Future of Investing

Investing startup Wealthfront raises $75 million

  • Wealthfront just landed $75 million in new funding, led by Tiger Global Management
  • The company says it will use the money to expand capabilities of its automated planning and investment tools, and make a push into banking products

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Investing startup Wealthfront raises $75 million

Wealthfront, the second largest independent robo-adviser by assets under management, is the latest single-offering financial company looking to broaden its services.

The Redwood City, California-based company closed a $75 million funding round Thursday that it plans to use to increase its investment management, financial planning and banking services. The company didn’t specify which types of banking services Wealthfront plans to offer, but CEO Andy Rachleff said it plans to begin taking deposits eventually, though not necessarily in 2018.

Tiger Global Management led the funding; Benchmark Capital, Greylock Partners, Index Ventures, Ribbit Capital and Spark Capital also participated.

Wealthfront isn’t alone. SoFi, Square, Stash and Marcus by Goldman Sachs have all announced plans to launch bank accounts this year (SoFi has backtracked on its plans following its sexual harassment scandal). Barclaycard in the U.S. has similar plans. It’s just what financial firms need to do to retain and grow their customer bases, said Davis Janowski, senior digital wealth management analyst at Forrester Research.

“The blurring of of PFM with money management is like being a personal CFO,” he said. “That’s the direction they’re all going to have to take.”

Last year, Wealthfront made credit lines available to customers with at least $100,000 invested, and it wants to expand that to include a fuller suite of banking services. It also launched a financial planning tool called Path, which was initially focused on retirement planning and later added college savings. Wealthfront plans to add another area of financial planning to Path, though Rachleff didn’t specify which or when it plans to go live.

“Ultimately, you’ll be able to direct deposit your paycheck with Wealthfront, and then the intelligence of Path will automatically optimize where that money should go, and route it to appropriate places — within or outside of Wealthfront,” said CEO Andy Rachleff.

Wealthfront, which has 215,000 accounts  and $9.5 billion in assets under management, is sticking with a digital-only strategy while other robos have added human advice. The company, which prides itself on a tech-first approach, said the the funds will be used to hire engineers, designers and others working on Wealthfront’s products. It won’t be used for marketing, which Rachleff said isn’t needed, because it effectively grows its customer base through word-of-mouth referrals. For Wealthfront, 90 percent of the new assets that come in are acquired organically, a spokesperson for the company told Tearsheet late last year; for the remaining 10 percent that come in through a paid channel, the company would never spend more than a couple hundred dollars on acquisition, she said.

As a first mover among a growing number of digital advisory services, Wealthfront has an edge over many others in the space, but in a crowded market, the pressure may be on for independent robo-advisors to go further just tech to retain and grow market share.

“They’re one of the pioneers, but [among robo platforms] there are a great deal of similarities — if you take a step back, the consumer will not be able to differentiate and compare 10 robos,” said Alois Pirker, research director for Aite Group’s wealth management practice. “In order to scale, you need to go beyond tech savvy — how do you differentiate when a low-price portfolio becomes commonly available?”

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