In the race among startups to dominate the automated money management industry, otherwise known as robo-advising, give Wealthfront credit for creativity. The Palo Alto company was the first to amass $1 billion under management largely by focusing on young Silicon Valley workers. Wealthfront blogs about initial public offerings, IRS 83(b) forms, and stock options. It created a program for Twitter (TWTR) and Facebook (FB) employees that helps them sell company shares slowly over time.
Members of the millennial generation, the theory goes, are predisposed to distrust old-line financial advisers and welcome the idea of letting Web-based software invest their money in mostly low-cost index funds.
Wealthfront recently announced another publicity-friendly program, this time with a different group of millennials in mind: pro athletes. The company has an agreement with the San Francisco 49ers to offer investment advice to the organization’s employees and alumni, with the team covering fees on the first $100,000 each person invests. The idea is that rookie athletes aren’t so different from startup founders when it comes to their finances. Both might be about 23 years old, earn a salary of a few hundred thousand dollars, and wonder what to do with incentives that can reach into the millions—like a signing bonus or endorsement deal for the player, or equity for the coder. As part of the 49ers deal, Wealthfront will offer seminars on how to handle these windfalls.
Professional athletes are notoriously bad at managing their finances. A 2009 Sports Illustrated investigation found that 78 percent (!) of former NFL players have gone bankrupt or are under financial stress within two years of retiring. The NBA is scarcely better: Sixty percent of former players are broke within five years of leaving the league. Millions are squandered on risky deals involving real estate, restaurants, and other ventures—money that could have provided a comfortable living for years if it had simply been put into a low-cost, diversified portfolio and left to appreciate over time. (The Sports Illustrated report, citing numbers from the NFL Players Association, notes that at least 78 football players lost a total of more than $42 million from 1999 to 2002 to financial advisers with “questionable backgrounds.”)
Appealing to athletes and other affluent people outside of the hard-core tech community is essential to Wealthfront and other robo-advisers if they want to keep growing and threaten the trillion-dollar money management firms. For now, growth isn’t a problem. Wealthfront and its rival, Betterment, appear to be scaling at roughly the same clip, with total assets under management up about 40 percent each since April. Betterment’s latest filing with the Securities and Exchange Commission says it has $703 million under management in about 39,000 accounts. Wealthfront reported $1.168 billion under management spread across 12,500 accounts.
