Review of: WiseBanyan
Reviewed by: Carrie Smith
Last modified: October 4, 2017
WiseBanyan is a free robo-advisor service with no hidden charges. The base service includes automatic portfolio rebalancing and low minimum deposit. From our testing, they are the cheapest service in their category. On the downside, we question if their business model is sustainable.
WiseBanyan claims to be the world’s first free financial advisor and offers a new approach to investing. But is it really free? We dive into the specifics of this robo investing service.
The idea for WiseBanyan was born after the founders, Herbert Moore and Vicki Zhou, saw too many companies out there trying to “appify” investing.
They witnessed the often-misaligned values of financial advisors and their clients, combined with too-high minimum investment amounts and unreasonable fees firsthand. So Moore and Zhou wanted to create something better.
What Is WiseBanyan?
“Automation and simplification are important,” says Simon Lee, a finance specialist for WiseBanyan. “We also offer a personalized touch by pairing each of our clients with a personal finance expert. On top of this, we don’t have a required minimum portfolio balance, allowing investors of all levels to start investing for their future sooner. Essentially, we removed all the annoying parts of investing and improved upon the good stuff.”
From what I’ve seen so far, WiseBanyan sounds like a version of Betterment except without the fees. They take your money and invest it to buy a portfolio of ETFs while managing the dividends and rebalancing according to your choices.
WiseBanyan is SIPC insured and registered with the financial regulatory agencies SEC and FINRA. Your investments are not FDIC insured. They use Apex Clearing Corp. as their cleaning firm, and your investments are held with them. To start an account with them, they have a $10 minimum. They do not charge an annual fee for their service, but you will get charged annual fees for the ETFs they recommend.
The service does support fractional shares, so that means all money deposited is invested. Your deposited money will be put to use, and no cash balance will remain.
|Fees||None — Basic services are free|
|Tax Loss Harvesting||— All Taxable Accounts|
|Automatic Deposits||— Weekly, Monthly and Quarterly|
|Socially Responsible Investing|
|Access||Website, iOS App, Apple Watch, Android App|
|Customer Service||Phone: M-F 8A-4P PT; Email|
- Tax Protection (New) — WiseBanyan has grouped three features — WiseHarvesting, Selective Trading and Roth IRA Conversions — into a premium package designed to help protect your returns from taxes. The monthly cost is 0.02% of your average account value and is capped at $20 a month.
- Fully Automated Platform — All investment selections, rebalancing opportunities and trades are identified and performed via the fully automated service.
- Two-Factor Authentication — A verification code will be sent to your mobile phone when you want to make an update or access your personal information. To enable two-step verification, go to the “Security Information” tab under the profile settings.
- Milestones — Similar to Betterment’s goal setting, though more restrictive. Set up the financial achievements you want, and WiseBanyan will monitor, rebalance, and automate your deposits. You can choose among these goals: Rainy Day, Retirement, Custom and Build Wealth.
How to Create an Account With WiseBanyan
The process is relatively straightforward, and you’ll be prompted to answer several investing-related questions to determine your risk tolerance and financial goals. It’s important to answer these questions honestly so WiseBanyan can correctly assign you a risk score from 1-10 — with 1 being the lowest risk tolerance and ten being the highest.
Don’t worry, though. You can always adjust your risk score — and any other financial choices — later on, once you’ve opened your new account. Based on your risk score, WiseBanyan will automatically invest your money into a diversified portfolio.
WiseBanyan surprising uses a bunch of Charles Schwab ETFs in their portfolio makeup. Unfortunately, the bond portion of their portfolio is heavy into corporate bonds, which compared to other types of bonds, is more sensitive to inflation and rate hikes from the Federal Reserve. On the positive side, WiseBanyan does have a REIT ETF to invest into real estate that historically does not correlate to stocks or bonds.
|US||Schwab U S Broad Market||SCHB|
|Foreign||Schwab International Equity||SCHF|
|Emerging Market||iShares Core Emerging Market||IEMG|
|US TIPS||iShares TIPS Bond||TIP|
|Corporate||iShares Corporate Bond||LQD|
|Short-Term Corporate||Vanguard Short Term Corporate Bond||VCSH|
|Short-Term High Yield||SPDR® Bloomberg Barclays High Yield Bond||SJNK|
|Short-Term High Yield||PIMCO 0-5 Year High Yield Corp Bd||HYS|
|US Short-Term||Vanguard Interm-Term Govt Bd||VGIT|
|Real Estate||iShares US Real Estate||IYR|
Once your risk score is calculated — and you’ve selected the type of account you want to open — you’ll be asked for your bank information. The minimum investment amount is only $10, with the opportunity to set up automatic contributions. Then WiseBanyan’s service goes to work for you.
Once your new account has been funded (which takes about two weeks), the software will create a diversified portfolio based on your previous answers to their questions.
|Fees||None — Basic services are free||Digital – 0.25%/year; Premium – 0.40%/year||First $10k managed free; 0.25%/year for $10k+|
|Promotions||None||Up To 1 Year Free||$15k Managed for Free|
|Review||—||Read the Review||Read the Review|
How Does WiseBanyan Make Money?
So how does WiseBanyan stay in business if they don’t charge a fee? Compared with other robo-advisors their business model is in question. At least other firms do charge a low annual fee but will still require billions of AUM (Assets Under Management) before they become profitable. WiseBanyan states they do offer customized portfolio management solutions with an annual fee of 0.50 to 1.0 percent that will supplement their no annual fee service.
However, filed SEC documents show WiseBanyan is still a tiny firm with little AUM. In the last SEC filing as of March 31, 2017, they have $94 million AUM and just more than 25,000 customers. In comparison, the largest independent robo-advisor Betterment has just over $9 billion AUM. Keep in mind some solo financial advisors have more AUM than WiseBanyan.
Charles Schwab recently put their hat into the ring with their Intelligent Portfolios. At least Charles Schwab is generating income from the large cash asset allocation they recommend and the annual fees of their ETFs. WiseBanyan does not have their own ETFs so. Therefore, this is not a method to generate revenue.
Lastly, according to CrunchBase, WiseBanyan hasn’t disclosed the amount of funding from their multiple rounds of venture capital. Who knows how much capital they have on hand and their annual burn rate?
Pros and Cons
- No Annual Fee — WiseBanyan is free to use with no hidden charges, though the ETFs they recommend you invest in do charge annual fees.
- Fractional Shares — All money deposited is used in the allocation they recommend.
- Low Initial Deposit — $1 is all that's needed to open an account.
- Automatic Rebalancing — When your account varies from the specified asset allocation, WiseBanyan will automatically adjust your portfolio.
- Cash Position — WiseBanyan is the only robo-advisor that allocates cash as part of your asset allocation.
- Same Portfolio for Every Goal — WiseBanyan appears to create a portfolio based only upon your time horizon and risk profile. The asset allocation and, more importantly, funds used will be the same in a taxable or tax-deferred account.
- No Muni Bonds — For high-income individuals, WiseBanyan does not offer municipal bonds to lower your taxes.
- Not a Proven Business Model — Based on the failure of other robo-advisor services who were charging annual fees, we're not sure of the business model for a free robo-advisor service.
WiseBanyan is free to use and needs only $10 to get started. If you are just starting to invest, they might be an option to consider.
However, we do question if their business model is sustainable and how the amount of funding compares to their competitors — especially established firms like Charles Schwab (whose service is also free) and Vanguard who can make money from offering their own ETFs.
WiseBanyan’s recently introduced tax-loss harvesting and makes it more competitive to other robo-advisors.
Ultimately, we feel WiseBanyan isn’t a bad service, but there are other robo-advisor options available by more established players.
Want to hear more about WiseBanyan’s CEO Herbert Moore’s point of view? Check out this article on Medium.