Are you sick and tired of hearing about free financial advice that turns out to not really be free? Well, a new startup named WiseBanyan could be the solution you’re looking for. 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 new investment service.
The idea for WiseBanyan was born after seeing 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 founders Herbert Moore and Vicki Zhou wanted to create something better.
What is WiseBanyan?
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 FIDC insured. WiseBanyan uses 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.
WiseBanyan 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.
|Account Fees||None — Basic services are free|
|Accounts Available||Traditional IRA, Roth IRA, SEP IRA, Rollover 401(k) and Individual|
|Tax-Loss Harvesting||Yes — All Taxable Accounts For an Additional Fee|
|Automatic Deposits||Yes — Weekly, Monthly and Quarterly|
|Mobile App||Yes — Apple’s iOS and Google’s Android mobile devices|
|Customer Service||Phone — M-F 10A-8P ET, Email — 24/7|
|Promotions||Get $20 when Joining WiseBanyan|
- Fully Automated Platform — All investment selections, re-balancing 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. Setup the financial achievements you want and when, WiseBanyan will monitor, rebalance, and automate your deposits. You can choose between these goals: Rainy Day, Retirement, Custom, and Build Wealth.
How to Create an Account with WiseBanyan
Currently, their service is by invite only. Before you can create a new account with WiseBanyan, you’ll be added to the waitlist. Once accepted, you’ll be notified via email when you’re invited to open a new account.
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 10 being the highest.
Here is the risk score I was given, based on my answers.
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.
Types of Investment Accounts
As you’re going through the sign-up process, you can choose from several different types of investing accounts:
- Personal Investment
- Roth IRA
- SEP IRA
- Traditional IRA
Once your risk score is calculated, and you select the type of account you want to open, you’ll be asked for your bank account 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. Here’s what my portfolio looks like:
How Does WiseBanyan Make Money?
So how does WiseBanyan stay in business if they don’t charge a fee? Compared to 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% – 1.0% 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 29, 2016, they have $49 million AUM and just more than 9,400 customers. In comparison, the largest robo-advisor Betterment has just over $4 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 first seed round of venture capital. Who knows how much capital they have on hand and their annual burn rate?
- 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 Intial Deposit — $10 is all that's needed to open an account.
- Automatic Reblancing — When your account varies from the specified asset allocation, WiseBanyan will automatically adjust your portfolio.
- Not A Proven Business Model — Based upon 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.