Adam Nash, digital wealth management's most outspoken proponent, is stepping down from his role as Wealthfront CEO but will remain on its board, a move that surprised many.
Wealthfront co-founder Andy Rachleff, who was CEO when the firm was still known as kaChing, will return as chief executive, according to a company blog he posted Monday.
Rachleff is expected to bring a combative approach to leading Wealthfront as it seeks to surmount the reality of a rapidly changing and highly competitive digital wealth market. Its asset growth has fallen behind other independent platforms and the offerings of incumbents too.
"I realized that instead of spending less time with the company, I actually want to spend more. I want to be the one to take Wealthfront through its next chapter," Rachleff writes about his decision to assume control again.
"I want to be the one to lead us to deliver on the promise we laid out in March: To be the only financial adviser our clients will ever need."
People with knowledge of the move describe it as an amicable and mutual transition, and point to Nash's continuing role on Wealthfront's board as proof.
"I think this will be more of a return to a combative style of leadership," says one competitor, who was familiar with the matter but did not want to be named.
Nash, 41, a former Apple engineer who became Wealthfront CEO in 2014, took to Twitter to comment on the move, but provided no details about what he will do next.
"I’m incredibly grateful to have had the opportunity to lead Wealthfront to the place we are today," Nash writes. "When I joined the company, almost no one had even heard of automated investing."
COMPETITION STEPPING UP
Since then, however, the digital advice space has grown, with a number of competitors arising both from the startup world and traditional brands launching their own digital advice platforms.
In its last SEC filing, the Silicon Valley-based robo adviser reported having $4 billion in AUM, which put it a close second to independent robo competitor Betterment — but far behind Schwab Intelligent Portfolios, which recently announced it crossed $10 billion in assets since launching last March.
Unlike many of its independent competitors, Wealthfront did not branch off to build an offering for financial planners, nor did it move into the 401(k) market, as Betterment and Personal Capital have done.
With few official details from Wealthfront, industry analysts sought to put the move into context.
"New energy for the next run maybe?" suggested Chip Roame, managing partner at Tiburon Strategic Advisors.
"Wealthfront does have one of the narrower robo offers," Roame adds. "[But] I think one has to consider the firm as one of the most successful stand-alone robo advisers."
Marlon Weems, founder of consulting firm Hillcrest Strategies, recalls that Wealthfront was valued at $700 million in 2014, and wondered about investor unrest.
"It feels a little like Apple bringing Steve Jobs back," Weems says of Rachleff's reappointment. "Of course, Wealthfront is in much better shape. I wouldn't be surprised if their investors thought a change was in order to shake things up. It could be something else, but if so you would think it would be articulated."
Growth rates for robo advisers have been under pressure, particularly Wealthfront, says Michael Kitces, partner and director of wealth management for Pinnacle Advisory Group in Columbia, Md., and co-founder of the XY Planning Network.
"Their shift from Andy Rachleff to Adam Nash was done under the assumption that they had found product/market fit, and that the solution was fully scalable in the hands of a capable executor," Kitces says. "Instead, a difficulty in scaling client acquisition costs, plus the entrance of incumbent competitors, is putting newfound pressure on the company to iterate and pivot and potentially try to find a new less competitive and more scalable solution."
Still, Wealthfront’s business continues to see impressive growth, argues Sean McDermott, Corporate Insight senior analyst.
"That said, it will be interesting to see if the change in leadership will be followed by a change in strategy," McDermott says.
"A lot of major incumbent firms have recently entered the digital advice space, which may make it harder for Wealthfront to sustain its current growth trajectory relying solely on its existing direct-to-consumer business model. The commodification of automated managed accounts may spur Wealthfront’s leadership to explore a change in strategic direction. "
Automated investing platforms are making it tougher to charge for some financial advice, says Tiburon Strategic Advisors.
'RETURN TO COMBATIVE STYLE OF LEADERSHIP'
One digital advice executive offered that Wealthfront would in fact become more aggressive in its messaging with Rachleff back at the helm.
"[Nash] played much nicer," the executive said. "I think this will be more of a return to a combative style of leadership."
That approach was demonstrated in a recent blog post by Rachleff challenging Schwab Intelligent Portfolio's tax harvesting ability, says Lex Sokolin, Autonomous Research's global director of fintech research.
"Bringing a founder back into the mix could be a signal around a different posture towards incumbents, though that's unlikely given Andy's recent comments on Schwab's tax loss harvesting algorithms."
Indeed, in his blog about Nash stepping down, Rachleff noted that "when the incumbents began attacking us with free and less capable offerings, Adam Nash wasn't afraid to take them head on."
Will Trout, Celent senior analyst, notes that the announcement follows by only a few months the departure of a number of leaders at the firm, including its former vice president of products and growth, Elliot Schmukler.
"The robo world is a tough place, and as you know, revolutions tend to devour their own," Trout says.
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Kitces agrees, describing the change as "all the signs of a company that is still struggling to find the right version of a unique and differentiated product."
"That’s not to say the technology isn’t valuable in some way, shape, or form, but Wealthfront seems to have misjudged the quality of its product/market fit, the available size of the market into which they were growing (without competition), and their ability to scale their client acquisition costs."
Trout adds that the bigger question is whether the B2C, pure play model championed by Wealthfront has finally run its course.
"I see the B2C model has having real power, but not in its current, simplistic form," Trout says. "Wealthfront has always been a step behind the competition (e.g., Betterment) in terms of innovating. That's why they keep comparing themselves to Schwab!"
Company spokeswoman Kate Wauck responded on Twitter that Wealthfont is on track to double its clients this year (up to 90,000 from 50,000 at the beginning of the year) and "that monthly net deposits continue to grow at an accelerated pace."
Sokolin says the challenge for Wealthfront to sustain itself in an ever-changing digital marketplace is first in gathering assets.
"The customer acquisition cost is challenging — estimated between $500 to $1,000 per customer — so the key to success is finding the right distribution mechanism," Sokolin says.
"In the case of Wealthfront, that means going beyond the early adopters in Silicon Valley, particularly now that Bank of America, Vanguard, Schwab all have entered the space with their retail robo offerings.
That will require Wealthfront to find partnerships, Sokolin says. "The company could use deeper partnerships with the tech giants like Google, Apple, Facebook or Snap. If it can tap into the attention economy those companies command, it could reach the next generation and Rachleff is certainly highly respected in tech circles."
