The Exchanges

Q the road to recovery might look like for his company. And the whole financial services industry. I'm wondering, John, I mean, when the market starts to dive, people's natural reaction is to pull money out because they're freaking out. You know, they don't know how, how low it's going to go. Have you seen significant numbers of your customers, you know, withdraw their, their money or some of their money?

A You bet. And I have so many anecdotes about this and it's, it changes every day, right? Starting off, my own parents called me up. And said, John, we're thinking about withdrawing some money. It would just make us more comfortable to do so. This was the day that the S&P 500 reached its absolute bottom. And I said, I just, I think we've talked about this. The idea is to stay the course. We're going to manage your money smarter over the long term. You don't need to react in, in the moment. And they said, well, it would just make us more comfortable to have a little more cash on the side. And I said, your plan is we've already got enough of a safety net for you. You're fine for the next few years. You don't need it. But people react emotionally to the market, and I guess I'm just telling that anecdote to say it happens to me, my own family, too. Fortunately, they kept most of their money invested, but I couldn't stop them from withdrawing a little bit. I think it's interesting that among all of our customers, only two percent more customers withdrew in March than did in a normal month for us, and by far more customers were depositing the withdrawing, so 26% more of our total customer base was depositing ad hoc, not just auto deposit, but actually actively putting more money in than pulling money out. And for millennials, the most interesting thing is that for millennials, it was 3…

AI assessment note: “only two percent more customers withdrew in March than did in a normal month”

Q Yeah. So, so you graduate, and then what would you do next?

A Well, I came to New York City, uh, and New York was where I had the highest concentration of friends, and I thought, I've got to get a job, and I started looking around, and I talked to enough friends. I kind of got a sense for who was doing what, and my happiest friend, the one who seemed to be, you know, doing the best, was working at First Manhattan Consulting Group, and he said, I think you should come by and apply. I think you'd like it here, and I did. First Manhattan does consulting for banks and financial services companies, and I never thought I'd be in that, that industry, but wow, I was getting access to CEOs, and I was getting to develop new products and, and work on really interesting projects, Problems, uh, at a high level travel all around the country and the world. But when people would ask, what, what, what do you do? I'd say my job is helping banks make more money. And, you know, of course, I was tongue in cheek about that and knew that ultimately I couldn't see myself doing that for my entire career. I had to do something more meaningful and impactful.

AI assessment note: “Well, I came to New York City, uh... working at First Manhattan Consulting Group”

Q But pretty quickly after TechCrunch, were you, were you approached by actual people who, you know, who wanted to invest in your business?

A So at TechCrunch, there's this blast of excitement. I mean, we, we won best startup in New York and, you know, there was all these investors there who wanted to talk to us and let's get meetings and yes, yes, yes. And, You know, let's go in this breakout room and talk. And I was like nervous and just so excited and telling them about all the wild things that we wanted to do. And then at the end of the week and at the end of the month, you know, the phone stopped ringing. So after the launch, then I said, okay, now priority one is getting funded and we don't have a lot of time to do this. We've got maybe like three months, uh, to, to figure this out. And by the way, in that time, we're asking our employees to reduce their salaries and even contribute capital. Uh, to buy more equity, to pay themselves. So we were buying time as best we could, uh, until we could raise some capital.

AI assessment note: “there was all these investors there who wanted to talk to us”

Q And you actually did go to Harvard, right? So what did you study there?

A I studied economics, was my major, and I had a real interest in psychology as well. I was taking human behavioral biology with Irv DeVore, and he studied how people think and taught me that Despite our best intentions, we're highly likely to make mistakes. We let our emotions get in the way. And in fact, we, we will not make rational decisions if left to our own devices. And I saw that as just a really interesting puzzle to solve. And I was so like, um, caught on this problem of if people are so irrational, and yet we can make the world better if we help people make better decisions, how do I do that? How do I reconcile those, those worldviews? And I, when I graduated, I still had no idea. There wasn't a career in helping people make better decisions. That wasn't a thing one could do, but I liked the theory of it, and I was swayed at the time by one of my college roommate's dads, who was a doctor, and he was just talking about how in his career he got to really understand people and their problems, and he was telling their stories, and then he was making them better, and I thought, that's, that's it. Like, that's the way that I'm gonna Gonna help people and feel good about the impact that I'm having on, on their lives, and I'll be a doctor. So I, I said, I've gotta, I've gotta pursue this, and I did a post-bac pre-med year after I graduated, but I just, I couldn't stand it.

AI assessment note: “I studied economics, was my major, and I had a real interest in psychology as well.”

Q How many, and it was still like six or seven of you guys?

A It was less than, it was, it was five of us, yeah. And I realized, oh, like, we can't just, like, Stand here and wait for checks to come in. Uh, so I started to build a deck and, uh, and, and, and actually think about who would be the right investors for us and go out and target them. At the time, we hired an attorney, and, uh, and he set up some meetings for us, and the, the first meeting that he set up was with Bessemer Ventures, and we went out and we pitched Rob Stavis, and it was love at first pitch. We said, we're building this Company that is going to help people make the most of their money. And, uh, and Rob said, this is fascinating because for two years I've been looking for a company that would answer the question, what should I do with my money? And this is the best one that I've seen. And he said, uh, how about rather than investing a million dollars, you guys raise three million dollars. And we said, wow.

AI assessment note: “It was less than, it was, it was five of us, yeah.”

Q furloughed, um, I mean, your business depends on accounts on more and more accounts, right? Because your margins are so thin. I mean, you're only charging a quarter of a basis point to manage people's money, which is just tiny. It's tiny amount of money. So what explains the fact that your overall business isn't affected by it? That your revenue stream seems to be more or less the same.

A So we are affected. Um, we feel it too. Um, but I feel lucky in many ways that we're not, say, dependent upon people to come in to a branch or into a physical retail location in order to hand us money for our services, right? Um, we are a digital business, and right now actually digital financial services, um, are doing I, I'd say, uh, as, as one of my board members said to me, uh, this, this week at our, at our meeting, you're, you're in the top quadrant. Things might be tough, um, but you're lucky that you're not, say, a restaurant. You know, there's so many businesses that are, that are being hit, hit hard. We are, we're still seeing record sign-up numbers. We're seeing people coming to us. And, you know, it's interesting because, uh, especially younger people are losing jobs. In our survey of millennials, I think it was 33% of Gen Z lost jobs in our, in our survey due to COVID versus only about eight percent of the baby boomers had lost jobs. And so you can, of that 15, you know, total unemployment, you can see who it's impacting. It's, it's impacting everyone, but particularly younger people. And yet they're the ones who are more likely right now than ever before to be signing up. We're just seeing a surge in especially young people signing up.

AI assessment note: “We are, we're still seeing record sign-up numbers.”

Q What about with your, your team? I mean, how is this going to change the way you guys operate? I mean, Presumably, you know, people are going to start asking questions like, hey, John, do I really need to live in New York City? It's really expensive. Can I live in southern New Jersey and do this job? Or can I live in, you know, western Pennsylvania or wherever?

A We've been talking a lot about this and hearing a lot about it from our team. A lot of it depends upon where people are in life, I find. You know, we've got young folks who have weathered this out in Manhattan the entire time, and they just cannot Wait to get back to the office and, like, get things back to the way they are. We've got parents who are holed up with children who say, I've got to get out of here. I've got to, you know, I need, I need that office. I can't function at, at home. I can think of dozens of team members who are now thinking about moving to the suburbs, or I've already, you know, made, made some steps in that direction, or even to the Midwest or to the Southeast. People are definitely thinking that, This is working for me, and like, there's, there's things about this arrangement that I like better, and it will change the way we work, I think, because people are having forced into this. I used to think I could, I couldn't possibly work from home. As the CEO, I had to be there every day, you know, like, it's all essential. And this has shown me that I was wrong, and so, uh, it's interesting.

AI assessment note: “I can think of dozens of team members who are now thinking about moving”

Q this is 2008. I mean, you were Out of work. You started this business at a time when it was hard for you to get investors on board. There was, the money was tight. I mean, if you are thinking about starting a business, or you were thinking about starting a business, and then this crisis happened, what advice would you give to somebody who's, you know, in that situation?

A Everyone was saying, this is an awful time to start a financial services company. Don't even think about it. And I said, This is when we're needed most. People are losing their shirts, and they need a financial advisor, and banks are closing, and no one trusts the banks anymore. This is the time to launch it. It was a hard time to raise money. It was a hard time to get started, but in retrospect, our success is as much timing as it is anything else, right? It was the right time to launch this business, and we did enjoy a long bull market for many years thereafter. Now, in this moment, I've heard this question, too, of You know, is this a good time to start a business? Like, I've lost my job. I've been thinking about starting something. Maybe this is that moment when I should do it. And my answer is yes. Uh, my, I would say a downturn is actually a great time to think about starting a business, especially cause you might have more free time on your hands and you can finally focus on doing that thing that you're passionate about or solving that problem. And there are so many problems right now to solve, uh, and so many novel ways of solving them. What I think, you know, you know, everyone has their own interests and should focus on what makes them You know, most excited in, in helping, making the world a better place. But I always say, I think there are three areas that are parti…

AI assessment note: “my answer is yes. Uh, my, I would say a downturn is actually a great time”

Q What did you do in the early days?

A So, one thing that we did right was, uh, in the early days we, uh, we created provisions around buyouts, and, uh, and I'm so happy we did that, and when people ask for advice, I always tell them to do this, because, uh, Sean, remember, was, uh, was a co-founder and was involved with us From, from the very beginning, and then he decided to go to business school, and he went to business school in London, and we were working with him for a long time remotely like that, but it became very hard after a while when the three of us were in the office, and we were coming to decisions during the day, and then we'd have a call scheduled with Sean, and he would disagree, and, you know, we would, you know, have to rehash the whole thing, and it just, it became too tough, and ultimately Sean decided, I just can't do this anymore.

AI assessment note: “in the early days we, uh, we created provisions around buyouts”

Q to build a mock-up, because obviously you're not going to Go. You're not ready to become a business, because there's a lot of regulatory challenges when you create a financial services company. It's not like, just like opening up an online shop, like, right? You can't just, you can't just, oh, like hang out a shingle and say, okay, um, send me your money and I'll invest it for you.

A Believe me, I tried. When I say I wanted to, to build a totally new kind of company around the customer, I, I mean it. I didn't want to be a bank. I didn't want to be A broker. I didn't want to be any of those things, because I think they all have bad reputations for a reason. They're, they're, they're manufacturing product and selling product. I wanted to build around the customer, and I thought, maybe I don't have to be a regulated entity at all. But everything pointed back to, we do have to be a regulated entity. The law is well written, and I was, it was in my, in 2008, in my second year of business school, in the early fall, That I had a chat with Eli Braverman.

AI assessment note: “everything pointed back to, we do have to be a regulated entity”

Q John, how much of your success do you think is because you're really smart and you worked really hard, and how much do you think is just, just luck?

A So I love, uh, uh, this question, and I, I have to credit a lot of my success to luck and timing. I have described myself as, as opportunistic, and I think that's a common thread throughout all of my life. I've been Lucky to have amazing, supportive parents. I was lucky to go to a great high school with incredible teachers and mentors. That got me lucky to go to a great college. I was lucky to end up in financial services, which was a thing that had some real thorny problems that needed fixing. So to me, it's not about the things that I did. It's, I really believe it's about, uh, about the opportunities that have been put ahead of me. And so of course I work hard. Um, but I, I see myself as exceptionally lucky, and it's that feeling that I've been so fortunate in life that makes me want to help others. I, my grandfather said, of those to whom much has been given, much is expected, and I will be paying down the debt of luck that I've had for a long time to come.

AI assessment note: “I have to credit a lot of my success to luck and timing.”

Q So, but people would say, okay, so let's say I've got 10,000 bucks, like what, I just give it to you and, and you take care of it for me? Like, why wouldn't I just go to Vanguard? What would you say?

A Well, one of the challenges when you're really inventing something new is nobody wants it, right? People say, if I said, hey, would you like a bank account or an investment account or this new thing? Well, no one's gonna want the new thing because it's scary, and, you know, it takes a lot of time to build trust in financial services. So it took time to get that message right, and the best way to think about it is we take all the best practices that a great investment advisor would put to work for you, if, if you had one, and we make them smarter, faster, cheaper, better. For example, we give you personalized guidance about What you should be invested in, and what your goal should be, and how, which accounts to open. We tax manage for you to save you more than you even pay us in fees. In taxes, we give you net positive returns on your investment with us, and I'd say that the, the concept has become more and more sophisticated over time, and it's been, how do we, how do we, what's the first slice, and the First slice is make it really easy to answer the question, what should I do with my money? Yeah. One thing I found that was common across everyone was they were, they felt bad about the thing that they were doing. Everyone felt guilty. Everyone felt like, I know I'm not making the most of it. I know I'm not doing everything I should, I should be doing. And I'd say, aha, there's …

AI assessment note: “we take all the best practices that a great investment advisor would put to work”