WEBVTT - Dave Nadig on Exchange-Traded Funds 0:00:00.080 --> 0:00:05.960 M. This is Mesters in Business with Very Results on 0:00:06.240 --> 0:00:10.480 Bluebird Radio. This week on the podcast, I have an 0:00:10.480 --> 0:00:13.920 extra special guest. His name is Dave Nodded. And if 0:00:13.960 --> 0:00:17.439 this sounds like to all friends just yammering about all 0:00:17.480 --> 0:00:21.639 sorts of market eso ica, well that's because it is. 0:00:22.360 --> 0:00:24.840 I know Dave for a long time, and we kinda 0:00:25.480 --> 0:00:29.960 fell in love with each other's books, music, film, and 0:00:30.080 --> 0:00:34.480 financial history when we first met a hundred years ago. 0:00:34.720 --> 0:00:38.600 And so if it sounds like just too idiots talking 0:00:38.640 --> 0:00:43.120 about really interesting stuff in great detail, and me probably 0:00:43.200 --> 0:00:46.800 speaking more than I usually do during the podcast, well 0:00:46.960 --> 0:00:50.440 that's probably because it is. Um. Dave is really a 0:00:50.479 --> 0:00:55.600 fascinating person with an incredible depth of knowledge about well. 0:00:55.920 --> 0:00:58.360 He's probably best known as the E T F guy, 0:00:58.440 --> 0:01:01.200 and we literally talk about during the show. I got 0:01:01.240 --> 0:01:05.800 tagged to present to the SEC about their new single 0:01:05.920 --> 0:01:08.280 stock product, and my answer was, well, I get all 0:01:08.319 --> 0:01:10.399 my information about this from nating. Why don't you speak 0:01:10.440 --> 0:01:13.160 to him? And they said, we already do. But he 0:01:13.240 --> 0:01:17.520 also has an incredible death of knowledge about market structures, 0:01:17.560 --> 0:01:22.319 about what people get wrong about thinking about systems, about 0:01:22.360 --> 0:01:26.679 what we get wrong about humans and capitalism and finance, 0:01:26.800 --> 0:01:30.280 and I find Dave to be really just an intriguing, 0:01:30.360 --> 0:01:35.200 fascinating guy, full of great humility and insights. And I 0:01:35.240 --> 0:01:38.399 think you'll find this conversation to be really fascinating. With 0:01:38.440 --> 0:01:44.200 no further ado, my interview with vertifies Dave noting, let's 0:01:44.240 --> 0:01:49.320 start in thees when you were at Barclays, which eventually 0:01:50.040 --> 0:01:53.000 becomes black Rock, I shares tell us about what you 0:01:53.000 --> 0:01:55.480 did at Barclays. Oh, I mean mostly I got coffee 0:01:55.520 --> 0:01:59.080 at the beginning, you know, and I joined, Uh, they 0:01:59.080 --> 0:02:01.600 gave me the hypho leading title of Managing Director of 0:02:01.640 --> 0:02:04.080 Corporate Strategy. What it really meant was I was picking 0:02:04.160 --> 0:02:06.760 up little businesses nobody else wanted to pay any attention 0:02:06.800 --> 0:02:09.360 to through all the acquisitions they were doing so. For 0:02:09.400 --> 0:02:11.480 a while I ran Wells Fargo's four O win K 0:02:11.600 --> 0:02:14.519 business because they had acquired that as part of Wells 0:02:14.560 --> 0:02:18.800 Fargo Nico Investment Advisors when we did the Barkley's acquisition. 0:02:18.800 --> 0:02:22.040 When Barkley's acquired Wells Fargo Nico, I then spent most 0:02:22.080 --> 0:02:26.280 of my time in Asia shutting down Barkley's Dessert Wed businesses, 0:02:26.320 --> 0:02:30.799 which were brokerage shops in Australia and Singapore Hong Kong, Japan. UM. 0:02:30.840 --> 0:02:32.920 So I went around and sort of did some rationalization. 0:02:32.960 --> 0:02:35.840 They basically sent the young kid out to get his 0:02:36.080 --> 0:02:39.760 you know, you know what, handed go go go fire 0:02:39.760 --> 0:02:43.560 a bunch of you know, Japanese salaryman that that had 0:02:43.600 --> 0:02:46.280 to be a crazy experience being in Australia and Japan 0:02:46.360 --> 0:02:48.800 in the nineties. It was. It was bonkers, and I 0:02:48.840 --> 0:02:51.680 was very To be clear, I was young and incredibly stupid. 0:02:52.280 --> 0:02:54.239 Now I'm just older and slightly less. Isn't that a 0:02:54.280 --> 0:02:57.480 little redundant I say this. I say this not to 0:02:57.919 --> 0:03:01.240 mock the young, but to reflect on my own youthful 0:03:01.480 --> 0:03:05.079 indiscretions and stupidity. The story of growing a career is 0:03:05.120 --> 0:03:09.640 recognizing how little you knew every previous five years, Yes exactly, 0:03:09.720 --> 0:03:11.720 that five year review was like, wow, I had no 0:03:11.760 --> 0:03:14.280 idea what the hell I was doing? Now I know, 0:03:14.400 --> 0:03:17.000 and then you find out you really don't. So I started. 0:03:17.040 --> 0:03:19.880 I started there. I was lucky enough to be on 0:03:19.960 --> 0:03:22.959 the edges of a product which became webs, which became 0:03:23.000 --> 0:03:25.920 I shares Um. I was absolutely not somebody driving the 0:03:25.919 --> 0:03:29.160 train on that. I was the one reviewing, marketing copy 0:03:29.200 --> 0:03:32.440 and you know, doing presentations to groups of institutions about 0:03:32.480 --> 0:03:34.600 how to use the darn things. Who was driving the 0:03:34.639 --> 0:03:36.520 train on that Oh my gosh, there were so many, 0:03:36.560 --> 0:03:39.200 I mean, you know, success as a thousand fall others 0:03:39.280 --> 0:03:41.360 at this point. And the folks that I mean, so 0:03:41.520 --> 0:03:43.120 the people I was working with on the Wells Fai 0:03:43.320 --> 0:03:45.880 Niko side because this was a joint project with Stanley 0:03:45.880 --> 0:03:48.240 and other folks like that. UM, I was working with 0:03:48.640 --> 0:03:51.240 Don Lusk and Patty Donne Fred Grower were sort of 0:03:51.280 --> 0:03:55.200 the main group. Blake Grossman was the chief investment. He 0:03:55.280 --> 0:03:57.440 stuck around at you know, post into b g I 0:03:57.560 --> 0:04:00.440 for the rest of his career. Um. And so that 0:04:00.560 --> 0:04:02.160 was that was the crew that was really doing the 0:04:02.200 --> 0:04:04.280 hard work there. And then you know the Morgan Stanley side. 0:04:04.280 --> 0:04:05.840 I was working with folks like Joe and Hill who 0:04:05.880 --> 0:04:09.360 you know, um, Marian Stanley one of the quants there. 0:04:09.720 --> 0:04:11.480 UM and then of course all the folks who were 0:04:11.480 --> 0:04:13.440 coming in from the Amex like Nate Most. I mean, 0:04:13.440 --> 0:04:16.240 it was it was a pretty big group of Jim 0:04:16.360 --> 0:04:19.800 was he there at State Street? Um? After that was 0:04:19.920 --> 0:04:22.279 that was Jim Ross was at State Street a little 0:04:22.320 --> 0:04:23.919 bit after that when that was but that was you know, 0:04:23.920 --> 0:04:26.159 when the Spiders build out this was very much counter 0:04:26.279 --> 0:04:28.680 to to spy having been launched. So we were the 0:04:28.680 --> 0:04:30.880 other side of the fence from that. Even though AMX 0:04:31.000 --> 0:04:33.479 was the key, you know, AMEX was the glue holding 0:04:33.480 --> 0:04:35.480 it together because they figured out a lot of the 0:04:35.640 --> 0:04:38.080 how to do creation, redemption, and how to handle book. 0:04:38.320 --> 0:04:40.200 So let me fast forward a couple of years. You 0:04:40.320 --> 0:04:43.640 end up at et F dot com, which clearly is 0:04:43.880 --> 0:04:47.599 a or at least at the time was a dominant 0:04:47.600 --> 0:04:50.800 force in the E t F space when a lot 0:04:50.880 --> 0:04:54.120 of the world of finance looked at ETFs a little scans, 0:04:54.120 --> 0:04:56.719 a little skeptical like yeah, And that was really Jim Wyant. 0:04:57.080 --> 0:04:59.679 He started something called the Index Universe with Stephen Showen 0:04:59.720 --> 0:05:02.120 Fell somebody else you know in the industry UM who's 0:05:02.160 --> 0:05:05.200 now working for I believe Market Beckers in Texas UM. 0:05:05.400 --> 0:05:08.600 And you know, they they had this vision of understanding 0:05:09.120 --> 0:05:11.400 that E T S which at that point we're still 0:05:11.480 --> 0:05:14.480 largely institutional vehicles early two thousand's right. I mean there 0:05:14.480 --> 0:05:16.520 were some advisor pick up, but you had to be 0:05:16.600 --> 0:05:19.120 kind of on the front edge of finance or a 0:05:19.200 --> 0:05:21.719 quant or running your own models, which in two thousand 0:05:21.800 --> 0:05:25.320 three was not that common. Um they had the vision 0:05:25.320 --> 0:05:27.160 there that oh no, this is where all the wealth 0:05:27.200 --> 0:05:29.920 management is going to head um and built a business 0:05:29.920 --> 0:05:32.680 which eventually, through you know, acquiring the right names in 0:05:32.720 --> 0:05:35.040 you or else, became et F dot com. And then we, 0:05:35.240 --> 0:05:38.280 you know, we myself, Matt Hogan, Jim Wyant, a bunch 0:05:38.320 --> 0:05:40.800 of other folks built that business up into a you know, 0:05:40.880 --> 0:05:44.359 pretty respectable, chunky business that had a big conference and 0:05:44.440 --> 0:05:46.640 a huge data but I was focused almost exclusively on 0:05:46.680 --> 0:05:49.400 the data side. Um. And then we broke that into 0:05:49.400 --> 0:05:51.719 pieces so that that was solved though, wasn't it broken? 0:05:51.800 --> 0:05:54.440 So when you say broke into pieces, acquires in a 0:05:54.520 --> 0:05:57.200 positive way. Yeah, Like the pieces ended up being worth 0:05:57.200 --> 0:06:01.080 more than the part, which is not uncom not uncommon 0:06:01.080 --> 0:06:03.680 at all, especially when you're bolting together businesses that do 0:06:03.800 --> 0:06:07.320 in fact have silos themselves. So the data business was 0:06:07.320 --> 0:06:10.040 a natural fit for facts that which needed usc t 0:06:10.200 --> 0:06:13.159 F data. So Elizabeth K Facts is a is a big, 0:06:13.200 --> 0:06:15.479 big operator on that. And now they're now there. I 0:06:15.520 --> 0:06:17.560 think that that we re license the data that I 0:06:17.560 --> 0:06:19.960 helped build over a verify right, I mean they are 0:06:20.000 --> 0:06:23.360 now I still think the go to source for primary 0:06:23.440 --> 0:06:25.960 et F data, So that business continues to run over 0:06:26.000 --> 0:06:28.480 there and and you know, and now here I am 0:06:28.480 --> 0:06:31.240 at Vertifi doing largely a lot of the same work, 0:06:31.320 --> 0:06:34.120 also pushing a big conference that we're excited about Exchange 0:06:34.120 --> 0:06:36.560 in Miami and Florida. We're gonna talk about Vertifi. We're 0:06:36.560 --> 0:06:39.640 gonna talk about Exchange, which is one of my favorite 0:06:39.640 --> 0:06:43.640 events every year. It's always a blast. Um when you 0:06:43.680 --> 0:06:47.080 were running the conference beforehand. The old conference, this was 0:06:47.120 --> 0:06:50.560 at the Diplomat Hotel in Hollywood, Florida, was always late 0:06:50.640 --> 0:06:54.880 January early February, which occasionally went interview with my vacation schedule. 0:06:55.000 --> 0:06:57.440 But you know, to get out of New York in 0:06:57.520 --> 0:07:01.640 February and spend time with three thousand people and just 0:07:02.000 --> 0:07:07.920 absolutely a list speakers. Um, you know, Derek Jeter and 0:07:07.960 --> 0:07:11.920 Go Go I remember, um Joe Montana. Like the sports 0:07:11.960 --> 0:07:16.360 figures were always fascinating, but so too were the finance figures. 0:07:16.560 --> 0:07:18.960 You would people that were very much rock stars in 0:07:19.000 --> 0:07:21.600 that space. Yeah, and that was that was an interesting time. 0:07:21.680 --> 0:07:24.480 I think that's sort of the ten years pre prandemics 0:07:24.480 --> 0:07:27.480 are between GFC and pandemic whatever we're gonna call that window. 0:07:27.480 --> 0:07:29.440 It's not a lost decade. It was a great decade, 0:07:29.440 --> 0:07:32.200 but in that window, like the I mean you were 0:07:32.200 --> 0:07:34.880 on it to the conference circuit was lit. There was 0:07:35.160 --> 0:07:40.080 there was a really interesting finance relevant event every other 0:07:40.120 --> 0:07:42.640 week at least all year long. Well, keep in mind 0:07:42.880 --> 0:07:45.960 what was going on back then. So first you had 0:07:45.960 --> 0:07:49.440 the rise of ETFs. You had a radical expansion of passive. 0:07:49.960 --> 0:07:53.080 My my theory is post Great Financial Crisis, mom and 0:07:53.120 --> 0:07:55.400 pop said, you know, we're done playing this game. We're 0:07:55.400 --> 0:07:57.920 just gonna put the money, let Mr Market do his thing, 0:07:57.960 --> 0:08:00.160 and we'll find out how we did when we get 0:08:00.160 --> 0:08:03.120 ready to retire. Um. But you had that, you had 0:08:03.120 --> 0:08:05.880 e t F you rise a passive, but you also 0:08:06.000 --> 0:08:11.280 had this incredible I'm reluctant to call it PTSD, but 0:08:11.480 --> 0:08:17.160 following the financial crisis, there was this pervasive negativity that 0:08:17.280 --> 0:08:19.680 lasted years and years and years. And to run around 0:08:19.680 --> 0:08:23.000 and say, hey, markets are positive here, you need to 0:08:23.000 --> 0:08:27.680 be more constructive because down fifty is a fantastic reset. 0:08:28.720 --> 0:08:31.080 That was kind of a lonely voice for a few years. 0:08:31.360 --> 0:08:34.160 I think that's a big part of why you had 0:08:34.240 --> 0:08:36.880 the hard metals people doing a lot of stuff. You 0:08:36.920 --> 0:08:39.520 had the rise of crypto. I mean, think about that crypto. 0:08:39.600 --> 0:08:43.600 Crypto is where that enthusiasm went everybody who was finance adjacent, 0:08:44.040 --> 0:08:47.360 tech positive, growth oriented, all of them went into crypto 0:08:47.440 --> 0:08:50.480 in that window, in that to GFC two pandemic window. Huh. 0:08:50.559 --> 0:08:53.120 That that makes a whole lot of sense. So there's 0:08:53.160 --> 0:08:54.840 a lot of other things I want to get to 0:08:54.960 --> 0:08:58.160 with you, but before we do, there's a quote of 0:08:58.200 --> 0:09:00.520 yours that I think is a great leaping off point 0:09:00.559 --> 0:09:06.560 for more discussion. Finance is a problem that has been solved. Yeah, 0:09:06.600 --> 0:09:09.400 so you know, when we think about finance, particularly when 0:09:09.440 --> 0:09:11.480 we think about investing, which is what we spend most 0:09:11.520 --> 0:09:13.520 of our time talking about, right, how to how to 0:09:13.559 --> 0:09:15.920 take your wealth and turn it into more wealth through 0:09:15.960 --> 0:09:18.360 all of these tools out there from you know, I, 0:09:18.520 --> 0:09:21.960 P O S two derivatives. Um, how those pieces fit 0:09:22.000 --> 0:09:24.839 together is no longer a mystery. I mean that's really 0:09:24.880 --> 0:09:27.520 the core of it. Um, the academic side of how 0:09:27.520 --> 0:09:30.840 to build a portfolio. We can argue about the details, right, 0:09:30.880 --> 0:09:33.880 and certainly we could have a whole conversation about you know, Okay, well, 0:09:33.920 --> 0:09:37.440 this combination of interest rates and inflation and expected returns 0:09:37.480 --> 0:09:41.120 on equities is different, and so maybe we need to adjust. 0:09:41.720 --> 0:09:45.439 But the tools to do that are largely baked Anybody 0:09:45.480 --> 0:09:49.120 who has the curiosity and the basic intellectual capacity to 0:09:49.320 --> 0:09:53.920 learn about the markets can become a fairly sophisticated investor. So, 0:09:54.000 --> 0:09:55.880 if you're an advisor, and I spend most of my 0:09:55.960 --> 0:09:59.079 time talking to the wealth management institutional business, if you're 0:09:59.080 --> 0:10:01.640 an advisor, you should not be spending a lot of 0:10:01.679 --> 0:10:06.240 your time trying to add alpha through understanding investing better 0:10:06.320 --> 0:10:09.680 than the rest of the market. That is a mug's game, right, 0:10:09.720 --> 0:10:12.800 So don't try to solve that problem. It's largely solved. 0:10:13.160 --> 0:10:15.800 You can go get some turnkey asset management program as 0:10:15.840 --> 0:10:18.880 an advisor, you could get somebody's model portfolio, or you 0:10:18.920 --> 0:10:20.800 could hire some you know, three c f a s 0:10:20.840 --> 0:10:24.160 and do it yourself. But it shouldn't be your primary focus. 0:10:24.200 --> 0:10:27.480 Your primary focus should be solving the much harder problem, 0:10:27.520 --> 0:10:31.239 which is actually working with human beings. Right. The advice 0:10:31.360 --> 0:10:34.679 part of being a financial advisor is the hard part. 0:10:34.840 --> 0:10:37.319 That's the part where you should earn the money. We're 0:10:37.400 --> 0:10:39.959 kind of upside down and how we compensate and how 0:10:39.960 --> 0:10:42.640 we think about markets. Right, some advisor that's out there 0:10:42.640 --> 0:10:44.400 and can say, oh, I've generated one percent alpha for 0:10:44.400 --> 0:10:47.160 the last three years in my model portfolio, everybody's going 0:10:47.200 --> 0:10:49.520 to talk about that. But when you talk to that 0:10:49.559 --> 0:10:51.440 same advisor and they say, yeah, you know, they are 0:10:51.440 --> 0:10:54.440 these five families I've worked with for ten years, and 0:10:54.480 --> 0:10:58.360 because I've worked with them, generations of wealth are going 0:10:58.400 --> 0:11:01.800 to be preserved and these feel philanthropical exercises are going 0:11:01.840 --> 0:11:04.840 to be put forth like that's the real success story. 0:11:04.840 --> 0:11:06.880 I don't need to tell you that that's your business, right, 0:11:07.280 --> 0:11:10.520 that's the real success story. And that's much harder than investing, 0:11:10.679 --> 0:11:13.680 really really quite quite interesting. You have to explain to 0:11:13.679 --> 0:11:15.720 me the name of this firm. I've given you grief 0:11:15.720 --> 0:11:20.360 about this. What is edify? Alright? So well, the shortest 0:11:20.400 --> 0:11:21.959 answer about how to think about that, if I is 0:11:22.000 --> 0:11:25.440 where morning start without a ratings business? Right, So like 0:11:25.520 --> 0:11:28.480 a financial think tank. Yeah, we're in the business of 0:11:28.520 --> 0:11:33.680 sitting in between asset owners, financial advisors, institutions, retail and 0:11:33.720 --> 0:11:37.200 asset managers right the black Rocks, State Streets, Pimco's of 0:11:37.200 --> 0:11:40.720 the world, and helping them understand each other. What I 0:11:40.840 --> 0:11:44.680 spend most of my time doing is helping advisors understand 0:11:45.120 --> 0:11:48.520 the thousands of crazy ideas the asset management comes up 0:11:48.559 --> 0:11:50.960 with every year. And then I work with the asset 0:11:50.960 --> 0:11:54.480 management community to help them understand the hundreds of thousands 0:11:54.520 --> 0:11:57.280 of financial advisors and institutions who may or may not 0:11:57.360 --> 0:12:00.719 be interested in any of those products whatsoever. And so 0:12:00.920 --> 0:12:04.760 what that entails is a lot of good data understanding 0:12:04.800 --> 0:12:07.680 what both sides want of each other. It understands. It 0:12:07.679 --> 0:12:10.000 means having to understand markets, because if you're gonna understand 0:12:10.000 --> 0:12:12.120 the asset management industry, you need to understand well why 0:12:12.120 --> 0:12:14.600 you're managed. Future is part of the conversation here today 0:12:14.640 --> 0:12:16.959 but not six months ago, and it means spending a 0:12:17.000 --> 0:12:20.520 lot of time talking to individual advisors and investors who 0:12:20.520 --> 0:12:22.160 are out there trying to do the real work. So 0:12:22.440 --> 0:12:25.560 that's where vertify sits the company, like the meet and 0:12:25.600 --> 0:12:28.599 the bones underneath it brands folks know on et F 0:12:28.679 --> 0:12:32.079 trans et F database. We recently emerged with Advisor Perspectives, 0:12:32.120 --> 0:12:35.120 which is the largest advisor newsletter in the country. So 0:12:35.360 --> 0:12:38.840 we've sort of cornered a market on this dialogue between 0:12:38.840 --> 0:12:42.800 asset managers and financial advisors, and it goes both ways. 0:12:42.840 --> 0:12:45.200 We also do a lot of polling with financial advisors. 0:12:45.200 --> 0:12:48.120 We meet them at conferences, we do surveys of them, 0:12:48.320 --> 0:12:50.800 We track their behavior as they're doing research using our 0:12:50.880 --> 0:12:53.439 data and analytics tools, and that lets us really get 0:12:53.480 --> 0:12:57.200 an interesting picture of Hey, what are advisors thinking this week? Well, 0:12:57.280 --> 0:12:58.840 we can kind of tell you because we know what 0:12:58.880 --> 0:13:01.600 they're researching. We know you know how they answered pole 0:13:01.720 --> 0:13:04.040 questions last week, we know how they answered a survey 0:13:04.080 --> 0:13:06.280 two weeks ago, and then we write about that. We 0:13:06.400 --> 0:13:10.640 produce fifty odd pieces of content today. So here's the question. 0:13:10.920 --> 0:13:15.000 Are your clients the advisors or are your clients the 0:13:15.120 --> 0:13:18.560 institutional asset managers? Or both? Both? Is the real answer? 0:13:18.600 --> 0:13:20.360 I think the way to think about this is we're 0:13:20.360 --> 0:13:23.199 a business to business organization in terms of where you know, 0:13:23.200 --> 0:13:25.240 if you're gonna look at the revenue lines, but with 0:13:25.320 --> 0:13:28.600 b TWOC responsibilities, right, we take our relationship with the 0:13:28.679 --> 0:13:32.960 financial advisor very very seriously. In my position, that's really 0:13:33.040 --> 0:13:35.600 almost exclusively what I focus on, all right, And this 0:13:35.720 --> 0:13:38.800 leads me to a question that I never in a 0:13:38.840 --> 0:13:41.680 million years thought I would get to ask on this show. 0:13:42.000 --> 0:13:46.400 But what the hell is the financial futurist? Your title 0:13:46.640 --> 0:13:50.480 is a financial futurist? Yes, who came up with that? Who? 0:13:50.520 --> 0:13:54.840 What are the responsibilities? What does a financial futurist do? 0:13:55.280 --> 0:13:56.920 Like I expect you to be in one of little 0:13:56.920 --> 0:14:02.240 storefronts with the red light people to win financial and 0:14:02.280 --> 0:14:06.160 I hand you a card to the glass Madame Zolof 0:14:06.160 --> 0:14:07.920 with the turban on in the whole night Year, it's 0:14:07.960 --> 0:14:12.320 like big thank you here and I think it's actually 0:14:12.360 --> 0:14:14.480 a dude in the movie, but it is neither here 0:14:14.520 --> 0:14:17.240 nor there. Um. So look about a year ago. I 0:14:17.280 --> 0:14:19.480 had a conversation with the senior management of the company 0:14:19.480 --> 0:14:21.880 as we were putting Verified together, right, and we would 0:14:22.080 --> 0:14:23.920 you know, one of the things we use as a 0:14:23.960 --> 0:14:25.880 hook when we talk about the company is we're trying 0:14:25.920 --> 0:14:27.760 to turn it from an industry to a community. What 0:14:27.800 --> 0:14:30.760 we mean by that is that we focus on finance 0:14:30.800 --> 0:14:34.760 a lot on rules, regulations, process operations, none of which 0:14:34.880 --> 0:14:38.280 matter at all, and we've often just ignore the fact 0:14:38.280 --> 0:14:40.240 that they're human beings at the end of this equation. 0:14:40.240 --> 0:14:42.280 Now that's changed because of a lot of what's going 0:14:42.320 --> 0:14:44.720 in behavioral finance, and I think that's great. I don't 0:14:44.720 --> 0:14:47.600 think it goes nearly far enough. I think human centered 0:14:47.720 --> 0:14:50.760 organizations are always going to win, So we really tried 0:14:50.800 --> 0:14:54.480 to skew the organization towards that. So with that context, 0:14:54.560 --> 0:14:56.080 I said, here's a bunch of stuff I want to 0:14:56.080 --> 0:14:58.120 write about, which is the stuff we've been talking about, 0:14:58.480 --> 0:15:00.960 how the markets work, how people it into them. And 0:15:01.000 --> 0:15:03.600 I literally just started putting adjectives and nouns on piece 0:15:03.640 --> 0:15:05.480 of paper, trying to figure out, like, well, how do 0:15:05.520 --> 0:15:07.600 I describe the work that I think I should be 0:15:07.640 --> 0:15:10.760 doing and that hopefully people find at least entertaining, if 0:15:10.760 --> 0:15:13.480 not valuable. Uh and a little from column A little 0:15:13.480 --> 0:15:16.080 column B. You know, I've spent most of my career 0:15:16.080 --> 0:15:19.120 writing and thinking about finance. Most of what I've done 0:15:19.160 --> 0:15:22.480 has been taking an understanding of the status quo, which 0:15:22.520 --> 0:15:25.360 is very brief because next tomorrow it's gone, and trying 0:15:25.400 --> 0:15:28.400 to help people understand what that means for next week, 0:15:28.520 --> 0:15:31.240 in the next year, and the next decade, to position 0:15:31.280 --> 0:15:34.720 products underneath it, like a t S in two or 0:15:34.960 --> 0:15:39.280 model portfolios in two thousand, or direct indexing in two right, 0:15:39.440 --> 0:15:41.440 really trying to focus on that. Now it would be 0:15:41.480 --> 0:15:44.840 tokenized asset management. It's like, you can see these things 0:15:44.880 --> 0:15:47.520 if you're paying attention, but it's super easy to get 0:15:47.520 --> 0:15:50.480 really excited and spend lots of money chasing them. Having 0:15:50.480 --> 0:15:53.480 some context is important. So you mentioned direct indexing. Let's 0:15:53.480 --> 0:15:58.680 go there because I always disliked the broad context of 0:15:58.760 --> 0:16:03.080 direct indexing as how it was done previously. I couldn't 0:16:03.120 --> 0:16:07.600 stand the fifty pages of stockholdings every month or every quarter. 0:16:08.160 --> 0:16:11.240 But I give you credit for the person who kind 0:16:11.240 --> 0:16:13.160 of turned me around on that. I don't want to 0:16:13.200 --> 0:16:15.440 say it was ten years ago, but it was probably 0:16:15.480 --> 0:16:18.920 like five years ago, maybe a little longer that you 0:16:19.040 --> 0:16:21.680 pointed out there are a lot of things you can 0:16:21.720 --> 0:16:25.240 do with direct indexing in terms of and you were 0:16:25.280 --> 0:16:28.320 way ahead of the software. You had talked about things 0:16:28.360 --> 0:16:31.800 before it was available, that you could tilt towards a 0:16:31.880 --> 0:16:35.520 variety of e s g. Things, Hey show me companies 0:16:35.600 --> 0:16:38.960 where the board has at least two women on it, 0:16:39.120 --> 0:16:42.360 or you could tilt towards value where you could tilt 0:16:42.400 --> 0:16:45.960 towards small cap, or you could use it for tax 0:16:46.040 --> 0:16:49.640 lost harvesting or philanthropy. And you kind of opened my 0:16:49.680 --> 0:16:54.040 eyes up. Full disclosure. We work with O'shanna Sees Canvas, 0:16:54.040 --> 0:16:57.280 which was recently purchased by Franklin Templeton, and we're the 0:16:57.360 --> 0:16:59.840 largest client to that about a billion of three billions 0:16:59.840 --> 0:17:03.240 in at But I give you credit because if you 0:17:03.320 --> 0:17:06.520 hadn't opened my eyes to the advantages of what you 0:17:06.560 --> 0:17:09.919 can do with that. Um, we might not have stepped 0:17:09.920 --> 0:17:12.879 as aggressively into it as we did. I was primed 0:17:13.320 --> 0:17:16.640 two and receptive to see the things that were possible. 0:17:16.680 --> 0:17:20.600 So full credit to you. Now tell us about what 0:17:20.760 --> 0:17:25.199 is tokenized financial investments? Well, so you know, if you 0:17:25.240 --> 0:17:27.560 think about right now, I have a million dollars I 0:17:27.600 --> 0:17:28.680 want to put the work I wish I have a 0:17:28.760 --> 0:17:30.840 hundred thousand dollars I want to put to work. I 0:17:30.880 --> 0:17:33.359 have lots of different ways I can get that number 0:17:33.440 --> 0:17:35.719 to go up, and ultimately, let's be honest, that's what 0:17:35.760 --> 0:17:37.359 you care about. As an individual investor, I have a 0:17:37.400 --> 0:17:39.280 hundred thousand dollars, I would like to have a hundred 0:17:39.280 --> 0:17:41.800 and ten thousand dollars? How do I get there? And 0:17:41.920 --> 0:17:43.959 right now we throw it into the stock market, and 0:17:44.000 --> 0:17:47.639 we effectively use a tokenized system, right, I mean, nobody 0:17:47.840 --> 0:17:51.000 really carries shares around anymore. You want, you gotta led 0:17:51.080 --> 0:17:54.000 your entry at seeding company down on Water Street, right like, 0:17:54.080 --> 0:17:57.119 It's it's all just this fiction that we've created to 0:17:57.240 --> 0:17:59.760 keep track of notional ownership, and then we built this 0:18:00.160 --> 0:18:03.560 enormous infrastructure around it. So now we have payment for 0:18:03.720 --> 0:18:07.240 order flow and seventeen market centers and you know, reagaan 0:18:07.400 --> 0:18:10.440 MS judging who what has to get broadcast to who. 0:18:10.440 --> 0:18:12.680 When we made all this up, I think it's really 0:18:12.680 --> 0:18:15.919 important to remember this is fiction. We just created the 0:18:15.920 --> 0:18:18.440 system out of whole cloth. You can trace why, and 0:18:18.680 --> 0:18:21.320 there's lots of reasons, but you could invent another one. 0:18:21.760 --> 0:18:24.560 Inventing another one is what crypto has done. If you're 0:18:24.600 --> 0:18:26.960 in Europe right now, for instance, and you open up 0:18:26.960 --> 0:18:29.639 an account at ft X dot d E, which is 0:18:29.720 --> 0:18:32.200 you know f t X is European business in Germany, 0:18:32.359 --> 0:18:35.520 you can trade Tesla, but not as a stock. You 0:18:35.560 --> 0:18:39.199 can trade what is effectively a fungible token, right, a 0:18:39.359 --> 0:18:41.840 unit of Tesla. You and I can trade that in 0:18:41.880 --> 0:18:44.919 the ft X closed ecosystem all day long, with no 0:18:45.000 --> 0:18:48.479 trading costs, no settlement, no slippage, no nothing. It's a 0:18:48.480 --> 0:18:51.439 bearer instrument. It's like me handing you a pencil. You 0:18:51.560 --> 0:18:53.399 just now have the pencil and I don't, and the 0:18:53.480 --> 0:18:55.280 legal claim is the fact that you've got it and 0:18:55.400 --> 0:18:58.600 I don't. That's scary for all sorts of reasons, but 0:18:58.640 --> 0:19:03.040 it's also incredibly powerful because if you imagine that world 0:19:03.119 --> 0:19:06.040 where instead of it being this closed ecosystem in Germany. 0:19:06.119 --> 0:19:08.919 It's just sort of how global markets work, all of 0:19:08.920 --> 0:19:12.480 a sudden, almost any beta, any risk, any ownership stake 0:19:12.520 --> 0:19:13.960 that you want, as long as you can get two 0:19:13.960 --> 0:19:16.840 people to agree on what the tokens mean and how 0:19:16.880 --> 0:19:20.479 they unwind, to unlock some sort of underlying value, we 0:19:20.560 --> 0:19:23.040 can do all sorts of crazy stuff through the crypto 0:19:23.280 --> 0:19:25.360 rails that we could never have done before. You want 0:19:25.359 --> 0:19:28.280 to put together a portfolio, Great, here's a smart contract. 0:19:28.359 --> 0:19:30.720 It owns these fifteen other tokens that happened to be 0:19:30.800 --> 0:19:33.800 stocks that can be managed in real time by the 0:19:33.800 --> 0:19:37.800 contract itself. Creation redemption literally just becomes buying the thing 0:19:38.920 --> 0:19:43.720 redemption of right. You can create the TF on the blockchain. 0:19:43.760 --> 0:19:46.040 People have already done this. This is not news. Um. 0:19:46.080 --> 0:19:48.119 There's a thing called the set product all call. You 0:19:48.160 --> 0:19:50.919 can create a portfolio with a set of rules, and 0:19:50.960 --> 0:19:52.399 you can even put in a fee of how much 0:19:52.440 --> 0:19:54.000 you want to get paid because you came up with 0:19:54.000 --> 0:19:56.080 a smart contract. And there's hundreds of thousands of these 0:19:56.119 --> 0:19:59.480 things out there already, so the rails for doing it. 0:19:59.600 --> 0:20:02.800 The smart to the people talking about ethere and being 0:20:02.840 --> 0:20:05.800 the world computer, right, there's real truth to that. There's 0:20:05.880 --> 0:20:09.399 work being done by a computer there to keep track 0:20:09.480 --> 0:20:12.520 of ledger entries and to move those ledger entries around, 0:20:12.920 --> 0:20:16.320 which is the entire stock market. It's moving ledger entries around. 0:20:16.480 --> 0:20:19.640 So we're recording this on the same day that Matt 0:20:19.720 --> 0:20:24.520 Levine's Business Week Right dropped, like this is the second 0:20:24.520 --> 0:20:27.720 time in Business Week's history where one writer has written 0:20:27.720 --> 0:20:32.200 the entire book issue right. It's like fifty words, and 0:20:32.400 --> 0:20:36.080 it begins by saying, everything in the world these days 0:20:36.119 --> 0:20:39.359 that reflects ownership is a data database. You remind me 0:20:39.400 --> 0:20:42.400