Burton Malkiel, Wealthfront CIO

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Burton Malkiel, Wealthfront CIO

Postby twist101 » Tue Mar 05, 2013 12:37 pm

I just signed up for a Wealthfront account last week and deposited a small amount as an experiment (The first 10k managed is free, so in true Boglehead spirit I'm paying for nothing for what I've got invested).

Burton Malkiel (A Random Walk down Wall Street) recently joined the company as CIO and today they've announced some improvements to the site due to his involvement.

Was curious what people thought about this:

We’re excited to announce the first significant improvement to our service driven by our chief investment officer, renowned economist Dr. Burton Malkiel.

• We’ve added five more asset classes to Wealthfront – to help increase your portfolio returns without exposing you to more risk.
• We now provide a different mix of investments for taxable and retirement portfolios – to allow us to increase the tax-efficiency of your investments and after-tax portfolio return.

Our research reveals this new, more diversified and tax-efficient investment mix could increase the average portfolio return an additional 0.5% on an after-tax, after-fee basis, so we highly recommend you log in and transition to the new investment mix today.

Burt's post:
https://blog.wealthfront.com/tax-effici ... -location/

Wealthfront's post:
https://blog.wealthfront.com/tax-efficient-investments/
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Re: Burton Malkiel, Wealthfront CIO

Postby baw703916 » Tue Mar 05, 2013 12:44 pm

What are the five asset classes they added?
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Re: Burton Malkiel, Wealthfront CIO

Postby twist101 » Tue Mar 05, 2013 12:47 pm

baw703916 wrote:What are the five asset classes they added?


Wealthfront has added five income-producing asset classes to increase your portfolio returns without exposing you to more risk. The new asset classes are:

Municipal Bonds
Corporate Bonds
Treasury Inflation Protected Securities (TIPS)
Emerging Market Bonds
Dividend Growth Stocks
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Re: Burton Malkiel, Wealthfront CIO

Postby The Wizard » Tue Mar 05, 2013 12:52 pm

I'd keep my eye on Expense Ratios within this company, Burton or no Burton...
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Re: Burton Malkiel, Wealthfront CIO

Postby twist101 » Tue Mar 05, 2013 12:58 pm

The Wizard wrote:I'd keep my eye on Expense Ratios within this company, Burton or no Burton...


Average expense ratios for ETFs there are 0.14%.
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Re: Burton Malkiel, Wealthfront CIO

Postby nisiprius » Tue Mar 05, 2013 6:05 pm

This page just does not read like Burton Malkiel's writing style to me.

And it seems odd that he says "We are no longer using a Real Estate Investment Trust (REIT)-based ETF in taxable accounts, because the asset class is tax inefficient. REIT dividends are taxed at ordinary income tax rates." I don't have the latest edition of A Random Walk Down Wall Street, but previous editions were uniformly warm in their recommendations of REITS, suggesting 10-15% of total portfolio depending on range, with no mention of any tax aspects. And I just checked the section, "Exercise 4: Dodging the Tax Collector" and he doesn't say anything about REITS there. I'm not saying whether or not they belong in taxable accounts, I'm saying that it's odd for him to suddenly be saying that they don't. You'd have thought he'd have mentioned that in his book.
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Re: Burton Malkiel, Wealthfront CIO

Postby Levett » Tue Mar 05, 2013 8:14 pm

"Was curious what people thought about this:"

We’re excited to announce the first significant improvement to our service driven by our chief investment officer, renowned economist Dr. Burton Malkiel.

• We’ve added five more asset classes to Wealthfront – to help increase your portfolio returns without exposing you to more risk.
• We now provide a different mix of investments for taxable and retirement portfolios – to allow us to increase the tax-efficiency of your investments and after-tax portfolio return.

Our research reveals this new, more diversified and tax-efficient investment mix could increase the average portfolio return an additional 0.5% on an after-tax, after-fee basis, so we highly recommend you log in and transition to the new investment mix today.


Clearly, it's a can't miss. :wink:

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Re: Burton Malkiel, Wealthfront CIO

Postby dan23 » Tue Mar 05, 2013 8:33 pm

twist101 wrote:
The Wizard wrote:I'd keep my eye on Expense Ratios within this company, Burton or no Burton...


Average expense ratios for ETFs there are 0.14%.

Wealthfront charges a .25% fee which I believe is on top of the average expense ratio of .14%. While they offer a really nice service I personally would have a hard time paying more than .05% or recommending someone else (less savvy relative, for example) pay more than .1% for it.
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Re: Burton Malkiel, Wealthfront CIO

Postby umfundi » Tue Mar 05, 2013 8:35 pm

I don't have the latest edition of A Random Walk Down Wall Street,


No one should accuse Malkiel of consistency in his contemporaneous investment recommendations. It's as though the revisions in each new edition (now the tenth, I believe) are akin to a newsletter.

A few years ago I had occasion to compare different editions of the book to find a particular quote. I was amazed at the differences in his "what you should do now" recommendations. I felt somewhat betrayed since I had learned all those fundamental lessons when I first read the book in 1981.

A current online blurb:

Especially in the wake of the financial meltdown, readers will hunger for Burton G. Malkiel’s reassuring, authoritative, gimmick-free, and perennially best-selling guide to investing. With 1.5 million copies sold, A Random Walk Down Wall Street has long been established as the first book to purchase when starting a portfolio. In addition to covering the full range of investment opportunities, the book features new material on the Great Recession and the global credit crisis as well as an increased focus on the long-term potential of emerging markets. With a new supplement that tackles the increasingly complex world of derivatives, along with the book’s classic life-cycle guide to investing, A Random Walk Down Wall Street remains the best investment guide money can buy.
(My bold.)

Give me a break.

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Re: Burton Malkiel, Wealthfront CIO

Postby afan » Tue Mar 05, 2013 8:48 pm

Very strange company. When I first became aware of them, they were pitching active management. They boasted about their ability to identify great managers who did not accept small client accounts. They would let investors have their accounts by these top active managers. While in that phase Ratchleff, the CEO, penned a bizarre article claiming "Bogle did not have all the data". He showed a table with mainly empty cells showing some investment returns of large pension funds and implied that Wealthfront would somehow reproduce these results, whatever they were. They also posted a graph of the returns of the Wealthfront active managers compared to the market. They were inconsistent about updating this chart, and eventually stopped altogether. I suspect their returns were trailing the market.

I stopped paying attention. The next I heard of them, Ratchleff as still CEO, but apparently Bogle turned out to be smarter than he had thought. They were now pitching index funds, and their service, rather than finding you the perfect active manager they would now put you in the right stock index funds.

I always wondered what happened to the money clients had placed with active managers when they went index. Or perhaps there never were any such clients??? They also have absolutely nothing to say about their former advice model.

I suppose now they help you pick the right stock and bond funds. Still no reason to expect them to do any better than the market as a whole, and very hard to understand what they offer over just indexing. They do say they offer constant rebalancing, which made me assume they were for tax favored accounts only. Now they are thinking about taxes. Progress, but I still don't get the appeal.
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Re: Burton Malkiel, Wealthfront CIO

Postby baw703916 » Tue Mar 05, 2013 9:40 pm

umfundi wrote:
I don't have the latest edition of A Random Walk Down Wall Street,


No one should accuse Malkiel of consistency in his contemporaneous investment recommendations. It's as though the revisions in each new edition (now the tenth, I believe) are akin to a newsletter.



I bought a much earlier edition, partly out of curiosity, but I like Bernstein's and Swedroe's books much better. But the problem I have is: how can it be a random walk if returns don't follow a normal distribution?
(I'm sure you will appreciate the objection).
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Re: Burton Malkiel, Wealthfront CIO

Postby nisiprius » Tue Mar 05, 2013 9:55 pm

His book was never really about dart-throwing, random walks, and market efficiency. It has always been "Burton Malkiel's investment book," a rambling... walk... in which he stops to point out things of interest, including, but not limited to the EMH.

The 1973 edition had the wonderful statement
What we need is a no-load, minimum management-fee mutual fund that simply buys the hundreds of stocks making up the broad stock-market averages and does no trading from security to security in an attempt to catch the winners. Whenever below-average performance on the part of any mutual fund is noticed, fund spokesmen are quick to point out "You can't buy the averages." It's time the public could.
But it also had an chapter, some of the material from which survived into later editions, entitled "The Malkiel Method for Selecting Individual Common Stocks." (He looks for castles in the air built on firm foundations--that is, companies that have both good fundamentals and a romantic, exciting "story.").

I got it via interlibrary loan and wrote about it here
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Re: Burton Malkiel, Wealthfront CIO

Postby umfundi » Tue Mar 05, 2013 10:04 pm

(He looks for castles in the air built on firm foundations--that is, companies that have both good fundamentals and a romantic, exciting "story.")

Seems to me, also an apt description of the author. :?

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Re: Burton Malkiel, Wealthfront CIO

Postby harikaried » Fri Mar 22, 2013 5:46 pm

twist101 wrote:Wealthfront has added five income-producing asset classes to increase your portfolio returns without exposing you to more risk. The new asset classes are:

Municipal Bonds
Corporate Bonds
Treasury Inflation Protected Securities (TIPS)
Emerging Market Bonds
Dividend Growth Stocks
Another thing to note is that they removed US Government Bonds completely. It seems that at their Risk Tolerance level of 4, they used to put 50% US Government Bonds in each of taxable and tax-advantaged accounts.

Now the same level results in 31% Corporate Bonds + 15% Dividend Growth Stocks + 10% Emerging Market Bonds for tax-advantaged and 35% Municipal Bonds + 7% Dividend Growth Stocks for taxable. Assuming equal sized tax-advantaged and taxable, that's roughly 50% fixed-income-ish assets.

TIPS only appear at very low risk levels after capping out at 35% Corporate Bonds in tax-advantaged or 35% Municipal Bonds in taxable.
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Re: Burton Malkiel, Wealthfront CIO

Postby Levett » Fri Mar 22, 2013 6:18 pm

It appears that Malkiel really does walk a seemingly random walk--with an eye on his own benefit.

I'm shocked.

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Re: Burton Malkiel, Wealthfront CIO

Postby dharrythomas » Fri Mar 22, 2013 6:29 pm

I don't see the big advantage over a LifeStrategy or Target Retirement account.

I think I'll just stay here, read Rick and Larry and let Taylor remind me that a simple portfolio construction is easier to manage and allows time for other stuff. 8-)

Good Luck.

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Re: Burton Malkiel, Wealthfront CIO

Postby umfundi » Fri Mar 22, 2013 7:12 pm

Levett wrote:It appears that Malkiel really does walk a seemingly random walk ...

Lev

Gosh, I wish I'd said that! :P

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Re: Burton Malkiel, Wealthfront CIO

Postby pascalwager » Fri Mar 22, 2013 10:49 pm

I entered some personal info/risk tolerance answers and got the following ETFs (ignoring the %) for a taxable account:

total stock mkt
EAFE
EM
dividend stocks (income)
natural resources (inflation hedge)
national muni (AMT-free, 6.23 years duration)

Int'l = 40% of equities (including dividend stocks)
EM = 44% of int'l
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Re: Burton Malkiel, Wealthfront CIO

Postby Beat The Street » Sat Mar 23, 2013 5:34 pm

According to wealthfront's ADV they have $130,000,000 under management with over 2,000 accounts and over 20 employees. That would make their revenue around $325,000. This place can't be making anything, even if they get to a billion under management it would be approximately $2.5 million in revenue and over 15,000 accounts if you go by the average account size now ($65,000). This would be a service nightmare and I would expect in the future they will either raise fees or require a minimum balance.
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Re: Burton Malkiel, Wealthfront CIO

Postby Barry Barnitz » Sat Mar 23, 2013 5:48 pm

Hi:

March 21 2012 Malkiel interview at index.universe.com. : Malkiel: Dividend & EM Bond ETFs Place To Be
Burton Malkiel, the Princeton economics professor emeritus and author of the index investing classic “A Random Walk Down Wall Street,” had a lot to say about the perils of relying on U.S. Treasurys for income when IndexUniverse.com Managing Editor Olly Ludwig recently caught up with him.

Malkiel also talked about what Wealthfront, a Silicon Valley-based financial advisory firm where he now serves as chief investment officer, is doing about it. Wealthfront, which now manages $170 million in investments, doesn’t charge investors anything for the first $10,000 under management, and above that an annual fee of 0.25 percent, or $25 per $10,000, kicks in. The advisory firm was the subject of the March cover story of IndexUniverse's sister publication ETF Report.

Earlier this month, the firm, which serves up an algorithmic—and what Malkiel calls emotion-free—approach to index investing, added five new sources of income to its asset allocation options: municipal bonds, corporate bonds, emerging market bonds, dividend growth stocks and Treasury inflation-protected securities. Malkiel went out of his way to single out the highly prospective nature of emerging market credits, and also stressed his belief that China’s new leadership is laying the groundwork for slower and more sustainable growth.


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Re: Burton Malkiel, Wealthfront CIO

Postby Scooter57 » Sat Mar 23, 2013 7:13 pm

He's quite old and possibly being exploited for his reputation. Old people sometimes lose their ability to make good decisions.

His book is excellent.
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Re: Burton Malkiel, Wealthfront CIO

Postby Rick Ferri » Sat Mar 23, 2013 7:30 pm

Is there something new and revolutionary that Malkiel is suggesting that I'm missing? It all seems so routine to me. If I am missing something, then I must be the one getting old.

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Re: Burton Malkiel, Wealthfront CIO

Postby grok87 » Sat Mar 23, 2013 8:28 pm

Hmm..just looked at their slide show.
http://www.slideshare.net/wealthfront/e ... -with-etfs
I have to say, on the face of it they seem to be one of the good guys.
Now I am skeptical about these new efts they are pushing, em bonds and dividend producing stocks. All that seems too trendy and wrong.
Some other quibbles on their slide show.
1) no mention of tax efficient asset location, bonds belong in tax deferred etc
2) they talk about using ETFs but recommend an ETN, namely DJP. Yuck, ETNs are for suckers (unsecured bonds with uncompensated bank credit risk! Haven't they ever heard of Lehman and their opta ETNs
http://onswipe.investopedia.com/investo ... 707991a2/3
Other than that, I'm struggling to see what is wrong with them...
To be clear, I am not recommending them. I guess I'm neutral for now.
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Re: Burton Malkiel, Wealthfront CIO

Postby nedsaid » Sun Mar 24, 2013 1:56 am

It is the old sales trick of associating a product with a well known name.

Mr. Malkiel is a distinguished author and economist. His contributions are well cronicled on this website. My question would be if Mr. Malkiel is actually doing meaningful work for this firm. Or does he just have a nice title and a nice stipend for lending his name.

Not saying this firm is good or bad. I am saying that having a famous name attached doesn't mean the firm or its services are any good.
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Re: Burton Malkiel, Wealthfront CIO

Postby pascalwager » Sun Mar 24, 2013 2:57 am

The slide show has a picture of one of Rick's books. Maybe that's what makes it revolutionary.
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Re: Burton Malkiel, Wealthfront CIO

Postby brick-house » Sun Mar 24, 2013 7:54 am

rick ferri wrote:

Is there something new and revolutionary that Malkiel is suggesting that I'm missing? It all seems so routine to me. If I am missing something, then I must be the one getting old.


Passive investing is a routine. Determine your risk level/time frame, build an appropriate asset allocation and location framework, complete the framework with low cost index mutual funds/etfs, rebalance.

For those that need help with that routine: Wealthfront is using technology to fill a void in the market. For some reason, if you have less than $500,000 or sometimes even a million - advisors won't help or will charge an oppressive fee (relative to assets). :confused
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Re: Burton Malkiel, Wealthfront CIO

Postby Rick Ferri » Sun Mar 24, 2013 9:43 am

pascalwager wrote:The slide show has a picture of one of Rick's books. Maybe that's what makes it revolutionary.


:D

I visited Wealthfront a few weeks ago and met several of their people. It was a pleasant and interesting visit. President and CEO Andy Rachleff was very cordial and open about what he is trying to do with the company. The staff are all young and smart, many of whom have been successful at other tech companies before joining this firm. Several people were from LinkedIn, the business social networking company that went public in 2012.

I fully understand their model. It's an automated portfolio management alternative for people who don't want to talk with an adviser and yet don't want to manage their own account.

Everything is supposed to be done online with no interaction with a human being. You go to their website, complete a short questionnaire, the software makes a recommendation of all ETFs, then you fill out forms, transfer money to their small broker-dealer, and the portfolio is invested based on the recommendation. It is then rebalanced as needed without any action by the investor. Tax-loss harvesting is included for larger taxable accounts. There is no human contact, no customization beyond the "robo" allocation and no retirement planning. You're renting software.

The asset classes were chosen by Burton Malkiel, which is the topic of this conversation. They are generic allocation choices; US stocks, international stocks, corporate bonds, etc. You'll find these in every asset allocation book including my own. But, Burton Malkiel is picking them, so I guess that's supposed to mean something special.

The ETFs are all relatively high volume choices, most from Vanguard I believe. This isn't the optimal solution for investors IMO, but it does make life easy for advisers. They can trade during the day and have an account settled by the end of the day.

I've written a lot about problems that occur on down days with discounts in some ETFs that hold illiquid underlying securities. These issues are minor for buy and hold investors who are not in a hurry to sell on a down day in the market. I don't know how Wealthfront will handle these special situation days because ETF trading is automated based on algorithms.

I often wonder why Vanguard, Schwab, Fidelity, and other custodians have not created and launched a similar "robo" program. The automated rebalancing and tax-loss harvesting software that drives Wealthfront may be leading edge today, but how far ahead can you go with this stuff? Portfolio management processes are fairly generic (rebalancing, tax-loss selling). A large firm like Schwab could create a program in a few months if they wanted to - Vanguard also. They could offer this technology to premium clients at no-cost.

The large firms could even enhance the technology by giving you the ability to customize your portfolio where Wealthfront currently does not. Rebalancing could be based on your choice of methodology as well as tax-loss harvesting all with a few clicks. I'm surprised this service doesn't already exist.

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Re: Burton Malkiel, Wealthfront CIO

Postby umfundi » Sun Mar 24, 2013 10:23 am

Burton Malkiel was born August 1932, so he is 80 years old.

The Wealthfront model is interesting. It might be a good default choice for Defined Contribution plans for those participants who don't want to be bothered.

I think Rick is correct: Where's the secret sauce? If Wealthfront is correct and the company takes off, their model can be easily copied by others.

It will be interesting to see how they fare the next time the market drops 20%. I am wary of automated trading in ETFs, but I know almost nothing about it.

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Re: Burton Malkiel, Wealthfront CIO

Postby afan » Sun Mar 24, 2013 10:54 am

Rick, when you met with Rachleff, did he explain why he and the company had gone 180 degrees from championing active management, "Bogle did not have all the data", to a passive approach and extolling MPT?

What happened to the people who had invested with the active managers Wealthfront used to represent?

Thanks
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Re: Burton Malkiel, Wealthfront CIO

Postby brick-house » Sun Mar 24, 2013 11:01 am

rick ferri wrote:


I often wonder why Vanguard, Schwab, Fidelity, and other custodians have not created and launched a similar "robo" program. The automated rebalancing and tax-loss harvesting software that drives Wealthfront may be leading edge today, but how far ahead can you go with this stuff? Portfolio management processes are fairly generic (rebalancing, tax-loss selling). A large firm like Schwab could create a program in a few months if they wanted to - Vanguard also. They could offer this technology to premium clients at no-cost.

The large firms could even enhance the technology by giving you the ability to customize your portfolio where Wealthfront currently does not. Rebalancing could be based on your choice of methodology as well as tax-loss harvesting all with a few clicks. I'm surprised this service doesn't already exist.


My guess as to why no "robo" program exists with Schwab and Fidelity is that it would eat into their managed advice products as well as anger independent advisors that use their products.

As to Vanguard, I think the "robo" experiment was attempted via Financial Engines. Vanguard still offers Financial Engines. Many moons ago when the Financial Engines "robo" advice program was introduced to 401k participants. The thought/hype was this was going to be a revolutionary offering - I mean who wouldn't a William Sharpe portfolio using Vanguard products. In the real world it was a dud - the Financial Engines utilization and adoption rate was very low. Not sure if the usage rate ever picked up...

https://personal.vanguard.com/us/insigh ... al-engines

Available as a complimentary service to investors with $50,000 or more in assets at Vanguard, Financial Engines helps you develop, refine, and implement your financial plan—a $300 value.

In-depth investment analysis, fund recommendations

Designed for investors at least five years away from retirement, Financial Engines helps you set realistic financial goals, establish or adjust your investment program, and forecast your chances of success. Your in-depth analysis takes into account all of your household investments and considers inflation, taxes, mutual fund expenses, and more. If your investment program is falling short, Financial Engines lets you try different assumptions until you come up with a plan you like. It even recommends specific funds that can meet your needs. As time goes on, you'll receive free checkups from Financial Engines to let you know how you're doing.
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Re: Burton Malkiel, Wealthfront CIO

Postby Rick Ferri » Sun Mar 24, 2013 11:32 am

afan wrote:Rick, when you met with Rachleff, did he explain why he and the company had gone 180 degrees from championing active management, "Bogle did not have all the data", to a passive approach and extolling MPT? What happened to the people who had invested with the active managers Wealthfront used to represent? Thanks


Wealthfront is a technology company that was established to 'revolutionize' the investment business. Rachleff said in a recent RIA Biz article that “We’re trying to build a business that attracts tens of billions or hundreds of billions of dollars.”

I got the distinct impression that investment strategy is secondary to gathering assets. How they reach billions in asset is not particularly important as long as they get there. Rachleff first thought active management was the key. That flopped. Then he did some market research and found that ETFs were gathering huge assets, particularly from advisers. So, they did a 180, embraced ETFs and indexing, and hired Malkiel as a front-man.

There's big VC money behind Wealthfront. Just this month they received another $20 million in funding. I see this money being used to buy their first $1 billion in assets through media exposure. Expect to see Wealthfront everywhere.

I don't think Wealthfront had many investors when it was KaChing. It wasn't a topic of discussion, except Rachleff did say that active management isn't what the public wants today. He didn't have to explain that to ME!

I'm not sure if Wealthfront will be successful as a money management company, but they do have some good technology and perhaps they could license it to investment advisers, brokers, mutual fund companies, et all. Maybe they'll be the next Advent Software, a company the specializes in investment management solutions using technology.

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Re: Burton Malkiel, Wealthfront CIO

Postby umfundi » Sun Mar 24, 2013 11:46 am

It appears they're going to try and buy their first $1 billion in assets


And, which type of customers will that attract? Likely not those who have drank sufficient indexing passive management Kool-Aid.

And if (when) the market tanks and the customers flee?

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Re: Burton Malkiel, Wealthfront CIO

Postby Rick Ferri » Sun Mar 24, 2013 11:54 am

That will happen. A no-advice model will have more terminations than an advice model during a bear market.

Wealthfront is on a time-clock, not doubt. The company will have to reach critical mass before the next bear market or they'll be in trouble. The last paragraph of the RIABiz article says, "For Wealthfront to make a suitable return for its investors, it needs about $40 billion of AUM or $100 million of revenue at the .25% that it charges, according to the company.)"

$40 billion is a HUGE number. I've been doing low-fee advice and management for 14 years and my company has $1.3 billion. We're proud of this achievement. Could we be bigger? No doubt, if we had $20 million in VC money to spend on marketing.

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Re: Burton Malkiel, Wealthfront CIO

Postby EDN » Sun Mar 24, 2013 1:19 pm

On one hand, I'm happy to see this market segment being "served", as I can't do it and most other firms cannot either. However, as previously mentioned, I'm not so sure there's much value here even considering cut-rate advisor fees. How many will stick around when stocks drop 30%, we're told the world is ending, and their only line of defense is a tweet or email from blinky the computer to "stay the course"? So that's problem #1. Oh, everyone says they're disciplined and they don't need much "handholding", just like everyone's an above average driver!

Problem #2 is, how much tinkering will go on at the portfolio level? My guess is...a lot. Inexperienced advisors or those focused on marketing love "portfolio potpourri" and watered down tactical allocation under the rubric of "expected returns" or "new strategy enhancements". My guess is this cost will run about 4x the advisory fee over time as underperforming assets/strategies are sold low and recent out performers are added after-the-fact.

But that's the industry...firms would rather do poorly with billions than excellent with millions. Ever since the industry went to AUM pricing, the seal of approval for advisors is how much you have in assets, not how much value you've delivered to clients.

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Re: Burton Malkiel, Wealthfront CIO

Postby zaboomafoozarg » Sun Mar 24, 2013 1:38 pm

brick-house wrote:As to Vanguard, I think the "robo" experiment was attempted via Financial Engines. Vanguard still offers Financial Engines. Many moons ago when the Financial Engines "robo" advice program was introduced to 401k participants. The thought/hype was this was going to be a revolutionary offering - I mean who wouldn't a William Sharpe portfolio using Vanguard products. In the real world it was a dud - the Financial Engines utilization and adoption rate was very low. Not sure if the usage rate ever picked up...

https://personal.vanguard.com/us/insigh ... al-engines


For me, the problem with Financial Engines is the lack of control. I actually used to use it to rebalance with my T. Rowe Price 401k, but after I learned more about diversification I realized it was just being ridiculous. My company offers about 20 mutual fund choices even though it really only needs about 5 of those, and Financial Engines was suggesting contribution to each and every fund. And it wouldn't let me specify how I wanted it to rebalance apart from a few overly-simple "agressive/moderate agressive/moderate/conservative" templates.

Maybe that's not FE's problem, just a possible way that a company can configure it. I'm not sure, and have never tried it out at Vanguard. It's simple enough for me to rebalance with a spreadsheet once a year.

I do like to use FE once in a great while for it's forward projection info. Nothing groundbreaking, but easier to take a quick look at than FIRECalc.
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Re: Burton Malkiel, Wealthfront CIO

Postby nisiprius » Sun Mar 24, 2013 1:44 pm

Rick Ferri wrote:[They are generic allocation choices; US stocks, international stocks, corporate bonds, etc. You'll find these in every asset allocation book including my own. But, Burton Malkiel is picking them, so I guess that's supposed to mean something special.
I don't believe Burton Malkiel is picking them. He has always been enthusiastic about REITS, and the 2012 edition of A Random Walk Down Wall Street still says "I believe that ... some part of one's equity holdings should be in real estate investment trust (REIT) index mutual funds."

Image

Of course, I wonder, if they are trying to attract real mass market participation, and grow their assets under management quickly from $130 million to $40 billion... how many of the clients they wish to reach know who Burton Malkiel is?
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Re: Burton Malkiel, Wealthfront CIO

Postby 3CT_Paddler » Sun Mar 24, 2013 1:56 pm

It certainly appears that this VC investment is a poor one based on its current track and a realistic growth projection. I guess that is the nature of the VC game... Chase a lot of low probability events in the hope that one out of many makes it big.
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Re: Burton Malkiel, Wealthfront CIO

Postby Rick Ferri » Sun Mar 24, 2013 2:25 pm

nisiprius wrote:Burton Malkiel has always been enthusiastic about REITS, and the 2012 edition of A Random Walk Down Wall Street still says "I believe that ... some part of one's equity holdings should be in real estate investment trust (REIT) index mutual funds."


The change was to take REITs out of taxable accounts and to replace taxable bonds with municipal bonds (at least for investors in a high tax bracket).

So, I ask again, what's so enlightening about this? Most people on this board already know that REITs shouldn't go into a taxable accounts and that municipal bonds should replace taxable bonds. Simple "tax location" decisions are not revolutionary portfolio management. It doesn't take a famous Princeton Ph.D to make this strategy credible and it certainly doesn't warrant a big press release.

That being aid, marketing is everything in this business. Since Wealthfront is selling to young and unsophisticated investors then a routine tax-location strategy probably sounds very intelligent and revolutionary.

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Re: Burton Malkiel, Wealthfront CIO

Postby umfundi » Sun Mar 24, 2013 3:02 pm

Since Wealthfront is selling to young and unsophisticated investors

... from Silicon Valley?

I'd appreciate fewer snipes at Princeton Ph.D.s, since I have that affliction. :P

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Re: Burton Malkiel, Wealthfront CIO

Postby Rick Ferri » Sun Mar 24, 2013 3:08 pm

Yes, that's the marketing strategy for the time being as I understand it. Attract young millionaires from the tech companies in Silicon Valley.

BTW, Wealthfront is located next to Stanford University in Palo Alto, yet the company had to go clear across country to Princeton to find a qualified Ph.D to represent the firm (that was a compliment :wink: )

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Re: Burton Malkiel, Wealthfront CIO

Postby umfundi » Sun Mar 24, 2013 3:19 pm

Presumed intelligence is quadratically proportional to distance.

Consultants from far away must be worth the money, right? Otherwise, why would we pay their expenses and for the time their butts are in airplane seats?

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Re: Burton Malkiel, Wealthfront CIO

Postby nisiprius » Sun Mar 24, 2013 3:23 pm

Rick Ferri wrote:
nisiprius wrote:Burton Malkiel has always been enthusiastic about REITS, and the 2012 edition of A Random Walk Down Wall Street still says "I believe that ... some part of one's equity holdings should be in real estate investment trust (REIT) index mutual funds."
The change was to take REITs out of taxable accounts and to replace taxable bonds with municipal bonds (at least for investors in a high tax bracket).
I misunderstood, then. You're saying they still use REITS in tax-advantaged accounts?
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Re: Burton Malkiel, Wealthfront CIO

Postby Rick Ferri » Sun Mar 24, 2013 4:55 pm

Here is the partial text from the Wealthfront news release/blog:

"With the latest enhancement, we have added five more asset classes, for a total of 11. We also have taken the tax-efficiency of the different classes into account, using a technique called differentiated asset location. The more tax-efficient asset classes are weighted more heavily in taxable accounts. The new way of allocating assets will help our clients minimize their taxes."

Malkiel is talking about standard tax-location strategy - something that's been widely practiced by investment advisers and Boglheads' for years. But the spin makes it sound new and very sophisticated - differentiated asset location and The new way of allocating assets.

Marketing is everything.

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Re: Burton Malkiel, Wealthfront CIO

Postby Sam I Am » Sun Mar 24, 2013 5:49 pm

Message deleted.
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Re: Burton Malkiel, Wealthfront CIO

Postby grok87 » Sun Mar 24, 2013 6:13 pm

Sam I Am wrote:Judging from the horror stories new posters often bring to this forum, I'd say an investor could do a lot worse than investing via Wealthfront.

I'm not interested in using them, but I have to believe being able to say to your friends, "I invest with Wealthfront" might be considered pretty sexy by some. Has a nice ring to it, no? :D

If the company can pull people away from investing in high-load mutual funds, and active management and such, at the end of the day their clients should be much better off, I think.

Gets them to a better place, closer to the best place. That might be fine for a lot of folks that just don't want to fool with their investments. Might be as far as a lot of people will ever go.

Sam I Am

I agree but I guess their business model worries me. All those venture capitalist that need to be fed.
For me the time to run for the hills would be when they start pushing Chinese ETFs. Emerging market bonds is already a bad sign.
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Re: Burton Malkiel, Wealthfront CIO

Postby nisiprius » Sun Mar 24, 2013 6:36 pm

Sam I Am wrote:I'm not interested in using them, but I have to believe being able to say to your friends, "I invest with Wealthfront" might be considered pretty sexy by some. Has a nice ring to it, no? :D
I don't think that "l-th-f-r" combination exactly trips off the tongue. That's a lot of consonants without any vowels in between. In fact at first I thought it was unpronounceable. Try it. The first few times I tried it, it either came out "Wellfront" or "Wealthaffront." It's possible, but if you want to impress your friends you need to pay attention to what you're doing and practice to get a smooth transition from the th to the f. I'll bet even Andrew Rachlin can't say it ten times quickly.

You wouldn't want your friends to think you were a Wealthrunt, would you?
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Re: Burton Malkiel, Wealthfront CIO

Postby Rick Ferri » Sun Mar 24, 2013 7:06 pm

You don't have to become a Wealthfront client to answer the 10 generic questions and receive a portfolio recommendation. No questions about what you'll need the money for or what your long-term goals are. The recommended portfolio is based strictly off risk and how you feel the day you answered the handful of questions. It's an algorithm based risk scoring system.

This risk tolerance "needle" does some weird things based on how you answer questions. For example, you get knocked way down the risk scale if you answer that you have never been an angel investor and have no desire to be one (Wealthfront apparently assumes all investors know what angel investing is). Playing with the questions is like computer dating where you rig the answers to get the right outcome (or so I've been told).

The funds the computer recommended to me were mainstream low-cost ETFs and one rather expensive ETN with a 0.75% fee. No direct Vanguard funds, which in the case of municipal bonds would have been a less expensive than the ETF recommended (all ETFs is rarely the lowest cost option). l also found the allocation to high dividend yielding stocks in a taxable account to be inconsistent with a tax-location strategy, especially since taxes on dividends have gone up and there is now a additional 3.8% medial tax on top of that.

Then I noticed a generic "Performance Checklist" that says I will get an "Additional performance per year" of 4.6 percent using Wealthfront over a generic 3 fund portfolio, but they don't say which funds or which asset classes. I'm all for index funds, but I thought that was overstating the case.

Rick Ferri

PS. They also have dozens of individual client pictures on their landing page. This is odd because the SEC strictly forbids client endorsements as advertising. Maybe these people aren't real clients - I don't know.
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Re: Burton Malkiel, Wealthfront CIO

Postby nisiprius » Sun Mar 24, 2013 7:29 pm

Rick Ferri wrote:PS. They also have dozens of individual client pictures on their splash page. This is odd to see because the SEC strictly forbids client endorsements as advertising. Maybe these people aren't real clients - I don't know.
They sure look real. I think I have an OK eye for stock photographs, and it would be awfully creative of them to louse up the color balance, exposure, composition, etc. just to make them look authentic.

But in case you didn't notice, actual names pop up when you mouse over the picture. For example (!) Noah Knauf, Principal, Warburg Pincus (!). (Do you think he has all of his wealth managed by Wealthfront?) It's easy to Google for him and find other pictures of him, e.g. from the Damon Runyon Cancer Foundation, and they look the same to me. So does the picture of Damien Fillatraut, CEO of Scalable Path--in this case, the image used by Wealthfront actually looks like the same image at Scalable Path's own website

I think these are real pictures that match up with real names of real people. Of course they could be fibbing about these people being Wealthfront clients, but, if so, wouldn't that be an issue?
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Re: Burton Malkiel, Wealthfront CIO

Postby tj » Sun Mar 24, 2013 7:34 pm

nisiprius wrote:
Rick Ferri wrote:PS. They also have dozens of individual client pictures on their splash page. This is odd to see because the SEC strictly forbids client endorsements as advertising. Maybe these people aren't real clients - I don't know.
They sure look real. I think I have an OK eye for stock photographs, and it would be awfully creative of them to louse up the color balance, exposure, composition, etc. just to make them look authentic.

But in case you didn't notice, actual names pop up when you mouse over the picture. For example (!) Noah Knauf, Principal, Warburg Pincus (!). (Do you think he has all of his wealth managed by Wealthfront?) It's easy to Google for him and find other pictures of him, e.g. from the Damon Runyon Cancer Foundation, and they look the same to me. So does the picture of Damien Fillatraut, CEO of Scalable Path--in this case, the image used by Wealthfront actually looks like the same image at Scalable Path's own website

I think these are real pictures that match up with real names of real people. Of course they could be fibbing about these people being Wealthfront clients, but, if so, wouldn't that be an issue?


there's a long disclosure, you can click the link and it pops up in a box...its underneath the bottom row of photos.
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Re: Burton Malkiel, Wealthfront CIO

Postby nisiprius » Sun Mar 24, 2013 7:44 pm

tj wrote:there's a long disclosure, you can click the link and it pops up in a box...its underneath the bottom row of photos.
(Duh! :oops: )

:!: :!: "Wealthfront does not know whether these clients approve of or disapprove of its services." :D
Nope, SEC, no client endorsements here!
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