You’ve probably heard that the key to wealth is investing. But there’s always been a barrier to entry that creates a vicious cycle. Only those with the means to dig in and learn can benefit from the stock market, but investing is an important tool in building wealth.
Wealthfront seeks to change all that. Born after co-founder Daniel Carroll saw his parents struggling with investing, Wealthfront uses automation and educational tools to make investing available to everyone. Not only is it easy to sign up, but the robo-advisor automates much of the investing process, meaning even if you are a complete novice, you can still get in the game.
You can get started on Wealthfront with as little as $500, and the fees are minimal. Wealthfront uses a low-risk strategy when investing your money, including diversification and automatic rebalancing. The result is typically a portfolio that grows slowly over time without the emotional rollercoaster that comes with higher-risk strategies.
Wealthfront was a pioneer in investing accessibility, having gotten its start in 2011. Working with co-founder Andy Rachleff, Carroll wanted to find a way to bring quality investment management to the masses. The goal was to democratize financial advice and create a platform that brought investing to those who previously couldn’t afford it.
When you sign up for Wealthfront, you don’t just create a portfolio and start buying stocks. You’ll input some goals and define your risk tolerance. Wealthfront’s software then builds you a tailored portfolio designed to maximize your returns while managing your risk.
In addition to its investment offerings, Wealthfront also offers competitive banking options. Their fee-free checking account makes it easy to routinely slide money over to your investments, gradually growing your wealth. Once your investment portfolio reaches the minimum balance – $25,000 – you can apply for a line of credit on the money you have in it.
Meet Wealthfront’s COO – Daniel Carroll
Wealthfront was conceptualized after Carroll saw his parents struggling to invest. He began building a prototype for a platform that would make it easy and affordable for everyone to invest. His work captured the attention of Andy Rachleff, a lecturer at Stanford University. Together, they created Wealthfront.
Today, Carroll serves as Wealthfront’s chief strategy officer, where he makes sure the company remains true to its original purpose. Wealthfront doesn’t just use the latest technology, but its strategies are informed by a team of top PhDs, using their financial expertise.
Recently, we spoke with Carroll about Wealthfront, the financial industry as a whole, and his own money management principles.
Money Under 30’s interview with Daniel Carroll
Could you tell us a little about what inspired you to create Wealthfront as a transparent, client-centric investment platform?
The idea sprung from a visit to my parents’ house during the financial crisis of 2008. We were a middle-class family that couldn’t really afford a financial advisor, but a family friend took my parents on as clients as a favor. I opened their statement one day while I was home to see what they were invested in. Let’s just say every stereotypical bad practice in investment management was happening to my parents: high management fees, expensive mutual funds, high turnover, 12b-1 fees, etc. You name it — they were paying it. I was determined to build a better way for everyday folks like my parents to get sophisticated financial advice that actually helped them reach their goals, instead of just taking money away from them in fees.
That goal has carried through to today, in both Wealthfront’s mission and in how we design our products. We are working to reinvent financial services so the system works more efficiently, delivers more value, and provides more opportunities for wealth creation among young professionals. We are also the only company that integrates checking features and investing to automate your savings. We want to remove all of the hard work for our clients so they can have everything taken care of in the background without them ever having to lift a finger. This is a vision we call Self-Driving Money™, and we believe it can be the greatest wealth creation engine this generation has ever seen.
What changes have you seen in the investing industry during the time you’ve been with Wealthfront?
The world of personal finance has changed so much since we launched, and I’m extremely proud that Wealthfront is playing a role in moving the industry forward. We were the first company to offer a globally diversified and rebalanced portfolio of low-cost index funds managed automatically for less than a quarter of what an advisor charged. We were also the first to offer many other investment features that were previously only available through an advisor for clients who could meet a $1 million account minimum (and sometimes as much as $10 million).
These features include daily tax-loss harvesting, direct indexing, multi-factor smart beta, risk parity, and even tax-minimized transition to a more optimized portfolio. The investment management industry took notice. Because of our success, every large incumbent has a robo-advisor strategy, and consumers are expected to save over $100B in fees over the next decade as a result. That’s pretty cool.
What advice would you give an investor with limited funds who wants to start building a portfolio?
To start, Wealthfront recommends making sure you have three-six months of expenses saved in an emergency fund. Once you’ve done that, it’s important to start investing as soon as you can. Getting more time in the market gives your savings more time to grow, so getting started early is really the most important part. Even if you only have a little bit saved up, it’s better to start investing that money now so you can let compound interest work for you.
Wealthfront is one of many robo-advisors out there. What sets your technology apart?
What really sets us apart is our focus on applying automation and our Self-Driving Money™ vision. We are working to automate all of our clients’ finances end-to-end to take the work out of saving and investing and we recently reached a huge milestone in this vision that we couldn’t be more excited about. Last month we launched the final set of features that make up the first version of Self-Driving Money™. This means clients no longer need to move money between multiple institutions and coordinate across clunky interfaces to grow their savings because Wealthfront can automate everything from end to end, ensuring every dollar earned grows.
This all happens through our Cash Account. Wealthfront clients can get their paycheck up to two days early when they direct deposit with us, and from there we can automatically pay your bills, send any checks you might need, and then instantly route additional savings to your investment account. With these latest features, our Cash Account can now find excess cash and immediately send it to the best accounts to meet your goals, whether that’s an IRA, taxable investment account, emergency fund, wedding fund, vacation fund, or any other account of your choosing. This all happens instantly and simultaneously. We’re so excited about this vision because we know it will be a huge game-changer in how our clients are able to save and invest toward their future goals.
What’s the biggest challenge you’ve faced as a startup founder?
As your company starts to experience some level of success like Wealthfront has, one of the fun challenges of being a founder is you continually move the goalposts, both in terms of company impact and mission. When Wealthfront first started, our mission was to democratize access to sophisticated financial advice. At the time, there wasn’t a way for an individual who didn’t have at least $1 million to get access to a service that would manage their investments for them. Most financial advisors had minimums starting in the millions, which meant the average American was out of luck.
Fast forward to today: Wealthfront manages $25B and robo-advisors are expected to manage over $5T by 2025. Almost every large incumbent has or will have a robo-advisor strategy, so while our mission hasn’t been 100% realized, consumers have far more options and Wealthfront has much grander ambitions. It’s natural for mission statements to have shelf lives of a decade, and last year Wealthfront updated its mission. Now, we are working to build a financial system that favors people, not institutions. Delivering on this mission should be a fun challenge in the decades to come.
Do you find Millennials are more comfortable with tools like robo-advisors versus previous generations?
Absolutely — Millennials and Gen Z grew up digitally native and they expect to be able to manage their money the same way they order food or book a taxi. They choose us as their primary relationship over traditional banks because they can access checking features, low-cost investment management, and free financial advice simply by downloading our app.
Young professionals are really excited about fully digital financial products like Wealthfront that can help them earn more on their money. They understand how automation and having a one-stop-shop for their finances can take the hassle out of saving and investing and help them work toward their financial goals.
Who in your life has been the most instrumental in teaching you about money management?
My mom was the person who handled our family’s finances and every Sunday she would sit at the dining room table, go through bills with her old school calculator and balance the checkbook while frequently yelling at my dad for overspending. 🙂
When I was 12 my dad made me get a job — I started working at a nearby country club and they haven’t given me any spending money since. So the only spending money I had was what I was able to earn. I did so well caddying at the country club that I could use solely my own money to buy stuff like video games, a new bike, or some new kicks.
My parents pushed me to learn about money through experience, and as a result, I likely made every mistake along the way. Since I started working early, I was able to build up a good amount of savings but it was up to me to figure out how to budget, how much things cost, and how to handle everything from a young age. I appreciate that they helped me find my own independence and learn the confidence to figure out how to use my money for what matters. It’s crazy to me that schools don’t teach basic budgeting and money management.
What’s the best advice you’ve received (not necessarily money-related) that has shaped how you lead your life?
My dad always had a simple maxim that he would repeat to me incessantly as a kid: “Carrolls never quit.” And I have carried this all throughout my life and it took on a whole new importance and meaning as I navigated through the ups and downs of building a company. As an entrepreneur, grit and determination are prerequisites for being successful, but it’s one thing to read about it in books and another thing to experience it.
I now have two girls, ages six and eight, and as they have begun experiencing activities and sports, I have reiterated, “Carrolls never quit” to such an extent that they get annoyed with their dad. 🙂
What’s your top personal finance tip?
Start dealing with money at a very young age. It’s very unfortunate that schools don’t teach people how to manage a budget, pay bills, and general personal finance hygiene. As I mentioned, I got my first job at age 12 at the local country club, and from that time forward, I never asked for spending money from my parents again. They let me make all the mistakes (which was usually buying endless sega genesis video games!), but I was making these mistakes at a very young age. By the time I left college, I had been balancing a budget for almost a decade so I could effectively balance a budget and have money left over from that first job to maintain a 401(k) and invest long-term in the stock market every month.
What is the financial book/website/podcast that has most influenced you?
It’s actually not a financial book but a motivational/self-help book by former Navy Seal David Goggins called Can’t Hurt Me: Master Your Mind and Defy the Odds. It’s an amazing story of a man from a very traumatizing upbringing who overcame the odds to become a Navy Seal and later an ultra-endurance athlete. After I finished the book, I realized that I wasn’t pushing myself enough and decided to run the LA Marathon despite not running for almost twenty years.
I finished the marathon and I remember at about mile 22 that I played a part of his audiobook to help motivate me. He has very colorful language to say the least. 🙂 I try to consume podcasts/books of successful people because you learn more from success than failure. You remember your failures but you learn from success.
What piece of wisdom would you give your 20-year-old self about managing money?
Have someone else pay the bar tabs? No, in all seriousness, focus on your career since getting that right will have the biggest impact on your financial future. Learn how to save early and let the magic of compounding work for you.
With the help of visionaries like Daniel Carroll, it’s never been easier to build and manage an investment portfolio. Whether you’re choosing the right stock or creating a budget, good financial hygiene can help you gain the independence and peace of mind you’re looking for.