The robo-advisory firm Wealthfront has begun offering lines of credit to its young, well-heeled client base.
Starting Wednesday, investors who have at least $100,000 in taxable Wealthfront accounts will be able to borrow up to 30% of the account value, the company said.
The credit lines, which the company pledges to fund within 24 hours, will be secured by the assets in the client’s portfolio. They will carry annual percentage rates of 3.25% to 4.5% — more affordable than many home equity lines of credit.
By adding credit lines to its product suite, Wealthfront is positioning itself to better compete with traditional wealth managers. Wells Fargo and Morgan Stanley are among the banks that offer securities-based loans to its clients.
Securities-based lending has boomed in the aftermath of the financial crisis. Wealth management firms like not only the revenue that the products generate, but also the fact that customers who are borrowing against their portfolios are less likely to leave for another company.
Wealthfront expects its customers will use their credit lines to help finance big-ticket purchases such as weddings, cars and houses. The Redwood City, Calif.-based firm said that its clients will get additional peace of mind from the liquidity that the product provides.
“We expect that this added value will allow clients to consolidate more of their wealth into Wealthfront,” spokeswoman Kate Wauck said in an email.
The lines of credit, which are being offered under a partnership with Royal Bank of Canada, will be available to clients in all 50 U.S. states.
Wealthfront is the first of the so-called robo-advisers to offer a securities-based lending product. The company is targeting more affluent customers than some of its competitors that have focused on acquiring smaller accounts that traditional wealth managers long ignored.
Wealthfront launched in December 2011, and today it faces competition from the likes of Vanguard Group, Charles Schwab and other big investment firms that have started offering robo-advisory services.
In November 2016, Wealthfront founder Andy Rachleff replaced Adam Nash as the firm’s CEO. Since then, the company has rolled out a college savings plan and other new products. Wealthfront currently has nearly $6 billion in assets under management for roughly 115,000 clients.