The Wealth front Generation Case Solution
Question number 5
How are traditional asset management firms (BD’s and RIA’s) responding? Why are most of them not trying to seize the opportunity for themselves? Could they?
There are many RIA and BD asset management firms that have overlooked this opportunity of using artificial intelligence and APIs to manage personal assets of the business. Moreover, other firms might be using financers and accountants as employees. On the other hand, Wealth front is using software engineers in order to build different software’s and managing them to control and manage client’s assets. In addition, the company is charging very low as compared to other traditional firms. A one-time fee is charged by Wealth front but other investment firms are charging fees every time for advising their clients.
Traditional asset management firms are not trying to grab this opportunity because this would require the company to completely change itself such as changing its business models. Moreover, from being a human centric company,it would need to transfer itself to a software centric company. In addition, the traditional firms were targeting baby boomers which were ready to pay premium amount in order to get better advice for their assets and investments. Also, the clients of these traditional companies were fixed and they were making money by retaining their customers.Therefore, these traditional companies were already making higher amount of profits and there was no need of changing company’s infrastructure and business model.
It has been discussed that company would need to change its complete infrastructure and business model in order to change itself. Moreover, it was not guaranteed that its old clients and customers would like it or not. Therefore, despite of taking risks, company was not changing itself. However, it can change if it wants by earning enough profit and income that would be enough for making changes in the company.
Question number 5
How does Wealthfront make money? Are they profitable?
Wealth front makes money by charging a minimal amount of fees toits client by giving profitable and mature advices to manage their assets. The company uses freemium business model that says that the client’s assets which cost $25,000 would be managed for free and after a customer would be satisfied, then he should pay fees for managing of his assets. Moreover, company would also facilitate $5000 free assets management for referencing any friend or relative and entering company by using reference of existing clients. It charges 0.25% of client’s account balances as a fees of advices.
Despite of giving these facilities and benefits to the clients, company would not be generating profits as it has been assumed that company owns 84,000 accounts which have generated 14.08 billion of revenue.However, the company runs many promotional activities such as no fee for first $25000 and referral discounts. After this, company is charging 0.25% as fees.
Moreover, its employees are 130 people and it charges an estimate of $150,000 in total. Annually, it is calculated to be $19.5 million expenses. By making calculations, it shows that company is facing net loss of 12 million annually or 1 million monthly.
Question number 6
. Would you invest in Wealthfront today?
Wealth front is a private investment company and does not offer public shares in order to make investment. However, I would order to invest in assets management. I would surely invest in Wealth front as it has built its trust on its customers. Moreover, Wealth front owns experienced financial advisors and world class finance experts. The company also offers personalized portfolio of globally diversified portfolio.
By taking advantages of its facilities such as free mium business model, it shows a great investment opportunity for beginners. In addition, the process of entering into Wealth front is also very easy and takes 5 minutes which asks about the goal of the investment, so that the company can generate personalized recommendation for the client. Moreover, risk number has also been assigned which ranges between 1-10 in order to determine how much risky my assets and my portfolio are. This tends to be a great information if needed to further diversify a portfolio or take other steps in order to decrease risks associated to the investment.
The company also charges very minimal amount that is 0.25% of client’s accounts as fee. Moreover, unlike other traditional assets management firm, trading fees or commission fees are also not charged by the company.This works as a significant savings for service users.
The company also follows the low-cost index fund passive investing approach in which an investment approach facilitates in order to invest money in diversified portfolios of ETFs. Moreover, tax benefits can also be obtained by indexing directly. In addition, it also provides the software services which saves a lot of time of visiting and generating personalized recommendations for the individuals.(Nath, 2017)…………………….
This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution