Wealthfront, a robo-advisor that has experienced significant growth, has added $1 billion to its assets under management (AUM) in less than a month. The firm currently manages $37.4 billion in investments and oversees approximately $37.6 billion in cash assets held in third-party affiliated accounts.
With a client base of one million, including 381,348 mass-affluent investors and 4,864 high-net-worth (HNW) investors, Wealthfront is well-positioned for further growth. The average balance for HNW investors is $2.1 million, while mass-affluent clients have an average of $93,000 in investments.
Wealthfront is strategically focusing on the direct indexing market, which is projected to expand significantly. Estimates suggest that the market could reach $825 billion in managed assets by 2026, up from around $550 billion in late 2023. To capture a larger share of this market, Wealthfront has launched a new S&P 500 direct indexing service. The firm anticipates that clients using this service could see annual after-tax gains ranging from 0.73% to 7.69%, depending on market performance.
Wealthfront's recent moves are in response to emerging competition, particularly from a new venture called Frec. Frec offers index-linked direct indexing at competitive prices and has attracted attention with its lower fees and minimum investment requirements. In order to compete with Frec, Wealthfront has introduced a nine-basis-point fee structure and reduced its minimum investment from $100,000 to $20,000. This strategic shift aims to attract a broader client base and enhance Wealthfront's competitive edge.
Wealthfront's financial performance has shown remarkable improvement, with a projected EBITDA of $178 million for 2024, up from $89 million in 2023. The firm has experienced significant growth in both its AUM and cash assets since 2023, with increases of nearly 100% and 200%, respectively. This growth is supported by the firm's focus on high-yield FDIC accounts, which have attracted a significant number of banking clients. The estimated client count for banking services is approximately 613,788, indicating strong demand for Wealthfront's offerings. By tapping into the direct indexing market, Wealthfront expects to further enhance its AUM. If just a fifth of its banking clients were to invest $20,000 in the new direct indexing service, Wealthfront could see an additional $2.5 billion in AUM.
Wealthfront has faced challenges, including a setback when UBS backed out of a proposed acquisition deal in late 2022. However, the firm has demonstrated resilience and a commitment to innovation, allowing it to thrive in a competitive environment. Wealthfront's proactive approach to product development and market positioning will be crucial as the direct indexing industry continues to evolve. The firm's focus on providing low-cost, accessible investment solutions is likely to resonate with investors seeking alternatives to traditional investment vehicles. With a solid foundation and a clear vision for the future, Wealthfront is well-positioned to capitalize on emerging trends and maintain its status as a leading player in the robo-advisory space.