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Wealthfront is Silicon Valley Tech at Wall Street Prices, Medium post by Blake Ross

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The Dirty Little Secret:

Here it is: If you open a retirement account, and you invest some of your paycheck each month into a Vanguard Target Retirement Fund, and you just…leave it…you just leave it right there until retirement…

…you don’t do anything when the folks on CNBC announce that the sky is falling; you don’t do anything when Cousin Eddy calls from a secure underground bunker in the badlands and says that the fed is printing money and it’s time to liquidate and ammo up; you don’t think it’s a sign that your parrot said “fuhgeddaboutit” but you thought she said “get a nugget” and surely that must mean a gold nugget? and you looked online and noticed that the price of shiny yellow metal was crashing and wait your parrot is alsoyellow and I’ll be damned if that isn’t a sign to buy…

… no, if you just leave it there to compound over decades…

…then you will probably make more money than if you hired the guy from Edward Jones, and even that Senior Executive Double-Stuf Vice Managing Director from Goldman Sachs. You will probably make more money than if you outsourced your investments to the kindly rabbi who performed your bris because my gosh how nice is he for offering to do my finances and I’m really starting to see him as a sort of father figure. And you will probably make more money than if you used Wealthfront.

The financial industry has spent decades and billions persuading people of the opposite — that investing is difficult, that it requires sophisticated certifications and products, that you better not go it alone, that it takes a lot of time. It’s not true.

Don’t take my word for it; take Warren Buffett’s.

Buffett recommends Vanguard because once you tune out the rhetoric from both coasts, one unassailable fact remains: As a non-profit that is owned by you and other shareholders, Vanguard is the only company in the financial industry that is not trying to make a huge profit off of you. Everyone else is talking their book. EVERYONE.

Actually, there's also a great new company called Aspiration that lets you name your own fee:

What's also great about Aspiration is that they donate 10% of their revenues to charity. 

So Aspiration is also a different company. 

But I get Blake's point. 

Tithing is good for the economy. What Aspiration is doing is good 

Yeah, I think what Aspiration is doing is good, too.

Blake Ross on what's wrong with Wealthfront:

It’s not just that Wealthfront charges users for its software, which is rare. It’s not just that Wealthfront charges users a recurring subscription feewhich is even rarer. It’s also that, on average, Wealthfront increases its subscription fee every day.

And Wealthfront enjoys other invaluable perks over most consumer tech companies: It does all this automatically, without having to notify users or seek proactive permission (jealous, Amazon?). It does so without having to give Apple or Visa a large cut. The train rolls on even when the customer changes credit cards, or addresses. It doesn’t have to send you a bill, or add a line item to your Amex statement, or otherwise ask you if it’s cool to charge you $9 for a service that cost you $8 this time last year.

Wealthfront also boasts high switching costs. Sure, there’s no account transfer fee — you can take your balls and go home at any time. But with Direct Indexing, you’ll be walking away with thousands of individual stocks. Do you plan to manage all those by hand? Or liquidate and take the tax hit? Once you go robo, you never go back.

Blake's conclusion: It’s Time to Kill the Proportional Fee

By the time we all knew Uber was better than taking cabs, it was already showing us why it’s better than owning cars. But Wealthfront is still just telling us that they suck less than Bank of America. If you insist on wrapping yourself in the cuddly blanket of Silicon Valley, then you must also take the swing.

Here’s what that means to me: The standout technology companies here take repetitive, mundane, ridiculous chores that no human should ever have to do — rebalancing retirement funds across 9,000 companies, or calculating the generation-skipping gift tax — and write code once to do them for us a million times over.

This technology helps wring out real, quantifiable savings; the code doesn’t care if that net worth integer is 1,000 or 1,000,000. These cost benefits are so obvious and undeniable that the sales team doesn’t even need tricks to close the deal; they just need to write down the truth.

Those savings are then passed on to the consumer, even as the founder walks off — yes, just like Wall Street — with a huge barrel of money. So much is created in the nuclear transition from unscalable human effort to unrelenting CPU that both the house and the gambler can win big.

This might surprise you, then: I’m certain that Wealthfront, or something like it, is the future. There is tremendous alpha to be realized through automation — if you’ve ever paid a bill one day earlier than you had to, or left a penny uninvested one day longer than required, then you know this must be true. It is inevitable that computers will optimize our cashflow, our investments, and our taxes to a degree that will make the status quo look downright laughable to our grandkids. The right solution in this space will mean people can retire earlier and spend more of their time doing what they love. I desperately want to see it exist so I can recommend it to my mother, and my brother — and use it myself.

But for now, Wealthfront is just another pretender to the throne, tilting at Schwab windmills and Fidelity bogeymen even as it tacitly joins them in guarding Wall Street’s greatest secret: It doesn’t have to be this way. You don’t have to work harder and harder into your gray years, paying more and more of your paycheck to an advisor who is doing the same amount of work as the day you two shook hands.

So, to borrow a page from Wealthfront’s chief:

We can do better than this. We have to be better than this. Stop charging proportional fees for advice.

The world doesn’t need another Wall Street.

(If you like tech snark, you can also check out my post on Uber.)

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