‘Our clients pay us not to talk to them’: Wealthfront CEO Andy Rachleff on why robos don’t need humans

In 2017, many first movers in the digital investment industry introduced human-advice tools to complement their robo offerings, but Wealthfront is still all in on its digital-only strategy. They're realizing as the space becomes more competitive, so must their offerings. Some swear by the automation-only model, others say there needs to be a human element. In response to the competition, companies like Betterment, Ellevest and Wealthsimple added human advice. Meanwhile, incumbents like Morgan Stanley and Wells Fargo have launched automated investment services of their own -- amping up pressure on independent robo-advisers to attract and retain new customers. To Wealthfront, automated-only offerings are the future. It's the second largest independent robo-adviser by assets under management, at $9 billion, and is just shy of doubling its assets under management and the number of clients this year alone, according to CEO and co-founder Andy Rachleff. And this year it branched out of advice, expanding its financial services to financial planning -- with the launch of a tool called Path -- and digital lending. Tearsheet spoke with Rachleff about how the company keeps its niche among a growing number of digital investment advisory services on the market and its priorities for 2018.  The following has been edited for length and clarity. Where do you stand on robo-human hybrid offerings? We’re the only company making the bet that the future of financial services will be completely automated. The rest of our competitors have partnered with advisors. Older people clearly prefer to talk to someone; younger people are the exact opposite. Our clients tell us they pay us not to talk to them; the majority of our clients are in their 30s and 40s and want to access Wealthfront solely through an app on their smartphone or their laptop. Can an automated financial plan truly replace a human? Financial planning is really just a set of routine tasks and math. Those are two things at which computers do a much better job than people. As more and more data becomes available through [application programming interfaces], we can personalize your outcomes in a way a financial planner could not. How?  Most planners use the same commercial software package to build financial plans for their clients. The planner first brings you in for what they call ‘the interview’ to ask you a series of questions about how much you’re saving and spending and in which accounts and so on. The questions they ask are just the inputs required by their financial planning software. Next, they take what they’ve learned from the interview and input the information into their software package. In a couple of weeks, they have another meeting with you to discuss the results and tweak them. How does Path do it differently? [We've] removed that step of setting up a meeting or ‘the interview’. Our clients can simply connect all of their financial accounts into one view and from there Path can understand with great accuracy exactly how much they are saving and spending in each account and guide you to build different savings and investing goals.  What is your biggest priority for the new year? Continuing to optimize and automate our clients’ finances, using Path as the main point of client interaction. Who’s going to be your biggest target market for the year ahead? Our target market has been the same since we’ve launched. We’re catering to an audience of young professionals and young families who have figured out how to save, but need help reaching the lofty goals they set for themselves. Age-wise this usually falls in the under 45 crowd. This group wants to perform all of their tasks digitally. It’s how they do everything else in their life. Why did you begin offering lines of credit? The vast majority of our clients have short-term liquidity needs for things like buying a car, financing a wedding, a down payment on a home and so on. Instead of penalizing them for being a long-term investor and having to withdraw money and pay capital gains taxes, we allow them to stay invested and borrow up to 30 percent of the total value of their taxable account. Everyone talks about reaching millennials, but older demographics like digital advice too. How do you reach them? On occasion we’ll get people over 45 or even in their fifties as clients, but these people come in the door more so for our low cost rather than our focus on technology. They tend to want to speak to someone, and we’re typically not the best service for them and we let them know that. We stay focused on the under 45 crowd which represents 85 percent of our clients. Tell us about your marketing strategy. Wealthfront has a different business model from every other company in our space. We spend little to no marketing money to acquire new clients. The growth I just described comes almost exclusively through organic word of mouth or our invite program. When was the last time you saw a Wealthfront ad?  We’ve found that if we keep building new features that meet our clients’ needs they deposit more money with us and continue to recommend us to their friends.