SaaS Interviews with CEOs, Startups, Founders
670: Betterment Vs. Vanguard, Betterment Passes 200,000 Investors, $8B in AUM with CEO Jon Stein
25 May 2017
Chapter 1: What is the main topic discussed in this episode?
This is The Top, where I interview entrepreneurs who are number one or number two in their industry in terms of revenue or customer base.
Chapter 2: What is Betterment and how does it differ from traditional investment firms?
You'll learn how much revenue they're making, what their marketing funnel looks like, and how many customers they have. I'm now at $20,000 per talk. Five and six million. He is hell bent on global domination. We just broke our 100,000 unit soul mark. And I'm your host, Nathan Latka. Many of you who I've met in person have seen my unbelievable dashboards that I built.
You know, I'm an analytics like crazy person. I love the data.
Chapter 3: What is Betterment's fee structure and how does it compare to competitors?
And I love presenting the data in beautiful dashboards that my team can use on their mobile devices, their phones, and TVs throughout the office. Now, the way I do this without having to hire a big development team is at NathanLacka.com forward slash analytics. It's using a company called Clipfolio. And I'll tell you more later on in the show how I use them.
It's NathanLacka.com forward slash analytics. This is episode 670. Coming up tomorrow morning, we are predicting the future of financial technology with the CEO of FT partner, Steve McLaughlin, who did over $10 billion in transaction volume in the space last year. I want you to listen and tell me if you agree with him. Good morning, everybody. Nathan Latke here.
Chapter 4: What inspired Jon Stein to create Betterment?
Our guest this morning is John Stein. He's the CEO and founder of Betterment. He's passionate about making life better. And with his experience from his career of advising banks and brokers on risk and products, he founded Betterment in 2008. John is a graduate of Harvard University and Columbia Business School, and he holds a Series 7, 24, 63, and is a CFA, Chartered Financial Analyst.
His interests lie at the intersection of behavior, psychology, and economics. What excites him most about his work is making everyday activities and products more efficient, accessible, and easy to use. John, are you ready to take us to the top? Thanks for being with me here early on a, what is this, a Monday morning. Appreciate it.
Chapter 5: How did Jon Stein transition from consulting to founding Betterment?
So start us off real quick. For those that are not familiar with Betterment, give us the gist of what it does and what your revenue model is, how you make money.
Betterment is the largest independent investment advisor online. We manage your money for you in a way that the old institutions can't because we've used technology to automate all the best practices of investing and do them for you automatically. And that same technology drives the cost down for you. So you get better investment management at a lower cost than you can get anywhere else.
This service is leading the way in the industry right now, and the industry is all coming after us. They all want to change their products to be more like ours. It's an exciting time. We charge customers a fee that's a percentage of the assets under management.
Chapter 6: What strategies did Betterment use to grow its customer base?
Which is how much, John?
It's 0.25%, which is the lowest in the industry. And by charging this one clear, transparent fee, we align ourselves with a customer in a way that the old institutions are not. The old institutions charge you for transactions, or they're selling products to you and getting commissions for those products. They have their own funds that they're pushing on you, these kinds of things.
Betterment is an advisor, a fiduciary, which means we have to put our customers' best interests first, and that means we're aligned with our customers, and that translates into how we charge our fee.
Now, you said at the top of the show that you guys are the largest in terms of being online. Tell me what that number is in terms of asset center management in total currently.
Today we manage $8.2 billion.
$8.2 billion, guys.
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Chapter 7: How does Betterment optimize investment strategies for its clients?
So guys, there's your teaser. We're going to come back to kind of current day betterment and where John sees the future going. But John, take us back, man, because it sounds like you did two degrees at Harvard and it looks like you're maybe leaning towards medical. What in 2008 brought you back towards kind of financial?
studied economics and a little bit of behavioral biology as an undergrad. And those were really where my interests were. And as I came out of school, I was an economics major, and 80% of the graduating class from Harvard went into finance of some sort. And at that time, finance, I mean, 80% is a crazy number for people in the industry.
But at that time, 40% of all the financial profits in the US were coming from financial services. This was 2001 when I graduated.
Chapter 8: What are the advantages of choosing Betterment over Vanguard?
And it didn't make any sense that so much money was going to financial firms. Something seemed broken. I didn't want to just follow everyone I knew into finance. And so for a while, I thought I'd be a doctor. I did a post-bac pre-med degree. I wanted to help people. I wanted to do something that I felt would be really good for the world. And yet I didn't really like blood.
I didn't really like working in the lab. I decided, although I love the science, medicine probably wasn't for me. And then I found myself back in New York and I found myself consulting for banks, helping banks make more money.
Hey, John, let me put some years around this just so people can follow your story. This was 2001 to 2002 when you got your pre-medical studies degree at Harvard, correct?
That's right. That's right. And so 2003, January, I moved to New York. Soon after that, I was working at First Manhattan Consulting Group.
And John, you were how old at this point?
I was 23, I guess, when I started there, maybe 22. Okay. Yeah. And so for me, it was kind of a tongue-in-cheek thing to say I'm helping banks make more money. I realized that I was in an industry that I didn't have, say, a passion for the work I was doing, but I was learning so much. And I was working with really smart people.
And I found that I was uncovering opportunities to start businesses left and right because the banks were not paying close attention to what their customers wanted. They weren't designed in a customer-centric way. Yet I saw a few institutions that had done things well. I really liked the ease and accessibility of ING Direct's online savings account.
I really liked the low-cost model of the Vanguard funds.
You're referencing, John, they're the low expense ratios, correct?
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