Another day, another RIA expanding into crypto.
Wealthfront, a Palo Alto, California-based automated investment service firm, is expanding its clients’ investment options to include Grayscale Bitcoin Trust and Grayscale Ethereum Trust.
The firm is the first to make it possible to gain exposure to cryptocurrency as part of a diversified portfolio with automation features like tax-sensitive rebalancing, intelligent dividend reinvestment and tax-loss harvesting, according to a
The firm had toyed with including cryptocurrency in its offerings for a while, says Kate Wauck, Wealthfront’s vice president of communications.
Many of Wealthfront’s clients, who are Millennials and Gen Z-ers, have expressed an interest in the ability to tweak their allocations and shown an increased appetite for risk, prompting the firm to consider expanding its services to include cryptocurrencies and individual stocks.
“We felt like there was a hole in the market for us to let people have access to these things, but in a much more responsible, contained way,” she says.
Wealthfront, like other fintech firms, is focusing on expanding the types of services it offers – cryptocurrencies, self-directed trading, adding managed accounts – to enhance its attractiveness to prospective clients, along with keeping its existing ones, says David Goldstone, manager of research and analytics for Backend Benchmarking.
Cryptocurrency is part of the larger trend of consumer fintechs’ desires to expand past their original base for robo advisors, he says, but there’s also a component of “trend-chasing” there as well.
Wall Street began experimenting with cryptocurrency about five years ago. The digital currency’s popularity has soared ever since, especially among Millennials and Gen Zers, in part due to the infrequent but widely circulated stories of people seeing huge returns after investing in cryptocurrency, according to Goldstone.
“Offering crypto is just kind of another arrow in the quiver as far as the types of services that they can offer, especially popular ones,” he says of Wealthfront.
However, offering often-volatile cryptocurrencies could put Wealthfront’s core objective – helping individuals gain access to professionally managed portfolios – at odds with the overarching belief that, overall, people aren’t great at managing and investing their own money.
To combat this, Wauck says Wealthfront caps cryptocurrency at 10% of clients’ portfolios and factors cryptocurrency investments into their risk scores.
While the additional safeguards don’t mitigate all of the risks, they do assuage some of them.
“We're excited to let people kind of play around (with) these different options in our ecosystem because we just think they're going to be much better off trying their hand with the context that we provide versus trying it on their own without any context on a trading app, for example,” she says.
