WEBVTT - Jon Stein Discusses Fintech and Robo-Advisers 0:00:02.200 --> 0:00:06.800 This is Master's in Business with Barry Ridholts on Bloomberg Radio. 0:00:10.039 --> 0:00:13.000 This week on the podcast, I have an extra special guest. 0:00:13.119 --> 0:00:16.760 His name is Jonathan Stein, and he is the founder 0:00:17.000 --> 0:00:20.919 of essentially the very first of the robo advisors to 0:00:21.000 --> 0:00:25.159 come out UH and enter the world. Betterment is the 0:00:25.239 --> 0:00:28.680 name of the company. They manage most twenty billion dollars, 0:00:29.320 --> 0:00:32.600 quite a substantial sum of money. And you will find 0:00:32.640 --> 0:00:35.320 that Jonathan Is or better known as John is a 0:00:36.280 --> 0:00:42.960 UM enthusiastic advocate on behalf of investors. UH. He does 0:00:43.080 --> 0:00:46.599 not like the way much of Wall Street does business, 0:00:47.000 --> 0:00:49.159 the way fees are hidden, the way people are not 0:00:49.280 --> 0:00:54.920 fiduciaries to their clients, and he is looking at Betterment 0:00:55.160 --> 0:00:59.560 as a way to UH change the institution of money 0:00:59.560 --> 0:01:03.400 management if you are at all interested in the use 0:01:03.440 --> 0:01:08.839 of technology to manage both investments and cash and everything else, 0:01:09.840 --> 0:01:13.640 how things are done right and wrong in the industry. 0:01:13.720 --> 0:01:16.720 And also here some inside dirt about what he thinks 0:01:17.040 --> 0:01:19.920 about some of his competitors. Well, you're gonna find this 0:01:19.959 --> 0:01:24.280 conversation fascinating. So, with no further ado, my interview of 0:01:24.400 --> 0:01:32.039 John Stein. My special guest today is Jonathan Stein. He 0:01:32.400 --> 0:01:36.520 is the founder and CEO of Betterment, which is a 0:01:36.520 --> 0:01:41.759 algorithmic asset allocation also known by some people as a 0:01:41.840 --> 0:01:46.000 robo advisor. He graduated from Harvard got his NBA from Columbia. 0:01:46.560 --> 0:01:51.440 Betterment currently has about twenty billion dollars in assets. They 0:01:51.480 --> 0:01:54.840 have a digital advisory platform for advisors known as Betterman 0:01:54.880 --> 0:01:57.520 for Advisors, as well as a four oh one K option. 0:01:58.040 --> 0:02:01.360 Jonathan Stein, Welcome to Bloomberg. Thank you, Barry, so nice 0:02:01.400 --> 0:02:04.040 to be here. It's nice to have you. So before 0:02:04.040 --> 0:02:07.800 we start, I have to do a quick disclosure. I 0:02:07.920 --> 0:02:11.320 mentioned in the intro that you have a B two 0:02:11.320 --> 0:02:15.960 B product offering called Betterment for Advisors. My firm, Ridholtz 0:02:16.000 --> 0:02:19.480 Wealth Management is a user of Betterment for Advisors. Are 0:02:20.120 --> 0:02:23.480 robo advisor called Liftoff is powered by your back ends. 0:02:23.800 --> 0:02:26.359 So we like to engage in full disclosure around here, 0:02:26.400 --> 0:02:28.720 and I wanted to get that out. So let's start 0:02:28.720 --> 0:02:32.320 with your undergraduate You went to Harvard. What did you 0:02:32.360 --> 0:02:36.360 study there? Did you have any plans on going into finance. Yeah. 0:02:36.440 --> 0:02:38.560 By the way, I'm so excited to be working with 0:02:38.600 --> 0:02:41.200 you and lift Off. I think that's really a great 0:02:41.240 --> 0:02:43.760 thing where you and Josh and the whole team have 0:02:43.840 --> 0:02:45.680 been wonderful to work with, and we're excited to be 0:02:45.720 --> 0:02:48.560 on boarding clients and all of that. We're a fun group. Yeah, 0:02:48.600 --> 0:02:52.080 you guys, are you really are? Yeah. In college I 0:02:52.400 --> 0:02:55.880 studied economics was my major, and I studied a lot 0:02:55.880 --> 0:02:58.560 of psychology on the side, and I was really interested 0:02:58.600 --> 0:03:01.600 in the union or the interest section between those two fields. 0:03:02.080 --> 0:03:05.840 My my economics professor freshman year was Marty Feldstein, who 0:03:05.880 --> 0:03:09.880 was one of Reagan's economic advisors. He was super efficient markets. 0:03:10.000 --> 0:03:12.480 And you know, if we're all just rational and we 0:03:12.520 --> 0:03:15.000 have the right incentives in place, people will obviously do 0:03:15.080 --> 0:03:17.639 the right thing and so uh in the world will 0:03:17.639 --> 0:03:19.720 be a better and and then I love the fantasy 0:03:19.720 --> 0:03:23.680 world of economists professors. It's an amazing world to live in. Right, 0:03:23.720 --> 0:03:26.200 It's like you know, it's it's it's a beautiful place, right, 0:03:26.280 --> 0:03:30.639 no bubbles, no crashes, everybody's perfect. Everything is priced efficiently incorrectly, 0:03:30.840 --> 0:03:34.639 and all information is But on the behavioral side, I 0:03:34.680 --> 0:03:37.200 was so fascinated with how people actually work, which is 0:03:37.240 --> 0:03:40.480 not at all like the economic models to predict. We're crazy, irrational, 0:03:40.560 --> 0:03:42.920 we do the wrong thing all the time. And I 0:03:43.000 --> 0:03:45.800 really wanted to reconcile that. You know, there's like Diccartian 0:03:45.920 --> 0:03:48.920 sort of duality and in our lives of like if 0:03:49.000 --> 0:03:50.839 I know the right thing to do, but I never 0:03:50.960 --> 0:03:54.200 end up doing it because I'm driven by short term impulses, 0:03:54.240 --> 0:03:56.280 and so I wanted to do something. They're coming out 0:03:56.280 --> 0:03:59.120 of college. No one was recruiting for people who just 0:03:59.200 --> 0:04:01.640 wanted to help will make better decisions. But that's what 0:04:01.720 --> 0:04:03.720 I wanted to do. So so coming out of college, 0:04:03.720 --> 0:04:06.400 what was your first job? What did you go post Harvard? 0:04:06.600 --> 0:04:10.840 I went to a company called First Manhattan Consulting Group. Okay, 0:04:11.080 --> 0:04:15.360 now again, no, the disclosure years ago we sublet space 0:04:15.400 --> 0:04:18.400 from them, Is that right? And the legend had preceded 0:04:18.440 --> 0:04:23.360 you because over on On Park and M and ninety 0:04:23.400 --> 0:04:26.880 Park Avenue, and when we were discussing what we did, 0:04:26.960 --> 0:04:30.040 when we were having the conversation, oh, have you ever 0:04:30.080 --> 0:04:33.800 heard of betterment? Yes, we have work for us. Just 0:04:33.880 --> 0:04:36.800 a hilarious coincidence. Yeah, it was a great firm, so 0:04:36.839 --> 0:04:39.800 many smart people. You know, I'm still still friends with 0:04:39.800 --> 0:04:41.919 a bunch of people there. And I got from that 0:04:42.000 --> 0:04:45.160 vantage point to work with big banking clients all around 0:04:45.160 --> 0:04:48.080 the US and around the world brokers as well, and 0:04:48.160 --> 0:04:52.200 got to understand how the big financial institutions work and 0:04:52.640 --> 0:04:56.599 how they're very well intentioned but oftentimes haven't innovated around 0:04:56.600 --> 0:05:00.400 the customer. And I started to see opportunities to you think, 0:05:00.440 --> 0:05:02.880 financial services, to really change it, and I just wanted 0:05:02.880 --> 0:05:05.120 it all to happen, you know, Like I. Change was 0:05:05.200 --> 0:05:08.320 too slow, and by the time I was leaving there, 0:05:09.320 --> 0:05:12.760 we were moving into the financial crisis years right, two 0:05:12.760 --> 0:05:16.160 thousand and eight and on. So, So from FMGC, did 0:05:16.200 --> 0:05:18.440 you go right to betterment or was there something in between? 0:05:18.480 --> 0:05:20.720 I went to business school in between. Okay, so you 0:05:20.800 --> 0:05:23.640 went to Columbia and then you come out of business 0:05:23.640 --> 0:05:26.159 school two years later, and what where did you go 0:05:26.240 --> 0:05:29.160 from there? Then? I started Betterment right away, so right 0:05:29.160 --> 0:05:31.040 out of business school, and I knew I wanted to 0:05:31.080 --> 0:05:33.320 start Betterment going into business school, I had the name 0:05:33.440 --> 0:05:35.039 right and I started. I was talking about it on 0:05:35.160 --> 0:05:37.240 day one and I said, We're going to make financial 0:05:37.240 --> 0:05:40.000 services better. Uh. And some people would say, well, why 0:05:40.000 --> 0:05:41.839 didn't you just go and do that? And for me, 0:05:41.960 --> 0:05:45.640 business school was necessary. It was a good spot to 0:05:45.680 --> 0:05:48.360 test the ideas to get to work. And I worked 0:05:48.360 --> 0:05:50.920 with the dean of the Business school as my betterment 0:05:50.960 --> 0:05:53.040 was like my case study for my final presentation and 0:05:53.200 --> 0:05:55.719 entrepreneurial finance. So I got a lot of good feedback. 0:05:57.120 --> 0:05:59.560 You could wait out the financial crisis exactly. It was 0:05:59.600 --> 0:06:01.520 it Actually it was a good time to to not 0:06:01.680 --> 0:06:05.679 be fundraising. So you had the idea. How fully formed 0:06:06.040 --> 0:06:08.479 was it on your way into business school? And what 0:06:08.560 --> 0:06:10.720 did you learn that might have had an impact on 0:06:10.720 --> 0:06:14.040 on the company that exists today? I learned a lot 0:06:14.080 --> 0:06:18.640 about myself and my management style that my my favorite 0:06:18.680 --> 0:06:22.120 classes were things like top management process and you know, 0:06:22.240 --> 0:06:25.279 I didn't think about myself as having like a leadership 0:06:25.320 --> 0:06:28.080 style or management style, but you know, in small groups 0:06:28.120 --> 0:06:30.480 and in sessions like breakout sessions, I learned that like 0:06:30.520 --> 0:06:33.159 the types of things that I do, like wanting to 0:06:33.200 --> 0:06:35.320 hear from like everyone in the room, like you know, 0:06:35.480 --> 0:06:38.159 hearing all that feedback before coming to a decision. Like 0:06:38.400 --> 0:06:40.599 those kinds of things can be effective. And you know, 0:06:40.640 --> 0:06:44.320 there's not one right way to lead or manage. Was 0:06:44.200 --> 0:06:46.000 it was a thing that I took away, But you 0:06:46.080 --> 0:06:48.760 kind of have to lean into your own style. So 0:06:49.120 --> 0:06:52.480 you participated in one of the tech crunches. I think 0:06:52.480 --> 0:06:55.240 it was oh nine, is that right. My familiarity with 0:06:55.279 --> 0:06:58.640 that comes from the HBO show Silk on Value. Yeah, 0:06:58.680 --> 0:07:02.000 what was the experience. That's pretty accurate depiction of the 0:07:02.040 --> 0:07:04.520 Tech Crunch. Yeah, like Striking Lee. So as as with 0:07:04.560 --> 0:07:07.760 a lot about that show, Well, it true. That's what 0:07:07.880 --> 0:07:10.760 makes it so, and it's hilarious. Um So the sort 0:07:10.760 --> 0:07:14.640 of frenetic last minute things are glitching and nobody really 0:07:14.640 --> 0:07:16.760 knows who's going to be the breakout star, and everybody's 0:07:17.120 --> 0:07:19.840 sort of looking over the shoulders. That was your actual 0:07:20.080 --> 0:07:22.320 It was so intense. It was one of the most 0:07:22.360 --> 0:07:24.680 tense days in my life. I mean, and I didn't 0:07:24.680 --> 0:07:28.160 have kids at that time, right, I was, I wasn't 0:07:28.160 --> 0:07:31.680 even married, right, And I just I was up all 0:07:31.800 --> 0:07:34.320 night the night before. And I know because I looked 0:07:34.320 --> 0:07:36.960 back at like my BlackBerry and I was writing into 0:07:37.000 --> 0:07:40.000 it every thirty minutes one am, one thirty am, two am, 0:07:40.040 --> 0:07:42.720 some idea of like how I wanted to reframe my presentation. 0:07:42.760 --> 0:07:45.760 I memorized the entire thing, you know, which you should 0:07:45.800 --> 0:07:48.440 never do. It was. It was a five minute speech 0:07:48.480 --> 0:07:51.440 and I knew every word and it was all exactly memorized. 0:07:51.840 --> 0:07:54.280 And I was just so nervous about it because it 0:07:54.360 --> 0:07:56.320 was our coming out party, right, it was like this 0:07:56.360 --> 0:07:59.200 was it was. We actually launched on that day, and 0:07:59.240 --> 0:08:02.720 to me that was a big deal, Like this was 0:08:02.760 --> 0:08:04.840 our chance to debut or a chance to get customers, 0:08:04.880 --> 0:08:06.520 and if we did it, we were going to be 0:08:06.560 --> 0:08:09.600 successful and if not, no one would ever hear about 0:08:09.640 --> 0:08:11.840 us again, you know. So there's a lot writing on 0:08:11.920 --> 0:08:15.800 that moment. Let's talk a little bit about the process 0:08:15.840 --> 0:08:18.560 of raising money and what was like to be a 0:08:18.720 --> 0:08:22.200 venture founded start up. What was that like. Some people 0:08:22.240 --> 0:08:25.640 have described it as exhausting and draining and harrowing, and 0:08:25.680 --> 0:08:27.560 other people have said, you know, if you have the 0:08:27.640 --> 0:08:30.280 right idea, money seems to find it. What what was 0:08:30.320 --> 0:08:34.640 your experience. I remember saying to my co founders when 0:08:34.679 --> 0:08:36.800 we started out, at least we're going to raise some 0:08:36.840 --> 0:08:39.480 money with this thing, right, Like this is a good idea, 0:08:39.600 --> 0:08:41.840 Like people want this. We were confident that people would 0:08:41.840 --> 0:08:44.360 want it and at least we get there and maybe 0:08:44.360 --> 0:08:46.640 a little too confident, right. I We went into tech 0:08:46.640 --> 0:08:49.920 Crunch thinking, yeah, we'll get some attention and this would 0:08:49.920 --> 0:08:52.280 be the thing everyone gets funded coming out of these things. 0:08:52.480 --> 0:08:54.800 We talked to a bunch of people there at the 0:08:54.880 --> 0:08:58.000 actual conference, and honestly, we didn't know what we were 0:08:58.040 --> 0:09:01.959 asking for. Remember thinking maybe I wanted million dollars and uh, 0:09:02.000 --> 0:09:04.800 you know, frankly, in retrospect, that was way too little money, 0:09:04.880 --> 0:09:06.400 you know, but at the time it just seemed like 0:09:06.440 --> 0:09:08.840 an impossible amount of a million dollars. Think of how much? 0:09:10.000 --> 0:09:12.040 Think of like how long that'll that'll feed us for 0:09:12.080 --> 0:09:15.920 a good long time. That's almost a really nice car, 0:09:16.320 --> 0:09:19.160 right framework the framework reference is kind of crazy. So 0:09:19.200 --> 0:09:22.040 are you guys done raising capital or is there going 0:09:22.080 --> 0:09:24.679 to be more capital raises in the future. Where we 0:09:24.679 --> 0:09:27.600 were lucky in that first, you know, in those first 0:09:27.640 --> 0:09:31.640 conversations to meet Bessemer, who letter Series A, and they've 0:09:31.640 --> 0:09:34.040 been great partners for a number of years. Over the years, 0:09:34.080 --> 0:09:35.840 we've met a number of other firms that have just 0:09:35.880 --> 0:09:39.000 been awesome to work with, who share our long term vision, 0:09:39.120 --> 0:09:43.240 who have deep pockets genetic big big Swedish firm is 0:09:43.280 --> 0:09:47.000 the most recent one. Great like long term family office 0:09:47.000 --> 0:09:50.240 style investor. And all of these firms have given us 0:09:50.320 --> 0:09:52.960 enough capital where we don't have to worry about raising 0:09:52.960 --> 0:09:56.880 money again. We have you know, we we are our 0:09:56.920 --> 0:09:59.560 ambitions are to be a public company. That's the past. 0:09:59.640 --> 0:10:01.120 So you have to be watching this. I P O 0:10:01.240 --> 0:10:03.560 market and saying, what's going on? You bet you've got 0:10:03.800 --> 0:10:08.640 My friend Near Cassir, who writes for Bloomberg Opinion, said, um, 0:10:08.840 --> 0:10:11.960 Uber basically waited too long to come public. You know 0:10:12.080 --> 0:10:14.120 you need to go public sooner. There has to be 0:10:14.160 --> 0:10:16.760 some upside left on the table, and this could dog 0:10:16.840 --> 0:10:18.760 them for a good couple of years. Are you paying 0:10:18.760 --> 0:10:21.360 attention to this? I P O market. I think it's 0:10:21.400 --> 0:10:25.200 really interesting to see that gap between the private markets 0:10:25.240 --> 0:10:28.360 and the public markets. And however, you know, frankly, I 0:10:28.400 --> 0:10:32.160 don't think anyone should be that surprised by the Uber story. 0:10:32.160 --> 0:10:34.960 I mean evaluation alonguationwise, we were all saying, like three 0:10:35.040 --> 0:10:37.760 years ago, I was thinking sixty billion dollar valuation, Like 0:10:38.320 --> 0:10:41.600 pretty hi. I think someone said anybody who's in a 0:10:41.640 --> 0:10:44.680 private investor into Uber over the past four years is 0:10:44.840 --> 0:10:50.520 underwater as of May nineteen, which is pretty pretty astonishing. 0:10:50.520 --> 0:10:53.760 All right, So let's pivot from the capital structure side 0:10:53.760 --> 0:10:57.280 to the business side. I know you guys are um 0:10:57.480 --> 0:11:00.120 Matthey and you look at a lot of data. Have 0:11:00.240 --> 0:11:03.640 you figured out what the qust of acquiring a new 0:11:03.720 --> 0:11:06.959 client is like? And how do you deal with that 0:11:07.120 --> 0:11:11.120 in terms of marketing and just looking for new business. 0:11:11.440 --> 0:11:17.040 So a lot of financial services firms are effectively marketing engines, right, Like, 0:11:17.160 --> 0:11:19.960 they have a product that they make and then two 0:11:20.000 --> 0:11:23.320 thirds of the company is they're pushing that riot, pushing 0:11:23.320 --> 0:11:26.480 that product into market. We are not built that way. 0:11:26.559 --> 0:11:29.959 Most of our team is R and D. We're building, 0:11:29.960 --> 0:11:32.160 we're building technology right and of course we have an 0:11:32.160 --> 0:11:37.240 amazing programmatic marketing team helping us understand our funnel, helping 0:11:37.360 --> 0:11:39.600 us make sure that if you've visited the site, you're 0:11:39.600 --> 0:11:42.040 getting the content that you want. We might retarget you 0:11:42.080 --> 0:11:45.320 and bring you back. Uh. And we do some sponsorships 0:11:45.360 --> 0:11:49.160 and podcasts and we just had Maggie Stiff, you know 0:11:49.240 --> 0:11:51.520 from from Billions and and so and do do a 0:11:51.559 --> 0:11:53.719 campaign for us. So we've done a good bit of 0:11:53.760 --> 0:11:56.600 marketing to raise awareness and drive that top of the funnel, 0:11:57.400 --> 0:12:00.920 awareness to betterment. By and large, were so efficient. We 0:12:01.360 --> 0:12:04.360 keep becoming more and more efficient every year. We acquire 0:12:04.400 --> 0:12:08.480 more customers and spend less doing it per customer less 0:12:08.480 --> 0:12:12.240 per customer, so that's been great. So there are a 0:12:12.360 --> 0:12:15.120 number of different companies that do what you do. How 0:12:15.120 --> 0:12:20.480 do you differentiate yourself from the competition? Having competition is 0:12:20.640 --> 0:12:23.920 a blessing I know, if you you know, go to 0:12:24.040 --> 0:12:27.240 some like monopolists, they might disagree, right, they might say 0:12:27.280 --> 0:12:30.719 that it's it's great to be alone. But for us, 0:12:31.000 --> 0:12:33.480 I don't you know, we started this category right, this 0:12:33.600 --> 0:12:37.080 is smart money manager. Thing didn't exist before, and we 0:12:37.120 --> 0:12:40.320 said on stage at tech Crunch. At that launch, I 0:12:40.360 --> 0:12:42.400 was asked, Hey, how are you going to deal with competition? 0:12:42.440 --> 0:12:43.920 Do you think other people would do this? And I said, 0:12:43.960 --> 0:12:47.240 if we're successful, we're going to have lots of competition. 0:12:47.760 --> 0:12:50.520 So so let's talk about some of the giant names 0:12:50.559 --> 0:12:54.720 that have are late to the space. Schwab rolled out 0:12:54.840 --> 0:12:57.680 their version. Um, it's a little bit of an odd 0:12:57.720 --> 0:13:01.680 portfolio coast. They make their money on the banking side. 0:13:01.720 --> 0:13:03.640 There's a big I think it's like ten percent or 0:13:03.640 --> 0:13:06.920 eight percent is cash and that's the really there is 0:13:06.960 --> 0:13:10.040 nothing free, so the cash is what covers the cost 0:13:10.120 --> 0:13:13.040 of it. And then there's Vanguard, which I believe across 0:13:13.120 --> 0:13:17.120 the hundred billion dollars in their robot, they're they're just immense. 0:13:18.080 --> 0:13:21.520 Any concerns is at a different audience, a different demographic. 0:13:21.559 --> 0:13:24.960 How do you deal with those two giant firms breathing 0:13:25.040 --> 0:13:28.600 down your neck? So they're not taking customers from us. 0:13:28.640 --> 0:13:32.200 It's important to know that we're getting customers from them, 0:13:32.240 --> 0:13:35.880 and we're getting customers organically from from other firms and 0:13:35.920 --> 0:13:38.920 people who are sometimes new to saving and investing. But 0:13:39.000 --> 0:13:42.080 no one's going I'm leaving betterment because honestly, we just 0:13:42.120 --> 0:13:44.319 have a better product than these other firms. We're doing 0:13:44.360 --> 0:13:47.959 more for our customers. We've run an analysis recently that 0:13:48.040 --> 0:13:52.239 shows that if you sum up all of the investment management, 0:13:52.360 --> 0:13:56.880 tax management, portfolio diversification, etcetera. That we do for you 0:13:57.360 --> 0:14:00.800 and compare it to what you would get through doing 0:14:00.840 --> 0:14:04.960 it yourself, even net of our fees, we're earning people 0:14:06.280 --> 0:14:09.439 more in retirement than they could get on their own. 0:14:09.480 --> 0:14:12.800 And that's the value of great advice and management. So 0:14:12.840 --> 0:14:15.440 I'm very bullish on advice and these other these incumbent 0:14:15.480 --> 0:14:19.840 firms are not primarily advisors, right. They're trying to pivot 0:14:19.920 --> 0:14:22.120 to become that. They're talking a lot about it, but 0:14:22.160 --> 0:14:25.880 it's not their d n A right. Vandguard a wonderful firm. 0:14:25.880 --> 0:14:29.560 I have incredible respect for Jack Bogel. He's we wouldn't 0:14:29.560 --> 0:14:33.440 be here without him. However, that firm today is just 0:14:33.640 --> 0:14:36.760 a mutual fund sales machine. They just want to push 0:14:36.840 --> 0:14:40.360 their their their mutual funds. And there's an old kind 0:14:40.400 --> 0:14:43.160 of you know, orthodoxy that says, as long as you're 0:14:43.160 --> 0:14:45.240 diversified and have low costs, that's the best thing you 0:14:45.240 --> 0:14:47.000 can do, and like, we do that the best and 0:14:47.040 --> 0:14:49.240 that's it. Well, I'm here to tell you that's not 0:14:49.280 --> 0:14:52.040 good enough anymore. The world has changed, technology has changed, 0:14:52.080 --> 0:14:54.480 and you really need an advisor to make the most 0:14:54.520 --> 0:14:57.600 of your money today because smart money management is here 0:14:57.680 --> 0:15:00.080 and it's not going away. Um. I can say the 0:15:00.120 --> 0:15:02.360 same about Schwab. I mean, these guys did a lot 0:15:02.400 --> 0:15:05.480 to innovate. I mean, Chuck, you know, like was one 0:15:05.520 --> 0:15:09.280 of the very few people who said we're going to 0:15:09.400 --> 0:15:11.640 take commissions down, not up. That was great in the 0:15:11.720 --> 0:15:14.160 nineteen seventies when they did it. They've continued to drive 0:15:14.200 --> 0:15:16.680 that that trading price down. Now there's folks out there 0:15:16.720 --> 0:15:18.600 like Robin Hood or whatever where you can trade for 0:15:18.640 --> 0:15:21.200 absolutely free. Does that mean that's what people should do 0:15:21.400 --> 0:15:25.040 or that's a good thing. No, Absolutely, it's not a 0:15:25.080 --> 0:15:27.880 good thing. Uh. And I don't think that they're encouraging 0:15:27.880 --> 0:15:30.000 good behaviors over there, Schwab. They want you to keep 0:15:30.040 --> 0:15:32.280 a lot of money in cash, and they're robbing you 0:15:32.360 --> 0:15:34.960 with that. They're just taking your money, They're just taking 0:15:34.960 --> 0:15:36.600 it away from you. And I think that needs to 0:15:36.640 --> 0:15:39.080 be exposed and they should be held to account for 0:15:39.120 --> 0:15:42.080 that behavior. Wow, those are those are strong words. So 0:15:42.080 --> 0:15:45.080 so let's talk a little bit about UM what Vanguard 0:15:45.120 --> 0:15:50.760 has called Advisors Alpha and you have discussed in detail. Uh, 0:15:50.960 --> 0:15:54.280 tax lost harvesting is one thing that the computer does 0:15:54.400 --> 0:15:57.680 much faster than sending an accountant with a green ice 0:15:57.720 --> 0:16:01.520 shade to go through every transaction you've had. How much 0:16:01.680 --> 0:16:06.840 can the average portfolio garner in in some tax loss 0:16:06.840 --> 0:16:10.920 harvesting when we some across all of our features like 0:16:11.280 --> 0:16:14.720 smart rebalancing which figures out when you have a dividend paid, 0:16:14.720 --> 0:16:16.760 where to put that so you don't actually trigger a 0:16:16.760 --> 0:16:21.280 taxable event, or UM are lot sorting which instead of 0:16:21.320 --> 0:16:24.040 just doing FIEFO or LIFEO like most first and you 0:16:24.040 --> 0:16:26.160 know first and last and first out, which are kind 0:16:26.160 --> 0:16:29.400 of common algorithms, we will actually choose the right lot 0:16:29.480 --> 0:16:33.000 to sell or buy at any specific moment. And my favorite, 0:16:33.200 --> 0:16:36.160 which is tax coordination that looks at your roth IRA, 0:16:36.440 --> 0:16:39.320 your traditional IRA, your four own K accounts, etcetera, and 0:16:39.360 --> 0:16:41.920 puts the right assets into the right ones, to shield 0:16:41.920 --> 0:16:44.720 your dividends, to shield things that might have long term appreciation. 0:16:44.920 --> 0:16:48.080 You some across those features. And we're earning our average 0:16:48.120 --> 0:16:51.600 customer net of our fees after our fee, one point 0:16:51.640 --> 0:16:55.400 six one percent per year of alpha. It's an incredible 0:16:56.280 --> 0:16:59.040 as it's big. That's a big number, right, It's like 0:16:59.080 --> 0:17:03.400 it's like it's it's incredible, it's incredible. But we have 0:17:03.840 --> 0:17:06.240 we've run amazing you know, scenario analysis on this, and 0:17:06.280 --> 0:17:08.639 it's not like, you know, I can show you the picture. 0:17:08.680 --> 0:17:11.199 It's not like in of outcomes, you're guaranteed to be 0:17:11.200 --> 0:17:14.120 better if there's nothing like that in in investing. However, 0:17:14.560 --> 0:17:17.040 in the average case, you're one point six one per 0:17:17.160 --> 0:17:21.960 year better off with our algorithms then without them. So 0:17:22.040 --> 0:17:26.480 what does that mean in terms of returns? It's one better, 0:17:26.560 --> 0:17:30.359 but that's not that's as a percentage of the total 0:17:30.440 --> 0:17:33.480 pl How much does that show up in actual returns 0:17:33.480 --> 0:17:36.199 over over time? Well, that is that that is the 0:17:36.280 --> 0:17:38.880 net return to a customer, that's after our fees, that's 0:17:38.920 --> 0:17:42.520 after all taxes. So if the market gives you ten, 0:17:43.000 --> 0:17:47.560 theoretically someone who's just invested in equities should see eleven 0:17:47.680 --> 0:17:50.920 six one exactly. And it's not that linear, right, it's 0:17:50.920 --> 0:17:55.280 not one per year guaranteed. But if you compound that, 0:17:55.800 --> 0:17:57.280 you know, and we've run a bunch of you know, 0:17:57.359 --> 0:18:00.000 scenario analyzes and things, and if you compounded over third 0:18:00.200 --> 0:18:02.639 years investing for retirement, and that's how you end up 0:18:02.640 --> 0:18:06.359 with more cash in the end. Let's talk a few 0:18:06.400 --> 0:18:11.359 moments about this business. There's been some pushback into the 0:18:11.440 --> 0:18:15.600 concept of automated advice giving. What do you say to 0:18:15.760 --> 0:18:20.119 people who say, this is just a temporary technology fed 0:18:20.680 --> 0:18:24.040 and people need live advisors. Being able to do this 0:18:24.600 --> 0:18:27.560 with just software isn't going to get it done. I 0:18:27.640 --> 0:18:32.360 believe live advisors provide a tremendous value to their clients. 0:18:32.400 --> 0:18:35.840 Sometimes advisors, we have a product for advisors, it's Betterment 0:18:35.920 --> 0:18:39.239 for advisors, as as you know. And sometimes advisors come 0:18:39.280 --> 0:18:42.000 to us and say, what's to keep my clients from 0:18:42.040 --> 0:18:45.280 just leaving me and going straight to betterment? And they 0:18:45.320 --> 0:18:48.280 might worry about that, and we say, well, number one, 0:18:48.560 --> 0:18:52.520 what's to stop them from doing that today? Why are 0:18:52.520 --> 0:18:56.040 they with you? And they say, well, because I tell them, 0:18:56.160 --> 0:18:58.080 I give them a full financial plan, I'm talking to 0:18:58.119 --> 0:19:00.680 them about all their needs I see or fears I'm 0:19:00.720 --> 0:19:02.800 there when the market's bad to talk to them, and 0:19:02.840 --> 0:19:06.440 we say exactly, and that is a service that they 0:19:06.680 --> 0:19:09.520 value very highly and are happy to pay for it 0:19:09.560 --> 0:19:11.960 because you're giving them a lot of value. So that 0:19:12.040 --> 0:19:15.160 kind of that relationship, all of that advice that advisors 0:19:15.200 --> 0:19:18.000 are giving is still very valuable. What we can do 0:19:18.119 --> 0:19:20.640 is we're a smart money manager, right, so we'll we'll 0:19:20.680 --> 0:19:22.680 automate like the right kinds of things with your money 0:19:22.720 --> 0:19:25.280 will help you make more on your money. And uh, 0:19:25.320 --> 0:19:28.439 and we we we try. We also, um, you know, 0:19:28.640 --> 0:19:30.959 work very hard to make it a convenient experience, right. 0:19:30.960 --> 0:19:33.879 Our mobile apps are web apps make everything very accessible. 0:19:33.960 --> 0:19:36.880 So originally you launched as a B two C as 0:19:36.880 --> 0:19:40.000 a business to consumer, and there was a pivot to 0:19:40.119 --> 0:19:43.560 add exactly what you were just describing, UM, you as 0:19:43.600 --> 0:19:46.920 a business to business being the back ends for any 0:19:46.960 --> 0:19:51.119 form of r I A or investment advisory firm. UM. 0:19:51.240 --> 0:19:53.919 How did that pivot come about? And how challenging was 0:19:53.960 --> 0:19:58.080 that transition? Getting to work with advisors was a thing 0:19:58.160 --> 0:19:59.920 that we knew we wanted to do for a while, 0:20:00.600 --> 0:20:03.320 It just it wasn't top priority we had to get. 0:20:03.520 --> 0:20:06.200 You know, we had to build I RA s for instance, 0:20:06.240 --> 0:20:07.680 we had to build a mobile at back in two 0:20:07.680 --> 0:20:10.160 thousand twelve when we were just just getting our feet 0:20:10.200 --> 0:20:14.280 under us. And it took some partners coming to us 0:20:14.359 --> 0:20:16.720 and and saying, hey, we really want to do this, 0:20:16.800 --> 0:20:19.720 we'll invest with you. Uh, if you'll, if you'll help 0:20:19.760 --> 0:20:22.639 make this a reality for us. Uh. Steve Auction was 0:20:22.680 --> 0:20:26.240 one of those early early partners uh and uh. And 0:20:26.359 --> 0:20:29.960 working with them, we had an instant client, right, so 0:20:30.080 --> 0:20:32.119 we had someone that we were building for and that 0:20:32.200 --> 0:20:34.960 was with which firm. So that was with advice period 0:20:34.960 --> 0:20:38.160 at the time. Uh and uh. And we've grown from there. 0:20:38.280 --> 0:20:41.000 We now work with thousands of advisors all across the country. 0:20:41.359 --> 0:20:44.800 Quite quite intriguing. Now, some of your competitors have tried 0:20:44.920 --> 0:20:48.600 some interesting variations UM. One of them rolled out a 0:20:48.720 --> 0:20:52.520 risk parity fund, sort of well maybe we're not in dextors, 0:20:52.560 --> 0:20:55.200 maybe we can beat the market. Didn't seem to work 0:20:55.240 --> 0:20:58.200 out too well. Uh. If you're a Bridgewater or a 0:20:58.359 --> 0:21:01.280 Q you are, Hey, that's one thing. But Wealth Front 0:21:01.320 --> 0:21:03.760 had some problems with this. I know a few other 0:21:03.800 --> 0:21:06.920 companies had looked at it. Uh. What do you think 0:21:07.080 --> 0:21:12.919 of this idea of UM? People still being enthusiastic for 0:21:13.119 --> 0:21:16.560 trying to beat the market. Everyone wants to beat the market. 0:21:17.960 --> 0:21:20.120 You do, I do, and if we could do it well, like, 0:21:20.320 --> 0:21:24.480 you know, that'd be amazing. The reason that Vanguard has 0:21:24.480 --> 0:21:26.800 the big business that they do is a lot of 0:21:26.840 --> 0:21:28.960 people came around to believe that it's really hard to 0:21:28.960 --> 0:21:31.920 beat the market net of fees, right, and the old 0:21:31.920 --> 0:21:35.200