WEBVTT - Wealthfront CEO Announces Self-Driving Money

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<v Speaker 1>This is Bloomberg Business Week with Carol Masser and Bloomberg

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<v Speaker 1>Quick Takes Tim Stinovic on Bloomberg Radio. Well, let's get

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<v Speaker 1>right into it with Andy rack Left, he's the co

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<v Speaker 1>founder and CEO of wealth Front joins us on the

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<v Speaker 1>phone from the Bay Area. Andy. For for people who

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<v Speaker 1>aren't familiar with with wealth Front, Um, it's a robo

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<v Speaker 1>advisor that has been around for quite a while. I

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<v Speaker 1>mean it was the first exposure that I had to

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<v Speaker 1>a robo advisor. The company has changed a lot though

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<v Speaker 1>since you founded it years ago. Um, what is the

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<v Speaker 1>biggest change that you've seen in really Well, the big

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<v Speaker 1>we we just made a major announcement. But just to

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<v Speaker 1>go back for a moment, what we do is we

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<v Speaker 1>integrate banking and invest to make it delightfully easy to

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<v Speaker 1>grow your network. And what makes us really different is

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<v Speaker 1>our focus on delivering what we call self driving money.

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<v Speaker 1>And by that what I mean is that if you

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<v Speaker 1>open up a wealth Front account, you can direct deposit

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<v Speaker 1>your paycheck to it, she get paid two good days early,

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<v Speaker 1>and then we automatically pay your bills and then route

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<v Speaker 1>the remaining money on your behalf based on your rules

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<v Speaker 1>to the most appropriate savings account and investment account. And

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<v Speaker 1>the investment account is a diversified and rebalanced portfolio that

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<v Speaker 1>we manage on your behalf and minimize the texts. Why

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<v Speaker 1>did you see this as the necessary move to make?

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<v Speaker 1>Right now? Is this something that customers wanted? Absolutely? Well? Actually,

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<v Speaker 1>if you build what customers want, you lose. You have

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<v Speaker 1>to build what customers move, what they don't know they want.

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<v Speaker 1>Thing in here too, Righteah, we're gonna We're gonna tell

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<v Speaker 1>you what you need. So what we test announced is

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<v Speaker 1>the ability to customize our portfolios. So traditionally what we

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<v Speaker 1>offered was diversified and rebalanced portfolio of low cost index funds,

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<v Speaker 1>but we specified what those index funds would be based

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<v Speaker 1>on your particular level of risk. Now, what we allow

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<v Speaker 1>you to do is to add and subtract ets based

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<v Speaker 1>index funds, or you can even build your own portfolio

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<v Speaker 1>from scratch. So we're starting with dozens of etf well,

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<v Speaker 1>seeing negrow that two hundreds Our et s even include

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<v Speaker 1>socially responsible ets so that you can express your values.

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<v Speaker 1>And we hope later this year to be able to

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<v Speaker 1>add cryptocurrencies to that to thest FI portfolio as well.

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<v Speaker 1>So forgive my gas before. I don't know if we

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<v Speaker 1>could see it, but just crossing the Bloomberg terminal headline

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<v Speaker 1>Billy Millindi Gates say that they are ending their marriage.

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<v Speaker 1>So that just crossed and just kind of yeah, exactly,

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<v Speaker 1>that was my my reaction. Um, they've been married for

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<v Speaker 1>a long time, have a bunch of work together on

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<v Speaker 1>their foundation, and globally, you know, have certainly made an impact.

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<v Speaker 1>So how many years did you say? Seven years? So, um,

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<v Speaker 1>get back to our conversation with Andy rack Cliffe, co

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<v Speaker 1>founder and chief executive officer of Wealth Well Fund, and

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<v Speaker 1>you founded this back I think it was like just

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<v Speaker 1>around it was at two thousand and eight, just around

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<v Speaker 1>the financial crisis, two thousand eleven. Actually we launched our

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<v Speaker 1>first product in December of eleven, right, Okay, it started

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<v Speaker 1>as something different I think before that, right maybe, yeah, Okay,

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<v Speaker 1>That's why I think I was thinking about how has

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<v Speaker 1>things changed in terms of what investors, maybe a younger investor,

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<v Speaker 1>maybe all investors, in terms of what they're looking in

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<v Speaker 1>terms of how they manage their investments in their portfolio,

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<v Speaker 1>especially in an era where it's not like my dad

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<v Speaker 1>who had investments of pension, social security, VA benefits, it's

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<v Speaker 1>going to be very different for a lot of people. Well,

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<v Speaker 1>let's see on the on the positive side, I think

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<v Speaker 1>that index investing or passive investing has grown to become

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<v Speaker 1>much much more popular. I think in two thousand and

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<v Speaker 1>nineteen over half the funds in mutual funds were passively managed.

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<v Speaker 1>When we started, that was not apparent. So that's a

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<v Speaker 1>really big positive change. Every ten years or so, there's

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<v Speaker 1>a day trading crates, uh, And it happens whenever the

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<v Speaker 1>market goes up by a very large amount in a

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<v Speaker 1>short period of time. It happened in the Internet bubble,

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<v Speaker 1>it happened around the financial crisis, and it happened last year.

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<v Speaker 1>And so that drives people who have not lost money

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<v Speaker 1>through day trading to try it, which means people so so.

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<v Speaker 1>And you don't think this one is different because there

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<v Speaker 1>is the access to apps, commission free trading. You can

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<v Speaker 1>do it like playing a game on your iPhone. You

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<v Speaker 1>don't think this one is different, Well, I don't, because

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<v Speaker 1>everyone loses money when they day trade, and so ultimately

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<v Speaker 1>they realize it's like putting touching your hand to a burner.

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<v Speaker 1>When you get burned on a stove, you don't do

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<v Speaker 1>it again. So everyone I think wants to try that

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<v Speaker 1>and then they're probably going to move away from it.

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<v Speaker 1>And then the other biggest difference is the explosion in

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<v Speaker 1>the value of bitcoin and other cre But that is

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<v Speaker 1>something that and we only have a fift teen seconds here.

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<v Speaker 1>That is something that customers want access to in their

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<v Speaker 1>wealth front accounts, correct, and that's why we're giving them

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<v Speaker 1>that access. We're planning on giving them that access. Andy,

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<v Speaker 1>what what? What do you give us an update on

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<v Speaker 1>the on wealthfronts business? Because I'm there. Fintech is so

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<v Speaker 1>hot right now. As I mentioned earlier in the show, Um,

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<v Speaker 1>what's the plan for the company? Are you guys? You

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<v Speaker 1>know I p O. Are you gonna get acquired? Well?

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<v Speaker 1>I was in the venture capital business for over twenty

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<v Speaker 1>five years. I co founded a very well known firm

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<v Speaker 1>called Benchmark Capital. And one of the things that made

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<v Speaker 1>Benchmarks so successful was a focus on companies that had

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<v Speaker 1>a good chance of building a large, independent company, which

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<v Speaker 1>requires you that you go public. So that's been the

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<v Speaker 1>desire from day one, and unfortunately we're growing very rapidly.

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<v Speaker 1>We have over billion dollars of assets now under management

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<v Speaker 1>and March was our biggest month ever in terms of

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<v Speaker 1>investment net deposits. What's the demo? Is it still kind

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<v Speaker 1>of skewing younger? Yes, well, it's intentionally skewing younger. We

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<v Speaker 1>focus on millennials and Gen Z, so people forty and under,

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<v Speaker 1>and the reason that we appeal to them is that

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<v Speaker 1>everything that we do is delivered via software rather than

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<v Speaker 1>through an advisor. Our clients literally tell us we pay

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<v Speaker 1>you not to talk to us, so we don't appeal

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<v Speaker 1>the baby boomers who have been conditioned to want to

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<v Speaker 1>talk to someone. We're fantastic if you want everything delivered

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<v Speaker 1>via your app. Do you think that this is the

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<v Speaker 1>right approach for everybody or do you think there are

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<v Speaker 1>some people with tens of millions of dollars and this

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<v Speaker 1>this just doesn't work for them. Well, I don't think

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<v Speaker 1>it's a function of the amount of money you have,

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<v Speaker 1>because the academic research is incredibly clear that that attempting

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<v Speaker 1>to outperform the market through active management is a fool's error.

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<v Speaker 1>That neta fee is that you are going to underperform,

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<v Speaker 1>and the only three things that you can control are diversification, fees,

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<v Speaker 1>and taxes, which our software is really really good at.

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<v Speaker 1>Computers do a much better job of that than people,

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<v Speaker 1>and that's how we're able to deliver everything at such

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<v Speaker 1>a low cost. So it's not a function. We aren't

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<v Speaker 1>less effective for someone with more money. But I think

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<v Speaker 1>that older people need more handholding and have been conditioned

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<v Speaker 1>to want to talk to someone. It's just like travel agents.

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<v Speaker 1>You know, if most people, if you ask them, would

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<v Speaker 1>think that travel agents have been put out of business

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<v Speaker 1>by the Internet, that's absolutely not the case. It's just

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<v Speaker 1>the travel agents moved way up market to do much

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<v Speaker 1>more complicated travel and they focus on an older clientele.

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<v Speaker 1>And I think that's what's going to happen to traditional

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<v Speaker 1>financial advisors over time, because our software keeps getting better

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<v Speaker 1>and better and able to do more and more things

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<v Speaker 1>every year, which leads us to be more appropriate. So

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<v Speaker 1>we can with the millennials as they progress in the

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<v Speaker 1>wealth generation phase of their careers. What's the typical accounts size?

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<v Speaker 1>Our average account size is somewhere between sixty and seventy

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<v Speaker 1>thousand dollars, But that's just an average because people start

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<v Speaker 1>with a small amount of money. They might start with

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<v Speaker 1>ten or fifteen thousand dollars, and they keep because they're

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<v Speaker 1>in the wealth generation phase of their lives, not the

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<v Speaker 1>wealth preservation phase. They add their savings to their account

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<v Speaker 1>every year, so if you've been with us for three years,

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<v Speaker 1>you're likely to have more than a hundred thousand dollars

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<v Speaker 1>with us. Our largest account is something like thirty five

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<v Speaker 1>million dollars, So it's all across the block. Crypto is

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<v Speaker 1>something too, that you recently, UM I believe have kind

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<v Speaker 1>of offered up to those on your platform. You've been

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<v Speaker 1>you allowed customers to link their coin base accounts, I

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<v Speaker 1>think since but you're only letting now customers kind of

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<v Speaker 1>add crypto directly to their portfolios. UM more recently tell

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<v Speaker 1>us a little bit about crypto and what you've been

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<v Speaker 1>seeing with your your user base about how much they

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<v Speaker 1>want to be able to have that their portfolios. Well,

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<v Speaker 1>millennials and gen z people very much believe in cryptocurrency

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<v Speaker 1>and want to have an allocation to it, and we

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<v Speaker 1>want to enable them to be able to do that

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<v Speaker 1>conveniently and as part of a diversified portfolio. A big

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<v Speaker 1>part of what we sell is the importance of diversification.

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<v Speaker 1>Now we don't yet offer it, we hope to offer

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<v Speaker 1>it later this year. We're right now vetting our partners,

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<v Speaker 1>and as soon as we do that will be in

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<v Speaker 1>a position to say when exactly that's going to be offered.

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<v Speaker 1>But the platform has been built now so that you

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<v Speaker 1>can customize to express your views and your values, and

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<v Speaker 1>that's a big thing that's very important to millennials. Hey, Andy,

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<v Speaker 1>there was an article last month in the Atlantic that

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<v Speaker 1>got quite a bit of attention. It was written by

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<v Speaker 1>Annie Lowry, and the headline is, could index funds be

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<v Speaker 1>quote worse than Marxism? Economists and policymakers are worried that

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<v Speaker 1>the Vanguard model of passive investment is hurting markets. What

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<v Speaker 1>do you say to that, Well, you know that article

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<v Speaker 1>is reprinted every two years. So it was actually first

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<v Speaker 1>published in two thousand and nineteen, and it's as crazy

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<v Speaker 1>today as it was when it was published. Our our

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<v Speaker 1>chief investment officer is an emeritus professor of economics of

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<v Speaker 1>Princeton named Bert Malkiel, who is famous for having written

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<v Speaker 1>perhaps the most influential book and on investing, called A

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<v Speaker 1>Random Walk Down Wall Street, in which he first advocated

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<v Speaker 1>for an index fund. So he's actually the creator of

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<v Speaker 1>an index fund. So a couple of years ago, Burt

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<v Speaker 1>wrote a blog post in response to that point, which

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<v Speaker 1>just shows all of the fallacies of it. You know,

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<v Speaker 1>the active investment world just doesn't want to give up,

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<v Speaker 1>and the problem is they don't have a logical argument,

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<v Speaker 1>so they start making up things about how it's bad

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<v Speaker 1>for the economy or bad for stock prices. If the

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<v Speaker 1>fundamental argument is if there's forty trillion dollars in US equities,

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<v Speaker 1>then if you have as little as two trillion dollars

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<v Speaker 1>to actively manage or price individual securities, you can have

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<v Speaker 1>a reasonably effective or an efficient market. So that means

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<v Speaker 1>the passive has to get to ninety or nine in

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<v Speaker 1>order for it to have a significant impact on the

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<v Speaker 1>pricing of securities. And we just passed fifty in late

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<v Speaker 1>two thousand and nineteen, so we're a long long way

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<v Speaker 1>away from that. All right. So I'm going back to

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<v Speaker 1>something that Tim asked you about, Andy, So could you

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<v Speaker 1>go public this year? It's been pretty a nice right

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<v Speaker 1>by po market. Well, you don't go public because you could.

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<v Speaker 1>You go the public because you should, And so you

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<v Speaker 1>want to make sure a public offering is not a

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<v Speaker 1>liquidity event. It's not an end it's not like an acquisition.

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<v Speaker 1>It's the beginning, So should you go public? Just got

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<v Speaker 1>thirty seconds. Well, we're I can't yet tell you, but

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<v Speaker 1>I can't tell you it certainly is our goal, all right.

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<v Speaker 1>Good to check in with you, Andy, Thank you so much,

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<v Speaker 1>really appreciate it. Have a good, good evening, Andy rock Cliff.

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<v Speaker 1>He's co founder, chief executive officer well Front