Wealthfront - an online financial services start-up targeted squarely and unashamedly at Millennial wallets - raised $64 million last month. That's on top of $35 million that venture firms plowed into the company earlier this year.
Every sweeping cliché about Millennials - that they are addicted to the itch and twitch of immediate gratification, that they are not interested in participating in the casino stock market - is being sent to the generalization graveyard. Not just because of the success of Wealthfront - who has crossed $1 billion in assets under management - but also the growth of Betterment, LoanVest and others who have a hungering eye on the $7 trillion in liquid assets that Millennials will have in their generational clutches within the next five years.
What's particularly revelatory about the success of Wealthfront - they reached one billion in two-and half years, while it took Chuck Schwab six years to get there - is its canny use of technology and whizzy algorithms, the deities of the Millennial, in the service of a rather boring, long-term, Ben Frankliny investment conservatism. This is more often associated with people who need hip replacements than hipsters.
Wealthfront works by first asking a few basic questions - age, income, liquid assets, risk tolerance. It's the bromidic stuff of financial planning for decades. Then it provides a financial plan consisting of ETFs - most of them from Vanguard - that track underlying indices in a variety of asset classes, trades based on what the algorithm instructs. The boil down their practice to: personalize, diversify, re-balance.
It's not surprising that Millennials are willing to put their financial faith in the crunch of algorithmic investing (or as its called, robo-investing from robo-advisors. After all, this is a generation of digital natives and semi-natives who trust code jockeys to find the cheapest plane ticket, recommended the best oxtail pizza, and soon, to provide driverless cars. They will also be the early adopters of Apple Pay and other new transaction modes.
Their faith in technology is understandable. Algorithms don't act in their own self-interest. Algorithms weren't responsible for dreaming up sub-prime loans and nearly bringing down the financial system. Millennials didn't trust authority and conventional sources of wisdom before the melt-down. Imagine now. Wealthpoint argues that Millennials: "...have been nickel-and-dimed through a wide variety of services, and they value simple, transparent, low-cost services.
The Pew Study "Millennials in Adulthood" confirms the Wealthfront thesis finding that "... just 19% of Millennials say most people can be trusted, compared with 31% of Gen Xers, 37% of Silents and 40% of Boomers." If you can't trust people in general - which was the question - what hope is there for the conniving financial advisor?
The technology lure of Wealthfront is unsurprising, but what is remarkable is that Millennials are so drawn to the core Wealthfront investment thesis, which argues against individual stock picking, and balances a personalized mix of actively managed ETFs instead. As they put it, "...our service is premised on the consistent and overwhelming research that proves index funds significantly outperform an actively managed portfolio."
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