform is worth your time and money.

Not just because Wealthfront socially responsible investing option, but also because it takes care of your money to ensure you get desired returns.

Therefore, although the platform isn’t 100% perfect, just like most other investment platforms, it is certainly a platform worth trying out.

If you love what you’ve learned, use this link to start investing with Wealthfront.

FAQs

What is the difference between Wealthfront portfolio classic and socially responsible?

Wealthfront portfolio classic is a traditional investment portfolio that aims to maximize returns for its investors. It is composed of low-cost index funds that track the performance of the global stock and bond markets. On the other hand, Wealthfront portfolio socially responsible is an investment portfolio that prioritizes companies with high environmental, social, and governance (ESG) ratings. It excludes companies involved in industries such as fossil fuels, weapons, and tobacco, and aims to make a positive impact on society and the environment while also generating returns for investors.

What are the cons of using Wealthfront?

Wealthfront is a robo-advisor that offers automated investment management services. One potential con of using Wealthfront is that it charges a management fee of 0.25% annually, which can be higher than some other robo-advisors. Another con is that Wealthfront’s investment options are limited to exchange-traded funds (ETFs), which may not be suitable for all investors. Additionally, Wealthfront’s tax-loss harvesting feature may not be as effective for investors with large taxable accounts.

What happens if Wealthfront goes out of business?

Wealthfront is a robo-advisor that manages investment portfolios for clients. If Wealthfront were to go out of business, clients’ investment accounts would still be protected by the Securities Investor Protection Corporation (SIPC) up to $500,000 per account. In the event of Wealthfront’s bankruptcy, clients’ assets would be transferred to another brokerage firm chosen by the SIPC.

Is Wealthfront a fiduciary?

Wealthfront is a fiduciary. This means that they are legally required to act in their clients’ best interests when providing investment advice and managing their clients’ assets. As a fiduciary, Wealthfront must avoid any conflicts of interest and disclose any potential conflicts to their clients.

Related Reviews

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Related Resources

  • 9 Best Socially Responsible Banks
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  • How to Start Investing in Women-Owned Businesses

Wealthfront Socially Responsible Investing Review: Is It Worth It? (5)

The Impact Investor

Kyle Kroeger, esteemed Purdue University alum and accomplished finance professional, brings a decade of invaluable experience from diverse finance roles in both small and large firms. An astute investor himself, Kyle adeptly navigates the spheres of corporate and client-side finance, always guiding with a principal investor’s sharp acumen.

Hailing from a lineage of industrious Midwestern entrepreneurs and creatives, his business instincts are deeply ingrained. This background fuels his entrepreneurial spirit and underpins his commitment to responsible investment. As the Founder and Owner of The Impact Investor, Kyle fervently advocates for increased awareness of ethically invested funds, empowering individuals to make judicious investment decisions.

Striving to marry financial prudence with positive societal impact, Kyle imparts practical strategies for saving and investing, underlined by a robust ethos of conscientious capitalism. His ambition transcends personal gain, aiming instead to spark transformative global change through the power of responsible investment.

When not immersed in the world of finance, he’s continually captivated by the cultural richness of new cities, relishing the opportunity to learn from diverse societies. This passion for travel is eloquently documented on his site, ViaTravelers.com, where you can delve into his unique experiences via his author profile.

Wealthfront Socially Responsible Investing Review: Is It Worth It? (2024)

FAQs

Wealthfront Socially Responsible Investing Review: Is It Worth It? ›

Wealthfront is one of the best robo-advisor options if you're in search of low-cost automated portfolio management, and one of the best socially responsible investing apps for features like tax-loss harvesting, US direct indexing, and crypto trusts.

What is the Wealthfront controversy? ›

The SEC's order also found that Wealthfront improperly re-tweeted prohibited client testimonials, paid bloggers for client referrals without the required disclosure and documentation, and failed to maintain a compliance program reasonably designed to prevent violations of the securities laws.

What are the cons of using Wealthfront? ›

A Wealthfront investment account has an annual advisory fee of 0.25% on all assets under management deducted monthly. This means if you have $100,000 invested with them, they will charge $250 per year.

Is Wealthfront robo-advisor worth it? ›

Our Take. Wealthfront maintains its stance as our top pick for best overall robo-advisor, as well as best for portfolio management, best for portfolio construction, and best for goal planning in 2024.

Can I trust Wealthfront with my money? ›

Your cash is insured by the Federal Deposit Insurance Corporation (FDIC). This coverage protects your cash in the event that a bank goes out of business. Wealthfront uses multiple partner banks to ensure FDIC coverage of up to $8 million for your cash deposits.

What is the average return on Wealthfront? ›

The bottom line is: we've been good for our clients' bottom lines. Investors in Wealthfront's Classic Automated Investing Account, with a risk score of 9, watched their pre-tax investments grow an average of 8.12% every year since we started.

What is better than Wealthfront? ›

Both companies are among the winners in our list of the best robo-advisors of 2023, with Wealthfront winning best overall, best for goal planning, best for portfolio construction, and best for portfolio management, while Betterment is best for beginners and best for cash management.

What happens if Wealthfront goes out of business? ›

What would happen to my account if Wealthfront were to be acquired, go public or cease doing business? Your Wealthfront account is in your own name. This would not change were Wealthfront to be acquired or go public and you would be free to add or withdraw funds or securities at any time.

What happens if Wealthfront fails? ›

In the unlikely event that Wealthfront fails, your money is protected up to 32 times more than the usual $250,000 insured by the FDIC. The additional coverage is made possible by Wealthfront's network of 32 partner banks.

Does Wealthfront outperform the S&P 500? ›

In 2022, the Wealthfront Smart Beta strategy outperformed its benchmark by 4.71%. Figure 4 shows the total return of each factor portfolio over the full comparison period, along with the total return of the S&P 500.

Do millionaires use robo-advisors? ›

Nearly 7 in 10 Millennial millionaires have some money in robos or automated portfolios. Moreover, nearly 20% of Millennial and Gen Z households who know the investment products they own have some money in robos versus only 13% of Gen X and only 2% of Boomer+ households (Boomers and older).

Why is Wealthfront APY so high? ›

As you likely know, Wealthfront partners with multiple banks to offer you the Cash Account—and the Cash Account APY is highly dependent on the rate those banks pay us for deposits.

Do rich people use robo-advisors? ›

Digital Advisor Use Dropped in 2022

High-net-worth investors exited robo-advisor arrangements at the highest rates. Here's how the data broke down along asset levels: $50,000 or less: A drop from 23.6% to 20.6% in 2022, which translates to a decrease of 3 percentage points.

Can you withdraw from Wealthfront at any time? ›

As long as you initiate the withdrawal to an eligible external account by 6pm PT/9pm ET, your money will arrive the same day—even on weekends and holidays. You can track your transfer's progress in real time in the Wealthfront app.

Is it safe to link bank accounts to Wealthfront? ›

To connect your account, we partner with third-party providers to establish and maintain secure, read-only links on your behalf. These providers specialize in tracking financial data; they employ robust, bank-grade security and follow data protection best practices. Wealthfront does not store your account password.

Is there a fee to withdraw money from Wealthfront? ›

You can make unlimited withdrawals from your Cash Account. We don't charge a fee for ACH or RTP withdrawals, but we do charge for outgoing wire transfers from Individual Cash Accounts. Withdrawal speed depends on the transfer method that's used.

What happens to my money if Wealthfront goes out of business? ›

Wealthfront Brokerage is a member of SIPC, which insures Cash Balances swept into Money Market Funds as follows: Customers are protected up to the applicable SIPC limits if Wealthfront Brokerage were to go out of business and there were customer securities or funds unaccounted for.

Who is behind Wealthfront? ›

Wealthfront
FormerlykaChing (2008–2010)
IndustryPersonal finance, Stock exchanges, Finance
Founded2008 Redwood City, California
FoundersAndy Rachleff Dan Carroll
Key peopleAndy Rachleff (CEO & Chairman) Burton Malkiel (CIO)
4 more rows

What does Wealthfront do with your money? ›

Our software invests your money in an automated portfolio of low-cost index funds spread across global asset classes.

What is the betterment scandal? ›

The Securities and Exchange Commission today charged investment advisory firm Betterment LLC for material misstatements and omissions related to its automated tax loss harvesting service (TLH), failing to provide clients with notice of changes to contracts, and failing to maintain certain required books and records.

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