WEBVTT - Wealthfront CEO on Wave of Day Trading 0:00:00.160 --> 0:00:04.640 This is Bloomberg Business Week with Carol Masser from Bloomberg Radio. 0:00:04.920 --> 0:00:07.920 We talk a lot about robin Hood, founded a few 0:00:08.000 --> 0:00:10.600 years ago, and how we've seen it really explode in 0:00:10.640 --> 0:00:13.520 popularity this year. We continue to see the financial sector 0:00:13.560 --> 0:00:17.840 being disrupted by a lot of newer companies. One company 0:00:17.880 --> 0:00:22.480 that really came on the space a few years ago. Uh, 0:00:22.480 --> 0:00:24.440 I'm really one of the first firms to start disrupting 0:00:24.440 --> 0:00:28.960 financial investing and the industry was Wealth Front, changing how 0:00:29.040 --> 0:00:32.680 investors manage their investments, taking it online. So let's bring 0:00:32.720 --> 0:00:35.800 in Andy Rackliffe. He is co founder and CEO of 0:00:35.960 --> 0:00:38.600 wealth Front, and he joins us on the phone in California. Andy, 0:00:38.600 --> 0:00:40.559 it's great to have you here with Paul and myself. 0:00:41.400 --> 0:00:43.560 Thank you for having me. So, first of all, we 0:00:43.600 --> 0:00:45.440 do want to talk about some of the new features 0:00:45.440 --> 0:00:47.839 that you've got. But first up, I just want to 0:00:47.880 --> 0:00:50.479 ask you about what your world has been like since COVID. 0:00:50.560 --> 0:00:52.680 I mean take us back to March and then kind 0:00:52.680 --> 0:00:54.639 of where we are today and where you guys are 0:00:54.680 --> 0:00:59.960 with your teams and and everything. Well, uh, first leveage 0:01:00.000 --> 0:01:01.960 it a little bit of contact so I can I 0:01:02.040 --> 0:01:05.000 can answer that question. So for your listeners who are 0:01:05.000 --> 0:01:08.360 not aware where a next gen banking service that helps 0:01:08.440 --> 0:01:12.399 young professionals manage their money. So we provide high interest 0:01:12.480 --> 0:01:16.000 checking and low cost investment management services all through a 0:01:16.040 --> 0:01:19.120 five star rated app, and our vision is to automate 0:01:19.200 --> 0:01:22.600 all of your finances. We call this self driving money 0:01:22.600 --> 0:01:25.200 and buy that. What I mean is you can direct 0:01:25.280 --> 0:01:28.679 deposit your paycheck with us. We automatically pay your bills 0:01:28.680 --> 0:01:31.360 and then route the remaining money to the most appropriate 0:01:31.920 --> 0:01:35.800 investment or savings account depending on your situation and goals. 0:01:37.319 --> 0:01:40.080 So with that in mind, the thing I think that's 0:01:40.080 --> 0:01:44.040 effected us for most are I think there's been a 0:01:44.040 --> 0:01:49.720 bunch of people rather than wanting a diversified and managed portfolio. 0:01:50.400 --> 0:01:54.040 I think that day trading has really taken off this year. 0:01:54.760 --> 0:01:57.360 And the other big thing that we've noticed is that 0:01:57.800 --> 0:02:03.600 with the dropping interest rates, people are more inclined to 0:02:04.640 --> 0:02:08.240 day trade or try to pick securities in order to 0:02:08.280 --> 0:02:10.320 make up for the fact that they're not earning that 0:02:10.440 --> 0:02:15.239 interest on their seats. So andy, during this pandemic, I've 0:02:15.400 --> 0:02:19.400 upped my digital banking game pretty substantially, I must say, 0:02:19.800 --> 0:02:23.160 um and I find it with a number of financial institutions, 0:02:23.200 --> 0:02:28.079 so it seems like these big players, they're investing money 0:02:28.080 --> 0:02:31.639 in fintech, they're investing money in their front end platforms 0:02:31.760 --> 0:02:35.040 as they integrate with their consumers. How what's your competitive 0:02:35.040 --> 0:02:37.880 advantage going against maybe some of the big commercial banks 0:02:38.000 --> 0:02:41.799 or brokerage firms and things like that. Well, I would 0:02:41.800 --> 0:02:45.720 say that it's business model and technology. So first, let 0:02:45.720 --> 0:02:50.000 me talk about business model. Traditional banks use branches, and 0:02:50.040 --> 0:02:53.240 what most people don't realize is that the average branch 0:02:53.440 --> 0:02:58.280 costs the average consumer two hundred dollars per years. So 0:02:58.320 --> 0:03:01.040 if you take the cost to operate the branch and 0:03:01.120 --> 0:03:04.400 divided by the number of people that it serves, it 0:03:04.520 --> 0:03:07.280 costs you about two hundred dollars a year. A cost 0:03:07.320 --> 0:03:11.639 the bank two hundred dollars a year to allfer that branch. Well, 0:03:11.680 --> 0:03:13.600 they've got to pay for that, and the way that 0:03:13.680 --> 0:03:16.600 they pay for that is to a number of fees 0:03:16.720 --> 0:03:21.280 that most people don't like. Uh. Next generation banking services 0:03:21.360 --> 0:03:24.760 like wealth Front don't charge those nickel and dime fees. 0:03:24.960 --> 0:03:28.000 So you're gonna be far better off, first of all, 0:03:28.040 --> 0:03:30.960 just not from not having the fees. Second of all, 0:03:31.000 --> 0:03:34.640 we pay interest on our balances, we pay point to 0:03:34.680 --> 0:03:38.280 be five. I use Wells Fargo. They pay me zero 0:03:38.400 --> 0:03:42.480 percent on my checking balance. So the fact that they 0:03:42.560 --> 0:03:47.120 have to support branches is a real negative for young 0:03:47.240 --> 0:03:49.680 people who don't want to go to a branch. It's 0:03:49.720 --> 0:03:52.760 probably a positive for a baby boomer who likes that 0:03:53.320 --> 0:03:57.920 personal interactions. So it's a very generational thing. On technology, 0:03:58.560 --> 0:04:03.320 thanks are terrible at developing software, you know. Uh JP 0:04:03.480 --> 0:04:07.080 Morgan Chase got quite a bit of attention a few 0:04:07.080 --> 0:04:11.200 months ago because they rode off your personal finance app 0:04:11.280 --> 0:04:15.320 called Skin. In contrast, Wealth Fund is the highest rated 0:04:15.680 --> 0:04:19.640 financial app in the app store. Just because both companies 0:04:19.839 --> 0:04:24.520 offer software doesn't mean that they're of comfortable quality, you know. 0:04:24.560 --> 0:04:26.160 And you have seen a lot of cycles in the 0:04:26.200 --> 0:04:30.360 financial industry. You co founded where general partner at Benchmark Capital. 0:04:30.480 --> 0:04:34.400 You've been an investor in the likes of juniper Um Equinox. 0:04:34.520 --> 0:04:37.240 I mean, you see the world from a lot of 0:04:37.279 --> 0:04:41.039 different angles when it comes to specifically though the financial industry. 0:04:41.040 --> 0:04:44.760 What do you make of something like a robin Hood. Well, 0:04:44.839 --> 0:04:47.480 every once in a while something comes along that really 0:04:47.560 --> 0:04:52.800 just captures the industry's imagination, and Free Trading really did that, 0:04:53.440 --> 0:04:56.400 and they've done a superb job of growing the business 0:04:56.440 --> 0:04:59.640 as a result of offering something that people really wanted. 0:05:01.320 --> 0:05:04.000 It's interesting, Andy, I think you know we're all in 0:05:04.000 --> 0:05:06.800 the old enough. Sadly, I guess to remember the dot 0:05:06.839 --> 0:05:09.120 Com boom day trading that kind of thing. It turned 0:05:09.160 --> 0:05:12.200 didn't turn out very well for some of those folks, 0:05:12.200 --> 0:05:14.680 and it kind of signaled in hindsight that was clearly 0:05:14.720 --> 0:05:17.080 up peak in the market. Any concerns about that here 0:05:17.200 --> 0:05:21.000 or do you just feel it's different this time? No. 0:05:22.160 --> 0:05:25.599 One of the funny things is that every fifteen years 0:05:25.720 --> 0:05:28.800 or so there is a day trading boom, and it 0:05:28.960 --> 0:05:32.640 usually coincides with a market that's gone up by fort 0:05:33.600 --> 0:05:37.120 in less than six months. Because when the market trades 0:05:37.240 --> 0:05:41.120 up very, very significantly, it's like shooting fish in a barrel. 0:05:41.120 --> 0:05:43.760 Any stock pitch is going to go up. The the 0:05:43.760 --> 0:05:48.800 mistakes that individual industris make is they confuse absolute performance 0:05:49.360 --> 0:05:53.640 with relative performance. You know, if the markets up in Europe, 0:05:54.440 --> 0:05:59.520 you think you're a genius and you're actually terrible. It 0:05:59.600 --> 0:06:02.920 always happens when markets go up very very by a 0:06:03.000 --> 0:06:06.360 large amount, very very quickly. So does this one end poorly? Then? 0:06:06.400 --> 0:06:09.480 You think for a lot of investors who maybe only 0:06:09.480 --> 0:06:13.000 think the market goes up of course it always does. 0:06:14.360 --> 0:06:19.000 So Andy, I know you at Stanford Business School, UH 0:06:19.040 --> 0:06:22.280 teaching courses on technology entrepreneurship. I'd love to get your 0:06:22.279 --> 0:06:26.880 thoughts about the feeling. And you're close to Silicon Valley. 0:06:27.080 --> 0:06:30.280 What does pandemic may do, if anything, to the sense 0:06:30.279 --> 0:06:34.400 of entrepreneurship UM in this country. Maybe the willingness to 0:06:34.480 --> 0:06:37.240 finance risk. Do you think it's gonna have any impact? 0:06:37.360 --> 0:06:41.359 Or innovations? Innovation and it will find its way. The 0:06:41.480 --> 0:06:44.520 louder innovation is innovation, and it's going to find its way. 0:06:45.000 --> 0:06:48.279 I think that the big change that's going to result 0:06:48.360 --> 0:06:54.680 from the pandemic is a greater embracing of remote workers. 0:06:55.640 --> 0:06:58.119 You know, our company is an example. We shut down 0:06:58.720 --> 0:07:02.840 on March when we went to shelter in place, and 0:07:03.000 --> 0:07:07.160 we no one has been to our office since. And 0:07:07.760 --> 0:07:09.800 you know, you can either fight it or you can 0:07:09.840 --> 0:07:12.320 embrace it. And we've learned that there are many things 0:07:12.360 --> 0:07:16.080 that we now do that actually lead to better productivity. 0:07:16.200 --> 0:07:18.960 So when we are allowed to go back to the office, 0:07:18.960 --> 0:07:21.480 and we've told our employees that we won't expect them 0:07:21.520 --> 0:07:25.480 to go back until there is a widely available vaccine, 0:07:26.000 --> 0:07:30.560 we think that actually not everyone will go back and 0:07:30.960 --> 0:07:34.520 will embrace that what works better? Because I know that 0:07:34.560 --> 0:07:38.120 there's a really big debate andy about productivity and depending 0:07:38.160 --> 0:07:40.440 on who you talk to, some say it's it's fine 0:07:40.520 --> 0:07:42.680 or it's even better, some say not so much, and 0:07:42.680 --> 0:07:44.960 that you miss people miss that face to face, that 0:07:45.040 --> 0:07:48.000 running into somebody you know with an idea and then 0:07:48.040 --> 0:07:50.800 you you move off of that. I think you need 0:07:50.840 --> 0:07:53.760 to drill down into it. What we have found is 0:07:53.880 --> 0:07:58.800 that our productivity among our younger single employees has going 0:07:58.960 --> 0:08:02.200 up because they actually don't have something else to do, 0:08:02.320 --> 0:08:05.679 so they tend to be working more. Our productivity for 0:08:05.720 --> 0:08:10.400 our employees who are parents with young kids has plummeted. 0:08:10.880 --> 0:08:14.440 But the vast majority of our company is made up 0:08:14.480 --> 0:08:18.080 of young people who are single, so when you average 0:08:18.120 --> 0:08:21.920 them out, our overall productivity is up. And what do 0:08:21.960 --> 0:08:24.880 you what's the feedback you're getting from your students at 0:08:24.880 --> 0:08:28.640 Stanford Business School here? How are they maybe viewing the 0:08:28.680 --> 0:08:30.240 world here? I mean it's a you know, they're gonna 0:08:30.240 --> 0:08:34.559 be a generation coming out in the pandemic um. I'm 0:08:34.559 --> 0:08:37.000 wondering if that's changed their views of the world or 0:08:37.000 --> 0:08:39.160 maybe beginning to change their views of the world. Are 0:08:39.559 --> 0:08:43.480 you sensing any of that. You know, I tend not 0:08:43.679 --> 0:08:47.760 to fall into that because the current environment is not 0:08:47.960 --> 0:08:50.600 indicative of the future. You know, this is an important 0:08:51.520 --> 0:08:56.080 consideration and investing. The biggest mistake that investors make is 0:08:56.120 --> 0:08:59.560 that they project the current environment onto the future, which 0:08:59.600 --> 0:09:03.240 is why, you know, the biggest mistake researchers that found 0:09:03.240 --> 0:09:06.360 an individual investors make is that when they buy when 0:09:06.360 --> 0:09:08.400 the market goes up, and they sell when the market 0:09:08.400 --> 0:09:11.720 goes down because they think that's what's going to continue. 0:09:12.160 --> 0:09:15.040 So I councel my students not to pay attention to 0:09:15.120 --> 0:09:18.400 this at all. It's likely to make h finding a 0:09:18.480 --> 0:09:21.600 job a little bit more difficult, but longer term, I 0:09:21.679 --> 0:09:24.680 don't think it's going to change their prospects. What about 0:09:24.720 --> 0:09:28.160 the prospects for colleges and universities. We know some of 0:09:28.160 --> 0:09:30.840 them are financially having a tougher time right now. And 0:09:30.880 --> 0:09:33.240 I know you're on the board of trustee trustees and 0:09:33.360 --> 0:09:37.040 and chairman of the endowment committee at University of Pennsylvania, 0:09:37.080 --> 0:09:39.520 and I do wonder what do you see when it 0:09:39.559 --> 0:09:42.760 comes to academia, what happens maybe where there might be 0:09:42.800 --> 0:09:46.240 some longer term impacts because of COVID, and what might 0:09:46.320 --> 0:09:51.880 those longer term impacts speed well, maybe more hybrid or 0:09:51.920 --> 0:09:55.440 maybe some fallout among some universities that aren't as financially stable. 0:09:55.480 --> 0:09:58.520 I almost feel like, just like we've gotten over retailed Andy, 0:09:58.600 --> 0:10:01.120 I feel like we've gotten over schooled here, especially when 0:10:01.120 --> 0:10:04.720 it comes to higher education. You know, that's been the 0:10:04.800 --> 0:10:08.120 case for decades though, and that doesn't seem to win. 0:10:08.160 --> 0:10:12.480 Oh Out the less financially stable universities, they seem to 0:10:12.520 --> 0:10:15.560 make it through, So I guess I'm not as concerned 0:10:15.600 --> 0:10:17.720 about that. So you don't really see any fall out. 0:10:17.760 --> 0:10:20.160 And you think, even even financially if schools might have 0:10:20.200 --> 0:10:22.959 a tough time for for maybe this year, maybe next year, 0:10:23.000 --> 0:10:26.240 they'll be okay, they'll weather through exactly. You know, the 0:10:26.320 --> 0:10:29.520 same was said during the financial crisis in oh eight 0:10:29.559 --> 0:10:32.160 and oh nine, and everyone seemed to have made it 0:10:32.160 --> 0:10:35.480 through that. Hey, before we go, you guys did have 0:10:35.520 --> 0:10:37.920 an announcement, and I know you guys have a new service. 0:10:37.920 --> 0:10:39.280 Talk to us a little bit about that, because I 0:10:39.280 --> 0:10:42.160 do feel like companies, especially because of COVID maybe or 0:10:42.160 --> 0:10:44.760 maybe it was in the works anyway, are kind of 0:10:44.920 --> 0:10:47.080 you know, thinking of you know, some initiatives that maybe 0:10:47.080 --> 0:10:50.840 we're in the works they pushed out even sooner. Well, 0:10:50.880 --> 0:10:55.320 with software development, you can't push something out that's that's 0:10:55.320 --> 0:10:58.760 fair like being pregnant. You have to finish writing the 0:10:58.880 --> 0:11:02.200 court so I wish or the team or a software company, 0:11:02.200 --> 0:11:05.040 maybe a services company, you can do that. But in 0:11:05.080 --> 0:11:07.920 our case, I talked earlier about our vision of self 0:11:08.000 --> 0:11:11.800 driving money, and a few weeks ago we launched our 0:11:11.880 --> 0:11:15.840 first feature UH in the self driving money area that 0:11:15.880 --> 0:11:20.280 we call autopilot. It automates your savings and it makes 0:11:20.400 --> 0:11:23.640 banking and investing work better together, so you can think 0:11:23.640 --> 0:11:27.920 of autopilot as a financial assistant. But basically, the way 0:11:27.920 --> 0:11:29.680 that it works is you pick the account that you 0:11:29.720 --> 0:11:32.600 wanted to monitor, be it your checking account or your 0:11:32.679 --> 0:11:36.240 wealthfront cash account, and whenever your balance goes at least 0:11:36.280 --> 0:11:40.040 a hundred dollars above the threshold that you set, we 0:11:40.160 --> 0:11:44.400 automatically move the money to an investment account of your choice. 0:11:44.880 --> 0:11:47.240 And that way you can make sure that your money 0:11:47.440 --> 0:11:50.280 is much better optimized than if it's just sitting around 0:11:50.320 --> 0:11:53.480 and not earning anything. And so that's the first of 0:11:53.559 --> 0:11:56.640 many features that you're going to see in our self 0:11:56.720 --> 0:11:59.439 driving Money initiative, and over time you're going to see 0:11:59.520 --> 0:12:03.720 more sources and destinations for that money, and we're going 0:12:03.760 --> 0:12:06.040 to move that money much faster. Well, I hope you'll 0:12:06.040 --> 0:12:08.320 come back and talk some more, Andy, because I could. 0:12:08.520 --> 0:12:10.640 I think we could easily sit down for you for 0:12:10.679 --> 0:12:12.760 an hour and just keep on talking because you just 0:12:12.880 --> 0:12:14.840 look at the world in so many different ways. Andy, 0:12:14.920 --> 0:12:17.440 Thank you so much. Andy Ratcliffe, he's co founder and 0:12:17.600 --> 0:12:20.199 CEO at well Front, on the phone from California.