The Best Case Against betterment/wealthfront

[tj]

Over on BogleHeads, user "normaldude" has posted the best argument I've seen against using betterment or wealthfront to manage your investments. I would say that  it's worth a read:


http://www.bogleheads.org/forum/viewtopic.php?f=10&t=167969&sid=deb978fb99807948eea213e26d78a10b#p2527804

[Tjat]

This was somewhat the reason why I chose to stick with Vanguard. While the idea of automated tax loss harvesting is neat, I couldn't get comfortable with putting such a large percentage of my assets with a relatively new company. Not to mention, it doesn't appear from their setup that they have the most secure environment where my personal information is potentially on screen - or even on a storage device.

[skyrefuge]

LOL. Yeah, fuck those kids and their goddamn skinny jeans! Get them off my investment account's lawn!

I can definitely see how it's an argument that gets the old people at bogleheads up out of their wheelchairs and cheering, but it's less-likely to resonate at this forum where our hero says "no thanks" to neckties just as much as these layabout Millennials do.

There are certainly good reasons to avoid Betterment/Wealthfront, and company stability is perhaps one of them, but generational-based fashion arguments are lazy, dumb, and embarrassing.

The dude from Everest Wealth Management wears suits like the Vanguard people too. So did everyone at Lehman Bros. Was that a good signal to trust? I once heard that judging a book by its cover (whether it's covered with a suit or with tattoos) isn't the greatest idea.

[YoungInvestor]

That looks like a pretty weak argument to me, but to each his own.

[tj]

I don't particularly care about the wardrobe aspect, but the VC startup factor does give me some concern about if those companies are still going to be around in 20-30 years.

[forummm]

I wasn't particularly convinced by any of that. I was convinced by my own prior analysis of the fees and other monetary factors that would lead to my change in net worth.

My friend has a saying: "Photos are worth a 1,000 words. Photos lie." For all we know, Bill McNabb has mad tats under that suit and holds orgies in his tricked out dungeon.

[kpd905]

I'd be against it for the extra fees.  Any dumbass can put on a nice suit, but I'm not gonna let him manage my money based on his looks.

[Heckler]

This is pretty much the reason I'm paying $9,95/trade with BMO Investorline instead of $0 with Questtrade.  I need to know my broker (to buy Vanguard) will be around 30 years from now.

[steveo]

There are certainly good reasons to avoid Betterment/Wealthfront, and company stability is perhaps one of them, but generational-based fashion arguments are lazy, dumb, and embarrassing.

I agree. I couldn't care less how they dress. If anything expensive suits are what I don't want to see.

[steveo]

This is pretty much the reason I'm paying $9,95/trade with BMO Investorline instead of $0 with Questtrade.  I need to know my broker (to buy Vanguard) will be around 30 years from now.

Why ? Once you own Vanguard you own the mutual fund.

Also my understanding is that Vanguard could go bust and you would still get your money. I think the same would apply with regards to Betterment. Do I have this wrong ?

[tj]

This is pretty much the reason I'm paying $9,95/trade with BMO Investorline instead of $0 with Questtrade.  I need to know my broker (to buy Vanguard) will be around 30 years from now.

Why ? Once you own Vanguard you own the mutual fund.

Also my understanding is that Vanguard could go bust and you would still get your money. I think the same would apply with regards to Betterment. Do I have this wrong ?

The problem is if Betterment gets bought and sold, I don't know the policy of it's future owner letting you transfer out the account without a cost. I don't have that concern with Vanguard.

There was a time when Betterment itself had exorbinant fee to transfer your holdings to another broker.

[TomTX]

This is pretty much the reason I'm paying $9,95/trade with BMO Investorline instead of $0 with Questtrade.  I need to know my broker (to buy Vanguard) will be around 30 years from now.

So why do you have a middle layer between you and Vanguard at all?

[NorCal]

I've worked in startups and big companies.  Currently at a startup.

Wardrobe means nothing.  Heck, if you're using a wardrobe as a benchmark of trustability, RUN from the guys in the suits.  This is based on experience.

Viability is an important concern.  Companies do go belly up.  Certainly don't put everything with one of these firms.  But most importantly, research the fiduciary aspects.  While I haven't researched it myself, my understanding is that all shares are held with a custodian in a segregated account.  You would get this back if they went belly-up.  It just might take some time.

I'm actually trying the Schwab Intelligent portfolios with one of my IRA's (~15% of my retirement accounts) to see how it works.  I've researched the options, and I trust Schwab's methodology best.  Bottom line, I think there are some things a computer can do better than a human, and some things humans can do better than computers.  I trust that a computer can optimize a Sharpe ratio better than my spreadsheets can.  I also think that the psychology of having a managed investment account may prevent emotional investment decision making.  We will see if this turns out to be true over time.

[arebelspy]

I wasn't particularly convinced by any of that. I was convinced by my own prior analysis of the fees and other monetary factors that would lead to my change in net worth.

Agreed.

It's about the outfit's numbers, to me, not the outfit's outfits.

[Heckler]

This is pretty much the reason I'm paying $9,95/trade with BMO Investorline instead of $0 with Questtrade.  I need to know my broker (to buy Vanguard) will be around 30 years from now.

So why do you have a middle layer between you and Vanguard at all?

Welcome to Canada. 

https://www.vanguardcanada.ca/individual/how-to-invest.htm?lang=en

[forummm]

It's about the outfit's numbers, to me, not the outfit's outfits.

Nice one.

[tj]

I lied - this is the best argument against them.

https://medium.com/@blakeross/wealthfront-silicon-valley-tech-at-wall-street-prices-fdd2e5f54905

[nobodyspecial]

This is pretty much the reason I'm paying $9,95/trade with BMO Investorline instead of $0 with Questtrade.  I need to know my broker (to buy Vanguard) will be around 30 years from now.

All Canadian brokers are insured for $1M/investor,  http://help.questrade.com/how-to/frequently-asked-questions-(faqs)/opening-an-account/is-questrade-insured-

[johnny847]

This is pretty much the reason I'm paying $9,95/trade with BMO Investorline instead of $0 with Questtrade.  I need to know my broker (to buy Vanguard) will be around 30 years from now.

All Canadian brokers are insured for $1M/investor,  http://help.questrade.com/how-to/frequently-asked-questions-(faqs)/opening-an-account/is-questrade-insured-

And in the US it is 500k via SIPC insurance.

[tj]

AFAIK, SIPC is for cash positions, they don't insure your investments.

[johnny847]

AFAIK, SIPC is for cash positions, they don't insure your investments.

First let me make sure we are on the same page.

This is pretty much the reason I'm paying $9,95/trade with BMO Investorline instead of $0 with Questtrade.  I need to know my broker (to buy Vanguard) will be around 30 years from now.

What Heckler is talking about is not insuring the value of the investments, but insuring against the broker going bankrupt. In nobodyspecial's link,

Yes.  Questrade is a member of the Canadian Investor Protection Fund (CIPF), which offers up to $1,000,000 investor protection against investment dealer insolvency.

which I interpret as if the broker goes under, the CIPF will make sure you get your securities back, up to $1M.


As for the SIPC in the US. tj, you're wrong.

SIPC protects against the loss of cash and securities – such as stocks and bonds – held by a customer at a financially-troubled SIPC-member brokerage firm. The limit of SIPC protection is $500,000, which includes a $250,000 limit for cash.

And again, SIPC doesn't insure the value of your investments from market crashes or anything like that.

SIPC protection is limited. SIPC only protects the custody function of the broker dealer, which means that SIPC works to restore to customers their securities and cash that are in their accounts when the brokerage firm liquidation begins.

SIPC does not protect against the decline in value of your securities. SIPC does not protect individuals who are sold worthless stocks and other securities. SIPC does not protect claims against a broker for bad investment advice, or for recommending inappropriate investments.

It is important to recognize that SIPC protection is not the same as protection for your cash at a Federal Deposit Insurance Corporation (FDIC) insured banking institution because SIPC does not protect the value of any security.

Specifically in regards to cash

SIPC protects cash in a brokerage firm account from the sale of or for the purchase of securities. Cash held in connection with a commodities trade is not protected by SIPC. Money market mutual funds, often thought of as cash, are protected as securities by SIPC. SIPC protects cash held by the broker for customers in connection with the customers’ purchase or sale of securities whether the cash is in U.S. dollars or denominated in non-U.S. dollar currency.

[a1smith]

Also, many brokers provide additional insurance.  For example, here is what TD Ameritrade has to say:

TD Ameritrade provides each client $149.5 million worth of protection for securities and $2 million of protection for cash through supplemental coverage provided by London insurers. In the event of brokerage insolvency, a client may receive amounts due from the trustee in bankruptcy and then SIPC. Supplemental coverage is paid out after the trustee and SIPC payouts, and under such coverage each client is limited to a combined return of $152 million from a trustee, SIPC, and London insurers. The TD Ameritrade supplemental coverage has an aggregate limit of $500 million for claims from all TD Ameritrade clients. This insurance policy provides coverage following brokerage insolvency and does not protect against loss in market value of the securities.

So, between the London insurer and SIPC coverage you have $150M worth of security coverage, sort of.  Note the aggregate limit of $500M in claims from all clients.