{"id":5524,"date":"2016-05-11T10:26:39","date_gmt":"2016-05-11T17:26:39","guid":{"rendered":"http:\/\/www.wealthfront.com/blog\/?p=5524"},"modified":"2022-01-11T17:12:31","modified_gmt":"2022-01-12T01:12:31","slug":"wealthfront-for-finance-professionals","status":"publish","type":"post","link":"https:\/\/www.wealthfront.com/blog\/wealthfront-for-finance-professionals\/","title":{"rendered":"Why Wealthfront is a wise choice for finance professionals"},"content":{"rendered":"

Note: Wealthfront\u2019s Stock-level Tax-Loss Harvesting is now called US Direct Indexing<\/span><\/i>. <\/span><\/p>\n

At first blush, the suggestion that finance professionals should choose an automated investment service like Wealthfront to manage their investments seems to make little sense. Wouldn\u2019t folks who monitor 30-day moving averages and asset class correlations for a living prefer to actively manage their investments? Don\u2019t they have pockets full of arbitrage trade ideas just waiting to be executed?<\/p>\n

As someone who formerly worked in fixed income derivatives, I can tell you that these idealized versions of how financial professionals handle their own portfolios rarely, if ever, occur in real life. One reason is the NYSE\u2019s Rule 407, which applies to any employee of a firm that does business with NYSE Euronext, is a member of FINRA, or is registered with the SEC \u2013 which basically means the majority of the finance industry.<\/p>\n

Compliance regulation makes investing challenging<\/strong><\/p>\n

Under Rule 407, upon starting their jobs, employees must disclose any personal accounts in their or their spouse\u2019s name, along with any private investments, such as hedge fund holdings or private stock. The firm then has the right to approve these outside accounts or require them to be moved to another brokerage firm. In addition, any new accounts opened after the employee comes on-board must be pre-approved by the firm. The most tedious part of Rule 407, however, requires that almost all new trades executed in an employee\u2019s personal account be approved in advance.<\/strong><\/p>\n

These regulations exist for a good reason: To prevent employees with potentially material insider information from benefiting personally from a trade. For example, investment bankers working on a merger deal involving Company ABC should not be able to trade its stock, given their access to private material information. Any violation of Rule 407 is taken extremely seriously and is a fireable offense. \u00a0(Sometimes, it can even land you in jail.)<\/p>\n

Wealthfront\u2019s automated investment service is discretionary in nature, meaning account holders cannot influence specific investment decisions or trade execution. Our accounts invest solely in low-cost ETFs, the exception being taxable accounts with Stock-level Tax-Loss Harvesting, which will invest in the individual stocks that comprise the S&P 500. This eliminates the possibility of an employee trading with inside information on specific companies or securities. What’s more, our software algorithmically executes trades to match a desired risk profile. This means that an account owner has no ability to exert any direct control over investment decisions. Even if finance professionals had material information on the direction of the S&P 500, they would not be able to call up Wealthfront and reallocate their holdings to take advantage of the expected market moves. Investing in a discretionary account like Wealthfront generally absolves employees of going through their employers\u2019 compliance trading pre-approval processes, which are required for a self-directed account.<\/p>\n

In addition, all taxable accounts with Wealthfront come with <\/span>Tax-Loss Harvesting<\/a>, which lowers your taxes by recognizing investment losses to offset other gains and ordinary income. It does so by selling investments at a loss and replacing them with a highly correlated alternative investment, allowing the account to harvest losses while maintaining the portfolio’s risk and return profile. Harvested losses could be highly desirable for finance professionals, since they often have large equity holdings and, as a result, plenty of capital gains.<\/span><\/p>\n

Replicating Wealthfront\u2019s daily Tax-Loss Harvesting manually would be onerous in terms of time and trading fees. For finance professionals, the additional headache of getting every single pair of trades pre-approved would make the practice, for all practical purposes, undoable. But those obstacles vanish with an automated investment service like Wealthfront’s.<\/p>\n

Automated investing makes sense for other reasons as well<\/strong><\/p>\n

Although simplifying compliance procedures is convenient, it\u2019s not the only reason automated investment services are compelling. Finance professionals may analyze company fundamentals and pitch trade ideas for a living, but that doesn’t mean they prefer to stock-pick or play the interest rate yield curve in their long-term investment portfolio when they get home. For most working in finance, Modern Portfolio Theory and the Efficient Frontier are concepts they\u2019ve been familiar with since their Investment Theory 101 class. Sure, some in the industry may still believe they can beat the markets in their personal accounts. But there are many more drawn to the passive strategy championed by Wealthfront CIO Dr. Burton Malkiel, author of A Random Walk Down Wall Street<\/em>. Our deeply experienced investment team<\/a> has developed personalized, globally-diversified portfolios of index funds that maximize net-of-fee after-tax long-term returns.<\/p>\n

Some may argue that if you have sufficient funds and understand sophisticated investment strategies, then you should pursue alternative assets like hedge funds. However, individual investors very rarely have access to the best performing alternative assets, and as a result end up with their money stuck in mediocre, but still expensive, hedge funds.<\/p>\n

Assuming one believes in a passive investment approach, the next question is how the strategy can by executed most efficiently. Finance jobs are known for their long hours and heavy workloads. It\u2019s unlikely people in the industry will want to spend time at home reinvesting dividends, rebalancing portfolios or manually harvesting tax-losses. With Wealthfront, they don’t need to, because we automatically do it with software. Time is money, and being able to take a “set-it-and-forget-it” approach can be incredibly valuable. In addition, having access to an investment service that\u2019s available 24\/7 on desktop and mobile devices, and doesn\u2019t require scheduling a call with your advisor, ought to be extremely appealing to finance professionals who spend a lot of their lives traveling for roadshows and client meetings.<\/p>\n

A compliant and convenient choice<\/strong>\u00a0<\/strong><\/p>\n

Given the finance industry\u2019s unique regulatory environment, employees are limited in their ability to execute trades in their personal accounts. Automated investment services can provide a complementary service that not only helps finance professionals comply with Rule 407, but also manages their long-term investments while giving fees, taxes, and diversification all of the attention they are due.<\/p>\n","protected":false},"excerpt":{"rendered":"

Note: Wealthfront\u2019s Stock-level Tax-Loss Harvesting is now called US Direct Indexing. At first blush, the suggestion that finance professionals should choose an automated investment service like Wealthfront to manage their investments seems to make little sense. Wouldn\u2019t folks who monitor 30-day moving averages and asset class correlations for a living prefer to actively manage their […]<\/p>\n","protected":false},"author":129,"featured_media":7245,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"footnotes":""},"categories":[1282,1360],"tags":[1483,2162,2163,2164,1741,1359],"coauthors":[993,82],"class_list":["post-5524","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing","category-product-news","tag-automated-investment-service","tag-compliance","tag-finance","tag-rule-407","tag-stock-level-tax-loss-harvesting","tag-tax-loss-harvesting"],"acf":[],"yoast_head":"\nWhy Wealthfront is a wise choice for finance professionals<\/title>\n<meta name=\"description\" content=\"Due to regulation, finance employees are constricted in trading in their personal accounts. 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