Jon Stein was recently interviewed on the Knowledge@Wharton show (you can find the link to the podcast and transcript here). Stein is the founder and CEO of Betterment, a robo-advisory platform that provides fully automated trading and investment solutions. The company uses algorithms to recommend investments based on individual customer preferences, levels of risk tolerance and financial goals. These technology-enabled solutions help reduce the overall costs for clients. The company was founded in 2008 and currently manages ~US$8bn for 240,000 customers.

Here are a few highlights from the conversation (some of it paraphrased):

• He sees a big opportunity for the financial services industry to better align with the customer’s best interests and provide services that customers actually want (primarily advice).
  • For example, 83% of retirement plan participants say they want more advice, yet only 0.1% of the mass market has a fiduciary financial advisor.
• The future of financial services goes beyond just investing – ideally, decisions should be optimised across all the things you are doing with your money.
  • The technology they have built allows you to do better than you would just trying to figure it all out by yourself (e.g. rebalancing your portfolio, shielding dividends across accounts, providing tax law services etc.).
• One challenge they see when on-boarding customers is that they may not be able to effectively set financial goals because of relatively low levels of financial literacy. Financial education in school may not necessarily be a solution either because people tend to forget whatever they may have learnt a long time ago.
  • Betterment’s products therefore have to provide that education and guidance at the moment customers are making important financial decisions (which is also why fiduciary alignment with clients is important).
• The popular perception is that technology-driven investment services might be more popular amongst (and better suited to) a younger demographic, but ~30% of Betterment’s assets actually come from customers who are over the age of 50. Robo-advisory services can be helpful to people of all age groups.
• Robo-advisory services can and indeed need to be complemented by human advisors – they are not mutually exclusive. People often want a human element to advisory services, but they should be able to opt for the frequency of interaction that makes sense for them.
• Betterment tends to recommend ETF products to clients because of their liquidity, cost and tax advantages but they are also help manage individual stocks, funds etc. His view is that, for many asset classes, we will move to a post-fund world in the long term.

For those who are interested, here is another recent interview with Stein at the Nasdaq: