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Established in 2013, WiseBanyan’s founders Herbert Moore and Vicki Zhou saw the apparent mismatch between the values of financial advisors and their clients, along with the unreasonable management fees and significant minimum account balances demanded by investment companies and decided something had to change. They decided to embark upon a new venture which would become the “world’s first free financial advisor“, and the financial robo-advisor WiseBanyan was born.
WiseBanyan, like most other financial robo-advisors (e.g. Personal Capital, Wealthfront, Betterment) uses specially designed software and algorithms to provide online financial advice and portfolio management with little to no human intervention. While robo-advisors have the advantage of being able to offer financial advice at a much lower price point than their human counterparts, most are not free. WiseBanyan changed the state-of-play in the robo-advisor market by offering an investment product which did not charge account management fees.
The company now boasts $100 million in assets under management and has around 25,000 users.
It effectively has democratized investing, by giving individuals who were previously locked out of the market, due to minimum account balance requirements, an opportunity to dip their toes in the investment pool without having to worry about losing all of their investment returns paying service providers account management fees.
How WiseBanyan works
It only takes $10 for a new client to set up an account with WiseBanyan. While it can take up two weeks for the account to become funded, it is usually less than five business days. Once the account is funded, the new client gets access to tools and a dashboard which will show them their investments at a glance.
Clients are asked a few questions when setting up their WiseBanyan account. These questions are designed to rate and identify the client’s individual preferred investment “risk score”. This score is used by the company’s algorithms to create a recommended portfolio of passively managed exchange traded funds, (“ETFs”), designed to match the individual’s own risk tolerance. As noted above, clients maintain the ability to check and adjust their investments through the tools and dashboard provided by WiseBanyan’s user interface.
Investors can outline their desired goals, or milestones, by telling the service what financial goals they want and when. WiseBanyan’s algorithms will then go to work monitoring, recalculating and automating the client’s deposits in a way to maximize their chances of reaching their desired goals within the stated timeframe. Clients may have multiple milestone portfolios, which include Rainy Day, Retirement, Custom and Build Wealth options. Investments can be deposited automatically into individual milestone portfolios.
Investment portfolios are largely made up of seven different types of ETFs. Not every portfolio will have all seven types of ETFs as the exact makeup will depend on the client’s individual risk profile. The common ETFs are:
- iShares TIPS Bond ETF
- iShares iBoxx $ Investment Grade Corporate Bond ETF
- Vanguard REIT ETF
- Vanguard Total Stock Market ETF
- Vanguard Intermediate-Term Government Bond ETF
- Vanguard FTSE Developed Markets ETF
- Vanguard FTSE Emerging Markets
It is important to note that while WiseBanyan does not charge account management fees, the underlying ETFs do charge fees. WiseBanyan has sought to keep these costs down by selecting a group of well-established, low fee funds to invest in.
If WiseBanyan Is The “World’s First Free Financial Advisor,” How Does It Make Money?
WiseBanyan does not charge account management fees. However, it does charge for premium or “a la carte” services, such as tax-loss harvesting (called “WiseHarvesting” in WiseBanyan’s language). While other robo-advisors charge account management fees, tax loss harvesting usually forms part of their basic service package offering and does not cost extra. WiseHarvesting is just the start of the paid service offerings to come from the company.
In addition to its free service, WiseBanyan does offer a customized management service with a personal touch for an annual fee of 0.50% to 1.0%.
WiseBanyan also keeps a keen eye on running costs in order to minimize the need to charge fees. For example, electronic statements are provided for free, however, if clients require a paper statement a fee of $10 per statement or $150 for a year of monthly statements applies. However, Fees are also charged for transferring money out of the account and for payments made via paper check.
As WiseBanyan was founded in 2013, it remains to be seen whether this is a business revenue model which can last in the long term.
Who Is WiseBanyan Suitable For?
WiseBanyan’s approach of not charging account management fees or requiring a minuscule minimum account balance means anyone can use its service, from individuals just starting to experiment with financial investment to experienced investors with large asset management requirements.
WiseBanyan is the perfect starting place for younger people and new investors to start out on their investment journey. In fact, it is the only place for would-be-investors with less than $100 to start their investment portfolio. It may be one of the only opportunities for new investors to get some experience and grow their modest nest eggs without them being eaten away in management fees and other costs.
This model of service is also ideal for retirement investors who want free account management and investment guidance tailored to meet their stated milestones.
Pros & Cons Of WiseBanyan
- $1 minimum account requirement and no account management fees. Clients only need $10 to open an account with WiseBanyan. The minimum account balance is $1. Further, Wisebanyan’s approach of not charging account management fees means most other robo-advisors on the market just cannot compete when it comes to fees and charges.
- WiseBanyan investment portfolios allow for fractional shares. One of the reasons clients can start up an account with very little money is WiseBanyan has retained FolioFN as its broker-dealer. FolioFN is a stand-out in the marketplace because it allows fractional shares. So, while clients may not be able to buy a full share for $10 they can purchase a fraction of a share and still make returns on very small investments. It also means all of the client’s money is invested. There is no loose change lying around in WiseBanyan’s investment accounts. All of the money is invested and working hard making a return, no matter how small the amount.
- Dynamic account management software. WiseBanyan’s service offerings include updated investment recommendations when clients choose to increase or decrease their risk scores.
- Automatic weekly, monthly or quarterly payments. WiseBanyan offers a service to make automatic weekly, monthly or quarterly payments into their clients’ investment accounts to assist in making investing effortless.
- WiseBanyan does not restrict clients to their own exchange traded funds. This is both a positive and a negative. Clients are not forced to use their advisor’s own funds for investment deposits. However, WiseBanyan misses out from this important revenue stream, whereas competitors such as Schwab with its Intelligent Portfolios product, are able to offer fee-free services because they are able to make money on the fees charged from investing in their own ETFs.
- All of the client’s investment eggs end up in WiseBanyan’s basket. Clients are required to liquidate their investments prior to making a transfer of an account to WiseBanyan. This means clients are forced to put all their eggs in WiseBanyan’s basket.
- There is currently not enough data to compare WiseBanyan’s market performance with its competitors. It is expected any long term difference between the performance of portfolios of WiseBanyan clients and their competitors is likely to be minimal because WiseBanyan’s portfolios are made up of ETFs which are equal to those used by every other robo-advisor. However, at this stage, it is worthwhile noting there is not enough data available to make a meaningful comparison.
- Limited investment mix. Although WiseBanyan sports a wide investment mix, its portfolios do not include municipal or emerging market bonds or natural resources. Clients wishing to invest in such a space will need to find another service provider to meet their needs.
- Does not allow for certain account types. Wisebanyan does not allow joint taxable or a custodial account for children, which is an exception to the service offerings provided by WiseBanyan’s competitors. At this stage, clients may only open Traditional & Roth IRAs, individual taxable accounts, Rollover IRAs or SEP IRAs. This means the pool of individuals who can take advantage of the company’s free service offering is necessarily limited. There may be an improvement in this space if we can rely on WiseBanyan’s reports of providing more account options in the future. Such a move would provide the company with the distinct advantage of increasing its marketable client base.
- Not the best choice for taxable accounts. While WiseBanyan is a great place for small investors and new investors to start out, it does not provide the best service offering for individuals with a taxable account which would benefit from tax-optimization services. WiseBanyan’s tax optimization services form part of their paid service offering. I think there are other robo-advisors on the market which have better versions of tax-harvesting software than WiseBanyan at a same or similar price point and as such would be preferable.
- Investors with over $500,000 may be better served by WiseBanyan’s competitors. Investors with over $500,000 of investable money tend to like using robo-advisors because they like to be independent in their investment decisions but they want a little guidance along the way. Unfortunately, on balance I think investors with more than $10,000 to invest may find they are better served by some of the more advanced, paid robo-advisor services, such as Vanguard and Betterment. Clients with at least $100,000 to invest should consider the services of Personal Capital.
- WiseBanyan is suited to buy-and-hold, rather than regularly trading investors. WiseBanyan is also suited to buy-and-hold investors, rather than those who wish to trade regularly on the stock market. The product is designed to best suit those investors who don’t want to pay a lot in fees and who want to put their money into an investment account and know that it will be rebalanced according to their personal risk tolerance.
- The company’s website interface is not user-friendly. Reviews indicate everything on WiseBanyan’s site feels clunky, from logging-in to using the site’s investment tools. One wonders whether the user experience has been sacrificed for WiseBanyan’s goal to provide fee-free robo-advice? Keeping in mind that many clients often invest all of their spare money into these services, the perception of value for money is likely to be high on their list of priorities. Even though WiseBanyan’s service is fee-free, clients are still charged fees in association with their ETFs so that perception will bite WiseBanyan in this space.
- Question mark over the long-term sustainability of WiseBanyan’s revenue model. At this stage, it seems most competitors cannot compete with WiseBanyan’s free account management offerings. However, it remains to be seen if this is a model which can be sustained in the long term. It is currently not clear whether WiseBanyan has enough assets under management to cover the cost of its free service offerings. The long-term sustainability of WiseBanyan’s business model has not yet been tested and may be of concern to investors looking to develop a long-term investment relationship or those seeking to invest their money in a company they know will be around when it comes time for them to retire.
It appears no one can compete with WiseBanyan’s minuscule minimum account balance requirements and their waiver of account management fees for clients with deposits under $500,000.
New players, such as Schwab with its Intelligent Portfolios product, have entered the market seeking to challenge WiseBanyan’s free service offering. However, there are pros and cons to the Intelligent Portfolios product, which still make WiseBanyan an attractive investment choice for small investors. For example, WiseBanyan allows for the ownership of fractional shares. In contrast, Schwab’s Intelligent Portfolios requires clients to hold significant amounts of low-yielding cash. In this case, I think WiseBanyan is the better option of the two products as all of the client’s money is working hard for a return on the investment.
WiseBanyan is ideal for people looking to start investing or small investors. It is also perfect for the buy and sit investors who want to watch their portfolio grow over time, rather than those who want to trade-to-grow their investments.
While there is a question mark over the long-term sustainability of WiseBanyan’s revenue model, the other robo-advisor services on the market simply cannot compete with the free account management service offered by this company. WiseBanyan can, therefore, be recommended for small investors, those looking to start their investment portfolio and retirement investors who want free account management and investment guidance tailored to meet their stated milestones. At the other end of the spectrum, WiseBanyan is also a good consideration for those with over $500,000 to invest as their premium packages are very competitive.
As a full disclosure, I currently use Wealthfront for my automated investing needs, but this market is very competitive and I wouldn’t say any one provider stands above the rest. You’ll have to weigh the fees vs. your initial and projected investment needs. You can always decide to change at a later date. Whoever you decide to go with, you’ve made a great choice in planning for your future and retirement.
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