Wealthfront Socially Responsible Portfolio (2021 Review)

Wealthfront rolled out its Socially Responsible Portfolio in September 2021, but is it the best platform for socially responsible investing?

SustainFi Updated September 26, 2021

Some of our posts may contain links from our affiliate partners. However, this does not influence our opinions or ratings. Please read our Terms and Conditions for more information.

Rating: Good (4.2 / 5)

Pros

  • Easy to switch to the Socially Responsible Portfolio through the dashboard
  • Customization options
  • Sophisticated tax-loss harvesting features
  • College savings accounts

Cons

  • No fossil free option
  • No human advisors

Summary

SustainFi Rating:4.2 / 5
Account minimum$500
Management fee0.25%
Socially responsible (SRI) optionsSocially Responsible Portfolio
Investment expense ratio (SRI portfolio)0.15% (72% stock / 28% bond portfolio)
Accounts supported• Taxable investment accounts (individual, joint)
• Retirement accounts (traditional, Roth, and SEP IRAs)
• Trusts
• 529 savings plans
Human advisorsNone
Tax-loss harvestingYes
Automatic rebalancingYes
FeaturesChecking accounts
Portfolio customization
Best forInvestors looking to optimize taxes and customize investments

What is Wealthfront?

Wealthfront is a top robo-advisor with a focus on tax minimization strategies. The investment team is led by Dr. Burton Malkiel, a famous economist and the author of A Random Walk Down Wall Street, an investing best-seller.

Wealthfront was late to the game in offering sustainable investments, but they finally rolled out a simple Socially Responsible Investing (SRI) Portfolio in September 2021. The funds in the SRI portfolio are screened for environmental, social, and governance (ESG) factors like greenhouse gas emissions, governance, and worker treatment.

Although ESG ratings and screens are not a perfect indicator of how “good” a stock is for the world, companies with better ESG scores are generally better for the environment and their workers.

The Palo Alto-based firm was founded in 2008 as Ka-Ching, a mutual fund analysis company, but has long since pivoted to robo-advisory. Today, Wealthfront appears to be pivoting again to allow for more self-directed trading.

Signup process. Wealthfront estimates that it only takes about four minutes to open an investment account. Wealthfront starts by asking a few basic questions, such as how you approach risk. Then, they recommend a portfolio that suits your risk tolerance level, measured on a scale of 0 to 10.

Portfolio options. You can choose between the following portfolio options:

  • Classic (the original portfolio)
  • Socially Responsible
  • Direct Indexing (a portfolio that generates tax savings for accounts over $100,000)

Account minimum. The minimum balance to invest with Wealthfront is $500, higher than $5 with Acorns.

Management fee. Wealthfront charges an annual fee of 0.25% of assets under management. Wealthfront doesn’t charge any account-opening fees, withdrawal or account-closing fees, trading/commission fees, or account transfer fees.

Fund expense ratios. The socially responsible investing (SRI) funds Wealthfront has selected cost between 0.10% and 0.25% annually. A portfolio that is 72% invested in stocks (a medium-risk portfolio) costs around 0.15% annually. This is in line with most robo-advisors offering sustainable portfolios.

Account types. Wealthfront supports multiple account types:

  • Individual and joint taxable investment accounts
  • Traditional, Roth, rollover, and SEP IRAs
  • Trusts
  • 529 savings plans

Banking. Wealthfront offers FDIC-insured bank accounts with a 0.10% APY, a debit card, and the ability to get paid two days earlier.

Human advisors. Wealthfront doesn’t offer human advisor access, though they provide educational resources. If you are looking for human advisors, you can get a fiduciary advisor from Personal Capital.

Automatic rebalancing. Wealthfront will automatically adjust your holdings if the portfolio strays from the allocation that best suits your goals. Nearly all robo-advisors offer this feature.

Tax-loss harvesting (U.S. Direct Indexing). Wealthfront offers U.S. Direct Indexing to customers with taxable account balances of over $100,000. The robo-advisor will look for movements in individual stocks to harvest more tax losses and lower your tax bill. You still benefit from tax-loss harvesting if you invest in the Socially Responsible Portfolio.

Compare robo-advisors with sustainable options

Acorns ESG (Sustainable) Portfolio

Socailly Responsible Investing Pies

Socially Responsible Personal Strategy

Fees

$3-$5/month

Fees

$0 ($125 for M1 Plus)

Fees

0.49%-0.89%

Minimum

$5

Minimum

$100

Minimum

$100,000

Socially Responsible Investing (SRI) with Wealthfront

When you sign up, Wealthfront lets you choose the Socially Responsible Portfolio. Here is the current list of the funds included in that portfolio:

  • U.S. stocks: iShares ESG Aware MSCI USA ETF (ESGU)
  • Foreign market stocks: iShares ESG Aware MSCI EAFE ETF (ESGD)
  • Emerging market stocks: iShares ESG Aware MSCI EM ETF (ESGE)
  • U.S. bonds: Vanguard Tax Exempt Bond ETF (VTEB) – not a socially responsible fund

Note that only stock investments are in SRI funds; the bond fund, VTEB, is a conventional option. With only four funds, the SRI portfolio is very straightforward. All SRI funds are from BlackRock, a large exchange-traded fund provider.

If you already have a Classic Portfolio with Wealthfront, you can easily switch to the Socially Responsible Version.

This is what the new SRI portfolio would look like, as shown on the Wealthfront dashboard:


Here is what the funds in the portfolio would look like (shown for a 6.5 / 10 risk tolerance level). All the stocks would be in SRI funds, though the portfolio would still invest in a bond fund for the bond component. For the 6.5 riskiness level, the portfolio costs 0.15%.

Asset ClassFundExpense RatioSRI Fund?Allocation% of Fund in Fossil FuelsMSCI ESG ScoreSustainalytics Rating
U.S. StocksiShares ESG Aware MSCI USA ETF (ESGU)
0.15%Yes41%
5.2%6.74 / 5
Foreign Developed Stocks
iShares ESG Aware MSCI EAFE ETF (ESGD)0.20%Yes16%6.8%8.7
3 / 5
Emerging Market Stocks
iShares ESG Aware MSCI EM ETF (ESGE)
0.25%Yes15%5.9%7.63 / 5
U.S. BondsVanguard Tax Exempt Bond ETF (VTEB)0.06%No28%NANANA
Portfolio Total0.15%100%5.6%7.1 / 103.5 / 5

Data as of 9/26/2021. Sources: Wealthfront, Fossil Free Funds, MSCI, Sustainalytics

Additional customization options. Wealthfront lets you customize the portfolio further, by adding new funds that focus on clean energy like ICLN or ACES or gender diversity like SHE.

What are the tax implications of switching to SRI funds?

Wealthfront will rebalance your portfolio over time, typically a few weeks, to minimize the tax consequences. The change will involve selling all your existing funds and buying new ones, so it may have tax implications. We suggest consulting a tax advisor if you have a material amount invested.

Is the Socially Responsible Portfolio better than the Classic Wealthfront Portfolio? 

The SRI portfolio has better scores from environmental, social, and governance (ESG) rating agencies MSCI and Sustainalytics than the default option. It also has less invested in fossil fuels (though the SRI portfolio still has fossil fuel investments, which are over 5% of its assets.) SRI portfolios also have less than 50% of the carbon intensity of conventional portfolios, so you can argue they are better for the planet.

This is how the SRI portfolio compares to the traditional portfolio:

Portfolio
Expense Ratio% of Assets in SRI Funds
% of Assets in Fossil Fuels
MSCI ESG Score
Sustainalytics ESG Rating
SRI0.15%
72%
5.6%
7.1 / 103.5 / 5
Classic
0.05%
0%
6.6%
5.9 / 10
2.0 / 5

Data as of 9/26/2021. Sources: Wealthfront, Fossil Free Funds, MSCI, Sustainalytics

Note that only stock funds get ESG ratings, bond funds currently do not.

The SRI portfolio is more expensive than the default portfolio. For example, a portfolio that is roughly 70% in stocks will cost you 0.15% vs. 0.05% of your assets annually (~$15 vs. $5 on a $10,000 investment.)

Wealthfront Socially Responsible Portfolio Performance

According to Wealthfront, the performance of the funds in the Socially Responsible Portfolio should be similar to those in the standard portfolio (despite slightly higher fees). They state that based on the data from the past three to five years.

In addition, in the past, Socially Responsible Portfolios have been less volatile than standard portfolios, despite similar performance.

Socially Responsible Investing with U.S. Direct Indexing

Wealthfront clients with access to U.S. Direct Indexing can also exclude stocks they don’t like from their portfolios. They can do that by putting stocks on the stock restriction list.

However, the more restrictions you have, the more your risk and return will deviate from the portfolio that Wealthfront initially recommended.

Only clients with over $100,000 under management are eligible for direct indexing.

💰 Takeaway

  • Wealthfront is an inexpensive, feature-rich robo-advisor that is suitable for most investors. It is one of the best choices if you are looking for advanced tax-loss harvesting features
  • In September 2021, Wealthfront finally rolled out its Socially Responsible Portfolio, which is relatively cheap and looks similar to what other robo-advisors offer
  • Wealthfront doesn’t provide human financial advisors. If you are looking for human advisors, consider Personal Capital

🔔 Read our guide to socially responsible robo-advisors.

Wealthfront SRI vs. M1 Finance Socially Responsible Investing “Pies”

Both Wealthfront and M1 Finance are known for letting you customize your portfolio. But, unlike Wealthfront, M1 Finance doesn’t offer a robo-advisor managing all your assets. Instead, M1 Finance lets you pick from a selection of pre-made “pies” or collections of stocks and bonds, including two socially responsible options.

Where M1 Finance wins:

  • No management fee (vs. 0.25% for Wealthfront)
  • Lower minimum investment ($100 vs. $500 for Wealthfront)
  • More advanced customization options (you can add any stock or ETF)

Where Wealthfront wins:

  • Full-service robo-advisor offering
  • Advanced tax loss-harvesting features

🔔Check out an in-depth comparison between Wealthfront and M1 Finance.


Wealthfront vs. Acorns Invest Sustainable Portfolio

Both Wealthfront and Acorns Invest offer a robo-advisor with a sustainable option.

Where Acorns Invest wins:

  • Invest your spare change
  • You can pick socially responsible investing as the default option
  • Lower minimum investment ($0 vs. $500 for Wealthfront)

Where Wealthfront wins:

  • Ability to customize your portfolio
  • Advanced tax-loss harvesting
  • Wealthfront has lower fees for small account balances

🔔Check out an in-depth comparison between Wealthfront and Acorns.


Wealthfront vs. Personal Capital Socially Responsible Strategy

Wealthfront and Personal Capital both offer a robo-advisor with a socially responsible option. Both offer tax-loss harvesting. Apart from that, the services are quite different. Personal Capital is the better option if you want continued access to financial advisors and have over $100,000 to invest.

Where Personal Capital wins:

  • Access to dedicated financial advisors
  • Advanced budget planning tools

Where Wealthfront wins:

  • Much lower minimum investment ($500 vs. $100,000 with Personal Capital)
  • Lower management fee (0.25% vs. 0.49%-0.89% for Personal Capital)

🔔Check out an in-depth comparison between Wealthfront and Personal Capital.


Make an impact with your money. Sign up for our newsletter

Read more

Methodology

We compared robo-advisors with an ESG offering based on management fees, ESG portfolio expense ratios, the percentage of the ESG portfolio invested in ESG funds vs. traditional funds, ESG portfolio ratings (from Sustainalytics and MSCI), portfolio exposure to energy, transparency, features like tax-loss harvesting and automatic rebalancing, and access to human advisors.