Speaker 1: This is Bloomberg Business Week with Carol Masser and Bloomberg
Speaker 1: Quick Takes Tim Stinovic on Bloomberg Radio. Well, let's get
Speaker 1: right into it with Andy rack Left, he's the co
Speaker 1: founder and CEO of wealth Front joins us on the
Speaker 1: phone from the Bay Area. Andy. For for people who
Speaker 1: aren't familiar with with wealth Front, Um, it's a robo
Speaker 1: advisor that has been around for quite a while. I
Speaker 1: mean it was the first exposure that I had to
Speaker 1: a robo advisor. The company has changed a lot though
Speaker 1: since you founded it years ago. Um, what is the
Speaker 1: biggest change that you've seen in really Well, the big
Speaker 1: we we just made a major announcement. But just to
Speaker 1: go back for a moment, what we do is we
Speaker 1: integrate banking and invest to make it delightfully easy to
Speaker 1: grow your network. And what makes us really different is
Speaker 1: our focus on delivering what we call self driving money.
Speaker 1: And by that what I mean is that if you
Speaker 1: open up a wealth Front account, you can direct deposit
Speaker 1: your paycheck to it, she get paid two good days early,
Speaker 1: and then we automatically pay your bills and then route
Speaker 1: the remaining money on your behalf based on your rules
Speaker 1: to the most appropriate savings account and investment account. And
Speaker 1: the investment account is a diversified and rebalanced portfolio that
Speaker 1: we manage on your behalf and minimize the texts. Why
Speaker 1: did you see this as the necessary move to make?
Speaker 1: Right now? Is this something that customers wanted? Absolutely? Well? Actually,
Speaker 1: if you build what customers want, you lose. You have
Speaker 1: to build what customers move, what they don't know they want.
Speaker 1: Thing in here too, Righteah, we're gonna We're gonna tell
Speaker 1: you what you need. So what we test announced is
Speaker 1: the ability to customize our portfolios. So traditionally what we
Speaker 1: offered was diversified and rebalanced portfolio of low cost index funds,
Speaker 1: but we specified what those index funds would be based
Speaker 1: on your particular level of risk. Now, what we allow
Speaker 1: you to do is to add and subtract ets based
Speaker 1: index funds, or you can even build your own portfolio
Speaker 1: from scratch. So we're starting with dozens of etf well,
Speaker 1: seeing negrow that two hundreds Our et s even include
Speaker 1: socially responsible ets so that you can express your values.
Speaker 1: And we hope later this year to be able to
Speaker 1: add cryptocurrencies to that to thest FI portfolio as well.
Speaker 1: So forgive my gas before. I don't know if we
Speaker 1: could see it, but just crossing the Bloomberg terminal headline
Speaker 1: Billy Millindi Gates say that they are ending their marriage.
Speaker 1: So that just crossed and just kind of yeah, exactly,
Speaker 1: that was my my reaction. Um, they've been married for
Speaker 1: a long time, have a bunch of work together on
Speaker 1: their foundation, and globally, you know, have certainly made an impact.
Speaker 1: So how many years did you say? Seven years? So, um,
Speaker 1: get back to our conversation with Andy rack Cliffe, co
Speaker 1: founder and chief executive officer of Wealth Well Fund, and
Speaker 1: you founded this back I think it was like just
Speaker 1: around it was at two thousand and eight, just around
Speaker 1: the financial crisis, two thousand eleven. Actually we launched our
Speaker 1: first product in December of eleven, right, Okay, it started
Speaker 1: as something different I think before that, right maybe, yeah, Okay,
Speaker 1: That's why I think I was thinking about how has
Speaker 1: things changed in terms of what investors, maybe a younger investor,
Speaker 1: maybe all investors, in terms of what they're looking in
Speaker 1: terms of how they manage their investments in their portfolio,
Speaker 1: especially in an era where it's not like my dad
Speaker 1: who had investments of pension, social security, VA benefits, it's
Speaker 1: going to be very different for a lot of people. Well,
Speaker 1: let's see on the on the positive side, I think
Speaker 1: that index investing or passive investing has grown to become
Speaker 1: much much more popular. I think in two thousand and
Speaker 1: nineteen over half the funds in mutual funds were passively managed.
Speaker 1: When we started, that was not apparent. So that's a
Speaker 1: really big positive change. Every ten years or so, there's
Speaker 1: a day trading crates, uh, And it happens whenever the
Speaker 1: market goes up by a very large amount in a
Speaker 1: short period of time. It happened in the Internet bubble,
Speaker 1: it happened around the financial crisis, and it happened last year.
Speaker 1: And so that drives people who have not lost money
Speaker 1: through day trading to try it, which means people so so.
Speaker 1: And you don't think this one is different because there
Speaker 1: is the access to apps, commission free trading. You can
Speaker 1: do it like playing a game on your iPhone. You
Speaker 1: don't think this one is different, Well, I don't, because
Speaker 1: everyone loses money when they day trade, and so ultimately
Speaker 1: they realize it's like putting touching your hand to a burner.
Speaker 1: When you get burned on a stove, you don't do
Speaker 1: it again. So everyone I think wants to try that
Speaker 1: and then they're probably going to move away from it.
Speaker 1: And then the other biggest difference is the explosion in
Speaker 1: the value of bitcoin and other cre But that is
Speaker 1: something that and we only have a fift teen seconds here.
Speaker 1: That is something that customers want access to in their
Speaker 1: wealth front accounts, correct, and that's why we're giving them
Speaker 1: that access. We're planning on giving them that access. Andy,
Speaker 1: what what? What do you give us an update on
Speaker 1: the on wealthfronts business? Because I'm there. Fintech is so
Speaker 1: hot right now. As I mentioned earlier in the show, Um,
Speaker 1: what's the plan for the company? Are you guys? You
Speaker 1: know I p O. Are you gonna get acquired? Well?
Speaker 1: I was in the venture capital business for over twenty
Speaker 1: five years. I co founded a very well known firm
Speaker 1: called Benchmark Capital. And one of the things that made
Speaker 1: Benchmarks so successful was a focus on companies that had
Speaker 1: a good chance of building a large, independent company, which
Speaker 1: requires you that you go public. So that's been the
Speaker 1: desire from day one, and unfortunately we're growing very rapidly.
Speaker 1: We have over billion dollars of assets now under management
Speaker 1: and March was our biggest month ever in terms of
Speaker 1: investment net deposits. What's the demo? Is it still kind
Speaker 1: of skewing younger? Yes, well, it's intentionally skewing younger. We
Speaker 1: focus on millennials and Gen Z, so people forty and under,
Speaker 1: and the reason that we appeal to them is that
Speaker 1: everything that we do is delivered via software rather than
Speaker 1: through an advisor. Our clients literally tell us we pay
Speaker 1: you not to talk to us, so we don't appeal
Speaker 1: the baby boomers who have been conditioned to want to
Speaker 1: talk to someone. We're fantastic if you want everything delivered
Speaker 1: via your app. Do you think that this is the
Speaker 1: right approach for everybody or do you think there are
Speaker 1: some people with tens of millions of dollars and this
Speaker 1: this just doesn't work for them. Well, I don't think
Speaker 1: it's a function of the amount of money you have,
Speaker 1: because the academic research is incredibly clear that that attempting
Speaker 1: to outperform the market through active management is a fool's error.
Speaker 1: That neta fee is that you are going to underperform,
Speaker 1: and the only three things that you can control are diversification, fees,
Speaker 1: and taxes, which our software is really really good at.
Speaker 1: Computers do a much better job of that than people,
Speaker 1: and that's how we're able to deliver everything at such
Speaker 1: a low cost. So it's not a function. We aren't
Speaker 1: less effective for someone with more money. But I think
Speaker 1: that older people need more handholding and have been conditioned
Speaker 1: to want to talk to someone. It's just like travel agents.
Speaker 1: You know, if most people, if you ask them, would
Speaker 1: think that travel agents have been put out of business
Speaker 1: by the Internet, that's absolutely not the case. It's just
Speaker 1: the travel agents moved way up market to do much
Speaker 1: more complicated travel and they focus on an older clientele.
Speaker 1: And I think that's what's going to happen to traditional
Speaker 1: financial advisors over time, because our software keeps getting better
Speaker 1: and better and able to do more and more things
Speaker 1: every year, which leads us to be more appropriate. So
Speaker 1: we can with the millennials as they progress in the
Speaker 1: wealth generation phase of their careers. What's the typical accounts size?
Speaker 1: Our average account size is somewhere between sixty and seventy
Speaker 1: thousand dollars, But that's just an average because people start
Speaker 1: with a small amount of money. They might start with
Speaker 1: ten or fifteen thousand dollars, and they keep because they're
Speaker 1: in the wealth generation phase of their lives, not the
Speaker 1: wealth preservation phase. They add their savings to their account
Speaker 1: every year, so if you've been with us for three years,
Speaker 1: you're likely to have more than a hundred thousand dollars
Speaker 1: with us. Our largest account is something like thirty five
Speaker 1: million dollars, So it's all across the block. Crypto is
Speaker 1: something too, that you recently, UM I believe have kind
Speaker 1: of offered up to those on your platform. You've been
Speaker 1: you allowed customers to link their coin base accounts, I
Speaker 1: think since but you're only letting now customers kind of
Speaker 1: add crypto directly to their portfolios. UM more recently tell
Speaker 1: us a little bit about crypto and what you've been
Speaker 1: seeing with your your user base about how much they
Speaker 1: want to be able to have that their portfolios. Well,
Speaker 1: millennials and gen z people very much believe in cryptocurrency
Speaker 1: and want to have an allocation to it, and we
Speaker 1: want to enable them to be able to do that
Speaker 1: conveniently and as part of a diversified portfolio. A big
Speaker 1: part of what we sell is the importance of diversification.
Speaker 1: Now we don't yet offer it, we hope to offer
Speaker 1: it later this year. We're right now vetting our partners,
Speaker 1: and as soon as we do that will be in
Speaker 1: a position to say when exactly that's going to be offered.
Speaker 1: But the platform has been built now so that you
Speaker 1: can customize to express your views and your values, and
Speaker 1: that's a big thing that's very important to millennials. Hey, Andy,
Speaker 1: there was an article last month in the Atlantic that
Speaker 1: got quite a bit of attention. It was written by
Speaker 1: Annie Lowry, and the headline is, could index funds be
Speaker 1: quote worse than Marxism? Economists and policymakers are worried that
Speaker 1: the Vanguard model of passive investment is hurting markets. What
Speaker 1: do you say to that, Well, you know that article
Speaker 1: is reprinted every two years. So it was actually first
Speaker 1: published in two thousand and nineteen, and it's as crazy
Speaker 1: today as it was when it was published. Our our
Speaker 1: chief investment officer is an emeritus professor of economics of
Speaker 1: Princeton named Bert Malkiel, who is famous for having written
Speaker 1: perhaps the most influential book and on investing, called A
Speaker 1: Random Walk Down Wall Street, in which he first advocated
Speaker 1: for an index fund. So he's actually the creator of
Speaker 1: an index fund. So a couple of years ago, Burt
Speaker 1: wrote a blog post in response to that point, which
Speaker 1: just shows all of the fallacies of it. You know,
Speaker 1: the active investment world just doesn't want to give up,
Speaker 1: and the problem is they don't have a logical argument,
Speaker 1: so they start making up things about how it's bad
Speaker 1: for the economy or bad for stock prices. If the
Speaker 1: fundamental argument is if there's forty trillion dollars in US equities,
Speaker 1: then if you have as little as two trillion dollars
Speaker 1: to actively manage or price individual securities, you can have
Speaker 1: a reasonably effective or an efficient market. So that means
Speaker 1: the passive has to get to ninety or nine in
Speaker 1: order for it to have a significant impact on the
Speaker 1: pricing of securities. And we just passed fifty in late
Speaker 1: two thousand and nineteen, so we're a long long way
Speaker 1: away from that. All right. So I'm going back to
Speaker 1: something that Tim asked you about, Andy, So could you
Speaker 1: go public this year? It's been pretty a nice right
Speaker 1: by po market. Well, you don't go public because you could.
Speaker 1: You go the public because you should, And so you
Speaker 1: want to make sure a public offering is not a
Speaker 1: liquidity event. It's not an end it's not like an acquisition.
Speaker 1: It's the beginning, So should you go public? Just got
Speaker 1: thirty seconds. Well, we're I can't yet tell you, but
Speaker 1: I can't tell you it certainly is our goal, all right.
Speaker 1: Good to check in with you, Andy, Thank you so much,
Speaker 1: really appreciate it. Have a good, good evening, Andy rock Cliff.
Speaker 1: He's co founder, chief executive officer well Front