Wealthfront CEO on Wave of Day Trading

investors manage their investments, taking it online. So let's bring in Andy Rackliffe. He is co founder and CEO of wealth Front, and he joins us on the phone in California. Andy, it's great to have you here with Paul and myself. Thank you for having me. So, first of all, we do want to talk about some of the new features that you've got. But first up, I just want to ask you about what your world has been like since COVID.

I mean take us back to March and then kind of where we are today and where you guys are with your teams and and everything. Well, uh, first leveage it a little bit of contact so I can I can answer that question. So for your listeners who are not aware where a next gen banking service that helps young professionals manage their money. So we provide high interest checking and low cost investment management services all through a five star rated app, and our vision is to automate

all of your finances. We call this self driving money and buy that. What I mean is you can direct deposit your paycheck with us. We automatically pay your bills and then route the remaining money to the most appropriate investment or savings account depending on your situation and goals. So with that in mind, the thing I think that's effected us for most are I think there's been a bunch of people rather than wanting a diversified and managed portfolio.

I think that day trading has really taken off this year. And the other big thing that we've noticed is that with the dropping interest rates, people are more inclined to day trade or try to pick securities in order to make up for the fact that they're not earning that

interest on their seats. So andy, during this pandemic, I've upped my digital banking game pretty substantially, I must say, um and I find it with a number of financial institutions, so it seems like these big players, they're investing money in fintech, they're investing money in their front end platforms as they integrate with their consumers. How what's your competitive advantage going against maybe some of the big commercial banks or brokerage firms and things like that. Well, I would

say that it's business model and technology. So first, let me talk about business model. Traditional banks use branches, and what most people don't realize is that the average branch costs the average consumer two hundred dollars per years. So if you take the cost to operate the branch and divided by the number of people that it serves, it costs you about two hundred dollars a year. A cost

the bank two hundred dollars a year to allfer that branch. Well, they've got to pay for that, and the way that they pay for that is to a number of fees that most people don't like. Uh. Next generation banking services like wealth Front don't charge those nickel and dime fees. So you're gonna be far better off, first of all, just not from not having the fees. Second of all, we pay interest on our balances, we pay point to be five. I use Wells Fargo. They pay me zero

percent on my checking balance. So the fact that they have to support branches is a real negative for young people who don't want to go to a branch. It's probably a positive for a baby boomer who likes that personal interactions. So it's a very generational thing. On technology, thanks are terrible at developing software, you know. Uh JP Morgan Chase got quite a bit of attention a few months ago because they rode off your personal finance app

called Skin. In contrast, Wealth Fund is the highest rated financial app in the app store. Just because both companies offer software doesn't mean that they're of comfortable quality, you know. And you have seen a lot of cycles in the financial industry. You co founded where general partner at Benchmark Capital. You've been an investor in the likes of juniper Um Equinox. I mean, you see the world from a lot of different angles when it comes to specifically though the financial industry.

What do you make of something like a robin Hood. Well, every once in a while something comes along that really just captures the industry's imagination, and Free Trading really did that, and they've done a superb job of growing the business as a result of offering something that people really wanted. It's interesting, Andy, I think you know we're all in the old enough. Sadly, I guess to remember the dot

Com boom day trading that kind of thing. It turned didn't turn out very well for some of those folks, and it kind of signaled in hindsight that was clearly up peak in the market. Any concerns about that here or do you just feel it's different this time? No. One of the funny things is that every fifteen years or so there is a day trading boom, and it usually coincides with a market that's gone up by fort

in less than six months. Because when the market trades up very, very significantly, it's like shooting fish in a barrel. Any stock pitch is going to go up. The the mistakes that individual industris make is they confuse absolute performance with relative performance. You know, if the markets up in Europe, you think you're a genius and you're actually terrible. It always happens when markets go up very very by a large amount, very very quickly. So does this one end poorly? Then?

You think for a lot of investors who maybe only think the market goes up of course it always does. So Andy, I know you at Stanford Business School, UH teaching courses on technology entrepreneurship. I'd love to get your thoughts about the feeling. And you're close to Silicon Valley. What does pandemic may do, if anything, to the sense of entrepreneurship UM in this country. Maybe the willingness to finance risk. Do you think it's gonna have any impact?

Or innovations? Innovation and it will find its way. The louder innovation is innovation, and it's going to find its way. I think that the big change that's going to result from the pandemic is a greater embracing of remote workers. You know, our company is an example. We shut down on March when we went to shelter in place, and we no one has been to our office since. And you know, you can either fight it or you can

embrace it. And we've learned that there are many things that we now do that actually lead to better productivity. So when we are allowed to go back to the office, and we've told our employees that we won't expect them to go back until there is a widely available vaccine, we think that actually not everyone will go back and

will embrace that what works better? Because I know that there's a really big debate andy about productivity and depending on who you talk to, some say it's it's fine or it's even better, some say not so much, and that you miss people miss that face to face, that running into somebody you know with an idea and then you you move off of that. I think you need

to drill down into it. What we have found is that our productivity among our younger single employees has going up because they actually don't have something else to do, so they tend to be working more. Our productivity for our employees who are parents with young kids has plummeted. But the vast majority of our company is made up of young people who are single, so when you average them out, our overall productivity is up. And what do you what's the feedback you're getting from your students at

Stanford Business School here? How are they maybe viewing the world here? I mean it's a you know, they're gonna be a generation coming out in the pandemic um. I'm wondering if that's changed their views of the world or maybe beginning to change their views of the world. Are you sensing any of that. You know, I tend not to fall into that because the current environment is not indicative of the future. You know, this is an important

consideration and investing. The biggest mistake that investors make is that they project the current environment onto the future, which is why, you know, the biggest mistake researchers that found an individual investors make is that when they buy when the market goes up, and they sell when the market goes down because they think that's what's going to continue. So I councel my students not to pay attention to

this at all. It's likely to make h finding a job a little bit more difficult, but longer term, I don't think it's going to change their prospects. What about the prospects for colleges and universities. We know some of

them are financially having a tougher time right now. And I know you're on the board of trustee trustees and and chairman of the endowment committee at University of Pennsylvania, and I do wonder what do you see when it comes to academia, what happens maybe where there might be some longer term impacts because of COVID, and what might those longer term impacts speed well, maybe more hybrid or maybe some fallout among some universities that aren't as financially stable.

I almost feel like, just like we've gotten over retailed Andy, I feel like we've gotten over schooled here, especially when it comes to higher education. You know, that's been the case for decades though, and that doesn't seem to win. Oh Out the less financially stable universities, they seem to make it through, So I guess I'm not as concerned about that. So you don't really see any fall out.

And you think, even even financially if schools might have a tough time for for maybe this year, maybe next year, they'll be okay, they'll weather through exactly. You know, the same was said during the financial crisis in oh eight and oh nine, and everyone seemed to have made it through that. Hey, before we go, you guys did have an announcement, and I know you guys have a new service.

Talk to us a little bit about that, because I do feel like companies, especially because of COVID maybe or maybe it was in the works anyway, are kind of you know, thinking of you know, some initiatives that maybe we're in the works they pushed out even sooner. Well, with software development, you can't push something out that's that's fair like being pregnant. You have to finish writing the court so I wish or the team or a software company,

maybe a services company, you can do that. But in our case, I talked earlier about our vision of self driving money, and a few weeks ago we launched our first feature UH in the self driving money area that we call autopilot. It automates your savings and it makes banking and investing work better together, so you can think

of autopilot as a financial assistant. But basically, the way that it works is you pick the account that you wanted to monitor, be it your checking account or your wealthfront cash account, and whenever your balance goes at least a hundred dollars above the threshold that you set, we automatically move the money to an investment account of your choice. And that way you can make sure that your money is much better optimized than if it's just sitting around

and not earning anything. And so that's the first of many features that you're going to see in our self driving Money initiative, and over time you're going to see more sources and destinations for that money, and we're going to move that money much faster. Well, I hope you'll come back and talk some more, Andy, because I could. I think we could easily sit down for you for an hour and just keep on talking because you just look at the world in so many different ways. Andy,

Thank you so much. Andy Ratcliffe, he's co founder and CEO at well Front, on the phone from California.