Author Topic: Wealthment/Betterfront Nail In The Coffin Article  (Read 13667 times)


MDM

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Re: Wealthment/Betterfront Nail In The Coffin Article
« Reply #1 on: July 09, 2015, 02:38:26 AM »
Another good read - thanks for posting.

dungoofed

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Re: Wealthment/Betterfront Nail In The Coffin Article
« Reply #2 on: July 09, 2015, 03:08:59 AM »
No worries. Like the author I'm also hopeful for the future but at the moment there is no getting around the fact that these guys are charging 0.25% of your total portfolio every single year (on top of ETF fees) which Vanguard isn't charging.

arebelspy

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Re: Wealthment/Betterfront Nail In The Coffin Article
« Reply #3 on: July 17, 2015, 11:37:51 AM »
Great article.  A must read for anyone considering investing in Bettermint or Wealthfront.
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tonysemail

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Re: Wealthment/Betterfront Nail In The Coffin Article
« Reply #4 on: July 17, 2015, 01:21:04 PM »
thanks, that was a really good read.

ROY2007

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Re: Wealthment/Betterfront Nail In The Coffin Article
« Reply #5 on: July 17, 2015, 01:27:00 PM »
So.. I have around $3k in a Acorns account that I started less than a year ago when I was less smart. Been planning to move my taxable investments to vanguard for a while now. Acorns charges $150 for an in-kind transfer. I don't think my account has returned anything crazy so it would probably cheaper to just cash out of Acorns and pay the short-term capital gains taxes. Right?

matchewed

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Re: Wealthment/Betterfront Nail In The Coffin Article
« Reply #6 on: July 18, 2015, 02:59:11 PM »
I... I think I'm in love.

a1smith

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Re: Wealthment/Betterfront Nail In The Coffin Article
« Reply #7 on: July 18, 2015, 09:52:55 PM »
And Personal Capital is even more expensive.  Using their website/app is free though.

Quote
We have one simple fee based on a percentage of assets managed. We bill monthly, in arrears. Wealth management, trade costs and custody are included you do not pay trade commissions. We routinely help clients with financial planning and 401k allocations at no charge. Here is our fee schedule:

$1 Million and under: 0.89%

For clients who invest $1 Million or more:
 
First $3 Million: 0.79%
 
Next $2 Million: 0.69%

nobodyspecial

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Re: Wealthment/Betterfront Nail In The Coffin Article
« Reply #8 on: July 18, 2015, 10:12:02 PM »
Quote
$1 Million and under: $750/month
 
For idiots who invest $1 Million or more:

First $3 Million: $2000/month
 
Next $2 Million: an extra $1150/month

Well if you put it like that - how can I resist ?



acorn

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Re: Wealthment/Betterfront Nail In The Coffin Article
« Reply #9 on: July 18, 2015, 10:30:52 PM »
great article. thanks for the share.

a1smith

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Re: Wealthment/Betterfront Nail In The Coffin Article
« Reply #10 on: July 19, 2015, 10:17:31 AM »
Quote
$1 Million and under: $750/month
 
For idiots who invest $1 Million or more:

First $3 Million: $2000/month
 
Next $2 Million: an extra $1150/month

Well if you put it like that - how can I resist ?

I think a big part of the way these sites hook people is that the fee seems so small when you start out with a low balance.  Then, they hope that people won't notice as their account balance goes up.  The fee structures for these sites really needs to change because the amount of work they do for a $100,000 account and $1,000,000 account is not 10X different.

nobodyspecial

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Re: Wealthment/Betterfront Nail In The Coffin Article
« Reply #11 on: July 19, 2015, 11:53:02 AM »
Even my bank didn't seem to understand this. I moved my retirement account to vanguard and explained to them that their 2.5% "service fee" ie. my annual visit to sign a bunch of  know-your-customer forms - was costing me $10K.

Wolf359

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Re: Wealthment/Betterfront Nail In The Coffin Article
« Reply #12 on: July 20, 2015, 12:03:38 PM »
Even my bank didn't seem to understand this. I moved my retirement account to vanguard and explained to them that their 2.5% "service fee" ie. my annual visit to sign a bunch of  know-your-customer forms - was costing me $10K.

Why do you think your bank didn't actually get it?  As John Bogle wrote (paraphrasing Upton Sinclair),  its amazing how difficult it is for a man to understand something if hes paid a small fortune not to understand it.

Wolf359

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Re: Wealthment/Betterfront Nail In The Coffin Article
« Reply #13 on: July 21, 2015, 10:16:55 PM »
This article left me with mixed feelings.  It was very humorous and well-written, but it slams the robo-advisors while giving Vanguard a free pass on exactly the same issue.

The author argues that it's time to eliminate the proportional fee.  His conclusion: skip the robo-advisors and just use Vanguard directly.  Vanguard's fees are fair, event though, ahem, they use a proportional fee structure, too.  But Vanguard's fees are fairer because they charge less. 

Wealthfront isn't allowed to use this argument.  When they claim to charge less than other management firms, they're "cherry-picking the index."

IMHO, If you're going to use an advisory firm, you can do a lot worse than a robo-advisor.  Most of the robo-advisors charge less than human advisors.  The main argument seems to be between using an advisor and doing it yourself.

Why would it make sense to use an algorithmic financial advisor to manage your money?  Lack of emotions.  An algorithm won't panic sell when the market is down.  It won't chase returns.  It has a better chance of maintaining a disciplined approach to the market.  And yes, they charge something for that.  And yes, you can do it yourself for free. 

I did try out Betterment.  I also left Betterment.  I think it's a great service for some people, but I'm not one of them.  If you want to automate your tax loss harvesting, balancing, and adjust your glide path over time, they're a good way to go. 

The Vanguard Target Retirement Fund does the same but with some differences (tax burden is higher in a taxable account because it uses a bond fund instead of a municipal bond fund, and it doesn't do tax loss harvesting.)  The Vanguard Target Retirement Fund ER is .17%.  When I do it myself, my effective ER is .10.  So, Vanguard's fee for auto-rebalancing and adjusting your glide path over time is .07%.  Betterment charged me .15%. 

I think robo-advisors have their place.  I think they're much better than handing over trading discretion to your full-service human broker.  (They may not charge you a proportional fee, but they may churn your account a little for the commissions.)  If you don't have the fortitude or desire to manage your funds yourself, I would also suggest a target-date fund or a balanced fund from Vanguard.  But a robo-advisor like WealthFront, Betterment, or Schwab isn't that bad, either.

dungoofed

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Re: Wealthment/Betterfront Nail In The Coffin Article
« Reply #14 on: July 22, 2015, 02:30:40 AM »
Maybe I'm not understanding but I believe Betterment's 0.15% is on top of the ETF fees that the underlying ETFs charge (though you'd be hard pressed to find that info on their site! I've just spent 10 minutes looking lol). Wheras with Vanguard's Target Retirement Fund the 0.17% ER includes everything.

Wolf359

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Re: Wealthment/Betterfront Nail In The Coffin Article
« Reply #15 on: July 22, 2015, 08:58:16 AM »
Maybe I'm not understanding but I believe Betterment's 0.15% is on top of the ETF fees that the underlying ETFs charge (though you'd be hard pressed to find that info on their site! I've just spent 10 minutes looking lol). Wheras with Vanguard's Target Retirement Fund the 0.17% ER includes everything.

When I'm managing my funds on my own, my effective ER is 0.10% (according to the Vanguard portfolio analysis). 

If instead I used any Vanguard Target Retirement fund, the ER is 0.17%.  Therefore, the cost of having Vanguard manage the funds for me is 0.17% - 0.10%, or 0.07%.

Betterment uses a much more complex portfolio mix than I would use on my own, but they charge 0.15% on top of Vanguard fees. 

Whether I'm getting charged 0.07% or 0.15%, I'm still getting charged a proportional fee of some type.  Why rail against the robo-advisors for using a proportional fee structure, then recommend as an alternative a company that also uses a proportional fee structure? 

There actually is an alternative to using a proportional fee brokerage account.  You can use a normal brokerage account where you're charged a commission per trade.  You can provide discretionary trading authority to someone else to manage your money for you.  Typical human financial advisors charge 1% of assets under management for this, but you might find someone to do it for a flat fee. 

If you did find that someone, would you trust them with your assets?  In an industry where the normal fee for managing $2,000,000 is $20,000/year, and you find someone willing to take full control of the entire account for a flat $120/year (only $10/month!) would you actually hand them your $2 million?  Or would you suspect you might not get it back?

I don't mind companies making money, but I want to know how they're making that money.  If I can't find it, I get distrustful.  Hidden fees, shared revenues, and undisclosed commissions make me think their advice may be biased.  Then I make a decision as to whether or not I'm willing to spend that money for their product or service.

I do believe in the philosophy of keeping costs low. As such, I tried out Betterment but ultimately decided I could do it better on my own.  On the other hand, I know people whose temperaments and fear of investing are such that they would be ideal candidates for robo-advisors.  I like the math and learning about investment concepts.  Others have more important things to do with their time.

I disagree with the statement that Betterment's fees are hard to find on their site.  They can be found on the front page, under a tab marked "Pricing."  Wealthfront's fees are only slightly harder to find.  They list an FAQ link on their front page -- one of the categories is "Fees."
« Last Edit: July 22, 2015, 09:00:32 AM by Wolf359 »

Aphalite

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Re: Wealthment/Betterfront Nail In The Coffin Article
« Reply #16 on: July 22, 2015, 09:12:12 AM »
I disagree with the statement that Betterment's fees are hard to find on their site.  They can be found on the front page, under a tab marked "Pricing."  Wealthfront's fees are only slightly harder to find.  They list an FAQ link on their front page -- one of the categories is "Fees."

I think you misunderstood goof - he's talking about how Betterment's 0.15% is on TOP of Vanguard's 0.17%, for a total of 0.32%

tj

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Re: Wealthment/Betterfront Nail In The Coffin Article
« Reply #17 on: July 22, 2015, 10:57:39 AM »
This article left me with mixed feelings.  It was very humorous and well-written, but it slams the robo-advisors while giving Vanguard a free pass on exactly the same issue.

The author argues that it's time to eliminate the proportional fee.  His conclusion: skip the robo-advisors and just use Vanguard directly.  Vanguard's fees are fair, event though, ahem, they use a proportional fee structure, too.  But Vanguard's fees are fairer because they charge less. 

Wealthfront isn't allowed to use this argument.  When they claim to charge less than other management firms, they're "cherry-picking the index."

IMHO, If you're going to use an advisory firm, you can do a lot worse than a robo-advisor.  Most of the robo-advisors charge less than human advisors.  The main argument seems to be between using an advisor and doing it yourself.

Why would it make sense to use an algorithmic financial advisor to manage your money?  Lack of emotions.  An algorithm won't panic sell when the market is down.  It won't chase returns.  It has a better chance of maintaining a disciplined approach to the market.  And yes, they charge something for that.  And yes, you can do it yourself for free. 

I did try out Betterment.  I also left Betterment.  I think it's a great service for some people, but I'm not one of them.  If you want to automate your tax loss harvesting, balancing, and adjust your glide path over time, they're a good way to go. 

The Vanguard Target Retirement Fund does the same but with some differences (tax burden is higher in a taxable account because it uses a bond fund instead of a municipal bond fund, and it doesn't do tax loss harvesting.)  The Vanguard Target Retirement Fund ER is .17%.  When I do it myself, my effective ER is .10.  So, Vanguard's fee for auto-rebalancing and adjusting your glide path over time is .07%.  Betterment charged me .15%. 

I think robo-advisors have their place.  I think they're much better than handing over trading discretion to your full-service human broker.  (They may not charge you a proportional fee, but they may churn your account a little for the commissions.)  If you don't have the fortitude or desire to manage your funds yourself, I would also suggest a target-date fund or a balanced fund from Vanguard.  But a robo-advisor like WealthFront, Betterment, or Schwab isn't that bad, either.

I'm sorry, but you can't compare a fund-of-funds that doesn't add any costs with a robo.

MDM

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Re: Wealthment/Betterfront Nail In The Coffin Article
« Reply #18 on: July 22, 2015, 11:12:36 AM »
The Vanguard Target Retirement Fund ER is .17%. 
When I do it [invest directly in the funds (or a close equivalent) used by the Target fund] myself, my effective ER is .10%. 
So, Vanguard's fee for auto-rebalancing and adjusting your glide path over time is .07%. 
Betterment charged me .15%. 
I'm sorry, but you can't compare a fund-of-funds that doesn't add any costs with a robo.

You can't?  What is wrong about the comparison made?

tj

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Re: Wealthment/Betterfront Nail In The Coffin Article
« Reply #19 on: July 22, 2015, 11:51:12 AM »
The Vanguard Target Retirement Fund ER is .17%. 
When I do it [invest directly in the funds (or a close equivalent) used by the Target fund] myself, my effective ER is .10%. 
So, Vanguard's fee for auto-rebalancing and adjusting your glide path over time is .07%. 
Betterment charged me .15%. 
I'm sorry, but you can't compare a fund-of-funds that doesn't add any costs with a robo.

You can't?  What is wrong about the comparison made?

Because the Vanguard Target Date funds do not add any extra costs vs the underlying funds that they hold.

MDM

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Re: Wealthment/Betterfront Nail In The Coffin Article
« Reply #20 on: July 22, 2015, 12:15:21 PM »
Because the Vanguard Target Date funds do not add any extra costs vs the underlying funds that they hold.

VTTSX costs 0.18%.  One could closely approximate its holdings with
  - 54% VTSAX w/ ER 0.05%
  - 36% VTIAX w/ER 0.14%
  - 6.9% VBTLX w/ ER 0.07%
  - 3.1% VTABX w/ ER 0.19%
The weighted average cost of the individual funds is (.54 * .05% + .36 * .14% + .069 * .07% + .031 * .19%) = 0.09%

Thus the extra costs of the 2060 Target Date fund vs the underlying funds it holds is 0.18% - 0.09% = 0.09%.

Or did you mean something different?

SuperSecretName

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Re: Wealthment/Betterfront Nail In The Coffin Article
« Reply #21 on: July 22, 2015, 12:20:33 PM »
vanguard retirement funds don't hold admiral shares.  that is why the ER is higher than the ETF/Admiral fund.

The extra 0.09% (due to not holding admiral/ETF) can be thought of as a management expense, even if vanguard doesn't treat it like that.

tvan

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Re: Wealthment/Betterfront Nail In The Coffin Article
« Reply #22 on: July 22, 2015, 12:39:53 PM »
Does Wise Banyan still not charge any fee? 

MDM

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Re: Wealthment/Betterfront Nail In The Coffin Article
« Reply #23 on: July 22, 2015, 12:40:53 PM »
vanguard retirement funds don't hold admiral shares.  that is why the ER is higher than the ETF/Admiral fund.

The extra 0.09% (due to not holding admiral/ETF) can be thought of as a management expense, even if vanguard doesn't treat it like that.

Yes, Vanguard certainly has enough money in its target date funds to qualify for admiral shares. ;)

If an individual does not have enough money to qualify for the admiral shares in any of the underlying funds, the weighted expense ratio of the investor class funds is practically the same as the target date fund expense ratio.  At least, it is for VTTSX.  That is one reason VTTSX (or similar, if one doesn't like the underlying 90/10 stock/bond ratio) seems a good default suggestion for someone just getting started.

But for larger amounts of money, it does cost more for the target date fund than one would pay for the individual underlying funds.  Calling it a management expense is as accurate as any other label.
« Last Edit: December 09, 2017, 12:14:52 PM by MDM »

tj

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Re: Wealthment/Betterfront Nail In The Coffin Article
« Reply #24 on: July 22, 2015, 02:58:17 PM »
Because the Vanguard Target Date funds do not add any extra costs vs the underlying funds that they hold.

VTTSX costs 0.18%.  One could closely approximate its holdings with
  - 54% VTSAX w/ ER 0.05%
  - 36% VTIAX w/ER 0.14%
  - 6.9% VBTLX w/ ER 0.07%
  - 3.1% VTABX w/ ER 0.19%
The weighted average cost of the individual funds is (.54 * .05% + .36 * .14% + .069 * .07% + .031 * .19%) = 0.09%

Thus the extra costs of the 2060 Target Date fund vs the underlying funds it holds is 0.18% - 0.09% = 0.09%.

Or did you mean something different?

You would need at least $40k invested to use the admiral share versions, so I'm not sure that that is relevant.

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Re: Wealthment/Betterfront Nail In The Coffin Article
« Reply #25 on: July 22, 2015, 03:12:13 PM »
At least $300,000 if you are going to have $10,000 in VTABX.

dandarc

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Re: Wealthment/Betterfront Nail In The Coffin Article
« Reply #26 on: July 22, 2015, 03:34:23 PM »
Because the Vanguard Target Date funds do not add any extra costs vs the underlying funds that they hold.

VTTSX costs 0.18%.  One could closely approximate its holdings with
  - 54% VTSAX w/ ER 0.05%
  - 36% VTIAX w/ER 0.14%
  - 6.9% VBTLX w/ ER 0.07%
  - 3.1% VTABX w/ ER 0.19%
The weighted average cost of the individual funds is (.54 * .05% + .36 * .14% + .069 * .07% + .031 * .19%) = 0.09%

Thus the extra costs of the 2060 Target Date fund vs the underlying funds it holds is 0.18% - 0.09% = 0.09%.

Or did you mean something different?

You would need at least $40k invested to use the admiral share versions, so I'm not sure that that is relevant.
Well, you'd need way more than 40K to fully implement as above with all admiral shares - 10K / .031 = about 325K.  But you can save money compared to the target-date fund with as little as 3K / .031 = 97K.  Or if you eschew the international bonds and just go 10% in VBTLX (investor shares), 30K.

dandarc

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Re: Wealthment/Betterfront Nail In The Coffin Article
« Reply #27 on: July 22, 2015, 03:44:19 PM »
Just to illustrate a 54/36/10 with 30K to invest:

54% total stock market at ER .05%
36% total international at ER .14%
10% total bond market at ER .2%

weighted average ER = .0974%.  Which is better than .18%.  Save's you $25 or so in year one, and grows from there.  Given enough time and/or additional investment, and eventually you'll have enough to knock that bond ER down too.

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Re: Wealthment/Betterfront Nail In The Coffin Article
« Reply #28 on: July 22, 2015, 03:50:24 PM »
Interesting article. Some valid points made (in the article and on this thread). I think the author objects to the way Wealthfront positions itself as 'a new way' and cheaper than Vanguard. He does a good job in pointing out the flaws in Wealthfront's arguments - their use of language (advisory fee and free) to suggest they are better and cheaper than others.

I think it's an important point to make. Too many times are people sucked in by misleading or 'savvy' marketing. True, their are bigger fish to go after - companies and advisors that take 1-2% p/a of funds under management for example but that's not the point the author is trying to make - he's simply calling 'bullshit' on Wealthfront who are positioning themselves as 'alt-Wall St'.

MDM

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Re: Wealthment/Betterfront Nail In The Coffin Article
« Reply #29 on: July 22, 2015, 03:55:34 PM »
You would need at least $40k invested to use the admiral share versions, so I'm not sure that that is relevant.
At least $300,000 if you are going to have $10,000 in VTABX.

Yes, the first admiral share opportunity comes at $10K/54% = ~$18,520 for VTSAX.
VTIAX kicks in at $10K/36%= ~$27,780.
Then VBTLX at $10K/6.9%= ~$144,930.
Finally, VTABX at $10K/3.1%= ~$322,580.

The "management fee" takes the biggest step up at the first breakpoint ($18.5K), with subsequent increases lower.

Wolf359's point, however, remains valid - correct?  Once one gets above $18.5K, Vanguard is charging more for the combined funds than one would pay separately.  Call that extra whatever you want....

dungoofed

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Re: Wealthment/Betterfront Nail In The Coffin Article
« Reply #30 on: July 22, 2015, 04:37:49 PM »
Thanks MDM I hadn't seen that analysis before. I agree with you and Wolf now.

What does Vanguard say that extra few basis points is supposed to cover?

MDM

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Re: Wealthment/Betterfront Nail In The Coffin Article
« Reply #31 on: July 22, 2015, 04:54:22 PM »
What does Vanguard say that extra few basis points is supposed to cover?

Don't know, but Wolf359's "...for auto-rebalancing and adjusting your glide path over time" seems as good an explanation as any.