Wealthfront CEO Announces Self-Driving Money

since you founded it years ago. Um, what is the biggest change that you've seen in really Well, the big we we just made a major announcement. But just to go back for a moment, what we do is we integrate banking and invest to make it delightfully easy to grow your network. And what makes us really different is our focus on delivering what we call self driving money.

And by that what I mean is that if you open up a wealth Front account, you can direct deposit your paycheck to it, she get paid two good days early, and then we automatically pay your bills and then route the remaining money on your behalf based on your rules to the most appropriate savings account and investment account. And the investment account is a diversified and rebalanced portfolio that we manage on your behalf and minimize the texts. Why did you see this as the necessary move to make?

Right now? Is this something that customers wanted? Absolutely? Well? Actually, if you build what customers want, you lose. You have to build what customers move, what they don't know they want. Thing in here too, Righteah, we're gonna We're gonna tell you what you need. So what we test announced is the ability to customize our portfolios. So traditionally what we offered was diversified and rebalanced portfolio of low cost index funds, but we specified what those index funds would be based

on your particular level of risk. Now, what we allow you to do is to add and subtract ets based index funds, or you can even build your own portfolio from scratch. So we're starting with dozens of etf well, seeing negrow that two hundreds Our et s even include socially responsible ets so that you can express your values. And we hope later this year to be able to add cryptocurrencies to that to thest FI portfolio as well.

So forgive my gas before. I don't know if we could see it, but just crossing the Bloomberg terminal headline Billy Millindi Gates say that they are ending their marriage. So that just crossed and just kind of yeah, exactly, that was my my reaction. Um, they've been married for a long time, have a bunch of work together on their foundation, and globally, you know, have certainly made an impact.

So how many years did you say? Seven years? So, um, get back to our conversation with Andy rack Cliffe, co founder and chief executive officer of Wealth Well Fund, and you founded this back I think it was like just around it was at two thousand and eight, just around

the financial crisis, two thousand eleven. Actually we launched our first product in December of eleven, right, Okay, it started as something different I think before that, right maybe, yeah, Okay, That's why I think I was thinking about how has things changed in terms of what investors, maybe a younger investor, maybe all investors, in terms of what they're looking in terms of how they manage their investments in their portfolio, especially in an era where it's not like my dad

who had investments of pension, social security, VA benefits, it's going to be very different for a lot of people. Well, let's see on the on the positive side, I think that index investing or passive investing has grown to become much much more popular. I think in two thousand and nineteen over half the funds in mutual funds were passively managed. When we started, that was not apparent. So that's a

really big positive change. Every ten years or so, there's a day trading crates, uh, And it happens whenever the market goes up by a very large amount in a short period of time. It happened in the Internet bubble, it happened around the financial crisis, and it happened last year. And so that drives people who have not lost money through day trading to try it, which means people so so. And you don't think this one is different because there is the access to apps, commission free trading. You can

do it like playing a game on your iPhone. You don't think this one is different, Well, I don't, because everyone loses money when they day trade, and so ultimately they realize it's like putting touching your hand to a burner. When you get burned on a stove, you don't do it again. So everyone I think wants to try that and then they're probably going to move away from it.

And then the other biggest difference is the explosion in the value of bitcoin and other cre But that is something that and we only have a fift teen seconds here. That is something that customers want access to in their wealth front accounts, correct, and that's why we're giving them that access. We're planning on giving them that access. Andy, what what? What do you give us an update on the on wealthfronts business? Because I'm there. Fintech is so

hot right now. As I mentioned earlier in the show, Um, what's the plan for the company? Are you guys? You know I p O. Are you gonna get acquired? Well? I was in the venture capital business for over twenty five years. I co founded a very well known firm called Benchmark Capital. And one of the things that made Benchmarks so successful was a focus on companies that had a good chance of building a large, independent company, which

requires you that you go public. So that's been the desire from day one, and unfortunately we're growing very rapidly. We have over billion dollars of assets now under management and March was our biggest month ever in terms of investment net deposits. What's the demo? Is it still kind

of skewing younger? Yes, well, it's intentionally skewing younger. We focus on millennials and Gen Z, so people forty and under, and the reason that we appeal to them is that everything that we do is delivered via software rather than through an advisor. Our clients literally tell us we pay you not to talk to us, so we don't appeal the baby boomers who have been conditioned to want to talk to someone. We're fantastic if you want everything delivered

via your app. Do you think that this is the right approach for everybody or do you think there are some people with tens of millions of dollars and this this just doesn't work for them. Well, I don't think it's a function of the amount of money you have, because the academic research is incredibly clear that that attempting to outperform the market through active management is a fool's error.

That neta fee is that you are going to underperform, and the only three things that you can control are diversification, fees, and taxes, which our software is really really good at. Computers do a much better job of that than people, and that's how we're able to deliver everything at such a low cost. So it's not a function. We aren't less effective for someone with more money. But I think that older people need more handholding and have been conditioned

to want to talk to someone. It's just like travel agents. You know, if most people, if you ask them, would think that travel agents have been put out of business by the Internet, that's absolutely not the case. It's just the travel agents moved way up market to do much more complicated travel and they focus on an older clientele.

And I think that's what's going to happen to traditional financial advisors over time, because our software keeps getting better and better and able to do more and more things every year, which leads us to be more appropriate. So we can with the millennials as they progress in the wealth generation phase of their careers. What's the typical accounts size? Our average account size is somewhere between sixty and seventy thousand dollars, But that's just an average because people start

with a small amount of money. They might start with ten or fifteen thousand dollars, and they keep because they're in the wealth generation phase of their lives, not the wealth preservation phase. They add their savings to their account every year, so if you've been with us for three years, you're likely to have more than a hundred thousand dollars with us. Our largest account is something like thirty five

million dollars, So it's all across the block. Crypto is something too, that you recently, UM I believe have kind of offered up to those on your platform. You've been you allowed customers to link their coin base accounts, I think since but you're only letting now customers kind of add crypto directly to their portfolios. UM more recently tell us a little bit about crypto and what you've been seeing with your your user base about how much they

want to be able to have that their portfolios. Well, millennials and gen z people very much believe in cryptocurrency and want to have an allocation to it, and we want to enable them to be able to do that conveniently and as part of a diversified portfolio. A big part of what we sell is the importance of diversification. Now we don't yet offer it, we hope to offer

it later this year. We're right now vetting our partners, and as soon as we do that will be in a position to say when exactly that's going to be offered. But the platform has been built now so that you can customize to express your views and your values, and that's a big thing that's very important to millennials. Hey, Andy, there was an article last month in the Atlantic that got quite a bit of attention. It was written by Annie Lowry, and the headline is, could index funds be

quote worse than Marxism? Economists and policymakers are worried that the Vanguard model of passive investment is hurting markets. What do you say to that, Well, you know that article is reprinted every two years. So it was actually first published in two thousand and nineteen, and it's as crazy

today as it was when it was published. Our our chief investment officer is an emeritus professor of economics of Princeton named Bert Malkiel, who is famous for having written perhaps the most influential book and on investing, called A Random Walk Down Wall Street, in which he first advocated for an index fund. So he's actually the creator of an index fund. So a couple of years ago, Burt wrote a blog post in response to that point, which

just shows all of the fallacies of it. You know, the active investment world just doesn't want to give up, and the problem is they don't have a logical argument, so they start making up things about how it's bad for the economy or bad for stock prices. If the fundamental argument is if there's forty trillion dollars in US equities, then if you have as little as two trillion dollars to actively manage or price individual securities, you can have

a reasonably effective or an efficient market. So that means the passive has to get to ninety or nine in order for it to have a significant impact on the pricing of securities. And we just passed fifty in late two thousand and nineteen, so we're a long long way away from that. All right. So I'm going back to something that Tim asked you about, Andy, So could you go public this year? It's been pretty a nice right by po market. Well, you don't go public because you could.

You go the public because you should, And so you want to make sure a public offering is not a liquidity event. It's not an end it's not like an acquisition. It's the beginning, So should you go public? Just got thirty seconds. Well, we're I can't yet tell you, but I can't tell you it certainly is our goal, all right. Good to check in with you, Andy, Thank you so much, really appreciate it. Have a good, good evening, Andy rock Cliff. He's co founder, chief executive officer well Front