CORK UNIVERSITY BUSINESS

SCHOOL

MSC. CORPORATE FINANCE

MENTOR WEEK

WEALTHFRONT GENERATION SUMMARY

BY,
SIDDHARTH JASTI
This case mainly talks about the rapid evolution process of the
Wealthfront, an innovative financial investment firm, from
establishment to peak within the short period of time as well as the
future direction of development and challenges the company facing.

The idea for Wealthfront came from the former company Kaching,
which was established in 2008. Learning from their mistakes in relation
to Kaching and using private funding created Wealthfront in 2011 which
could be described as a professional online wealth management
company. The idea of the Wealthfront came from the idea both
founders both Andy Rachcleff and Dan Carrols frustration at the lack of
access for ordinary people to sophisticated investment management.
With the help of computer models and technology, Wealthfront
provides customers with tailored recommendations about asset
portfolios through survey questionnaires assessment.

There were a number of key players involved in the case, who were
members of the executive management team of Wealthfront.
Specifically, they are Andy Rachleff (Executive Chairman and one of the
co-founder), Adam Nash (President and CEO), Dan Carroll (Chief
Strategy Officer and another one of the co-founder), Burton Malkiel
(Chief Investment Officer), Avery Moon (VP of Research and
Engineering), Elliot Shmukler (VP of Product and Growth).

Wealthfront decided on targeting millennials. The demographic they

targeted was the young technologically advanced millennial generation
.There was however some cynicism towards the millennials willingness
to invest put forward by Nash. He believed that they had been over
looked by the incumbent investment advisory firms and predicted that
the millennials would control up to 7 trillion in assets by 2020.
Millennials were seen to be delegators, preferring to involve an
intermediary, often an individual or firm to achieve their investment
goals. Millennials were sceptical of traditional financial advisory firms,
having lived through the Great Recession. They also preferred a
transparent pricing structure. Millennials were the first generation that
grew up with the internet. An investment advisory service aimed at this
generation would have to have a significant internet presence. In order
to remain competitive and provide a service that rivalled traditional
investment funds, Wealthfront employed a number of innovative
investing strategies as part of its passive ETF-based approach.
Wealthfront believed in low-cost, long-term investing through passive,
indexed investing. The goal of passive investing was to meet the
overall (or benchmark) return on each asset class, not to beat it.

The current business model of Wealthfront is all-automated investment

service model, directly acquiring clients through viral system which
take advantage of electronic referrals. The main benefit of viral
acquisition of customers was to save substantial costs which could be
used to offset the initial management fee.

The culture of Wealthfront is also an interesting aspect of the running

of the business. The Wealthfront office culture is informal and open,
similar in feel to a software company rather than a traditional financial
services firm. Open debate on key decisions is encouraged and all
team members are invited to express their ideas. Wealthfront is
purposefully built as a mission-driven organization, similar to that of
Dropbox, Facebook, Google, etc.

Nash, the CEO of Wealthfront, measured success in 4 ways: visitor

traffic, conversion rate, funding rate, and net deposits per client. From
January 2013 to September 2014, visitor traffic had grown by over 170
percent and conversion had improved by 78 percent, all while
maintaining a high funding rate and increasing net deposits from
clients. As a result, AUM had grown from $97 million in January 2013 to
over $1.5 billion in October 2014.
Finally, looking forward, although Wealthfront initially focused on the
millennial demographic, the baby boomer generation still represented
a large portion of the market, which Wealthfront had previously
overlooked. There was scope for Wealthfront to provide its
human/automated hybrid system to other advisors, however at the
time of the report, they had not done so. Many firms were emulating
Wealthfronts business model. Although Nash was skeptical that other
larger firms could be as client focused as Wealthfront, these firms
represented serious competition nonetheless.