WiseBanyan Review

About

WiseBanyan Inc. (“WiseBanyan”), founded in 2013, is an SEC-registered automated investment service firm, or ‘robo-advisor’ based out of Las Vegas, Nevada. It is one of the smallest robo-advisors in the industry, with assets under management totaling only approximately $49m, according to its latest filing with the SEC.

WiseBanyan’s unique selling point is that it is the “world’s first free financial advisor”, and thus does not charge any management fees. However, it does charge a fee for its premium services, such as tax-loss harvesting (refer to our “Account Fees” section below). The philosophy behind this business model is incentives alignment; without management fees WiseBanyan is not incentivized to encourage its clients to continuously increase their account balances. However, this has raised questions about whether or not WiseBanyan’s business model is sustainable in the long term.

WiseBanyan does not hold its clients brokerage accounts directly, but does so through the Apex Clearing Corporation.

Investment Methodology

Just like all the robo-advisors, WiseBanyan’s investment methodology is based on Modern Portfolio Theory, which targets a broadly diversified investment portfolio which allows for maximum return for a given risk level over individual security selection. WiseBanyan estimates that based on backtesting from the 2003 to 2013 period that a WiseBanyan portfolio with moderate risk tolerance would have returned about 7.6%.

As such, WiseBanyan invests in low-cost index-based Exchange Traded Funds (“ETFs”) that represent three main asset classes: stocks, bonds, and real estate. The list below shows the primary ETFs that WiseBanyan uses for each asset class at the top followed by the secondary and tertiary ETFs that it uses when the WiseHarvesting feature is activated.

Asset Class ETF Expense Ratio
US EquitiesVanguard Total Stock Market ETF (VTI) Schwab U.S. Broad Market ETF (SCHB) State Street SPDR S&P 500 ETF (SPY)0.05% 0.03% 0.11%
International Developed EquitiesVanguard FTSE Developed Markets ETF (VEA) Schwab International Equity ETF (SCHF) iShares MSCI EAFE ETF (EFA)0.09% 0.08% 0.32%
International Emerging EquitiesVanguard FTSE Emerging Markets ETF (VWO) iShares Core MSCI Emerging Markets ETF (IEMG) iShares MSCI Emerging Markets ETF (EEM)0.15% 0.16% 0.70%
US Corporate BondsiShares Investment Grade Corporate Bond ETF (LQD) Vanguard Intermediate-Term Corporate Bond Index ETF (VCIT)0.15% 0.10%
Short Term High Yield BondsState Street Global Advisors Barclays Short Term High Yield Bond Index ETF (SJNK) PIMCO 0-5 Year High Yield Corporate Bond Index ETF (HYS) iShares 0-5 Year High Yield Corporate Bond ETF (SHYG)0.40% 0.55% 0.50%
REITsVanguard REIT ETF (VNQ) iShares U.S. Real Estate ETF (IYR) iShares Cohen & Steers REIT ETF (ICF)0.10% 0.45% 0.35%
Short Term Corporate BondsVanguard Short-Term Corporate Bond ETF (VGSH)0.12%
US TreasuriesVanguard Intermediate Term Government Bond Index ETF (VGIT)0.12%
US Inflation Protected TreasuriesiShares Barclays TIPS Bond Fund ETF (TIP)0.20%

Getting Started

To begin, users will have to enter their email address on WiseBanyan’s page to receive an invite link. From there, you are taken to a short risk tolerance questionnaire which asks for your age, annual income, and net worth. From there you can select one of four ‘Milestones’ (refer to “Main Account Features” section below) followed by a several more risk tolerance questions.

wisebanyan review

Figure 1: My recommended allocation based on their 'Build Wealth' milestone

After the completion of the questionnaire, WiseBanyan will give you a recommended portfolio allocation and then take you to the deposit page. There it will request the amount of your initial deposit plus the amount of monthly auto-deposits you wish to select followed by the standard personal information.

Accounts Available

Currently, WiseBanyan offers only 4 types of accounts: Traditional IRA, Roth IRA, SEP IRA, and individual.

Minimum Account Balances

WiseBanyan’s currently has no minimum amounts for account balances or withdrawals; minimum deposit amount is $1.

Account Fees

WiseBanyan does not charge any management fees; the only fees that WiseBanyan charges are for its WiseHarvesting service which costs 0.25% annually capped at $20/month. This means that account balances over $96,000 can use this service for under the 0.25% rate.

As with all robo-advisors, clients will also incur the embedded ETF fees, which WiseBanyan estimates averages 0.12% annually. There are also various fees imposed by WiseBanyan’s broker-dealer for paper statements, wire transfers, and account closings; summarized below.

wisebanyan review
wisebanyan review
wisebanyan review

Note: WiseBanyan has a referral program which gives you $20 to yours and your referral’s account.

Main Account Features

• Automated Portfolio Rebalancing

• Milestones

• WiseHarvesting

• Auto-Deposit

Automated Portfolio Rebalancing

Client accounts are automatically rebalanced whenever there is an inflow or outflow of funds such as during deposits, withdrawals and receipt of dividends. By rebalancing during inflows and outflows, WiseBanyan is able to minimize the tax consequences to its clients. The portfolio is also automatically rebalanced (regardless of inflows or outflows) whenever any portion strays by more than 5% from the target allocation; the target allocation can be changed by the client at any time.

Milestones

This is WiseBanyan’s goal setting feature and clients can select a milestone during the account opening process. Currently, WiseBanyan offers 4 different milestones; while clients can create as many custom milestones as they wish, they are limited to one each for the other 3 types.

Rainy Day – This is the recommended beginner milestone. The idea behind this milestone is the creation of an emergency fund to cover unexpected expenses.

Retirement – Self-explanatory; this milestone is designed to assist in your retirement planning.

Build Wealth – The investment milestone for those without a specific goal in mind but just want to grow their portfolio in general.

Custom – Clients can set this milestone based on a target savings amount over a selected time horizon.

WiseHarvesting

This is WiseBanyan’s premium tax-loss harvesting service. Tax-loss harvesting is a tax deferral strategy whereby investment losses are used to offset income and investment gains. In addition, a similar correlated investment to the one sold at a loss is repurchased; maintaining the overall risk profile and target allocation of the portfolio. Through its software, WiseBanyan looks for such tax-loss harvesting on a daily basis. Depending on marginal tax rates and time horizons, WiseBanyan estimates that its WiseHarvesting feature can generate additional returns as summarized in the below table.

wisebanyan review

We should also note that other robo-advisors, which charge a general account management fee, typically offer daily tax-loss harvesting at no additional charge.

For a detailed explanation, you may refer to WiseBanyan’s tax-loss harvesting white paper here.

Auto-Deposit

As the name implies, this is a simple auto-deposit feature that clients can choose to activate on a monthly or weekly basis. While the monthly deposit is the standard and is available during the account opening process, the weekly deposit allows for more dollar-cost averaging.

Who is WiseBanyan Suitable For?

As with most robo-advisors, WiseBanyan is suitable for passive long-term investors. Investors looking to beat the market via market timing or stock picking should not use its services. However since WiseBanyan currently does not charge any fees other than for its WiseHarvesting services, investors with non-taxable accounts will be able to take advantage of its services at practically no cost.


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