- What is Wealthfront, and how does Wealthfront work?
- How does Wealthfront make money?
- Annual Advisory Fees
- Interest Revenue (Portfolio Line of Credit)
- Wealthfront subsidiaries, acquisitions, and exits
- Wealthfront profit and revenue
- What is the Wealthfront business and revenue model?
- Wealthfront funding, net worth, and valuation
How does Wealthfront make money? Here is a full, in depth, breakdown of their two (2) revenue streams and the different products and services they offer, as well as the Wealthfront business and revenue model, how much money Wealthfront makes per year, and how Wealthfront works.
What is Wealthfront, and how does Wealthfront work?
Wealthfront is a financial service company that helps clients maximize their portfolio returns and minimize taxes through diversified investing using automation.
Founded in 2008 by Andy Rachleff, Wealthfront went on later to get acquired by UBS on January 26, 2022, for $1.4 billion.
Since that time, Wealthfront now has more than 480,000 clients with accounts and over $28 billion in assets under management (AUM), to date.
So, how does Wealthfront work? To use Wealthfront, you can simply start by downloading their app from the Apple App Store or Google Play store, creating an account, and linking your bank account(s).
From there, Wealthfront will help you choose the right account to use based on your savings goals and build a diversified portfolio for you tailored around those goals.
How does Wealthfront make money?
According to Wealthfront, Wealthfront has more than 480,000 clients with accounts and over $28 billion in assets under management (AUM), to date.
So how does Wealthfront make money off of all those clients and assets under management (AUM)?
Below is a breakdown of how much money Wealthfront makes and its revenue model. Including all revenue streams and how much they charge for their services.
Here are the 2 ways of how Wealthfront makes money in 2022
Wealthfront has a revenue model that makes money in two (2) ways; from charging clients annual advisory fees on their AUM and interest collected from portfolio lines of credit.
#1. Annual Advisory Fees
Wealthfront makes most of its money from the annual advisory fees they charge clients on the assets under management (AUM) they have in their investment account through Wealthfront.
As noted above, Wealthfront has over 480,000 client accounts with more than $28 billion in assets under management (AUM), to date. Of which, Wealthfront is collecting their annual 0.25% advisory fee on all of it.
Whether a client is investing the account minimum of $500 or has over $1+ million invested, the advisory fee will always be 0.25%. For example, someone with $20,000 under management with Wealthfront will be charged $4.25 per month, or $51 USD annually.
And for this annual fee, clients get things like a periodic rebalanced and diversified portfolio of index funds, as well as access to their tax loss harvesting service (for taxable accounts), and more.
How much are Wealthfront fees?
- 0.25% annual advisory fee
Note: If we do the math, a 0.25% annual advisory fee on the $28 billion in client AUM would generate $70 million of annual revenue for Wealthfront in advisory fees alone.
#2. Interest Revenue (Portfolio Line of Credit)
Wealthfront also makes money through the interest they collect on the money they lend out to Wealtfront clients.
According to Wealthfront, clients must have at least $25,000 in their taxable investment account to be eligible for a portfolio line of credit (PLOC) and can borrow up to 30% of it.
To show you how this works and how Wealthfront makes money from it; let’s say, for example, a client borrows 30% on their $25k invested, they will be eligible for a $7,500 portfolio line of credit (PLOC). Now let’s say hypothetically they spend $5k of that at a 5.90% APR. This means they will owe Wealthfront $467.79 in interest on that $5k spent if it takes you 36 months to pay it off.*
*Wealthfront interest rates are not locked. Meaning the borrower’s APR changes as US interest rates move. And, of course, Wealthfront makes more money from more interest the longer it takes a borrower to pay it off.
How much is the Wealthfront line of credit interest rate?
- 4.65% to 5.90% APR
Wealthfront subsidiaries, acquisitions, and exits
Aside from Wealthfront being acquired by UBS for $1.4 billion, Wealthfront has had its own fair share of acquisitions.
To date, Wealthfront has made a total of 1 acquisition.
Wealthfront profit and revenue
Wealthfront has not released any official reports in regards to company earnings.
But if we do the math from Wealthfront’s 0.25% annual advisory fee collected on the $28 billion in client assets under management (AUM), that would generate $70 million of annual revenue. Plus however much interest revenue they are earning from borrowers.
Note: Because Wealthfront is a privately held company, they are not required to make their annual reporting, such as Form 10-K’s, pubic.
What is the Wealthfront business and revenue model?
Wealthfront makes money through a few revenue models that they combine within their company, they are:
- Fee for service (FFS) business model
- Interest revenue model
- Business to business (B2B) business model
- B2B2C (partnerships) business model
- Mergers and acquisitions (M&A) business model
Wealthfront funding, net worth, and valuation
According to Wealthfront’s Crunchbase profile, Wealthfront has raised $204.5 million over 6 rounds.
On January 26, 2022, Wealthfront was acquired by UBS for $1.4 billion.