Ditch Wealthfront?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
User avatar
Topic Author
geerhardusvos
Posts: 177
Joined: Wed Oct 23, 2019 10:20 pm

Ditch Wealthfront?

Post by geerhardusvos » Fri Jan 03, 2020 5:03 pm

Hi Bogleheads:

I have ~$30k in Wealthfront taxable brokerage account set to their cookie cutter 10 risk score portfolio (meaning 90/10 equity/bond) across US, Foreign, emerging, dividend, muni-bonds, and some cash. I get the auto TLH on this and the first $20,000 is zero expense because I signed up during a promotion before I was a boglehead, and everything above $20k is .25% exp ratio.

Everything else I have is in Fidelity and Vanguard in a three-fund portfolio. My other taxable brokerage is in Vanguard and all in VTSAX. All new taxable contributions are going there.

Questions: Should I ditch this now and transfer in kind to Vanguard (they would put me into similar ETFs across each asset class during the transfer)? Is there any downside to waiting to do this? What would you do in this scenario?

Thanks!


Edit 1/14/20:
Transferred in-kind to Vanguard. Thanks all
Last edited by geerhardusvos on Tue Jan 14, 2020 5:10 pm, edited 2 times in total.
VTSAX and chill

michaeljmroger
Posts: 517
Joined: Fri Sep 21, 2018 10:54 am

Re: Ditch Wealthfront?

Post by michaeljmroger » Fri Jan 03, 2020 6:00 pm

If I'm understanding correctly, you'd save $25 per year by leaving Wealthfront. I wouldn't do any effort to save $25, but your mileage may vary.

User avatar
SlowMovingInvestor
Posts: 1636
Joined: Sun Sep 11, 2016 11:27 am

Re: Ditch Wealthfront?

Post by SlowMovingInvestor » Fri Jan 03, 2020 6:09 pm

michaeljmroger wrote:
Fri Jan 03, 2020 6:00 pm
If I'm understanding correctly, you'd save $25 per year by leaving Wealthfront. I wouldn't do any effort to save $25, but your mileage may vary.
It's not just $25, I would say. There is the complication of an extra account, and the problem of wash sales if the OP were to keep an outside account.

User avatar
Topic Author
geerhardusvos
Posts: 177
Joined: Wed Oct 23, 2019 10:20 pm

Re: Ditch Wealthfront?

Post by geerhardusvos » Fri Jan 03, 2020 6:21 pm

SlowMovingInvestor wrote:
Fri Jan 03, 2020 6:09 pm
michaeljmroger wrote:
Fri Jan 03, 2020 6:00 pm
If I'm understanding correctly, you'd save $25 per year by leaving Wealthfront. I wouldn't do any effort to save $25, but your mileage may vary.
It's not just $25, I would say. There is the complication of an extra account, and the problem of wash sales if the OP were to keep an outside account.
if it were you, would you do the 'in kind' transfer to vanguard?
VTSAX and chill

User avatar
SlowMovingInvestor
Posts: 1636
Joined: Sun Sep 11, 2016 11:27 am

Re: Ditch Wealthfront?

Post by SlowMovingInvestor » Fri Jan 03, 2020 6:24 pm

geerhardusvos wrote:
Fri Jan 03, 2020 6:21 pm
SlowMovingInvestor wrote:
Fri Jan 03, 2020 6:09 pm
michaeljmroger wrote:
Fri Jan 03, 2020 6:00 pm
If I'm understanding correctly, you'd save $25 per year by leaving Wealthfront. I wouldn't do any effort to save $25, but your mileage may vary.
It's not just $25, I would say. There is the complication of an extra account, and the problem of wash sales if the OP were to keep an outside account.
if it were you, would you do the 'in kind' transfer to vanguard?
Honestly, I am not entirely sure what ETFs etc. Wealthfront actually invests in, and how well their TLH actually works. But for a DIYer, yes I would likely transfer, but to Fidelity rather than Vanguard because Fidelity's platform is much better.

User avatar
mrspock
Posts: 598
Joined: Tue Feb 13, 2018 2:49 am
Location: Vulcan

Re: Ditch Wealthfront?

Post by mrspock » Fri Jan 03, 2020 6:34 pm

Read the various "Leaving Wealthfront" threads on here. TLDR it's an absolute nightmare to wind down a WealthFront account once your account value is more considerable, and you are using their "advanced" TLH'ing (due to the piles of individual stocks and/or sector based ETFs/MFs aka "Direct Indexing"). Transfer in kind and count yourself lucky you got out while it was still fairly straight forward.

Selection of threads:

viewtopic.php?t=280697
viewtopic.php?t=232999
viewtopic.php?t=278089
viewtopic.php?t=242782

Good luck!

CommitmentDevice
Posts: 75
Joined: Tue Apr 02, 2019 3:25 am

Re: Ditch Wealthfront?

Post by CommitmentDevice » Fri Jan 03, 2020 6:39 pm

Personally, I would transfer the funds.

User avatar
Topic Author
geerhardusvos
Posts: 177
Joined: Wed Oct 23, 2019 10:20 pm

Re: Ditch Wealthfront?

Post by geerhardusvos » Fri Jan 03, 2020 6:44 pm

mrspock wrote:
Fri Jan 03, 2020 6:34 pm
Read the various "Leaving Wealthfront" threads on here. TLDR it's an absolute nightmare to wind down a WealthFront account once your account value is more considerable, and you are using their "advanced" TLH'ing (due to the piles of individual stocks and/or sector based ETFs/MFs aka "Direct Indexing"). Transfer in kind and count yourself lucky you got out while it was still fairly straight forward.

Selection of threads:

viewtopic.php?t=280697
viewtopic.php?t=232999
viewtopic.php?t=278089
viewtopic.php?t=242782

Good luck!
this is good to know, thank you for the response
VTSAX and chill

123
Posts: 5438
Joined: Fri Oct 12, 2012 3:55 pm

Re: Ditch Wealthfront?

Post by 123 » Fri Jan 03, 2020 7:58 pm

The problem with the robos is that if you hold the same securities in other accounts (quite possible with index funds) you can run into wash sale situations due to actions of the robo that you did not anticipate.
The closest helping hand is at the end of your own arm.

afan
Posts: 4476
Joined: Sun Jul 25, 2010 4:01 pm

Re: Ditch Wealthfront?

Post by afan » Fri Jan 03, 2020 9:19 pm

Another problem with the TLH- you have to report all these transactions on your tax return. At best, tedious, even if there are no wash sales. You then have to check that the TLH did not create wash sales. That would have to be done manually, by you. It could easily use of $25 worth of time.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

User avatar
Topic Author
geerhardusvos
Posts: 177
Joined: Wed Oct 23, 2019 10:20 pm

Re: Ditch Wealthfront?

Post by geerhardusvos » Tue Jan 14, 2020 5:10 pm

Transferred all in kind to Vanguard :beer
VTSAX and chill

MisterBill
Posts: 516
Joined: Thu Dec 24, 2015 3:21 pm

Re: Ditch Wealthfront?

Post by MisterBill » Tue Jan 14, 2020 6:38 pm

afan wrote:
Fri Jan 03, 2020 9:19 pm
Another problem with the TLH- you have to report all these transactions on your tax return. At best, tedious, even if there are no wash sales. You then have to check that the TLH did not create wash sales. That would have to be done manually, by you. It could easily use of $25 worth of time.
If you use Turbotax, all of the transactions can be automatically imported. Not sure if the other tax prep services do that. If you're doing taxes by hand it will be a pain. I found this on the Weathfront site:

How do I import my tax information into TurboTax or similar applications?

Can I import these documents into TurboTax®? Yes! We're pleased to continue our partnership with TurboTax® this year. You'll have the ability to download a CSV file with your tax information in case you're using another tax software.


Also, given that they switch between 2 or 3 equivalent funds in each category, I'd like to think that they are pretty careful about wash sales. Here's what they say about that:

When we harvest a loss, we purchase an ETF that tracks a different index, but is highly correlated with the ETF we sold in order to maintain the same risk and return characteristics of your portfolio. By purchasing an ETF that tracks a different index we do not violate the IRS rule that forbids the purchase of a substantially identical security. We swap back to your original ETF after we have held the new ETF for 31 days, the minimum amount of time required to avoid the wash sale rule. Wealthfront monitors disclosed related accounts (IRA, spousal accounts, joint accounts, etc.) that are held with Wealthfront to ensure wash sales rules are not violated in those accounts.

ChiKid24
Posts: 13
Joined: Fri Aug 09, 2019 3:43 pm

Re: Ditch Wealthfront?

Post by ChiKid24 » Tue Jan 14, 2020 6:58 pm

afan wrote:
Fri Jan 03, 2020 9:19 pm

Also, given that they switch between 2 or 3 equivalent funds in each category, I'd like to think that they are pretty careful about wash sales. Here's what they say about that:
I think the wash sale concern is when you get into the stock-level tax loss harvesting at WF. This usually becomes available once you hit $100k in assets. They'll buy small stakes in companies like Apple, Microsoft, JNJ, etc. and do tax loss harvesting at the individual stock level. Depending on your account balance, the amount of shares can be as little as 1-5 in a bunch of individual companies.

While they will likely be cognizant of the wash sale rules for these stocks in your WF account, they don't know if you hold shares of these stocks in other accounts (like a taxable Fidelity brokerage account). Imagine a scenario where you sell 100 shares of Apple to recognize a $x,xxx loss for tax purposes (not that Apple ever falls) in your Fidelity account, but that loss gets wiped out because WF bought 1 share of Apple in the stock-level portion of the WF portfolio.

In this scenario, does anyone know if the entire loss on the original sale of 100 shares gets wiped out, or is it only a wash sale for 1 share?

afan
Posts: 4476
Joined: Sun Jul 25, 2010 4:01 pm

Re: Ditch Wealthfront?

Post by afan » Wed Jan 15, 2020 9:52 am

Google it and you will see that Wealthfront claimed it took into account clients holdings outside of WF. They collected this information and said they would use it to avoid wash sales. Although they had the info, they never programmed their system to use it. So clients had lots of wash sales. WF paid a fine after getting caught but the clients were still screwed.

This is why each tax payer has to check their 1099 to identify wash sales. WF not only will not do that for you, it will reliably create wash sales unless you set up your outside accounts never to use funds or stocks that WF might trade- assuming you could somehow know what those might be.

Downloading the transactions does not solve the wash sales problem. It just avoids the data entry. Once that is done you have to check each WF trade against all your outside accounts to find wash sales. One by one. By hand.

Of course, if you do not use a program that can download from WF, then you have to do the data entry by hand. All this to, maybe, save a small amount on capital losses. With the market up and using broad index funds your losses will be minimal but you will still have all the hassle of dealing with the sales.

Not even close to worth it.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

Post Reply