Building customers’ wealth by putting excess cash on ‘Autopilot’
Wealthfront, a fintech that started as a robo adviser but is increasingly becoming more like a bank, on Wednesday launched the first phase of the “self-driving money” concept it has been teasing for several months.
The new feature, called Autopilot, lets customers establish how much cash they need to keep on hand and set savings and investment priorities. Wealthfront monitors the account daily, and when the balance exceeds the prescribed amount Autopilot automatically deposits the overage into the chosen accounts. It’s kind of a cruise-control feature for managing money.
Other fintechs, like Digit, have automated savings apps that sweep unneeded cash into a savings account. But Wealthfront appears to be the only fintech that automatically invests and saves in this manner on consumers’ behalf.
“The focus around leveraging technology to help users optimize their financial life is thematically something that a lot firms have been approaching from different angles,” said Devin Ryan, an equity research analyst at JPM Securities. “But I don't know of anyone doing this.”
People are ready for self-driving money, Ryan says.
“Consumers are realizing increasingly the power of technology and how that can open access to capabilities and services that historically were only for higher-net-worth individuals with full-service relationships with their financial adviser,” he said. “Consumers are realizing that there's more out there. The tools and capabilities to help consumers optimize their financial lives have never been better, and I think Wealthfront’s vision around self-driving money is an important element of that.”
It’s part of the Palo Alto, Calif., robo adviser’s push into full-fledged banking.
Wealthfront, which has 400,000 clients, already offers a cash account in partnership with Green Dot Bank and insured by the Federal Deposit Insurance Corp. that pays a 0.35% annual percentage yield. It comes with an ATM and debit card, can accept direct deposit and can handle bill payment. It gives customers access to their paychecks two days early.
Wealthfront plans to offer checking this year. Mortgage offerings are planned for the future.
Eventually, the company would like to automate all aspects of consumers’ financial lives.
“We will automatically pay your bills,” Andy Rachleff, Wealthfront's CEO, said in an American Banker podcast in February. “And then we will send the remaining money to the most appropriate account for your particular situation and goals.”
If a consumer’s highest priority is saving for a child’s college education, Wealthfront will put money in a 529 college savings account. If the top goal is to buy a home in two years, money will be routed to a cash account. If an emergency fund, college savings and housing are all taken care of, then excess cash might be routed to an investment account.
“By virtue of having linked, with our client's permission, to all of their financial accounts, we know what is in their best interest and route the money accordingly,” Rachleff said.
Wealthfront may not ever become a bank technically, but it’s acting more and more like one.
“I think that we can offer the vast majority of the consumer banking services of a bank without technically having a bank charter,” Rachleff said. “Ultimately we might have a bank charter, but the nice thing is we don't need a bank charter to offer the equivalent services.”
Chris Hutchins, Wealthfront’s head of autonomous financial advice, who oversaw the development of the Autopilot feature, sees self-driving money as a way to shift power back to the client.
“It allows you to maximize what you're earning, because everything can happen as quickly as technology can support it, instead of as quickly as you can get around to thinking about moving money around,” he said.
At the end of their workday, most people aren’t eager to log in to online banking and figure out where their money should go, Hutchins said.
“With self-driving money, you're in control, but money gets put in the right place at the right time to help you maximize it,” he said. “And that's just part of this mission of helping clients earn more and building a different kind of financial institution.”
The cash account always has enough to cover the customer’s basic bills, like the mortgage, but then puts extra income to work.
“You don't have to think about it because you've already set up how it would work,” Hutchins said.
Within the Wealthfront app and website, customers can also monitor their checking accounts at other banks and automatically move extra cash from those accounts to an investing or savings account.
A customer might set up Autopilot such that every time a Wells Fargo account exceeds $10,000, the remainder will be transferred to an investment account.
“We give them a notification that this is happening, and we give them 24 hours just in case there's a reason they want to cancel it, or are unsure about it,” Hutchins said.
Customers can also log in and manually transfer money from one account to another, say, an IRA or college savings account. If Wealthfront’s monitoring software sees that something has changed in the account and that it will no longer exceed $10,000, it will automatically cancel the transfer.
“We know that people want to feel like they have control, but they don't want to do all the work,” Hutchins said. "And so we think it's a really important thing for people to have.”
The main objective is to make customers’ money work harder, instead of having it sit in a deposit account getting 0.1% interest or less. Wealthfront’s investment accounts are a set of passive index funds, Hutchins said.
Wealthfront’s hypothesis is that by taking away the work of saving and investing, “we can create a pretty large wealth creation engine for an entire new generation that needs that,” Hutchins said.
Wealthfront is also open to partnerships with banks, Hutchins said.