July 7, 2015 / 10:47 PM / 3 years ago

Robo-advisor Wealthfront lowers account minimum to $500

NEW YORK, July 7 (Reuters) - Wealthfront, one of the biggest of a new breed of investment management firms known as “robo-advisors,” on Tuesday lowered the minimum investment customers must make to open an account to $500 from $5,000.

To attract novice investors, it said it will continue to offer its investment service for free to accounts with less than $10,000.

Robo-advisors use a computer algorithm to pick a portfolio of exchange-traded funds and charge much lower management fees than do conventional brokers.

Wealthfront Chief Executive Adam Nash on Tuesday took a shot at Betterment, the company’s chief rival.

“The less money you have, the more Betterment takes,” he wrote on the Medium.com website. Nash highlighted the $3 service fee Betterment charges on accounts under $10,000 if customers do not auto-invest $100 monthly in their accounts.

“At $3 per month, an investor opening an account at $100 would be paying an annual management fee of 36 percent in the first year,” Nash wrote. He also contended that almost one-third of Betterment’s revenue comes from the $3 fee.

Betterment, which does not have a minimum account size and whose management fee ranges from 0.15 percent to 0.35 percent, called Nash’s post “wildly misleading.”

“He used screen shots that are months old and his projection of our revenue is insanely inaccurate,” Betterment communications manager Joe Ziemer said in an interview. He said the firm never tried to hide the $3 fee and planned to post a comment disputing Nash’s post on the medium.com site on Tuesday evening.

Wealthfront, which went live in 2011, charges a flat management fee of 0.25 percent on amounts of $10,000 and above. It has $2.5 billion under management and about 31,000 customers.

Betterment, launched in 2010, has $2.3 billion under management and 95,000 customers.

The privately held robo-advisors have spawned a wave of other upstarts, but the biggest challenge to conventional brokerage companies is coming from Charles Schwab Corp and The Vanguard Group.

Schwab launched a robo-service called Intelligent Portfolios this year that requires a $5,000 account minimum but charges no management fee. Schwab makes money by including many of its own funds in clients’ portfolios and by investing for its own benefit cash it requires customers to keep in their accounts.

Vanguard requires a $50,000 minimum for its Personal Advisor Services robo-model, and charges 0.30 percent of a customer’s assets as a management fee.

Reporting By Jed Horowitz and Elizabeth Dilts; Editing by Steve Orlofsky

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