Betterment Vs. Vanguard, Betterment Passes 200,000 Investors, $8B in AUM with CEO Jon Stein

JonStein_2014-4-15

In Episode #670, Nathan interviews Jon Stein. He’s the CEO and founder of Betterment. With his passion about making life better and his career experience advising banks and brokers, he founded Betterment in 2008. Jon is a graduate of Harvard University and Columbia Business School. He holds a Series 7, 24, and 63 and he’s a CFA (Chartered Financial Analyst). His interests lie in the intersection of behavior, psychology and economics. What excites him most about his work is making everyday activity and products more efficient, accessible and easy to use.

Famous Five:

Time Stamped Show Notes:

  • 01:15 – Nathan introduces Jon to the show
  • 02:05 – Betterment is the largest independent investment advisor online
    • 02:10 – Betterment manages your money in the way old institutions can’t
    • 02:19 – Betterment automates the best practices of investing and the same technology drives the cost down for you
    • 02:32 – Betterment is leading in their industry
  • 02:45 – Betterment charges a fee that is the percentage of the asset finder management
    • 02:50 – It is 0.25%, which is the lowest in the industry
  • 03:15 – “We have to put our customers’ best interest first”
  • 03:30 – Betterment currently manages $8.2B
  • 03:50 – Jon studied economics and behavioral biology as an undergraduate
    • 03:58 – When Jon graduated from Harvard, 80% of the graduates took to the finance industry
    • 04:47 – Jon didn’t want to follow the people he knew in finance
    • 04:31 – Jon wanted to help people so he thought he’d study medicine
  • 04:50 – Jon found himself back in New York, consulting banks
    • 04:58 – It was 2001-2002 when Jon got his pre-med from Harvard
    • 05:13 – Jon was 23 when he went back to New York, in 2003
    • 05:45 – The banks were not paying attention to what their customers wanted
    • 06:58 – Jon realized that the industry was fundamentally flawed
    • 07:12 – There was no scaled advisor that served the market and the people like Jon could
  • 07:28 – Jon started at Columbia Business School in 2008 and he already the idea for Betterment even before he started there
  • 08:10 – Jon didn’t know how to code when he started and just learned in business school
  • 08:46 – Jon didn’t have student debt while he was in business school and he saved some money from his consulting
  • 09:14 – During the early days, Jon and his co-founders didn’t need a lot of money
  • 09:30 – Jon and his co-founders have invested their own money into Betterment
    • 09:39 – Their initial investment was less than 400K
  • 10:14 – Betterment has raised a total of $205M
  • 10:34 – “I always wanted to build a company that would impact the lives of millions of people for the better”
  • 11:04 – From Day 1, Jon knew that Betterment would be a capital intensive business
  • 11:20 – Team size is 220
    • 11:26 – About half of the team are engineers and product managers
    • 11:31 – Most of the team is involved in building the business
  • 12:14 – Most of Betterment’s customers are from word-of-mouth
  • 12:46 – Betterment’s paid acquisition
  • 13:03 – Betterment’s goal as a company is to make noise
  • 13:11 – There’s now a better way to manage money
  • 14:11 – People should put their money in Betterment rather than in Vanguard because they’re burning money
    • 14:18 – Betterment can make them more money on their assets
    • 14:39 – Warren Buffett is an active investor himself
    • 14:45 – Jon thinks that Warren Buffett’s advice was great during his time, but the technology has moved forward
  • 15:11 – Betterment will make you more money than you would make in a single fund
    • 15:27 – Betterment’s website has all the information about how they work
  • 16:00 – Betterment’s role is to maximize people’s money
  • 16:07 – Vanguard is a fund company that sells you funds
  • 16:10 – Betterment is independent from their funds
  • 17:17 – “We are growing faster than any firm in the history of this space”
  • 17:42 – People are becoming aware of what Betterment is doing
  • 18:21 – 240K customers have invested in Betterment
    • 18:44 – There’s no minimum amount to invest
  • 19:24 – “We’re building an institution for the next century and we’re not interested at selling right now”
  • 19:35 – Betterment’s revenue is driven from their 2.5% of the asset management finder
  • 19:48 – Average revenue
  • 21:05 – The Famous Five

3 Key Points:

  1. Just because it has worked in the past, does NOT mean it will still work today.
  2. There are better ways to manage your money, especially with the new advancements we have in technology.
  3. Take risks as early on as you can.

Resources Mentioned:

  • The Top Inbox – The site Nathan uses to schedule emails to be sent later, set reminders in inbox, track opens, and follow-up with email sequences
  • Organifi – The juice was Nathan’s life saver during his trip in Southeast Asia
  • Klipfolio – Track your business performance across all departments for FREE
  • Acuity Scheduling – Nathan uses Acuity to schedule his podcast interviews and appointments
  • Host Gator– The site Nathan uses to buy his domain names and hosting for the cheapest price possible
  • Audible– Nathan uses Audible when he’s driving from Austin to San Antonio (1.5-hour drive) to listen to audio books
  • Freshbooks – Nathan doesn’t waste time so he uses Freshbooks to send out invoices and collect his money. Get your free month NOW
  • Show Notes provided by Mallard Creatives
  • Chris Cusumano

    FYI, at 02:50, the percentage stated is actually 0.25% (which is correct), not 2.5% – quite a difference. I would correct to avoid confusion.