Robo-Adviser Wants to Lend You Money, Not Just Manage It
Robo-Adviser Wants to Lend You Money, Not Just Manage It
Wealthfront becomes first of its kind to enter lending
arena
Clients will be able to borrow cash against their
portfolios
by Julie Verhage April 19, 2017, 9:45 AM PDT April 19,
2017, 12:11 PM PDT
Now the robots are coming after more than your investment
adviser.
Wealthfront Inc. said in a blog post Wednesday that it
will offer loans, calling the move a first among robo-advisers, which are known
for wealth management using automated investing platforms. Through a
partnership with RBC Capital Markets LLC, clients with at least $100,000 can
take out loans of as much as 30 percent of their account value, using their
portfolios as collateral.
“This is consistent with our strategy, which is to take
basically every major service that a private wealth manager offers to wealthy
clients and use software to offer it to some people who can’t afford the
minimums,” Andy Rachleff, Wealthfront’s chief executive officer, said in a
phone interview.
The product launch is the latest in a series for the
Redwood City, California-based firm, which co-founder Rachleff rejoined in
November. Other announcements in the past year by Wealthfront, which oversees
almost $6 billion, include a 529 college saving plan and an enhanced financial
planning platform called Path.
To get a loan, Wealthfront’s clients must meet the
balance requirement in a taxable account, which eliminates the majority of its
customers. The credit program could introduce more risk for the firm, according
to George Pearkes, an analyst at Bespoke Investment Group LLC.
“If the portfolio drops, then the loan becomes less
secure -- it’s like buying stocks on margin,” Pearkes said. “It also depends
what type of assets are in their portfolio, what the person’s cash-flow
situation is and how much other debt they have.”
There is skepticism over how much of a competitive
advantage the offering will provide. Other robo-advisers have looked into
lending as well, but decided to focus on different services first. Josh Brown
at Ritholtz Wealth Management said big firms could easily add the feature.
“It’s nothing that Schwab couldn’t do tomorrow,” he said.
Comments
Post a Comment