Wealthfront branches out into loans in new competitive push

NEW YORK (Reuters) - Wealthfront Inc, the digital financial advice company, will begin letting some customers borrow against their investment accounts in its first foray into lending.

The privately owned Redwood City, California-based firm, which competes against traditional brokerages like Morgan Stanley and Bank of America Corp’s Merrill Lynch, said on Wednesday that customers with at least $100,000 in their investment accounts can borrow up to 30 percent of the balance. The loans can be used for almost anything except buying more investments on Wealthfront.

The entire loan application and approval process occurs online without needing to speak to a representative, much like Wealthfront’s all-digital investment accounts.

Known in industry parlance as a “robo-adviser,” Wealthfront and its peers like Betterment have turned up competition and put pressure on fees across the wealth management industry.

Until recently, robo-advisers largely avoided offering other types of financial services. But, like other financial-technology startups, they are beginning to diversify in search of bigger profits. Wealthfront, for instance, has also launched a college savings tools and by a service for investors to sell stock options.

Securities-based lending, like what Wealthfront is now offering, is popular among big brokerages as a relatively low-risk way to improve margins. The loans generate interest income and because firms hold the investments that are used as collateral, there is more certainty about getting repaid.

Wealthfront said its loans will cost between 3.25 and 4.5 percent. Any money deposited into a Wealthfront account after a customer takes out a loan will be used to pay off the balance rather than making more investments, spokeswoman Kate Wauck said.

Wealthfront has about $6 billion in assets under management for some 115,000 clients, most of whom are younger than 49.

Reporting By Elizabeth Dilts; additional reporting by Anna Irrera; Editing by Lauren Tara LaCapra and David Gregorio