1 00:00:02,200 --> 00:00:06,800 Speaker 1: This is Master's in Business with Barry Ridholts on Bloomberg Radio. 2 00:00:10,039 --> 00:00:13,000 Speaker 1: This week on the podcast, I have an extra special guest. 3 00:00:13,119 --> 00:00:16,760 Speaker 1: His name is Jonathan Stein, and he is the founder 4 00:00:17,000 --> 00:00:20,919 Speaker 1: of essentially the very first of the robo advisors to 5 00:00:21,000 --> 00:00:25,159 Speaker 1: come out UH and enter the world. Betterment is the 6 00:00:25,239 --> 00:00:28,680 Speaker 1: name of the company. They manage most twenty billion dollars, 7 00:00:29,320 --> 00:00:32,600 Speaker 1: quite a substantial sum of money. And you will find 8 00:00:32,640 --> 00:00:35,320 Speaker 1: that Jonathan Is or better known as John is a 9 00:00:36,280 --> 00:00:42,960 Speaker 1: UM enthusiastic advocate on behalf of investors. UH. He does 10 00:00:43,080 --> 00:00:46,599 Speaker 1: not like the way much of Wall Street does business, 11 00:00:47,000 --> 00:00:49,159 Speaker 1: the way fees are hidden, the way people are not 12 00:00:49,280 --> 00:00:54,920 Speaker 1: fiduciaries to their clients, and he is looking at Betterment 13 00:00:55,160 --> 00:00:59,560 Speaker 1: as a way to UH change the institution of money 14 00:00:59,560 --> 00:01:03,400 Speaker 1: management if you are at all interested in the use 15 00:01:03,440 --> 00:01:08,839 Speaker 1: of technology to manage both investments and cash and everything else, 16 00:01:09,840 --> 00:01:13,640 Speaker 1: how things are done right and wrong in the industry. 17 00:01:13,720 --> 00:01:16,720 Speaker 1: And also here some inside dirt about what he thinks 18 00:01:17,040 --> 00:01:19,920 Speaker 1: about some of his competitors. Well, you're gonna find this 19 00:01:19,959 --> 00:01:24,280 Speaker 1: conversation fascinating. So, with no further ado, my interview of 20 00:01:24,400 --> 00:01:32,039 Speaker 1: John Stein. My special guest today is Jonathan Stein. He 21 00:01:32,400 --> 00:01:36,520 Speaker 1: is the founder and CEO of Betterment, which is a 22 00:01:36,520 --> 00:01:41,759 Speaker 1: algorithmic asset allocation also known by some people as a 23 00:01:41,840 --> 00:01:46,000 Speaker 1: robo advisor. He graduated from Harvard got his NBA from Columbia. 24 00:01:46,560 --> 00:01:51,440 Speaker 1: Betterment currently has about twenty billion dollars in assets. They 25 00:01:51,480 --> 00:01:54,840 Speaker 1: have a digital advisory platform for advisors known as Betterman 26 00:01:54,880 --> 00:01:57,520 Speaker 1: for Advisors, as well as a four oh one K option. 27 00:01:58,040 --> 00:02:01,360 Speaker 1: Jonathan Stein, Welcome to Bloomberg. Thank you, Barry, so nice 28 00:02:01,400 --> 00:02:04,040 Speaker 1: to be here. It's nice to have you. So before 29 00:02:04,040 --> 00:02:07,800 Speaker 1: we start, I have to do a quick disclosure. I 30 00:02:07,920 --> 00:02:11,320 Speaker 1: mentioned in the intro that you have a B two 31 00:02:11,320 --> 00:02:15,960 Speaker 1: B product offering called Betterment for Advisors. My firm, Ridholtz 32 00:02:16,000 --> 00:02:19,480 Speaker 1: Wealth Management is a user of Betterment for Advisors. Are 33 00:02:20,120 --> 00:02:23,480 Speaker 1: robo advisor called Liftoff is powered by your back ends. 34 00:02:23,800 --> 00:02:26,359 Speaker 1: So we like to engage in full disclosure around here, 35 00:02:26,400 --> 00:02:28,720 Speaker 1: and I wanted to get that out. So let's start 36 00:02:28,720 --> 00:02:32,320 Speaker 1: with your undergraduate You went to Harvard. What did you 37 00:02:32,360 --> 00:02:36,360 Speaker 1: study there? Did you have any plans on going into finance. Yeah. 38 00:02:36,440 --> 00:02:38,560 Speaker 1: By the way, I'm so excited to be working with 39 00:02:38,600 --> 00:02:41,200 Speaker 1: you and lift Off. I think that's really a great 40 00:02:41,240 --> 00:02:43,760 Speaker 1: thing where you and Josh and the whole team have 41 00:02:43,840 --> 00:02:45,680 Speaker 1: been wonderful to work with, and we're excited to be 42 00:02:45,720 --> 00:02:48,560 Speaker 1: on boarding clients and all of that. We're a fun group. Yeah, 43 00:02:48,600 --> 00:02:52,080 Speaker 1: you guys, are you really are? Yeah. In college I 44 00:02:52,400 --> 00:02:55,880 Speaker 1: studied economics was my major, and I studied a lot 45 00:02:55,880 --> 00:02:58,560 Speaker 1: of psychology on the side, and I was really interested 46 00:02:58,600 --> 00:03:01,600 Speaker 1: in the union or the interest section between those two fields. 47 00:03:02,080 --> 00:03:05,840 Speaker 1: My my economics professor freshman year was Marty Feldstein, who 48 00:03:05,880 --> 00:03:09,880 Speaker 1: was one of Reagan's economic advisors. He was super efficient markets. 49 00:03:10,000 --> 00:03:12,480 Speaker 1: And you know, if we're all just rational and we 50 00:03:12,520 --> 00:03:15,000 Speaker 1: have the right incentives in place, people will obviously do 51 00:03:15,080 --> 00:03:17,639 Speaker 1: the right thing and so uh in the world will 52 00:03:17,639 --> 00:03:19,720 Speaker 1: be a better and and then I love the fantasy 53 00:03:19,720 --> 00:03:23,680 Speaker 1: world of economists professors. It's an amazing world to live in. Right, 54 00:03:23,720 --> 00:03:26,200 Speaker 1: It's like you know, it's it's it's a beautiful place, right, 55 00:03:26,280 --> 00:03:30,639 Speaker 1: no bubbles, no crashes, everybody's perfect. Everything is priced efficiently incorrectly, 56 00:03:30,840 --> 00:03:34,639 Speaker 1: and all information is But on the behavioral side, I 57 00:03:34,680 --> 00:03:37,200 Speaker 1: was so fascinated with how people actually work, which is 58 00:03:37,240 --> 00:03:40,480 Speaker 1: not at all like the economic models to predict. We're crazy, irrational, 59 00:03:40,560 --> 00:03:42,920 Speaker 1: we do the wrong thing all the time. And I 60 00:03:43,000 --> 00:03:45,800 Speaker 1: really wanted to reconcile that. You know, there's like Diccartian 61 00:03:45,920 --> 00:03:48,920 Speaker 1: sort of duality and in our lives of like if 62 00:03:49,000 --> 00:03:50,839 Speaker 1: I know the right thing to do, but I never 63 00:03:50,960 --> 00:03:54,200 Speaker 1: end up doing it because I'm driven by short term impulses, 64 00:03:54,240 --> 00:03:56,280 Speaker 1: and so I wanted to do something. They're coming out 65 00:03:56,280 --> 00:03:59,120 Speaker 1: of college. No one was recruiting for people who just 66 00:03:59,200 --> 00:04:01,640 Speaker 1: wanted to help will make better decisions. But that's what 67 00:04:01,720 --> 00:04:03,720 Speaker 1: I wanted to do. So so coming out of college, 68 00:04:03,720 --> 00:04:06,400 Speaker 1: what was your first job? What did you go post Harvard? 69 00:04:06,600 --> 00:04:10,840 Speaker 1: I went to a company called First Manhattan Consulting Group. Okay, 70 00:04:11,080 --> 00:04:15,360 Speaker 1: now again, no, the disclosure years ago we sublet space 71 00:04:15,400 --> 00:04:18,400 Speaker 1: from them, Is that right? And the legend had preceded 72 00:04:18,440 --> 00:04:23,360 Speaker 1: you because over on On Park and M and ninety 73 00:04:23,400 --> 00:04:26,880 Speaker 1: Park Avenue, and when we were discussing what we did, 74 00:04:26,960 --> 00:04:30,040 Speaker 1: when we were having the conversation, oh, have you ever 75 00:04:30,080 --> 00:04:33,800 Speaker 1: heard of betterment? Yes, we have work for us. Just 76 00:04:33,880 --> 00:04:36,800 Speaker 1: a hilarious coincidence. Yeah, it was a great firm, so 77 00:04:36,839 --> 00:04:39,800 Speaker 1: many smart people. You know, I'm still still friends with 78 00:04:39,800 --> 00:04:41,919 Speaker 1: a bunch of people there. And I got from that 79 00:04:42,000 --> 00:04:45,160 Speaker 1: vantage point to work with big banking clients all around 80 00:04:45,160 --> 00:04:48,080 Speaker 1: the US and around the world brokers as well, and 81 00:04:48,160 --> 00:04:52,200 Speaker 1: got to understand how the big financial institutions work and 82 00:04:52,640 --> 00:04:56,599 Speaker 1: how they're very well intentioned but oftentimes haven't innovated around 83 00:04:56,600 --> 00:05:00,400 Speaker 1: the customer. And I started to see opportunities to you think, 84 00:05:00,440 --> 00:05:02,880 Speaker 1: financial services, to really change it, and I just wanted 85 00:05:02,880 --> 00:05:05,120 Speaker 1: it all to happen, you know, Like I. Change was 86 00:05:05,200 --> 00:05:08,320 Speaker 1: too slow, and by the time I was leaving there, 87 00:05:09,320 --> 00:05:12,760 Speaker 1: we were moving into the financial crisis years right, two 88 00:05:12,760 --> 00:05:16,160 Speaker 1: thousand and eight and on. So, So from FMGC, did 89 00:05:16,200 --> 00:05:18,440 Speaker 1: you go right to betterment or was there something in between? 90 00:05:18,480 --> 00:05:20,720 Speaker 1: I went to business school in between. Okay, so you 91 00:05:20,800 --> 00:05:23,640 Speaker 1: went to Columbia and then you come out of business 92 00:05:23,640 --> 00:05:26,159 Speaker 1: school two years later, and what where did you go 93 00:05:26,240 --> 00:05:29,160 Speaker 1: from there? Then? I started Betterment right away, so right 94 00:05:29,160 --> 00:05:31,040 Speaker 1: out of business school, and I knew I wanted to 95 00:05:31,080 --> 00:05:33,320 Speaker 1: start Betterment going into business school, I had the name 96 00:05:33,440 --> 00:05:35,039 Speaker 1: right and I started. I was talking about it on 97 00:05:35,160 --> 00:05:37,240 Speaker 1: day one and I said, We're going to make financial 98 00:05:37,240 --> 00:05:40,000 Speaker 1: services better. Uh. And some people would say, well, why 99 00:05:40,000 --> 00:05:41,839 Speaker 1: didn't you just go and do that? And for me, 100 00:05:41,960 --> 00:05:45,640 Speaker 1: business school was necessary. It was a good spot to 101 00:05:45,680 --> 00:05:48,360 Speaker 1: test the ideas to get to work. And I worked 102 00:05:48,360 --> 00:05:50,920 Speaker 1: with the dean of the Business school as my betterment 103 00:05:50,960 --> 00:05:53,040 Speaker 1: was like my case study for my final presentation and 104 00:05:53,200 --> 00:05:55,719 Speaker 1: entrepreneurial finance. So I got a lot of good feedback. 105 00:05:57,120 --> 00:05:59,560 Speaker 1: You could wait out the financial crisis exactly. It was 106 00:05:59,600 --> 00:06:01,520 Speaker 1: it Actually it was a good time to to not 107 00:06:01,680 --> 00:06:05,679 Speaker 1: be fundraising. So you had the idea. How fully formed 108 00:06:06,040 --> 00:06:08,479 Speaker 1: was it on your way into business school? And what 109 00:06:08,560 --> 00:06:10,720 Speaker 1: did you learn that might have had an impact on 110 00:06:10,720 --> 00:06:14,040 Speaker 1: on the company that exists today? I learned a lot 111 00:06:14,080 --> 00:06:18,640 Speaker 1: about myself and my management style that my my favorite 112 00:06:18,680 --> 00:06:22,120 Speaker 1: classes were things like top management process and you know, 113 00:06:22,240 --> 00:06:25,279 Speaker 1: I didn't think about myself as having like a leadership 114 00:06:25,320 --> 00:06:28,080 Speaker 1: style or management style, but you know, in small groups 115 00:06:28,120 --> 00:06:30,480 Speaker 1: and in sessions like breakout sessions, I learned that like 116 00:06:30,520 --> 00:06:33,159 Speaker 1: the types of things that I do, like wanting to 117 00:06:33,200 --> 00:06:35,320 Speaker 1: hear from like everyone in the room, like you know, 118 00:06:35,480 --> 00:06:38,159 Speaker 1: hearing all that feedback before coming to a decision. Like 119 00:06:38,400 --> 00:06:40,599 Speaker 1: those kinds of things can be effective. And you know, 120 00:06:40,640 --> 00:06:44,320 Speaker 1: there's not one right way to lead or manage. Was 121 00:06:44,200 --> 00:06:46,000 Speaker 1: it was a thing that I took away, But you 122 00:06:46,080 --> 00:06:48,760 Speaker 1: kind of have to lean into your own style. So 123 00:06:49,120 --> 00:06:52,480 Speaker 1: you participated in one of the tech crunches. I think 124 00:06:52,480 --> 00:06:55,240 Speaker 1: it was oh nine, is that right. My familiarity with 125 00:06:55,279 --> 00:06:58,640 Speaker 1: that comes from the HBO show Silk on Value. Yeah, 126 00:06:58,680 --> 00:07:02,000 Speaker 1: what was the experience. That's pretty accurate depiction of the 127 00:07:02,040 --> 00:07:04,520 Speaker 1: Tech Crunch. Yeah, like Striking Lee. So as as with 128 00:07:04,560 --> 00:07:07,760 Speaker 1: a lot about that show, Well, it true. That's what 129 00:07:07,880 --> 00:07:10,760 Speaker 1: makes it so, and it's hilarious. Um So the sort 130 00:07:10,760 --> 00:07:14,640 Speaker 1: of frenetic last minute things are glitching and nobody really 131 00:07:14,640 --> 00:07:16,760 Speaker 1: knows who's going to be the breakout star, and everybody's 132 00:07:17,120 --> 00:07:19,840 Speaker 1: sort of looking over the shoulders. That was your actual 133 00:07:20,080 --> 00:07:22,320 Speaker 1: It was so intense. It was one of the most 134 00:07:22,360 --> 00:07:24,680 Speaker 1: tense days in my life. I mean, and I didn't 135 00:07:24,680 --> 00:07:28,160 Speaker 1: have kids at that time, right, I was, I wasn't 136 00:07:28,160 --> 00:07:31,680 Speaker 1: even married, right, And I just I was up all 137 00:07:31,800 --> 00:07:34,320 Speaker 1: night the night before. And I know because I looked 138 00:07:34,320 --> 00:07:36,960 Speaker 1: back at like my BlackBerry and I was writing into 139 00:07:37,000 --> 00:07:40,000 Speaker 1: it every thirty minutes one am, one thirty am, two am, 140 00:07:40,040 --> 00:07:42,720 Speaker 1: some idea of like how I wanted to reframe my presentation. 141 00:07:42,760 --> 00:07:45,760 Speaker 1: I memorized the entire thing, you know, which you should 142 00:07:45,800 --> 00:07:48,440 Speaker 1: never do. It was. It was a five minute speech 143 00:07:48,480 --> 00:07:51,440 Speaker 1: and I knew every word and it was all exactly memorized. 144 00:07:51,840 --> 00:07:54,280 Speaker 1: And I was just so nervous about it because it 145 00:07:54,360 --> 00:07:56,320 Speaker 1: was our coming out party, right, it was like this 146 00:07:56,360 --> 00:07:59,200 Speaker 1: was it was. We actually launched on that day, and 147 00:07:59,240 --> 00:08:02,720 Speaker 1: to me that was a big deal, Like this was 148 00:08:02,760 --> 00:08:04,840 Speaker 1: our chance to debut or a chance to get customers, 149 00:08:04,880 --> 00:08:06,520 Speaker 1: and if we did it, we were going to be 150 00:08:06,560 --> 00:08:09,600 Speaker 1: successful and if not, no one would ever hear about 151 00:08:09,640 --> 00:08:11,840 Speaker 1: us again, you know. So there's a lot writing on 152 00:08:11,920 --> 00:08:15,800 Speaker 1: that moment. Let's talk a little bit about the process 153 00:08:15,840 --> 00:08:18,560 Speaker 1: of raising money and what was like to be a 154 00:08:18,720 --> 00:08:22,200 Speaker 1: venture founded start up. What was that like. Some people 155 00:08:22,240 --> 00:08:25,640 Speaker 1: have described it as exhausting and draining and harrowing, and 156 00:08:25,680 --> 00:08:27,560 Speaker 1: other people have said, you know, if you have the 157 00:08:27,640 --> 00:08:30,280 Speaker 1: right idea, money seems to find it. What what was 158 00:08:30,320 --> 00:08:34,640 Speaker 1: your experience. I remember saying to my co founders when 159 00:08:34,679 --> 00:08:36,800 Speaker 1: we started out, at least we're going to raise some 160 00:08:36,840 --> 00:08:39,480 Speaker 1: money with this thing, right, Like this is a good idea, 161 00:08:39,600 --> 00:08:41,840 Speaker 1: Like people want this. We were confident that people would 162 00:08:41,840 --> 00:08:44,360 Speaker 1: want it and at least we get there and maybe 163 00:08:44,360 --> 00:08:46,640 Speaker 1: a little too confident, right. I We went into tech 164 00:08:46,640 --> 00:08:49,920 Speaker 1: Crunch thinking, yeah, we'll get some attention and this would 165 00:08:49,920 --> 00:08:52,280 Speaker 1: be the thing everyone gets funded coming out of these things. 166 00:08:52,480 --> 00:08:54,800 Speaker 1: We talked to a bunch of people there at the 167 00:08:54,880 --> 00:08:58,000 Speaker 1: actual conference, and honestly, we didn't know what we were 168 00:08:58,040 --> 00:09:01,959 Speaker 1: asking for. Remember thinking maybe I wanted million dollars and uh, 169 00:09:02,000 --> 00:09:04,800 Speaker 1: you know, frankly, in retrospect, that was way too little money, 170 00:09:04,880 --> 00:09:06,400 Speaker 1: you know, but at the time it just seemed like 171 00:09:06,440 --> 00:09:08,840 Speaker 1: an impossible amount of a million dollars. Think of how much? 172 00:09:10,000 --> 00:09:12,040 Speaker 1: Think of like how long that'll that'll feed us for 173 00:09:12,080 --> 00:09:15,920 Speaker 1: a good long time. That's almost a really nice car, 174 00:09:16,320 --> 00:09:19,160 Speaker 1: right framework the framework reference is kind of crazy. So 175 00:09:19,200 --> 00:09:22,040 Speaker 1: are you guys done raising capital or is there going 176 00:09:22,080 --> 00:09:24,679 Speaker 1: to be more capital raises in the future. Where we 177 00:09:24,679 --> 00:09:27,600 Speaker 1: were lucky in that first, you know, in those first 178 00:09:27,640 --> 00:09:31,640 Speaker 1: conversations to meet Bessemer, who letter Series A, and they've 179 00:09:31,640 --> 00:09:34,040 Speaker 1: been great partners for a number of years. Over the years, 180 00:09:34,080 --> 00:09:35,840 Speaker 1: we've met a number of other firms that have just 181 00:09:35,880 --> 00:09:39,000 Speaker 1: been awesome to work with, who share our long term vision, 182 00:09:39,120 --> 00:09:43,240 Speaker 1: who have deep pockets genetic big big Swedish firm is 183 00:09:43,280 --> 00:09:47,000 Speaker 1: the most recent one. Great like long term family office 184 00:09:47,000 --> 00:09:50,240 Speaker 1: style investor. And all of these firms have given us 185 00:09:50,320 --> 00:09:52,960 Speaker 1: enough capital where we don't have to worry about raising 186 00:09:52,960 --> 00:09:56,880 Speaker 1: money again. We have you know, we we are our 187 00:09:56,920 --> 00:09:59,560 Speaker 1: ambitions are to be a public company. That's the past. 188 00:09:59,640 --> 00:10:01,120 Speaker 1: So you have to be watching this. I P O 189 00:10:01,240 --> 00:10:03,560 Speaker 1: market and saying, what's going on? You bet you've got 190 00:10:03,800 --> 00:10:08,640 Speaker 1: My friend Near Cassir, who writes for Bloomberg Opinion, said, um, 191 00:10:08,840 --> 00:10:11,960 Speaker 1: Uber basically waited too long to come public. You know 192 00:10:12,080 --> 00:10:14,120 Speaker 1: you need to go public sooner. There has to be 193 00:10:14,160 --> 00:10:16,760 Speaker 1: some upside left on the table, and this could dog 194 00:10:16,840 --> 00:10:18,760 Speaker 1: them for a good couple of years. Are you paying 195 00:10:18,760 --> 00:10:21,360 Speaker 1: attention to this? I P O market. I think it's 196 00:10:21,400 --> 00:10:25,200 Speaker 1: really interesting to see that gap between the private markets 197 00:10:25,240 --> 00:10:28,360 Speaker 1: and the public markets. And however, you know, frankly, I 198 00:10:28,400 --> 00:10:32,160 Speaker 1: don't think anyone should be that surprised by the Uber story. 199 00:10:32,160 --> 00:10:34,960 Speaker 1: I mean evaluation alonguationwise, we were all saying, like three 200 00:10:35,040 --> 00:10:37,760 Speaker 1: years ago, I was thinking sixty billion dollar valuation, Like 201 00:10:38,320 --> 00:10:41,600 Speaker 1: pretty hi. I think someone said anybody who's in a 202 00:10:41,640 --> 00:10:44,680 Speaker 1: private investor into Uber over the past four years is 203 00:10:44,840 --> 00:10:50,520 Speaker 1: underwater as of May nineteen, which is pretty pretty astonishing. 204 00:10:50,520 --> 00:10:53,760 Speaker 1: All right, So let's pivot from the capital structure side 205 00:10:53,760 --> 00:10:57,280 Speaker 1: to the business side. I know you guys are um 206 00:10:57,480 --> 00:11:00,120 Speaker 1: Matthey and you look at a lot of data. Have 207 00:11:00,240 --> 00:11:03,640 Speaker 1: you figured out what the qust of acquiring a new 208 00:11:03,720 --> 00:11:06,959 Speaker 1: client is like? And how do you deal with that 209 00:11:07,120 --> 00:11:11,120 Speaker 1: in terms of marketing and just looking for new business. 210 00:11:11,440 --> 00:11:17,040 Speaker 1: So a lot of financial services firms are effectively marketing engines, right, Like, 211 00:11:17,160 --> 00:11:19,960 Speaker 1: they have a product that they make and then two 212 00:11:20,000 --> 00:11:23,320 Speaker 1: thirds of the company is they're pushing that riot, pushing 213 00:11:23,320 --> 00:11:26,480 Speaker 1: that product into market. We are not built that way. 214 00:11:26,559 --> 00:11:29,959 Speaker 1: Most of our team is R and D. We're building, 215 00:11:29,960 --> 00:11:32,160 Speaker 1: we're building technology right and of course we have an 216 00:11:32,160 --> 00:11:37,240 Speaker 1: amazing programmatic marketing team helping us understand our funnel, helping 217 00:11:37,360 --> 00:11:39,600 Speaker 1: us make sure that if you've visited the site, you're 218 00:11:39,600 --> 00:11:42,040 Speaker 1: getting the content that you want. We might retarget you 219 00:11:42,080 --> 00:11:45,320 Speaker 1: and bring you back. Uh. And we do some sponsorships 220 00:11:45,360 --> 00:11:49,160 Speaker 1: and podcasts and we just had Maggie Stiff, you know 221 00:11:49,240 --> 00:11:51,520 Speaker 1: from from Billions and and so and do do a 222 00:11:51,559 --> 00:11:53,719 Speaker 1: campaign for us. So we've done a good bit of 223 00:11:53,760 --> 00:11:56,600 Speaker 1: marketing to raise awareness and drive that top of the funnel, 224 00:11:57,400 --> 00:12:00,920 Speaker 1: awareness to betterment. By and large, were so efficient. We 225 00:12:01,360 --> 00:12:04,360 Speaker 1: keep becoming more and more efficient every year. We acquire 226 00:12:04,400 --> 00:12:08,480 Speaker 1: more customers and spend less doing it per customer less 227 00:12:08,480 --> 00:12:12,240 Speaker 1: per customer, so that's been great. So there are a 228 00:12:12,360 --> 00:12:15,120 Speaker 1: number of different companies that do what you do. How 229 00:12:15,120 --> 00:12:20,480 Speaker 1: do you differentiate yourself from the competition? Having competition is 230 00:12:20,640 --> 00:12:23,920 Speaker 1: a blessing I know, if you you know, go to 231 00:12:24,040 --> 00:12:27,240 Speaker 1: some like monopolists, they might disagree, right, they might say 232 00:12:27,280 --> 00:12:30,719 Speaker 1: that it's it's great to be alone. But for us, 233 00:12:31,000 --> 00:12:33,480 Speaker 1: I don't you know, we started this category right, this 234 00:12:33,600 --> 00:12:37,080 Speaker 1: is smart money manager. Thing didn't exist before, and we 235 00:12:37,120 --> 00:12:40,320 Speaker 1: said on stage at tech Crunch. At that launch, I 236 00:12:40,360 --> 00:12:42,400 Speaker 1: was asked, Hey, how are you going to deal with competition? 237 00:12:42,440 --> 00:12:43,920 Speaker 1: Do you think other people would do this? And I said, 238 00:12:43,960 --> 00:12:47,240 Speaker 1: if we're successful, we're going to have lots of competition. 239 00:12:47,760 --> 00:12:50,520 Speaker 1: So so let's talk about some of the giant names 240 00:12:50,559 --> 00:12:54,720 Speaker 1: that have are late to the space. Schwab rolled out 241 00:12:54,840 --> 00:12:57,680 Speaker 1: their version. Um, it's a little bit of an odd 242 00:12:57,720 --> 00:13:01,680 Speaker 1: portfolio coast. They make their money on the banking side. 243 00:13:01,720 --> 00:13:03,640 Speaker 1: There's a big I think it's like ten percent or 244 00:13:03,640 --> 00:13:06,920 Speaker 1: eight percent is cash and that's the really there is 245 00:13:06,960 --> 00:13:10,040 Speaker 1: nothing free, so the cash is what covers the cost 246 00:13:10,120 --> 00:13:13,040 Speaker 1: of it. And then there's Vanguard, which I believe across 247 00:13:13,120 --> 00:13:17,120 Speaker 1: the hundred billion dollars in their robot, they're they're just immense. 248 00:13:18,080 --> 00:13:21,520 Speaker 1: Any concerns is at a different audience, a different demographic. 249 00:13:21,559 --> 00:13:24,960 Speaker 1: How do you deal with those two giant firms breathing 250 00:13:25,040 --> 00:13:28,600 Speaker 1: down your neck? So they're not taking customers from us. 251 00:13:28,640 --> 00:13:32,200 Speaker 1: It's important to know that we're getting customers from them, 252 00:13:32,240 --> 00:13:35,880 Speaker 1: and we're getting customers organically from from other firms and 253 00:13:35,920 --> 00:13:38,920 Speaker 1: people who are sometimes new to saving and investing. But 254 00:13:39,000 --> 00:13:42,080 Speaker 1: no one's going I'm leaving betterment because honestly, we just 255 00:13:42,120 --> 00:13:44,319 Speaker 1: have a better product than these other firms. We're doing 256 00:13:44,360 --> 00:13:47,959 Speaker 1: more for our customers. We've run an analysis recently that 257 00:13:48,040 --> 00:13:52,239 Speaker 1: shows that if you sum up all of the investment management, 258 00:13:52,360 --> 00:13:56,880 Speaker 1: tax management, portfolio diversification, etcetera. That we do for you 259 00:13:57,360 --> 00:14:00,800 Speaker 1: and compare it to what you would get through doing 260 00:14:00,840 --> 00:14:04,960 Speaker 1: it yourself, even net of our fees, we're earning people 261 00:14:06,280 --> 00:14:09,439 Speaker 1: more in retirement than they could get on their own. 262 00:14:09,480 --> 00:14:12,800 Speaker 1: And that's the value of great advice and management. So 263 00:14:12,840 --> 00:14:15,440 Speaker 1: I'm very bullish on advice and these other these incumbent 264 00:14:15,480 --> 00:14:19,840 Speaker 1: firms are not primarily advisors, right. They're trying to pivot 265 00:14:19,920 --> 00:14:22,120 Speaker 1: to become that. They're talking a lot about it, but 266 00:14:22,160 --> 00:14:25,880 Speaker 1: it's not their d n A right. Vandguard a wonderful firm. 267 00:14:25,880 --> 00:14:29,560 Speaker 1: I have incredible respect for Jack Bogel. He's we wouldn't 268 00:14:29,560 --> 00:14:33,440 Speaker 1: be here without him. However, that firm today is just 269 00:14:33,640 --> 00:14:36,760 Speaker 1: a mutual fund sales machine. They just want to push 270 00:14:36,840 --> 00:14:40,360 Speaker 1: their their their mutual funds. And there's an old kind 271 00:14:40,400 --> 00:14:43,160 Speaker 1: of you know, orthodoxy that says, as long as you're 272 00:14:43,160 --> 00:14:45,240 Speaker 1: diversified and have low costs, that's the best thing you 273 00:14:45,240 --> 00:14:47,000 Speaker 1: can do, and like, we do that the best and 274 00:14:47,040 --> 00:14:49,240 Speaker 1: that's it. Well, I'm here to tell you that's not 275 00:14:49,280 --> 00:14:52,040 Speaker 1: good enough anymore. The world has changed, technology has changed, 276 00:14:52,080 --> 00:14:54,480 Speaker 1: and you really need an advisor to make the most 277 00:14:54,520 --> 00:14:57,600 Speaker 1: of your money today because smart money management is here 278 00:14:57,680 --> 00:15:00,080 Speaker 1: and it's not going away. Um. I can say the 279 00:15:00,120 --> 00:15:02,360 Speaker 1: same about Schwab. I mean, these guys did a lot 280 00:15:02,400 --> 00:15:05,480 Speaker 1: to innovate. I mean, Chuck, you know, like was one 281 00:15:05,520 --> 00:15:09,280 Speaker 1: of the very few people who said we're going to 282 00:15:09,400 --> 00:15:11,640 Speaker 1: take commissions down, not up. That was great in the 283 00:15:11,720 --> 00:15:14,160 Speaker 1: nineteen seventies when they did it. They've continued to drive 284 00:15:14,200 --> 00:15:16,680 Speaker 1: that that trading price down. Now there's folks out there 285 00:15:16,720 --> 00:15:18,600 Speaker 1: like Robin Hood or whatever where you can trade for 286 00:15:18,640 --> 00:15:21,200 Speaker 1: absolutely free. Does that mean that's what people should do 287 00:15:21,400 --> 00:15:25,040 Speaker 1: or that's a good thing. No, Absolutely, it's not a 288 00:15:25,080 --> 00:15:27,880 Speaker 1: good thing. Uh. And I don't think that they're encouraging 289 00:15:27,880 --> 00:15:30,000 Speaker 1: good behaviors over there, Schwab. They want you to keep 290 00:15:30,040 --> 00:15:32,280 Speaker 1: a lot of money in cash, and they're robbing you 291 00:15:32,360 --> 00:15:34,960 Speaker 1: with that. They're just taking your money, They're just taking 292 00:15:34,960 --> 00:15:36,600 Speaker 1: it away from you. And I think that needs to 293 00:15:36,640 --> 00:15:39,080 Speaker 1: be exposed and they should be held to account for 294 00:15:39,120 --> 00:15:42,080 Speaker 1: that behavior. Wow, those are those are strong words. So 295 00:15:42,080 --> 00:15:45,080 Speaker 1: so let's talk a little bit about UM what Vanguard 296 00:15:45,120 --> 00:15:50,760 Speaker 1: has called Advisors Alpha and you have discussed in detail. Uh, 297 00:15:50,960 --> 00:15:54,280 Speaker 1: tax lost harvesting is one thing that the computer does 298 00:15:54,400 --> 00:15:57,680 Speaker 1: much faster than sending an accountant with a green ice 299 00:15:57,720 --> 00:16:01,520 Speaker 1: shade to go through every transaction you've had. How much 300 00:16:01,680 --> 00:16:06,840 Speaker 1: can the average portfolio garner in in some tax loss 301 00:16:06,840 --> 00:16:10,920 Speaker 1: harvesting when we some across all of our features like 302 00:16:11,280 --> 00:16:14,720 Speaker 1: smart rebalancing which figures out when you have a dividend paid, 303 00:16:14,720 --> 00:16:16,760 Speaker 1: where to put that so you don't actually trigger a 304 00:16:16,760 --> 00:16:21,280 Speaker 1: taxable event, or UM are lot sorting which instead of 305 00:16:21,320 --> 00:16:24,040 Speaker 1: just doing FIEFO or LIFEO like most first and you 306 00:16:24,040 --> 00:16:26,160 Speaker 1: know first and last and first out, which are kind 307 00:16:26,160 --> 00:16:29,400 Speaker 1: of common algorithms, we will actually choose the right lot 308 00:16:29,480 --> 00:16:33,000 Speaker 1: to sell or buy at any specific moment. And my favorite, 309 00:16:33,200 --> 00:16:36,160 Speaker 1: which is tax coordination that looks at your roth IRA, 310 00:16:36,440 --> 00:16:39,320 Speaker 1: your traditional IRA, your four own K accounts, etcetera, and 311 00:16:39,360 --> 00:16:41,920 Speaker 1: puts the right assets into the right ones, to shield 312 00:16:41,920 --> 00:16:44,720 Speaker 1: your dividends, to shield things that might have long term appreciation. 313 00:16:44,920 --> 00:16:48,080 Speaker 1: You some across those features. And we're earning our average 314 00:16:48,120 --> 00:16:51,600 Speaker 1: customer net of our fees after our fee, one point 315 00:16:51,640 --> 00:16:55,400 Speaker 1: six one percent per year of alpha. It's an incredible 316 00:16:56,280 --> 00:16:59,040 Speaker 1: as it's big. That's a big number, right, It's like 317 00:16:59,080 --> 00:17:03,400 Speaker 1: it's like it's it's incredible, it's incredible. But we have 318 00:17:03,840 --> 00:17:06,240 Speaker 1: we've run amazing you know, scenario analysis on this, and 319 00:17:06,280 --> 00:17:08,639 Speaker 1: it's not like, you know, I can show you the picture. 320 00:17:08,680 --> 00:17:11,199 Speaker 1: It's not like in of outcomes, you're guaranteed to be 321 00:17:11,200 --> 00:17:14,120 Speaker 1: better if there's nothing like that in in investing. However, 322 00:17:14,560 --> 00:17:17,040 Speaker 1: in the average case, you're one point six one per 323 00:17:17,160 --> 00:17:21,960 Speaker 1: year better off with our algorithms then without them. So 324 00:17:22,040 --> 00:17:26,480 Speaker 1: what does that mean in terms of returns? It's one better, 325 00:17:26,560 --> 00:17:30,359 Speaker 1: but that's not that's as a percentage of the total 326 00:17:30,440 --> 00:17:33,480 Speaker 1: pl How much does that show up in actual returns 327 00:17:33,480 --> 00:17:36,199 Speaker 1: over over time? Well, that is that that is the 328 00:17:36,280 --> 00:17:38,880 Speaker 1: net return to a customer, that's after our fees, that's 329 00:17:38,920 --> 00:17:42,520 Speaker 1: after all taxes. So if the market gives you ten, 330 00:17:43,000 --> 00:17:47,560 Speaker 1: theoretically someone who's just invested in equities should see eleven 331 00:17:47,680 --> 00:17:50,920 Speaker 1: six one exactly. And it's not that linear, right, it's 332 00:17:50,920 --> 00:17:55,280 Speaker 1: not one per year guaranteed. But if you compound that, 333 00:17:55,800 --> 00:17:57,280 Speaker 1: you know, and we've run a bunch of you know, 334 00:17:57,359 --> 00:18:00,000 Speaker 1: scenario analyzes and things, and if you compounded over third 335 00:18:00,200 --> 00:18:02,639 Speaker 1: years investing for retirement, and that's how you end up 336 00:18:02,640 --> 00:18:06,359 Speaker 1: with more cash in the end. Let's talk a few 337 00:18:06,400 --> 00:18:11,359 Speaker 1: moments about this business. There's been some pushback into the 338 00:18:11,440 --> 00:18:15,600 Speaker 1: concept of automated advice giving. What do you say to 339 00:18:15,760 --> 00:18:20,119 Speaker 1: people who say, this is just a temporary technology fed 340 00:18:20,680 --> 00:18:24,040 Speaker 1: and people need live advisors. Being able to do this 341 00:18:24,600 --> 00:18:27,560 Speaker 1: with just software isn't going to get it done. I 342 00:18:27,640 --> 00:18:32,360 Speaker 1: believe live advisors provide a tremendous value to their clients. 343 00:18:32,400 --> 00:18:35,840 Speaker 1: Sometimes advisors, we have a product for advisors, it's Betterment 344 00:18:35,920 --> 00:18:39,239 Speaker 1: for advisors, as as you know. And sometimes advisors come 345 00:18:39,280 --> 00:18:42,000 Speaker 1: to us and say, what's to keep my clients from 346 00:18:42,040 --> 00:18:45,280 Speaker 1: just leaving me and going straight to betterment? And they 347 00:18:45,320 --> 00:18:48,280 Speaker 1: might worry about that, and we say, well, number one, 348 00:18:48,560 --> 00:18:52,520 Speaker 1: what's to stop them from doing that today? Why are 349 00:18:52,520 --> 00:18:56,040 Speaker 1: they with you? And they say, well, because I tell them, 350 00:18:56,160 --> 00:18:58,080 Speaker 1: I give them a full financial plan, I'm talking to 351 00:18:58,119 --> 00:19:00,680 Speaker 1: them about all their needs I see or fears I'm 352 00:19:00,720 --> 00:19:02,800 Speaker 1: there when the market's bad to talk to them, and 353 00:19:02,840 --> 00:19:06,440 Speaker 1: we say exactly, and that is a service that they 354 00:19:06,680 --> 00:19:09,520 Speaker 1: value very highly and are happy to pay for it 355 00:19:09,560 --> 00:19:11,960 Speaker 1: because you're giving them a lot of value. So that 356 00:19:12,040 --> 00:19:15,160 Speaker 1: kind of that relationship, all of that advice that advisors 357 00:19:15,200 --> 00:19:18,000 Speaker 1: are giving is still very valuable. What we can do 358 00:19:18,119 --> 00:19:20,640 Speaker 1: is we're a smart money manager, right, so we'll we'll 359 00:19:20,680 --> 00:19:22,680 Speaker 1: automate like the right kinds of things with your money 360 00:19:22,720 --> 00:19:25,280 Speaker 1: will help you make more on your money. And uh, 361 00:19:25,320 --> 00:19:28,439 Speaker 1: and we we we try. We also, um, you know, 362 00:19:28,640 --> 00:19:30,959 Speaker 1: work very hard to make it a convenient experience, right. 363 00:19:30,960 --> 00:19:33,879 Speaker 1: Our mobile apps are web apps make everything very accessible. 364 00:19:33,960 --> 00:19:36,880 Speaker 1: So originally you launched as a B two C as 365 00:19:36,880 --> 00:19:40,000 Speaker 1: a business to consumer, and there was a pivot to 366 00:19:40,119 --> 00:19:43,560 Speaker 1: add exactly what you were just describing, UM, you as 367 00:19:43,600 --> 00:19:46,920 Speaker 1: a business to business being the back ends for any 368 00:19:46,960 --> 00:19:51,119 Speaker 1: form of r I A or investment advisory firm. UM. 369 00:19:51,240 --> 00:19:53,919 Speaker 1: How did that pivot come about? And how challenging was 370 00:19:53,960 --> 00:19:58,080 Speaker 1: that transition? Getting to work with advisors was a thing 371 00:19:58,160 --> 00:19:59,920 Speaker 1: that we knew we wanted to do for a while, 372 00:20:00,600 --> 00:20:03,320 Speaker 1: It just it wasn't top priority we had to get. 373 00:20:03,520 --> 00:20:06,200 Speaker 1: You know, we had to build I RA s for instance, 374 00:20:06,240 --> 00:20:07,680 Speaker 1: we had to build a mobile at back in two 375 00:20:07,680 --> 00:20:10,160 Speaker 1: thousand twelve when we were just just getting our feet 376 00:20:10,200 --> 00:20:14,280 Speaker 1: under us. And it took some partners coming to us 377 00:20:14,359 --> 00:20:16,720 Speaker 1: and and saying, hey, we really want to do this, 378 00:20:16,800 --> 00:20:19,720 Speaker 1: we'll invest with you. Uh, if you'll, if you'll help 379 00:20:19,760 --> 00:20:22,639 Speaker 1: make this a reality for us. Uh. Steve Auction was 380 00:20:22,680 --> 00:20:26,240 Speaker 1: one of those early early partners uh and uh. And 381 00:20:26,359 --> 00:20:29,960 Speaker 1: working with them, we had an instant client, right, so 382 00:20:30,080 --> 00:20:32,119 Speaker 1: we had someone that we were building for and that 383 00:20:32,200 --> 00:20:34,960 Speaker 1: was with which firm. So that was with advice period 384 00:20:34,960 --> 00:20:38,160 Speaker 1: at the time. Uh and uh. And we've grown from there. 385 00:20:38,280 --> 00:20:41,000 Speaker 1: We now work with thousands of advisors all across the country. 386 00:20:41,359 --> 00:20:44,800 Speaker 1: Quite quite intriguing. Now, some of your competitors have tried 387 00:20:44,920 --> 00:20:48,600 Speaker 1: some interesting variations UM. One of them rolled out a 388 00:20:48,720 --> 00:20:52,520 Speaker 1: risk parity fund, sort of well maybe we're not in dextors, 389 00:20:52,560 --> 00:20:55,200 Speaker 1: maybe we can beat the market. Didn't seem to work 390 00:20:55,240 --> 00:20:58,200 Speaker 1: out too well. Uh. If you're a Bridgewater or a 391 00:20:58,359 --> 00:21:01,280 Speaker 1: Q you are, Hey, that's one thing. But Wealth Front 392 00:21:01,320 --> 00:21:03,760 Speaker 1: had some problems with this. I know a few other 393 00:21:03,800 --> 00:21:06,920 Speaker 1: companies had looked at it. Uh. What do you think 394 00:21:07,080 --> 00:21:12,919 Speaker 1: of this idea of UM? People still being enthusiastic for 395 00:21:13,119 --> 00:21:16,560 Speaker 1: trying to beat the market. Everyone wants to beat the market. 396 00:21:17,960 --> 00:21:20,120 Speaker 1: You do, I do, and if we could do it well, like, 397 00:21:20,320 --> 00:21:24,480 Speaker 1: you know, that'd be amazing. The reason that Vanguard has 398 00:21:24,480 --> 00:21:26,800 Speaker 1: the big business that they do is a lot of 399 00:21:26,840 --> 00:21:28,960 Speaker 1: people came around to believe that it's really hard to 400 00:21:28,960 --> 00:21:31,920 Speaker 1: beat the market net of fees, right, and the old 401 00:21:31,920 --> 00:21:35,200 Speaker 1: technology of having you know, somebody who's just picking stocks 402 00:21:35,240 --> 00:21:38,880 Speaker 1: for you, it was probably not the most efficient way 403 00:21:38,960 --> 00:21:42,639 Speaker 1: to to deploy your assets. Now today that idea of 404 00:21:42,720 --> 00:21:45,360 Speaker 1: just pure indexing is you know, it's a little bit 405 00:21:45,600 --> 00:21:47,879 Speaker 1: boring and maybe it's no longer the cutting it. So 406 00:21:47,920 --> 00:21:51,120 Speaker 1: people are trying alternative indexes. And to me, it's very 407 00:21:51,119 --> 00:21:53,359 Speaker 1: hard to tell the difference between active and passive anymore 408 00:21:53,359 --> 00:21:56,400 Speaker 1: because there's so many different types of passive out there. Well, 409 00:21:56,400 --> 00:21:59,320 Speaker 1: we've and is an algorithm active or passive? Right? Is it? 410 00:21:59,440 --> 00:22:02,879 Speaker 1: You know? If you in in index? Is an active choice? Right? Like? 411 00:22:02,920 --> 00:22:05,119 Speaker 1: Which index? Are we going to track what gets added 412 00:22:05,119 --> 00:22:07,280 Speaker 1: and what's and what's not? Do we put in companies 413 00:22:07,320 --> 00:22:10,600 Speaker 1: that don't have you know, equal equal share voting things 414 00:22:10,600 --> 00:22:14,919 Speaker 1: like this? Uh? And so I think those lines are 415 00:22:14,960 --> 00:22:18,679 Speaker 1: going to continue to be blurred, But ultimately what what 416 00:22:18,800 --> 00:22:22,320 Speaker 1: drive performance is low fees, optimizing for the things you 417 00:22:22,359 --> 00:22:24,480 Speaker 1: can control, and not worrying about the things that you 418 00:22:24,520 --> 00:22:27,600 Speaker 1: can't control. The things you can can control include your 419 00:22:27,600 --> 00:22:32,399 Speaker 1: own behavior, right, So like auto deposit invest very regularly. 420 00:22:32,840 --> 00:22:36,200 Speaker 1: They include taxes, so account for that over time. UM. 421 00:22:36,280 --> 00:22:38,560 Speaker 1: They include having the right types of account set up 422 00:22:38,560 --> 00:22:39,919 Speaker 1: for things so that you don't need to go and 423 00:22:40,000 --> 00:22:42,680 Speaker 1: raid your retirement account to meet some short term expense. 424 00:22:43,160 --> 00:22:46,080 Speaker 1: Uh So advice and planning can help with all of 425 00:22:46,160 --> 00:22:48,080 Speaker 1: these things that you can control and help you make 426 00:22:48,119 --> 00:22:50,959 Speaker 1: the most of your money. So some people dislike the 427 00:22:51,000 --> 00:22:55,080 Speaker 1: phrase robo advisor. What what's your view on that phrase 428 00:22:55,520 --> 00:22:59,000 Speaker 1: and what's your preferred terminology. I think robo advisor is fun, 429 00:22:59,240 --> 00:23:01,720 Speaker 1: it's it's a hand all. It's been around for for 430 00:23:01,800 --> 00:23:03,520 Speaker 1: a bit now, and it's how it's how we're now. 431 00:23:03,560 --> 00:23:06,480 Speaker 1: And I use smart money Manager because I think of 432 00:23:06,600 --> 00:23:09,320 Speaker 1: us like a smart home or a smart car. There's 433 00:23:09,400 --> 00:23:12,640 Speaker 1: just better technology now that's available and people should all 434 00:23:12,680 --> 00:23:15,800 Speaker 1: be using it. Eventually everyone will be. Uh, there's just 435 00:23:16,000 --> 00:23:18,719 Speaker 1: there's a lot of inertia in our space. Well, you know, 436 00:23:18,760 --> 00:23:22,320 Speaker 1: the pushback is it's not necessarily advisor and there's no 437 00:23:22,440 --> 00:23:29,240 Speaker 1: robots involved. We call has has been the pushback. Um 438 00:23:29,320 --> 00:23:32,520 Speaker 1: so so, given the technology that we've seen, given how 439 00:23:32,560 --> 00:23:37,920 Speaker 1: it's deployed, what is the next logical step for this 440 00:23:37,960 --> 00:23:40,680 Speaker 1: sort of advice we we've you've rolled out a four 441 00:23:40,680 --> 00:23:46,080 Speaker 1: oh one K department seems to be fairly um human intensive. 442 00:23:46,119 --> 00:23:49,479 Speaker 1: There's so many people along the lines that sales arc 443 00:23:49,520 --> 00:23:52,560 Speaker 1: has to take forever. What else are you looking at 444 00:23:52,720 --> 00:23:56,600 Speaker 1: as a possible way to use your technology to make 445 00:23:56,640 --> 00:24:00,280 Speaker 1: investing more efficient. I'm so bullish on the four own cabinus. 446 00:24:00,359 --> 00:24:02,720 Speaker 1: The better effort for a business line has been great. 447 00:24:02,800 --> 00:24:06,879 Speaker 1: We've been growing that quickly. Uh and I I just 448 00:24:07,119 --> 00:24:08,840 Speaker 1: keep trying to lean into that, Like, more of that 449 00:24:08,920 --> 00:24:11,440 Speaker 1: we can do that the better because all these employers 450 00:24:11,440 --> 00:24:14,399 Speaker 1: are really concerned about employee wellness and the best benefits 451 00:24:14,440 --> 00:24:17,000 Speaker 1: to retain the best talent. And that's where we really 452 00:24:17,080 --> 00:24:20,199 Speaker 1: stand out as having this great client experience and personalized 453 00:24:20,240 --> 00:24:23,400 Speaker 1: advice for every participant. Nobody else offers that, right, It's 454 00:24:23,440 --> 00:24:26,000 Speaker 1: a it's a really great plan. But as I look 455 00:24:26,119 --> 00:24:28,760 Speaker 1: towards the future, the things that I'm excited about now 456 00:24:29,280 --> 00:24:34,040 Speaker 1: are around your everyday cash management. Right, UM, When I 457 00:24:34,080 --> 00:24:38,639 Speaker 1: think about um our mission to begin. Going all the 458 00:24:38,680 --> 00:24:40,760 Speaker 1: way back to the launch, we said we want to 459 00:24:40,800 --> 00:24:43,920 Speaker 1: help customers do what's best with their money so they 460 00:24:43,920 --> 00:24:47,320 Speaker 1: can live better. And people took that to mean when 461 00:24:47,320 --> 00:24:50,199 Speaker 1: we launched investing that we were all about being just 462 00:24:50,280 --> 00:24:52,760 Speaker 1: a financial advisor and just sort of a wealth manager. 463 00:24:52,800 --> 00:24:55,760 Speaker 1: Maybe we're sometimes put in that category. I've always thought 464 00:24:55,800 --> 00:24:58,879 Speaker 1: of us as this holistic smart money manager, and that 465 00:24:58,960 --> 00:25:02,560 Speaker 1: includes your every day checking and savings and all of 466 00:25:02,560 --> 00:25:06,960 Speaker 1: these kinds. So so Schwab has effectively become a bank. 467 00:25:07,320 --> 00:25:10,119 Speaker 1: Goldman Sachs is a bank. Are you saying Betterment is 468 00:25:10,760 --> 00:25:14,560 Speaker 1: becoming a full FDIC in shored bank. Is that the plan? 469 00:25:14,800 --> 00:25:17,000 Speaker 1: I'm not saying that. I'm saying, you know, I'm saying 470 00:25:17,000 --> 00:25:19,600 Speaker 1: that I'm trying to get you to tell me whether 471 00:25:19,680 --> 00:25:23,160 Speaker 1: or not that's gonna happen. You know, In the last 472 00:25:23,359 --> 00:25:28,160 Speaker 1: last December, we launched smart Saver, which was our high 473 00:25:28,280 --> 00:25:31,959 Speaker 1: yield savings account alternative. Then we launched two ways Sweep 474 00:25:32,480 --> 00:25:35,840 Speaker 1: early this year, uh, and that allowed people to automatically 475 00:25:35,840 --> 00:25:38,280 Speaker 1: move money back and forth from their checking account. And 476 00:25:38,440 --> 00:25:42,360 Speaker 1: your sweep is a reasonable fee. You mentioned Schwab. They 477 00:25:42,480 --> 00:25:45,479 Speaker 1: there's a big Wall Street Journal article their sweep is 478 00:25:45,520 --> 00:25:49,600 Speaker 1: no longer a high paying short term um fund. It's 479 00:25:49,720 --> 00:25:53,479 Speaker 1: really a low paying cash account. It's crazy that they 480 00:25:53,480 --> 00:25:56,400 Speaker 1: were able to get away with that, isn't it. It's 481 00:25:56,440 --> 00:25:59,840 Speaker 1: complicated enough that nobody really understood what they were doing. 482 00:26:00,200 --> 00:26:02,760 Speaker 1: But it's real money. And in my office and I'm 483 00:26:02,800 --> 00:26:05,600 Speaker 1: sure in yours, it meant that anything we custody to 484 00:26:05,680 --> 00:26:09,119 Speaker 1: SWAB there had to be a decision made. Hey, for 485 00:26:09,240 --> 00:26:11,879 Speaker 1: this much money, for more than this many days, it 486 00:26:11,920 --> 00:26:14,399 Speaker 1: has to come out of cash and go into this 487 00:26:14,880 --> 00:26:18,479 Speaker 1: bond short term bond fund. Because it's a substantial difference 488 00:26:18,480 --> 00:26:24,679 Speaker 1: and interest rates. I think people, customers, citizens need to 489 00:26:24,760 --> 00:26:28,200 Speaker 1: stand up and demand better. I just it just frustrates 490 00:26:28,240 --> 00:26:32,159 Speaker 1: me to no end that these banks and brokers can 491 00:26:32,200 --> 00:26:34,440 Speaker 1: get away with this kind of behavior because that's where 492 00:26:34,440 --> 00:26:36,760 Speaker 1: they make most of their money. Right, SCHWAB makes more 493 00:26:36,800 --> 00:26:40,720 Speaker 1: than fifty of their profits off of your idle cash. 494 00:26:41,040 --> 00:26:42,879 Speaker 1: If you're a SWAB customer, you don't know how much 495 00:26:42,880 --> 00:26:45,399 Speaker 1: you're just giving them money, just giving it away, and 496 00:26:45,440 --> 00:26:47,520 Speaker 1: they are lending it out for mortgagees and whatnot, and 497 00:26:47,520 --> 00:26:50,480 Speaker 1: you're getting nothing off of that, well, practically nothing. It's 498 00:26:50,480 --> 00:26:53,680 Speaker 1: a very low amount. It's nothing, but They're not alone 499 00:26:53,680 --> 00:26:55,800 Speaker 1: in this, right, you know, Bank America is doing this, 500 00:26:56,000 --> 00:26:58,120 Speaker 1: JP Morgan is doing this. This is how they're all 501 00:26:58,160 --> 00:27:01,560 Speaker 1: making their money. So those retail accounts is where all 502 00:27:01,600 --> 00:27:04,600 Speaker 1: the money is in banking, and I think it's time 503 00:27:04,600 --> 00:27:06,119 Speaker 1: for a change there. I don't think most people are 504 00:27:06,160 --> 00:27:08,000 Speaker 1: aware of that because you're taught, oh yeah, just put 505 00:27:08,040 --> 00:27:09,760 Speaker 1: your money in your checking incot your savings account. That's 506 00:27:09,760 --> 00:27:11,320 Speaker 1: a safe place to put it. I'll tell you. As 507 00:27:11,359 --> 00:27:14,120 Speaker 1: a consultant back at First Manhattan Consulting Group, I saw 508 00:27:14,160 --> 00:27:17,719 Speaker 1: some really bad practices with those checking accounts, crazy amounts 509 00:27:17,720 --> 00:27:20,280 Speaker 1: of fees charged to people, and then and then the 510 00:27:20,320 --> 00:27:23,119 Speaker 1: interest is silly low. But it's a collective active problem. 511 00:27:23,160 --> 00:27:26,320 Speaker 1: Where collective collective action problem, I mean where uh you know, 512 00:27:26,440 --> 00:27:29,000 Speaker 1: basically you're only losing a few hundred dollars a year, 513 00:27:29,080 --> 00:27:32,000 Speaker 1: you don't care that much. You have to band together. 514 00:27:32,040 --> 00:27:34,680 Speaker 1: We all have to demand better. And that cash management, 515 00:27:34,720 --> 00:27:36,800 Speaker 1: to me is a super exciting spot for us where 516 00:27:36,800 --> 00:27:39,080 Speaker 1: I think we can make a real impact on all 517 00:27:39,200 --> 00:27:42,200 Speaker 1: of americans lives. So let's talk a little bit about 518 00:27:42,240 --> 00:27:47,520 Speaker 1: the different model portfolios that you guys run there, mostly Vanguard. 519 00:27:47,600 --> 00:27:50,600 Speaker 1: Last time I looked old Vanguard, mostly Vanguard. In our 520 00:27:50,680 --> 00:27:54,280 Speaker 1: core portfolios that we recommend for customers, something like seventy 521 00:27:54,440 --> 00:27:59,280 Speaker 1: percent of every of every dollar would go into one 522 00:27:59,359 --> 00:28:02,440 Speaker 1: of a couple of dozen Vanguard funds. Now. The other 523 00:28:02,680 --> 00:28:07,200 Speaker 1: thirty percent is across black Rock and Schwab funds, and 524 00:28:07,520 --> 00:28:09,760 Speaker 1: and there's there's others in there as well. What we 525 00:28:09,840 --> 00:28:12,560 Speaker 1: do is we're independent. We don't make any money off 526 00:28:12,600 --> 00:28:15,639 Speaker 1: the funds that we offer. We don't offer any of 527 00:28:15,640 --> 00:28:18,040 Speaker 1: our own funds, and that makes us virtually unique, by 528 00:28:18,080 --> 00:28:21,080 Speaker 1: the way, in this in this space, you're a fiduciary 529 00:28:21,119 --> 00:28:23,159 Speaker 1: to your clients or a fiduciary to our clients. So 530 00:28:23,160 --> 00:28:25,520 Speaker 1: you're not a broker. You're not selling shelf space, you're 531 00:28:25,560 --> 00:28:28,159 Speaker 1: not getting kickbacks. There's none of that, right, And and 532 00:28:28,200 --> 00:28:31,119 Speaker 1: all these all these other firms do right, even Vanguard, right, 533 00:28:31,119 --> 00:28:33,560 Speaker 1: they're only selling their own funds. Schwab has their own 534 00:28:33,560 --> 00:28:36,120 Speaker 1: funds in their portfolio. So all of these guys are 535 00:28:36,160 --> 00:28:38,520 Speaker 1: double dipping. In my view, they're charging you not just 536 00:28:38,640 --> 00:28:40,680 Speaker 1: for the fund, but also for the advice on top 537 00:28:40,680 --> 00:28:43,200 Speaker 1: of We get paid for advice, and that's it. And 538 00:28:43,240 --> 00:28:46,680 Speaker 1: I think that advice, that simplicity of what we do 539 00:28:46,840 --> 00:28:49,520 Speaker 1: is how you know that we're acting in your best interests. 540 00:28:49,960 --> 00:28:55,040 Speaker 1: So talking about Van Goard and the fiduciary um obligation, 541 00:28:55,560 --> 00:28:58,600 Speaker 1: you wrote a very lovely tribute after Jack Bogel, founder 542 00:28:58,680 --> 00:29:03,200 Speaker 1: of Vanguard, passed away. Um tell us about what motivated that, 543 00:29:03,280 --> 00:29:06,640 Speaker 1: what was your relationship with Jack, and what did he 544 00:29:06,680 --> 00:29:09,720 Speaker 1: mean to you. Jack. I wouldn't be here without his 545 00:29:09,800 --> 00:29:14,600 Speaker 1: influence and example. When I was initially thinking about doing 546 00:29:14,640 --> 00:29:17,480 Speaker 1: something in this space, the examples that inspired me were 547 00:29:17,840 --> 00:29:23,640 Speaker 1: the investing efficiency of Vanguard and the online simplicity of 548 00:29:23,640 --> 00:29:25,400 Speaker 1: iron g Direct. And now this was back in two 549 00:29:25,400 --> 00:29:28,080 Speaker 1: thousand and six when iron g Direct was an independent 550 00:29:28,120 --> 00:29:31,280 Speaker 1: brand and you know, it was innovating in web financial 551 00:29:31,320 --> 00:29:33,680 Speaker 1: services and that's nowther part of Capital One and it's 552 00:29:33,720 --> 00:29:37,520 Speaker 1: no longer the case. But I was inspired by Jack, 553 00:29:37,560 --> 00:29:39,200 Speaker 1: and when I met him, it was just like it 554 00:29:39,280 --> 00:29:41,000 Speaker 1: was like meeting you know, your idol. You know, I 555 00:29:41,080 --> 00:29:43,640 Speaker 1: just couldn't believe it. And he talked to me and 556 00:29:43,680 --> 00:29:46,240 Speaker 1: he signed my book and he said, uh, you know, 557 00:29:46,320 --> 00:29:47,960 Speaker 1: you're going to do a lot of good for a 558 00:29:47,960 --> 00:29:50,040 Speaker 1: lot of people. And I was just so touched by that. 559 00:29:50,120 --> 00:29:52,600 Speaker 1: I was really encouraged and inspired to to move on 560 00:29:52,680 --> 00:29:54,760 Speaker 1: and over the years we kept in touch. I went 561 00:29:54,840 --> 00:29:57,120 Speaker 1: to his office, we we talked a number of times 562 00:29:57,200 --> 00:30:01,440 Speaker 1: at conferences and this and that. I uh, I just 563 00:30:01,600 --> 00:30:04,880 Speaker 1: I think he was such a good person and he 564 00:30:04,960 --> 00:30:07,680 Speaker 1: cared about his people. He cared about his customers. That 565 00:30:07,760 --> 00:30:11,120 Speaker 1: example is with me all the time. So, so let's 566 00:30:11,160 --> 00:30:15,760 Speaker 1: talk about the fiduciary rule. Since we're discussing um, caring 567 00:30:15,800 --> 00:30:18,680 Speaker 1: about your customers or at least doing what's in their 568 00:30:18,680 --> 00:30:22,600 Speaker 1: best interest. We were supposed to have at least four 569 00:30:22,640 --> 00:30:27,560 Speaker 1: retirement accounts UH a moderated version of the fiduciary rule, 570 00:30:28,200 --> 00:30:33,400 Speaker 1: and that in April twenties seventeen got a killed at 571 00:30:33,480 --> 00:30:37,520 Speaker 1: least temporarily set back. What are your thoughts about this? 572 00:30:38,080 --> 00:30:41,440 Speaker 1: And again full disclosure, You're a fiduciary your clients. I'm 573 00:30:41,480 --> 00:30:45,160 Speaker 1: a fiduciary to my clients, so I'm not arguing against this. 574 00:30:45,200 --> 00:30:48,120 Speaker 1: We're on the same side of of the street with this. 575 00:30:48,480 --> 00:30:52,440 Speaker 1: But there's always a lot of pushback anytime the fiduciary 576 00:30:52,520 --> 00:30:55,040 Speaker 1: rule comes up. I think this is why we have 577 00:30:55,120 --> 00:30:59,600 Speaker 1: a collective action problem. There are so these these firms. 578 00:31:00,000 --> 00:31:03,520 Speaker 1: I'm making so much money off of recommending the wrong thing, 579 00:31:03,600 --> 00:31:05,920 Speaker 1: off of suggesting that you keep more money in cash 580 00:31:05,960 --> 00:31:08,360 Speaker 1: off of suggesting that you should just buy our mutual 581 00:31:08,440 --> 00:31:10,760 Speaker 1: fund because it's just as good as anything else out 582 00:31:10,800 --> 00:31:13,480 Speaker 1: there that is such a profitable thing, because it's a 583 00:31:13,480 --> 00:31:16,200 Speaker 1: way of hiding a fee from you. Now, the thing 584 00:31:16,560 --> 00:31:19,280 Speaker 1: you might say, why can't regulatory actions solve this? Why 585 00:31:19,320 --> 00:31:22,200 Speaker 1: why don't they do something about it? Well, it takes 586 00:31:22,200 --> 00:31:26,840 Speaker 1: a crisis. And in the mortgage crisis, we had that moment. 587 00:31:26,880 --> 00:31:29,080 Speaker 1: We had you know, people on TV who had lost 588 00:31:29,120 --> 00:31:31,960 Speaker 1: everything because they had gotten a mortgage that they didn't understand, 589 00:31:32,640 --> 00:31:35,640 Speaker 1: and so we regulated mortgages. And now, frankly, I just 590 00:31:35,720 --> 00:31:38,320 Speaker 1: got a mortgage, and so I can tell you it's 591 00:31:38,320 --> 00:31:40,400 Speaker 1: still a pain in the neck, but it is pretty 592 00:31:40,440 --> 00:31:42,760 Speaker 1: clear at least what you're paying and what you're getting. 593 00:31:42,800 --> 00:31:46,800 Speaker 1: Those disclosure forms are good. Now, all we are asking 594 00:31:46,880 --> 00:31:50,000 Speaker 1: for with the fiduciary rule or with the SEC's Best 595 00:31:50,040 --> 00:31:54,080 Speaker 1: interest rule, is to have clarity around disclosure, around what 596 00:31:54,160 --> 00:31:57,320 Speaker 1: you're paying for and what you're getting. And of course, 597 00:31:57,360 --> 00:32:00,560 Speaker 1: these financial firms are arguing against the with all of 598 00:32:00,600 --> 00:32:03,240 Speaker 1: their might because they love burying fees, They love taking 599 00:32:03,240 --> 00:32:06,640 Speaker 1: advantage of your behavior and hiding fees in places that 600 00:32:06,680 --> 00:32:08,760 Speaker 1: you won't notice them like, oh, this money is just 601 00:32:08,800 --> 00:32:10,560 Speaker 1: sitting here, we won't pay you any interest on it, 602 00:32:10,680 --> 00:32:13,760 Speaker 1: or oh, you'll only pay us if you overdraft her, 603 00:32:13,800 --> 00:32:16,400 Speaker 1: if you pay late, because people think, well, I'm smart, 604 00:32:16,440 --> 00:32:18,280 Speaker 1: I won't pay late and I won't keep very much 605 00:32:18,320 --> 00:32:21,440 Speaker 1: money in that account. I'll manage this. And the firms 606 00:32:21,440 --> 00:32:23,840 Speaker 1: have all your data and they know you won't do 607 00:32:23,920 --> 00:32:26,720 Speaker 1: those things. You will misbehave, you will accidentally forget something, 608 00:32:26,760 --> 00:32:29,400 Speaker 1: you won't actively manage it because you don't have infinite time. 609 00:32:29,640 --> 00:32:32,440 Speaker 1: And so what you need increasingly as an advisor in 610 00:32:32,520 --> 00:32:35,560 Speaker 1: your corner doing these things for you. You need an advisor, 611 00:32:35,600 --> 00:32:38,000 Speaker 1: You need a smart money manager, You need the best technology. 612 00:32:38,040 --> 00:32:40,360 Speaker 1: You need both of those things. So, if I recall 613 00:32:40,560 --> 00:32:43,920 Speaker 1: under the Obama administration when they wrote the white paper 614 00:32:44,400 --> 00:32:49,400 Speaker 1: about the fiduciary rule just in retirement accounts, they claimed 615 00:32:49,600 --> 00:32:54,000 Speaker 1: excess fees were north of seventeen billion dollars a year. 616 00:32:54,400 --> 00:32:57,520 Speaker 1: That's a lot of money collectively that should be going 617 00:32:57,640 --> 00:33:01,080 Speaker 1: towards people's retirements and it's not. So is this just 618 00:33:01,360 --> 00:33:04,480 Speaker 1: is the fujuciary rule just about money? Is that why 619 00:33:04,720 --> 00:33:08,000 Speaker 1: people are opposing this? That's it, that's that's seventeen billion 620 00:33:08,040 --> 00:33:11,280 Speaker 1: dollars that should be going to clients is going to 621 00:33:11,520 --> 00:33:14,920 Speaker 1: the industry. Right. The industry didn't argue with that number. 622 00:33:14,960 --> 00:33:16,880 Speaker 1: They just said, if this rule goes through, it will 623 00:33:16,920 --> 00:33:21,000 Speaker 1: impact our profits by seventeen billion dollars. Okay, So do 624 00:33:21,040 --> 00:33:25,560 Speaker 1: you want that money to go to consumers, to individuals, 625 00:33:26,200 --> 00:33:27,760 Speaker 1: or do you want it to go to the financial 626 00:33:27,760 --> 00:33:31,040 Speaker 1: services industry. Personally, I'm all about the consumer. I'm super 627 00:33:31,040 --> 00:33:35,040 Speaker 1: passionate about making things more transparent, about giving letting people 628 00:33:35,080 --> 00:33:37,400 Speaker 1: know what they're getting, letting them know what they're paying for, 629 00:33:37,760 --> 00:33:39,520 Speaker 1: and let them make the decision. If they want the 630 00:33:39,560 --> 00:33:42,280 Speaker 1: high priced option, you can have it, but just have 631 00:33:42,320 --> 00:33:47,640 Speaker 1: the transparency. Uh. That's that's fair enough. So from your perspective, 632 00:33:47,680 --> 00:33:52,160 Speaker 1: you you sit at the nexus of technology and financial services. 633 00:33:52,560 --> 00:33:56,640 Speaker 1: I won't use the terrible phrase that that everybody else uses, um, 634 00:33:56,680 --> 00:33:59,600 Speaker 1: but looking forward, what does the next twenty years or 635 00:33:59,640 --> 00:34:05,000 Speaker 1: so in that space look like? What changes should we expect. 636 00:34:05,600 --> 00:34:10,120 Speaker 1: We think about the self managing wallet, we think about 637 00:34:10,160 --> 00:34:13,279 Speaker 1: the self driving car. Right and if if, if you 638 00:34:13,400 --> 00:34:16,359 Speaker 1: like me, I I believe that sometime over the next 639 00:34:16,400 --> 00:34:18,840 Speaker 1: twenty years, we're going to have self driving cars. Right, 640 00:34:18,880 --> 00:34:20,600 Speaker 1: I don't know if it's going to be twenty is 641 00:34:20,640 --> 00:34:24,360 Speaker 1: probably less than that, it could be, right and uh, 642 00:34:24,480 --> 00:34:26,680 Speaker 1: and eventually that's just going to become the way that 643 00:34:26,719 --> 00:34:28,839 Speaker 1: we get around and everyone's going to be used to it. 644 00:34:29,239 --> 00:34:31,279 Speaker 1: Right now, it still seems a little bit far fetched. Well, 645 00:34:31,480 --> 00:34:33,440 Speaker 1: I look at the self managing wall at the same way. 646 00:34:33,480 --> 00:34:35,279 Speaker 1: I can't imagine that you're going to get in a 647 00:34:35,280 --> 00:34:37,600 Speaker 1: self driving car to take you to work, and then 648 00:34:37,640 --> 00:34:38,880 Speaker 1: at the end of the day you're still going to 649 00:34:38,960 --> 00:34:40,640 Speaker 1: have to figure out how much to putting your wrath 650 00:34:40,760 --> 00:34:43,520 Speaker 1: versus your traditional I RRA And did I actually balance 651 00:34:43,560 --> 00:34:45,840 Speaker 1: my checking account this much? Of course, that's going to 652 00:34:45,880 --> 00:34:49,359 Speaker 1: be managed by, you know, a smart system, and that 653 00:34:49,440 --> 00:34:52,120 Speaker 1: system exists right now, and it just keeps getting better 654 00:34:52,160 --> 00:34:54,480 Speaker 1: every day, so it's time to start using it. Do 655 00:34:54,560 --> 00:34:58,480 Speaker 1: you look at companies like Amazon as potentially coming into 656 00:34:58,520 --> 00:35:01,960 Speaker 1: the financial service the space? I know lots of people 657 00:35:02,040 --> 00:35:06,799 Speaker 1: of UM positive that thesis, But what else is coming 658 00:35:06,840 --> 00:35:12,200 Speaker 1: along to disrupt financial services? We see the financial services 659 00:35:12,320 --> 00:35:16,200 Speaker 1: a broad space, and certainly Amazon and Apple are interested 660 00:35:16,239 --> 00:35:19,000 Speaker 1: in the payment side, the sites closer to commerce, which 661 00:35:19,040 --> 00:35:22,120 Speaker 1: is their core right. They would rather earn that three 662 00:35:22,120 --> 00:35:25,080 Speaker 1: percent interchange than you know, have some other third party 663 00:35:25,120 --> 00:35:28,839 Speaker 1: earn it for them to get into, say, managing on 664 00:35:29,080 --> 00:35:32,760 Speaker 1: wealth is a little further afield. But maybe in between 665 00:35:33,040 --> 00:35:35,759 Speaker 1: some of this everyday cash management that I was talking about, 666 00:35:35,840 --> 00:35:40,840 Speaker 1: maybe they will play there. I think certainly the large 667 00:35:40,840 --> 00:35:44,480 Speaker 1: incumbents and financial services could use some challengers. Frankly, so 668 00:35:44,600 --> 00:35:47,600 Speaker 1: could these large uh, these large I T companies use 669 00:35:47,680 --> 00:35:50,839 Speaker 1: some some challengers. I think they're They're in a lot 670 00:35:50,840 --> 00:35:55,120 Speaker 1: of businesses right now. And um, Fortunately in financial services 671 00:35:55,120 --> 00:35:58,640 Speaker 1: we have a pretty good regime of competition being good. Right, 672 00:35:58,640 --> 00:36:01,880 Speaker 1: There's all kinds of laws around mack size of banks 673 00:36:01,960 --> 00:36:05,680 Speaker 1: and competitive pricing to keep it a dynamic competitive market. 674 00:36:06,040 --> 00:36:09,359 Speaker 1: You see prices continuing to go lower even in your 675 00:36:09,400 --> 00:36:12,480 Speaker 1: space or is that you know, twenty five basis points 676 00:36:12,560 --> 00:36:15,879 Speaker 1: is a pretty reasonable price point. How much lower could 677 00:36:15,880 --> 00:36:19,279 Speaker 1: that possibly go? If you have a competitive market like 678 00:36:19,320 --> 00:36:25,160 Speaker 1: financial services, prices will generally follow to uh to the cost. 679 00:36:25,360 --> 00:36:29,160 Speaker 1: Right if if there's you only get real difference divergence 680 00:36:29,200 --> 00:36:33,080 Speaker 1: between price and costs when you have more monopolistic areas. Now, 681 00:36:33,080 --> 00:36:34,759 Speaker 1: I think one of the interesting things that's going on 682 00:36:34,920 --> 00:36:38,399 Speaker 1: is there is a monopolistic tendency in retail banking right now. 683 00:36:38,760 --> 00:36:44,600 Speaker 1: So the banks that control fort of retail branches opened 684 00:36:44,640 --> 00:36:48,160 Speaker 1: eight percent of accounts over the last five years. If 685 00:36:48,200 --> 00:36:51,719 Speaker 1: you go back thirty years, the five biggest banks had 686 00:36:51,840 --> 00:36:55,759 Speaker 1: less than ten percent of the total deposits. Now it's 687 00:36:55,840 --> 00:37:00,279 Speaker 1: practically fifty. It's amazing how how much consolidation and there's 688 00:37:00,320 --> 00:37:03,319 Speaker 1: been in that space, especially after the crisis. So there's 689 00:37:03,400 --> 00:37:06,560 Speaker 1: less and less competition. And none of those banks, those 690 00:37:06,600 --> 00:37:09,240 Speaker 1: big ones, those big four or five, are price leaders. 691 00:37:09,320 --> 00:37:11,680 Speaker 1: None of them are actually giving customers the best deal. 692 00:37:11,960 --> 00:37:15,319 Speaker 1: The reason they're growing is because technology is becoming a 693 00:37:15,400 --> 00:37:18,960 Speaker 1: bigger and bigger asset to these institutions, and those who 694 00:37:19,000 --> 00:37:21,400 Speaker 1: can afford to invest in it are And I do 695 00:37:21,520 --> 00:37:24,319 Speaker 1: worry about the smaller institutions who can't make those kinds 696 00:37:24,360 --> 00:37:28,319 Speaker 1: of investments. Were empowering investment advisors with the best technology, 697 00:37:28,640 --> 00:37:30,560 Speaker 1: who's empowering the banks. I mean, I'm sure there's a 698 00:37:30,560 --> 00:37:32,600 Speaker 1: bunch of like B two B businesses out there, but 699 00:37:32,680 --> 00:37:36,040 Speaker 1: it's hard to compete with like the the big consolidated say, 700 00:37:36,680 --> 00:37:39,640 Speaker 1: you know, JP Mortgage and Bank of America's, any of 701 00:37:39,640 --> 00:37:42,440 Speaker 1: the money center banks are not under the same price 702 00:37:42,480 --> 00:37:45,680 Speaker 1: competition that smaller companies are is that is that the 703 00:37:45,800 --> 00:37:50,399 Speaker 1: argument they have different ways that they compete. Let's say, yeah, 704 00:37:50,719 --> 00:37:52,879 Speaker 1: I think that's right, and it's getting harder for say 705 00:37:53,320 --> 00:37:57,200 Speaker 1: small regional retail banks to to raise deposits. That's a 706 00:37:57,280 --> 00:38:00,120 Speaker 1: spot where I think we want to help them. Uh So, 707 00:38:00,400 --> 00:38:03,400 Speaker 1: you know, we're looking broadly at the financial services landscape 708 00:38:03,440 --> 00:38:05,920 Speaker 1: and thinking about how can we make things better for 709 00:38:06,000 --> 00:38:09,200 Speaker 1: and consumers. I think competition is great in the space. 710 00:38:09,239 --> 00:38:11,200 Speaker 1: We want to continue to encourage it, and people have 711 00:38:11,320 --> 00:38:14,719 Speaker 1: to speak up and demand better. We have been speaking 712 00:38:14,880 --> 00:38:20,080 Speaker 1: with Jonathan Sedin, founder and CEO of Betterment. If you 713 00:38:20,239 --> 00:38:22,800 Speaker 1: enjoy this conversation, well, be sure and come back and 714 00:38:22,880 --> 00:38:25,560 Speaker 1: check out the podcast extras when we keep the tape 715 00:38:25,640 --> 00:38:30,680 Speaker 1: rolling and continue discussing all things robo Advisor related. You 716 00:38:30,680 --> 00:38:36,760 Speaker 1: can find that at iTunes, Overcast, SoundCloud, Stitcher, Bloomberg, wherever 717 00:38:36,920 --> 00:38:41,000 Speaker 1: your final podcasts are sold. We love your comments, feedback 718 00:38:41,040 --> 00:38:45,480 Speaker 1: in suggestions right to us at m IB podcast at 719 00:38:45,480 --> 00:38:49,120 Speaker 1: Bloomberg dot net. Check out my daily column on Bloomberg 720 00:38:49,200 --> 00:38:53,560 Speaker 1: dot com slash Opinion. Follow me on Twitter at rid Holts. 721 00:38:53,760 --> 00:38:57,279 Speaker 1: I'm Barry Hults. You're listening to Masters in Business on 722 00:38:57,360 --> 00:39:12,560 Speaker 1: Bloomberg Radio. Welcome to the podcast. John, Thank you so 723 00:39:12,640 --> 00:39:14,560 Speaker 1: much for doing this. I've been looking forward to this 724 00:39:14,680 --> 00:39:17,440 Speaker 1: for a while. UM. I think you guys are in 725 00:39:17,480 --> 00:39:21,719 Speaker 1: a really interesting space, and I've followed your progress over 726 00:39:21,760 --> 00:39:27,480 Speaker 1: the years. Although I'm astonished how effective you have been 727 00:39:27,520 --> 00:39:31,160 Speaker 1: on the the space has been on the venture capital side, 728 00:39:31,760 --> 00:39:36,080 Speaker 1: because unless and until there's an I p O, exits 729 00:39:36,080 --> 00:39:38,520 Speaker 1: are becoming fewer and further between. We've seen a lot 730 00:39:38,560 --> 00:39:41,239 Speaker 1: of people say well, we don't have to buy. We've 731 00:39:41,280 --> 00:39:44,239 Speaker 1: seen a few companies get bought, but a number of 732 00:39:44,280 --> 00:39:47,440 Speaker 1: the latter entrance said well, we could build this ourselves. 733 00:39:47,560 --> 00:39:50,480 Speaker 1: Vanguard built it themselves. Schwab built it themselves, although I 734 00:39:50,520 --> 00:39:53,960 Speaker 1: know they had a series of small UM related acquisitions. 735 00:39:54,400 --> 00:39:58,200 Speaker 1: UM some of the big first round robos that had 736 00:39:58,400 --> 00:40:02,839 Speaker 1: achieved some a UM scale got purchased primarily for the 737 00:40:02,920 --> 00:40:07,319 Speaker 1: a U M. What's the what's the exit strategy? Is 738 00:40:07,320 --> 00:40:10,960 Speaker 1: it I p O or a big, a big entity 739 00:40:11,000 --> 00:40:14,040 Speaker 1: down the road. We've always said since we launched that 740 00:40:14,120 --> 00:40:16,759 Speaker 1: we want this to be an independent public company. If 741 00:40:16,760 --> 00:40:19,080 Speaker 1: we're to have the impact we want, that's the route 742 00:40:19,120 --> 00:40:20,680 Speaker 1: that we have to take. We want to have such 743 00:40:20,719 --> 00:40:24,799 Speaker 1: a strong relationship with our customers and constantly reinvest in 744 00:40:24,840 --> 00:40:27,520 Speaker 1: that in their well being, which is not what the 745 00:40:27,560 --> 00:40:30,160 Speaker 1: typical incumbent is trying to do. Right, They're great at 746 00:40:30,160 --> 00:40:33,480 Speaker 1: making money for themselves, not necessarily for their customers. You 747 00:40:33,480 --> 00:40:36,920 Speaker 1: get any any pushback on that philosophy from hey, it's 748 00:40:36,920 --> 00:40:39,960 Speaker 1: been a decade since your first venture capitalists back to you. 749 00:40:40,400 --> 00:40:42,600 Speaker 1: I know, these guys have a tendency to want to 750 00:40:42,640 --> 00:40:47,200 Speaker 1: see something eventually, what what's the relationship like, and what 751 00:40:47,239 --> 00:40:49,880 Speaker 1: are they what are they pressing you to do. Our 752 00:40:49,920 --> 00:40:53,560 Speaker 1: investors have been fantastic from day one. They've they've known 753 00:40:53,640 --> 00:40:56,920 Speaker 1: that this is a long term, generational type opportunity. We 754 00:40:56,960 --> 00:40:59,040 Speaker 1: went into it. I was open. We said this is 755 00:40:59,040 --> 00:41:01,240 Speaker 1: not going to be a thing that we quickly flip 756 00:41:01,280 --> 00:41:03,800 Speaker 1: and sell. We're trying to build an institution here. And 757 00:41:03,840 --> 00:41:05,960 Speaker 1: if you look at the cycles in this space, it's 758 00:41:06,040 --> 00:41:09,719 Speaker 1: every thirty or forty years you get another generation of 759 00:41:09,760 --> 00:41:12,520 Speaker 1: companies that grow up. And so the last major one 760 00:41:12,680 --> 00:41:16,880 Speaker 1: was back in seventies when Schwab and Vanguard both launched 761 00:41:16,920 --> 00:41:20,760 Speaker 1: about seventy five, and they're big companies today. They didn't 762 00:41:21,080 --> 00:41:25,080 Speaker 1: displace the old companies. They didn't put Merrill Lynch out 763 00:41:25,080 --> 00:41:27,120 Speaker 1: of business. They didn't put more against Stanley out of business. 764 00:41:27,120 --> 00:41:29,960 Speaker 1: Those continue to beat companies to the more recent one. 765 00:41:29,960 --> 00:41:32,360 Speaker 1: There were sort of like a mini one when E 766 00:41:32,520 --> 00:41:35,399 Speaker 1: Trade and so on launched in the early nineties. Right, 767 00:41:35,800 --> 00:41:38,040 Speaker 1: and today, I think we're in a new era. We 768 00:41:38,120 --> 00:41:42,960 Speaker 1: are in the smart money management era, and we are 769 00:41:43,000 --> 00:41:46,279 Speaker 1: the leader in that space. Nobody is close to us. Right, 770 00:41:46,280 --> 00:41:49,160 Speaker 1: we have more assets, we have a bigger reputation than 771 00:41:49,200 --> 00:41:52,719 Speaker 1: any other firm. And sure there's companies saying, hey, we 772 00:41:53,080 --> 00:41:56,839 Speaker 1: you know, do something about recommending portfolio too. That's nothing new. 773 00:41:56,920 --> 00:41:59,680 Speaker 1: That's not smart money management. Where the smart money manager? Right? Like, 774 00:41:59,680 --> 00:42:01,919 Speaker 1: where the one that's actually doing all the right things 775 00:42:01,920 --> 00:42:05,200 Speaker 1: with your money? Quite quite interesting, all right, So let's 776 00:42:05,239 --> 00:42:07,799 Speaker 1: jump to our favorite questions. These are what we ask 777 00:42:07,920 --> 00:42:11,719 Speaker 1: all our guests. Are our speed round. Um, you might 778 00:42:11,760 --> 00:42:14,040 Speaker 1: be the first person who can't answer for this question. 779 00:42:14,120 --> 00:42:16,480 Speaker 1: What was the first car you ever owned? Your making model? 780 00:42:16,960 --> 00:42:20,560 Speaker 1: I started driving when I was fifteen. In Texas, where 781 00:42:20,560 --> 00:42:23,000 Speaker 1: I grew up, you can get a hardship license, and 782 00:42:23,080 --> 00:42:25,319 Speaker 1: my hardship was that both my parents worked and I 783 00:42:25,440 --> 00:42:27,480 Speaker 1: lived a long way from school and there was no bus, 784 00:42:27,520 --> 00:42:29,440 Speaker 1: so I got to get a license early. I got 785 00:42:29,480 --> 00:42:32,719 Speaker 1: a Nissan Stands. It was a red Niscense Stands. It 786 00:42:32,760 --> 00:42:37,680 Speaker 1: was the nerdiest car that I probably ever could um So, 787 00:42:37,680 --> 00:42:40,400 Speaker 1: so you mentioned Jack Bogel as a mentor. Who else 788 00:42:40,480 --> 00:42:43,000 Speaker 1: were some of your early mentors. I gotta think my 789 00:42:43,080 --> 00:42:46,760 Speaker 1: parents and my grandparents. My family was just such fantastic influences. 790 00:42:46,760 --> 00:42:48,920 Speaker 1: I mean, my parents were city planners. They taught me 791 00:42:48,960 --> 00:42:52,400 Speaker 1: a bad efficiency and the value of good design. And 792 00:42:52,520 --> 00:42:56,560 Speaker 1: I learned to love business through my my grandparents, who 793 00:42:56,680 --> 00:42:59,719 Speaker 1: ran a furniture furniture factory and and upstate New York. 794 00:42:59,800 --> 00:43:02,640 Speaker 1: And I love their style of just building a community 795 00:43:02,680 --> 00:43:06,640 Speaker 1: around that factory. I thought was so fantastic. Who influenced 796 00:43:06,640 --> 00:43:10,360 Speaker 1: your approach to invest him? Well? Aside from Jack Bogol 797 00:43:10,480 --> 00:43:14,480 Speaker 1: obviously was huge. I learned a lot from the Chicago School. 798 00:43:14,640 --> 00:43:19,000 Speaker 1: So one of my professors at Harvard and undergrad was 799 00:43:19,200 --> 00:43:21,840 Speaker 1: worked with the Chicago guys. He worked with Dick Taylor, 800 00:43:21,920 --> 00:43:24,520 Speaker 1: and so I learned about Richard Taylor, I learned about 801 00:43:24,520 --> 00:43:27,520 Speaker 1: Fama and French And now you know, we've partnered with 802 00:43:27,640 --> 00:43:31,719 Speaker 1: Dimensional Fund advisors Dave uh and it's almost coming full 803 00:43:31,719 --> 00:43:34,839 Speaker 1: circle back to to that relationship, right. I always thought 804 00:43:34,880 --> 00:43:37,320 Speaker 1: that like Fama and French and Taylor were onto something, 805 00:43:37,480 --> 00:43:40,000 Speaker 1: and Fama and French were big advisors to d f 806 00:43:40,000 --> 00:43:43,040 Speaker 1: A and have been pretty much from from the beginning, 807 00:43:43,360 --> 00:43:46,640 Speaker 1: So everybody's a favorite question. Tell us about some of 808 00:43:46,680 --> 00:43:51,200 Speaker 1: your favorite books. I love Sapiens, big fan of that, 809 00:43:51,320 --> 00:43:54,480 Speaker 1: But probably my favorite is Dan Kneman's Thinking Fast and Slow. 810 00:43:54,800 --> 00:43:56,920 Speaker 1: It is a tome, right it is, you know, a 811 00:43:57,040 --> 00:43:59,560 Speaker 1: thick one, and but it's a page turner too, So 812 00:43:59,760 --> 00:44:02,680 Speaker 1: for three quarters of that you just really blow right 813 00:44:02,680 --> 00:44:06,080 Speaker 1: through it. Yeah, fascinating, absolutely how we think. It's how 814 00:44:06,120 --> 00:44:08,480 Speaker 1: we work, and it's that I talked about that union 815 00:44:08,560 --> 00:44:12,000 Speaker 1: of like rational and irrational. He explains it right, He 816 00:44:12,040 --> 00:44:16,520 Speaker 1: gets it and got a Nobel for getting. Any of 817 00:44:16,560 --> 00:44:17,920 Speaker 1: the books you want to mention or just leave it 818 00:44:17,960 --> 00:44:20,480 Speaker 1: with those two leave it there. What do you do 819 00:44:20,560 --> 00:44:22,640 Speaker 1: for fun? What do you do out of the office. 820 00:44:23,000 --> 00:44:25,440 Speaker 1: All of my time outside of work these days is 821 00:44:25,440 --> 00:44:27,399 Speaker 1: occupied by my family. I've got a three year old 822 00:44:27,440 --> 00:44:30,879 Speaker 1: and a four year old, two daughters, and I just 823 00:44:31,120 --> 00:44:33,640 Speaker 1: love spending time with him. It's such a precious age 824 00:44:33,719 --> 00:44:37,000 Speaker 1: right now, I can't do anything else. What are you 825 00:44:37,120 --> 00:44:43,120 Speaker 1: most excited about in the financial services industry today? I 826 00:44:43,160 --> 00:44:46,440 Speaker 1: think this idea of what happens with everyday money management 827 00:44:46,560 --> 00:44:48,880 Speaker 1: is hugely exciting. I know I keep coming back to it, 828 00:44:49,040 --> 00:44:53,040 Speaker 1: but it's ripe for change, and integrating that with this 829 00:44:53,160 --> 00:44:56,520 Speaker 1: long term financial plan is the realization of our mission. 830 00:44:56,560 --> 00:44:58,440 Speaker 1: It's a thing we've been talking about for years. But 831 00:44:58,480 --> 00:45:00,440 Speaker 1: we can't really help you with your long term unless 832 00:45:00,520 --> 00:45:03,319 Speaker 1: we help you with How do you save more today? 833 00:45:03,800 --> 00:45:06,120 Speaker 1: What sort of advice would you give to a recent 834 00:45:06,200 --> 00:45:09,919 Speaker 1: college grad or a millennial who came to you and said, um, 835 00:45:10,040 --> 00:45:13,600 Speaker 1: interested in a career in fintech? How would you How 836 00:45:13,640 --> 00:45:18,120 Speaker 1: would you advise them? I think having real passion is important. 837 00:45:18,160 --> 00:45:21,600 Speaker 1: We always look for passion obviously, like you gotta have horsepower. 838 00:45:21,680 --> 00:45:23,880 Speaker 1: That's like you gotta work hard and get things done. 839 00:45:24,560 --> 00:45:26,879 Speaker 1: But showing like something that you have real passionate about 840 00:45:26,960 --> 00:45:29,920 Speaker 1: is important. The other thing is openness. Can you listen? 841 00:45:30,120 --> 00:45:33,080 Speaker 1: Can you You know if somebody's got all the ideas 842 00:45:33,080 --> 00:45:35,080 Speaker 1: and not listening to others that that's not really a 843 00:45:35,120 --> 00:45:38,640 Speaker 1: recipe for success. And our final question, what is it 844 00:45:38,680 --> 00:45:42,920 Speaker 1: that you know about the world of investing technology? Uh, 845 00:45:42,960 --> 00:45:46,719 Speaker 1: anything else related today that you wish you knew uh 846 00:45:46,760 --> 00:45:50,040 Speaker 1: ten plus years ago when you were first started well 847 00:45:50,160 --> 00:45:52,960 Speaker 1: back when I was a student, I was learning all 848 00:45:52,960 --> 00:45:56,520 Speaker 1: this stuff about how to invest, and to that I 849 00:45:56,560 --> 00:45:58,840 Speaker 1: was just as dumb as the next person. And of 850 00:45:58,880 --> 00:46:01,040 Speaker 1: course then I went out and started managing my own money, 851 00:46:01,200 --> 00:46:02,840 Speaker 1: and I bye end Ron on the way down. You know, 852 00:46:02,880 --> 00:46:05,040 Speaker 1: I made some of the same dumb mistakes that I 853 00:46:05,040 --> 00:46:08,239 Speaker 1: had read about, and I wish I hadn't done that, 854 00:46:08,320 --> 00:46:10,720 Speaker 1: and I wish, you know, I learned my my lesson. 855 00:46:11,120 --> 00:46:13,400 Speaker 1: We're all just as as as as dumb as the 856 00:46:13,440 --> 00:46:16,800 Speaker 1: next person. In the end, I certainly am anyway, quite 857 00:46:16,880 --> 00:46:21,200 Speaker 1: quite interesting. We have been speaking with Jonathan Stein, founder 858 00:46:21,239 --> 00:46:25,520 Speaker 1: and CEO of Betterment. If you enjoyed this conversation, we'll 859 00:46:25,560 --> 00:46:27,279 Speaker 1: be sure and look up an intro down an Inch 860 00:46:27,360 --> 00:46:30,400 Speaker 1: on Apple iTunes. Well, you can see any of the 861 00:46:30,440 --> 00:46:33,839 Speaker 1: previous let's call it two hundred and forty three such 862 00:46:33,880 --> 00:46:36,840 Speaker 1: conversations that have taken place over the past five years. 863 00:46:37,719 --> 00:46:41,960 Speaker 1: We love your comments, feedback, end suggestions right to us 864 00:46:42,000 --> 00:46:44,920 Speaker 1: at m IB podcast at Bloomberg dot net. If you 865 00:46:45,040 --> 00:46:49,880 Speaker 1: enjoyed this conversation, well give us a review on Apple iTunes. Lastly, 866 00:46:50,120 --> 00:46:52,440 Speaker 1: I would be remiss if I did not thank the 867 00:46:52,520 --> 00:46:56,080 Speaker 1: Crack staff that helps put this conversation together each week. 868 00:46:56,120 --> 00:47:00,680 Speaker 1: Blatka val Bron is our project manager. Medina Irijuana is 869 00:47:00,719 --> 00:47:05,960 Speaker 1: our producer, Slash audio engineer Taylor Riggs is our booker producer. 870 00:47:06,400 --> 00:47:10,280 Speaker 1: Michael bat Nick is our head of research. I'm Barry Ritolts. 871 00:47:10,520 --> 00:47:13,880 Speaker 1: You're listening to Master's in Business Von Bloomberg Radio