The CEOs of Betterment, Acorns, and Addepar spoke about the need to stay laser focused on customers.
But there is no question that the way the wealth management sector functions is fundamentally changing. “The old way is not maximizing customer’s money,” said Jon Stein, CEO and co-founder of Betterment, speaking at the CB Insights’ Future of Fintech Conference.
All three startups work in the wealth management space. Betterment and Acorns serve the retail investor whereas Addepar is focused on B2B customers such as wealth management firms and family offices.
For Acorns, they are not worried that their customers will leave them for an established incumbent. “The plan is to grow with customers and help nurture them,” Kerner said. Most recently Acorns launched a new service called “found money” which partners with retail brands to offer Acorn’s customers extra perks for being a customer. In addition, Acorns will be unveiling a new partnership with Paypal in the coming months, one of their early investors.
Stein noted that Betterment is looking into buying related technologies in order to expand the platform’s functionality. By offering new business lines, the company thinks it can continue gaining market share and retain its current users.
Addepar similarly is also looking to improve their users’ experience through a focus on technology. Their approach has been to open their platform and offer an open API for developers in order to be “on the bleeding edge of development,” Poirer said.
Andy: Welcome everyone. Good afternoon and welcome to this panel on Wealth Management in Fintech. It’s either in wealth management or into wealth management. We have an awesome panelist as you can see here, a group of very familiar of CEOs of high profile and prominent companies. To my immediate left is Jonathan Stein, CEO of Betterment, to his left is Noah Kerner CEO of Acorns, and to his left Eric Poirier of Addepar. Welcome, and great to see you guys.
Together: Thank you.
Andy: So, I think a lot of people are familiar with your companies as I said, but I wanna ask you just to give a brief description and also talk initially about, you know, this fast growth platform and pattern you guys have been on. I mean, all of you are growing so fast with different metrics and I know John [SP], you have gotta, what? Over nine billion dollars of assets under management?
Andy: So, what’s contributed most to that growth and just remind us a little bit about what Betterment does first of all.
John: Betterment is an online financial advisor, as many of you probably know. We have grown because I think it’s obvious to a lot of people that the old way of managing your money just isn’t working very hard for you, right? It’s not in your best interest, if not doing anything to actually maximize your money. And so, as we’re opening people’s eyes to the fact that we can actually make them a lot more money by personalizing an account for them, we can make it more convenient, we can give them peace of mind about their full financial picture. It’s just obvious that this is the better choice, and so it’s grown faster than say, mutual funds did when they first took off. We’ve grown faster than ETFs did when they were first introduced. And we’ve seen at the same time, other industry incumbents coming in at a faster pace than they have for any change that I can remember in financial services history. So, it’s an exciting time to be in this space.
Andy: Noah, tell us about Acorns. Gosh, you guys have got over…almost 2 million customers now? And so, also fast growth. What do you guys do exactly and what problem are you looking to solve for a customers?
Noah: Yeah, thanks for doing this by the way. So, our customers are basically people who make under a hundred thousand household income primarily. And, what Acorns does is make it effortless to save and invest small amounts of money regularly. I think, the thing I think that is probably contributed to the growth most is probably the spare change, people of call it kind of our Trojan Horse feature. But it’s just basically, you know, this thing that happens in the background of life. So, you connect the card to Acorns and then everywhere you go and shop we round up the purchase to the nearest dollar and invest to spare change of serve, just happening and it’s really simple. We like to say we make big decisions small. So, I think just stripping that away, you know, stripping the difficulty and complexity as much as possible and really focusing on that customer base that makes under hundred thousand household income, which is pretty overlooked by the financial services industry generally.
Andy: Eric, you’re a little bit different from these two guys, I mean, probably all kinds of ways and I don’t even know about.
Eric: A little shorter.
Andy: Well, yeah. But you’re a B2B company, is what I was really talking about here and these guys are B2C. Your numbers are huge, I think it’s like what? Seven hundred billion dollars on your platform.
Andy: Managed through your clients which are businesses.
Andy: And if you think about it, like it’s got to be, I don’t even know how many billions of dollars have been brought to bare into this business just in terms of technology investment, we’ll get to that in a little bit. But, why don’t you sort of address the same question that John did, what’s led to your growth trajectory.
Eric: Sure. So, you know when we started Addepar back in late 2009 it was in response to the financial crisis. And I think as…many of us saw some of the largest asset owners had the hardest time understanding what they held, how they held it, and what their exposed to. And so, we really built Addepar to serve firms, as you pointed out, who offer financial services often times to large end clients, and fundamentally what the product does is it gives advisers what they need to report in a tailored way to each and every end client about what they own, how they own it, what they’re exposed to. So therefore, they can make a, you know, well lined decision on what to do about it. And so, a lot of the growth is…the fact that we’re now giving technology to these advisers, to date, have been using Excel and a bunch of people to solve this problem in operationally an intense way.
Andy: And so, what kind of ways do you run your…and a lot of people out here are running Fintech companies. And so, have you thought about how running your B2B business is different from running a B2C company?
Eric: Yeah, absolutely. So, we end up being a close partner for a lot of consumer oriented Fintech companies. The way we look at it, is in a since we are dealing with some of the largest asset owners in the world, which actually to enter to your point before, there are 40 trillion dollars worth of assets held globally, by pensions, sovereigns, endowments, and foundations. Another 30 trillion held by high net worth they’ll all trying net worth individuals with at least $30 million or more. So, if you look at that $70 trillion worth of assets, managed by again, Excel wizards, data janitors, basically people playing the role of middle where, when all of a sudden you have technology to play that role. We can empower consumer Fintech companies, we can empower banks that have been doing this for a long time. And it’s all really pointing towards providing a tailored and differentiated service to each and every client.
Andy: Right. Noah, how big is the opportunity for your company?
Noah: So, we’ve estimated there’s about 182 million Americans that represent a customer base for us. So, we think it’s that big, that’s in the U.S., we’re also in Australia and I think globally, basically people who make under hundred thousand household income, where we can enter those markets as opportunities there for us. And often, just over looked and under served. And one of the thing…and this is kind of a small nuance but, this audience is often sort of referred to as under banked, under this, under that, have knots, you know, it sort of, we call them the up and coming and it’s a little bit of a twist on how to think about people in terms of, you know, it’s not people…we don’t look at it as like, these people are sort of struggling and we look at them as striving. And obviously young people, you know, “Millennials” tend to make less income just because they’re younger but as they get older and you’re still in that segment, and you’re still striving, you know, every American is striving for the American dream and so, that’s the customer base.
Andy: Do you feel like you need to…you don’t feel like you need to serve people with more assets than that?
Noah: No, no. That’s our customer base and we’re totally squarely focused on it. And I think it’s important to be laser focused as a business.
Eric: Right, right.
Andy: John, what is your competitive set? I mean, do you compete against the legacy companies, well obviously, but do you compete more against the new Fintech companies? I mean, how do you think about that?
John: Increasingly, we’re thinking about our competitive set as those incumbent that have entered our space. I think for a while, you know, I would have said it’s, was obviously it’s Vanguard, it’s Fidelity, it’s Schwab, that’s where we get all of our assets from and that’s who we compete with. So, our target customer is has, you know, hundred thousand dollars to two million dollars to say. And their often investing on their own or they’re getting terrible advise from somebody, you know, at a broker and insurance sales person or somebody who’s selling them product because that’s the way financial services works, it’s a bunch of product sales people. And we’re a fiduciary, we act in our customer’s best interest and they come to us because they can get better advice. They’ve got enough money that it’s important to them, it’s meaningful to them, they get a significant, you know, return on it, they worked hard for it, they want them to put it to work best for them. And they know that these traditional firms aren’t really operating in their best interest. So, I think now of our competitive set maybe more narrowly as those firms who have recognized that this is the future of financial services, they are moving in this direction. But because they are mutual fund companies and their only incentive is to sell their mutual funds, it’s hard for them to really become a fiduciary and act in their customer’s best interest. Or because they are broker and they make their money just selling other peoples products and getting commission for that, it’s hard for them to actually think about what’s best for the client. Our competitive advantage is that, we are new, we have built in this customer in line way from the beginning and that helps us to pick on the incumbents.
Andy: You mentioned the word fiduciary and we were talking back there that you’re regulated, you’re regulated, and you’re not regulated. I mean, that’s crazy, should he be regulated? No, I’m asking you.
John: So, I think for us, regulation has been a really great thing.
Andy: Wow, really?
John: Yeah, absolutely. I mean, it creates, in the first instance, a set of rules that you have to abided by, and I mean, we’ve had exams every year, you know, we were founded seven years ago. I founded the company seven years ago, every year have multiple exams, because we’ve been leading this new path, we’ve been blazing trails, and so the regulators, rightfully are really interested to see what’s going on. I actually…I talked to our competitors, they haven’t been examined as much, right? But we’re setting the standard. And I feel a real sense of obligation to raise the standards, we talk about with the fiduciary standard, that’s pretty good. We’re up here, we’re above that, we’re doing more for our customers than most fiduciaries because that’s what we believe. And I think the regulation should actually be elevated on everyone in our space. I think the DOL Fiduciary Rule is a great thing for instance. And actually, I mean, no one argues that it’s actually good for consumers and bad for incumbent firms. The incumbent firms admit that 90% of people who…you know, everyone is sort of for that. Regulation is really good, you just have to, you know, get it right.
Eric: All right. And I think importantly, one of the reasons we’re not regulated today, like we’re providing reporting software so advisors can show their clients what they own in their portfolio today, and what they’ve owned in the past. So, Addepar isn’t providing advice, we’re empowering advisors with tech and data so they can serve their clients. Now, in the future, if we were providing advisors with more insights or maybe recommendations or listing products then of course we should be regulated, but as of today we don’t do that, so that’s why we’re not regulated.
Andy: Noah, so obviously one of your constituents is Millennials and, you know everyone, that the common narrative is they’re distrustful of traditional financial institutions, but are you concerned that as they accumulate more wealth they’ll leave you and go to Morgan Stanley, at all?
Noah: So you know, so, well am I concerned about it but I think about it a lot obviously.
Noah: But our plan is to grow with them. I mean, you know, our customers on average, our customers were super engaged on average they are investing about $750 a year. So, it’s a long time before they accumulate huge amounts of wealth, right? And move to someone who’s dealing with million dollar asset class. So, our plan is to grow with them, and help nurture them, and help to continue to nudge them to invest small amounts regularly over time.
Andy: And John, you must only have like young, broke, poor Millennials at Betterment, no older person with money would go to your company, would they?
John: So, people always are surprised to learn that over a third of our assets come from people who are 50 plus, so there are actually a lot of older customers using services like these. And most…I think the number one segment for us is 40 year old. That’s where we have…like that seems to be like a sweet spot for us. People who have like enough money where it’s, you know, it’s meaningful to them, and they’re forward thinking and sort of like, you know, tech savvy enough in general that they’re like comfortable using services like this. It’s not specific to that age group, right? Like we have 90-year olds we have 20-year olds.
Andy: That seems like they’re having a financial midlife crisis, right? Like get a Harley, go to Betterment.
John: It’s a life event, right? It’s like, oh, you know, I gotta start thinking about my kids college or, you know, retirement is gonna happen to me someday, maybe they’re starting to look forward to it, right? It starts to become real. And so, that’s those kind of times when find that people are looking for something better to do with their money.
Andy: Eric we talked a little bit on the phone about your use of technology and big data and, you know, I’m sure you get asked this question, but I’m gonna ask it to you here in front of all these people. How do you balance off collecting data, and security, and privacy?
Eric: Yeah. And so, we’re entrusted with our client’s most sensitive information. So, you know, since the very beginning we’ve had to invest super very heavily in security. Prior to Addepar we built the Palantir, so, we were also very familiar with, you know, working in some very secret and very private settings and being incredibly responsible and careful in the way that we should, you know, treated that data. So, one thing that is unique about Addepar is a 100% of our clients use the exact same product and platform. And the platform is fully hosted, and so, we’ve been really on the bleeding edge of security and with the latest and greatest having fully encrypted everything, having auto key rotations, going through the ringer, and a places like Morgan Stanley, so that they’re comfortably using our software. And so, if we ever violated the trust of our clients our business dies that day. And in my monthly all hand with the entire company, I remind, you know, every single person at the company have that. And so, we’ve gone, you know, we’ve gone to great lengths with the tact, the operations, the infrastructure, having, you know, the best practices with respect to security laid out but at the same time any sort of threat factors that have to do with social engineering, impersonating clients, things like that, like those are the things that I think we’re incredibly ruthless about. And just making sure there are clients, the trust that they’re putting in us, you know, with their data, we’re living up to that and then some.
Andy: Right. Noah, can you talk a little bit more about you found money program? I kinda like that.
Noah: Yeah, yeah. So our…
Andy: Who doesn’t, I mean it’s…
Noah: Finding money is a great thing.
Andy: You couldn’t come up with the better name for a program.
Noah: So when you sign up for Acorns you link your bank and then you link cards, so debit cards and credit cards, and as I was saying, we round up and we round up the purchases to nearest dollar and invest to spare change. And so, we are always thinking about how to help our customers accumulate more money, small amounts from other places so there’s lots of currencies out there that exist. And so, one of the concepts we had was can we partner directly with retail companies and turn rewards into investable cash basically, right? So, we partner with Nike, we partner with Hotel Tonight, Dollar Shave Club, with Casper, a lot’s of brands that are interesting to our customers and also bigger brands. And when our customers shop with those retail companies using the card they have linked to Acorns, those companies invest into their Acorns account as a reward for shopping. So for instances, if you buy $100 pair of sneakers at Nike, Nike invests $5 into your Acorns account. If you buy a hotel with Hotel Tonight, Hotel Tonight puts $10 into your Acorns account. So we have about 10% of our customers using it now, which is awesome, and they’re all kind of, you know…I would say within a year you can easily do 50 to 100 extra dollars, which when you’re talking about $750 is a sizable amount.
Noah: One of the other kind key things about Acorns, I think you asked earlier, what makes it really sticky, is we connect spending to investing and that’s a really core part of the product and so, this is another way to kind to create, reinforce that relationship. One step further, I’m sorry…
Andy: That’s good, keep going.
Noah: One step further, and we haven’t gotten into this but we’re kinda interested in this is, you know, so you shop at Nike, Nike invest into your Acorns account as a reward for shopping through roundups and found money, and then you’re actually probably an owner of Nike. So, there’s something interesting also in that virtuous circle of shopping, them investing in you and then actually owning share in the company, and we haven’t gotten into that yet but we think there’s something psychologically fascinating about that kind of…
Andy: You’re looking at him like, we’ve haven’t gotten that, into that yet. Is he gonna get into that? Is that what you’re thinking?
John: So, not that exactly, I like that idea, but we think the world is headed toward this far more personalized asset management. And you know, and I think probably anyone who is in my business probably has a similar vision and product and road map for wanting to take everything that we know about you and use that to help you maximize your money, right? Like, that’s what we should do, it’s what financial services should do. It’s not what they have done in the past. They’ve sold you a bunch of products that, you know, I’d sell the same products to you and to you.
Andy: They had inventory.
John: We had inventory.
Interviwer: Which had done by the inventory, that’s how it works.
John: So we look forward to a world post mutual funds, post ETFs, where I can create a portfolio that’s perfect for you because it takes into account. Your goals, your preferences, your values, anything that, any sort of beliefs or hypothesis that you have, with our advice and guidance about what makes sense for you and feedback on that and machine learning and all these kinds of things we can do to better guide and advise you. And then, that is actually the best thing you can do with your money. You can’t get any better than that, like perfectly personalized portfolio for you.
Andy: But wait, let me push back on that. I mean, how would personalization, and I understand, like I’m in the content business, personalization is great, I want to know about the, you know, Washington Wizards or something right great. But how this personalization work, I mean, Oh, I grew up in this town so I should buy that stock. I mean, that’s…maybe that’s the wrong thing. I mean, how would that actually work.
John: So, where you grew up probably doesn’t matter unless you’re still living there today.
Andy: Or if I work in certain industry, I mean, just give me an example.
John: If you live in New York, you wanna have maybe a New York community bonds in your portfolio.
John: If you’re in California…
Andy: Oh, California…
John: That’s a simple example.
John: If you’re in a high tax bracket you do things a little differently. If you have more money in IRAs or in a rough versus a traditional IRA, you do things a little bit differently. Your portfolio should be personalized. If you don’t like tobacco companies they shouldn’t be in your portfolio, if you believe that Asia is in a tear and it’s gonna continue and you wanna dial that up a little bit, your portfolio should reflect that. So, your values, your beliefs, your preferences, all those kinds of things are you and most importantly, you know, frankly the most important thing is your life, right? The life events that are happening.
John: So that’s kind of the core of our guidance’s is based around what you should be doing based on how much you’re earning, your assets, your spouse’s assets, that full life picture that we gather.
Andy: So, I want to ask you about some pricing issues that you had. Is it too strong to call it an issue?
John: I don’t know what the question about.
Andy: Well, do you do…you changed pricing and there was criticized you on social media. So, how did you respond to that as a CEO?
John: There was…I think, as much…so, we changed our pricing in February just for context, and we flattened it to 25bps. We originally had that sort of 15, 35, sorry, 15, 25, 35 tiers and we actually cut our price on far more customers than we increased price on, because we flattened it. And we eliminated, had a $3 a monthly minimum fee for very small balanced accounts that we eliminated. And so, most people actually saw a price cut. I was one of the ones paying 15bps that was raised to 25bps and my own take was, you know, like that’s still a really tiny amount to pay for an asset management. This is the best thing you could do with your money. I think there’s always gonna be people who kind of like, are resistant to change like that, but we know that we’re building the best value for our customers. We’ve continued to invest in the platform, we’re continuing to launch the best products in the industry and frankly, for those customers who are gonna be with us for 40 or 50 years, you know, this is obviously the right thing to do.
Andy: Right, well changing price, and obviously you’re not gonna make everyone happy and there’s always gonna be blow back and that’s what social media’s for probably to make that case. Hey Eric, I want to ask you about, you know, you’re this technology platform and your going after a lot of to your clients client’s are high net worth individuals, but aren’t those people sort of some of the people who are most resistant to using technology? And if that’s that’s the case how do you get over something like that?
Eric: Yeah, so it’s true that we’re serving the advisers who in the clients…who there in clients of hired, right? So, the end clients sometimes…that for the end clients who are more excited to dive into the details a little bit about their portfolio, they’ll use the software directly that’s more maybe typical in Silicon Valley where our headquarter are. But, you know, the end clients that in terms of trusting the solutions with their data and loading their data in, we handled that, you know, in the way that I answered before. Some of the things we’re enabling to those end clients to now contemplate or consider which they couldn’t before, and I think this fits squarely into John’s vision of the future as well. Many of these wealthy individuals, or families, or even a dominants, or foundations, they have the ability to make much longer term investments with the much clearer picture of the future, right? And so, we’re empowering and enabling that in a way that they really haven’t and unable to do that before. So, one example of that is Justin Rockefeller is one of the guys on our team who runs his family office group, and he also separate from Addepar runs group called the ImPact. And what ImPact is doing is making it easy for family offices to make ImPact investments, where you’re not just measuring the performance of the investment, and like, you know, I had $100 today and I have a $102 tomorrow. But you’re measuring actually the purpose of that investment in the first place. So, if that investment is trying to improve a literacy rates or improve or, you know, reduce carbon emissions or what have you, the ethicacy of that impact investment is something you can, you know, again, capture data about it and then have that data be shared by other people who are considering that same type of investment. So, in our picture for the future, you know, they’re all, of course, all sorts of different types of people participating a financial markets and for the portion of those people or institutions who have a larger asset base, they’re the ones who are gonna be able to fund things that are more ambitious, more pioneering, longer term, we’re able to codified the results of that into data that can be shared more broadly, that’s how we ensure that really the best idea wins broadly. Like people we’ve adopted this capitalist ideology, I think as a society and we’re saying, that’s all well and good but that hasn’t had an adequate technology platform today and really that’s what we’re building.
Andy: Alright, great. So, Noah, I don’t know whether you studied economics in school? Maybe a little bit?
Noah: Psych and Economics.
Andy: Yeah, all right. Because I understand you use behavior economics at your company, what?
Noah: Shlomo Benartzi who created the Save for Tomorrow is on our board, and we do a lot of work with him. And Richard Taylor and a lot of professors of economics that…are heads of economics departments of different colleges, we kinda think of Acorns as a laboratory, if you will. So we built a whole team around experiments, and Acorns is now organized according to what we call Squads, and it’s groups focused on core pieces of the business. So, one is on core product, one’s on the next product, one’s on infrastructure, that kind of thing. And we have a team dedicated to experiments, and they’re running experiments on basically every screen in the product. So we will identify some, you know, some metric we want to hit or increase and they’ll kind of go in like a SWAT team, you know, and focus on that and just tweak every single element. So, the behavioral economist we work with who obviously understand behavior as well if not better than anybody will come in with all kinds of insights and ideas for us to start testing. And this is a small one, but it’s an example, you know, we have a recurring investment feature that you can turn on after you turn on round ups. And you can, you know, by the day, week, or month you can set up whatever amount you want. So, we tested, you know, what it would look like if ask, if we suggested $5 a day, versus $3, a week, versus $150 a month which is the same amount obviously. And 40% of people adopted $5 a day, 10% of people adopted $150 a month. So we’re really operating that way. And the results from these experiments, and having a real team dedicated to experiments has been just astronomical. So, we take an as an example recurring which a year ago, a little over a year ago is 20% of customers were using that feature. Now, 55% of customers are using it, and it’s just from small tweaks and adjustments.
Andy: So, by the way, how many people work at Acorns and how are you getting word out to the consumers about the company right now?
Noah: 120. So we’re relatively small, and most of the growth is organic. So, word of mouth, referrals. We’ve looked at how people share and actually this one of the interesting things about mobile product in particular. A lot of times it’s the sharing of a screen, so it’s really important to have those key screens that stand out.
Noah: You know, one or two of them. So it’s largely word of mouth, the referrals, and then we do some digital acquisition stuff and kind of the classic channels. But we’ve actually, cracked SnapChat and Pinterest too, which is pretty cool.
Andy: And how old is the company again?
Noah: We’ve been live since the end of 2014.
Andy: Right. So, your sort of a mobile first, I mean, it sounds like you are right?
Noah: We have a web app…
Noah: …but we’re 97% mobile.
Andy: Right. And what about you John, I mean, are you, whets the ratio of desktop and mobile at this point?
John: So, we see more sign ups on desktop typically when people are thinking about, you know, really investing, they’re sitting down, and like this is, you know, a serious decision that they’re making. But far more of our logins, something like 60 to 70% of our logins are mobile.
Andy: And so, what about partnering? I wanna ask all of you about that in the limited time we got left. So, you must have a million opportunities or thoughts, how do you decide whether or not to do that?
John: Yeah, we’ve taking this approach from really day one that to really reinvent this business. We have to start from the bottom up and build the custody and record keeping and all the core systems to deliver the efficiency that we want. To be able to drive down the cost in providing services to the levels that our customers demand. So we’ve done a lot ourselves internally. Now we’re partnering with advisors on the one hand so, we have a Betterment for advisors platform and we work with thousands of investment advisors who use Betterment as their core platform for managing their clients assets. And we also partnered with businesses where we become their 401K and all of the employees get the benefits of a Betterment account that work. So, we’re increasing the investing in partnerships like these, because it’s a great way to reach more people.
Andy: Right. Noah, partnering, partnerships, working with others companies?
Noah: So, PayPal’s our largest investor.
Andy: So, do you have a strategic investor to them?
Noah: We do. We’re gonna be rolling out something interesting with them in a couple of months. And we have a lot of these…
Andy: I heard that.
Noah: We have a lot of retail brand, retail partners so, the different found money partners we have and there’s a lot across promotion stuff that happens there, I mean, that’s really…those are our big kind of partnerships.
Andy: What about you?
Eric: Super partnership, we built the platform and open way, we opened our APIs last year and, you know, the big reason why, you know, we see ourselves as, again, the shared platform for the industry. And so, we need to…we’re not gonna build all the technology for everyone in finance, there are great other solutions out there for planning, for building, for re balancing, for trading, for CRM etc. As well as, you know, additional like new products coming in that are relevant to a portion of our client base.
Eric: So, philosophically we just want to partner with everyone who has a good offering, that’s gonna add value to our clients.
Andy: So last question. Betterment buyer or buyee?
John: Buyee. We are investing more and more of time looking at the market, looking at M&A opportunities, to see what’s out there because I think there’s a lot of ways to extend their platform and as you say, you know, there’s interesting things if people have built, and so, we’re looking around.
Andy: All right. Great conversation, I wish we have more time but we’re out of it. Jonathan Stein, Noah Kerner, and Eric Poirier, thank you so much.
Together: Thank you.
Andy: Thank you.