Hacking Finance: What is wrong with financial services?
Jon Stein: There has long been a lack of trust in financial institutions; after the 2008 financial crisis, it hit record lows. This sparked an appetite for a more transparent, low-fee, customer-aligned model; we created Betterment to satisfy that craving.
HF: What’s right?
People are slowly starting to catch on that times are changing and financial services has to change with them. The incumbents are making small improvements to keep up with the newer players that are causing a major and, needless to say, necessary shift in the right direction. Bigger firms, like Schwab and Vanguard, have been forced to offer their own version of a robo-advisor to keep up with these changes. At the end of the day, accessibility is a good thing for consumers.
HF: How did you get here?
Jon Stein: I started Betterment when it occurred to me that the concepts I’d learned while studying behavioral economics and biology in college could apply to the many mistakes I was making in managing my own investments. Before Betterment, I’d opened multiple brokerage accounts, but none steered me towards the right answer for me; they all steered me towards the right answer for them. At the same time, I was working for banks as a consultant—learning all this great stuff, but we’d go on a six-month product-development cycle and never talk to the customers. I realized there had to be a way to build products that put the customer first and that aligned with their wants and values. I don’t feel like that’s the place where most financial services are, but it’s never easy to make huge shifts in how an entire industry does business and serves its customers. Betterment is paving the way for that.
We believe our customers will quickly make us their central financial relationship because we put them first, and we deliver an extraordinary experience, convenience, and services that are personalized to their needs.
HF: Five years ago, where did you think you would be?
Jon Stein: Five years ago, when we were managing some hundreds of millions of dollars, my dream was to reach a billion—and now we manage more than $15 billion in assets. I knew we’d be big, but I didn’t think we’d grow so rapidly to where we are today.
HF: Do you have a hero?
Jon Stein: Career-wise, I would say John Bogle. As the founder of Vanguard, he’s been a longtime advocate for better ethics in the financial industry.
HF: What role should technology play in transforming finance?
For too long, advancements in technology have improved every facet of people’s lives except their financial one. Today, technology makes it possible to deliver financial services in new and often better ways: to lower taxes, lower fees, diversify porfolios, and enable better investor behavior for customers. We recognize that there are people who already use technology to enhance their everyday life. People who love Spotify, Google Maps, Uber, and such, also love Betterment. Our customers have complicated financial problems, with real stakes at hand, but want their financial services to be as efficient and tech-driven as everything else they use in their life.
HF: What role should finance play in transforming society?
Jon Stein: Like Robert J. Shiller, author of Finance and the Good Society, I believe that finance is a powerful tool that we can use to solve common problems and help the well-being of members of our society. We need to continue to innovate the financial space rather than leaving it stagnant.
HF: Who is doing good work in financial services that deserves more recognition?
Jon Stein: Even is doing a great job of transforming financial services to make it easier for Americans to make ends meet. For example, instead of waiting two weeks between paychecks, Even allows users to access a portion of wages for the hours they have already worked. This allows them to spend money more wisely, to avoid running into issues like debt, and to start actually building some savings.
HF: What is one thing that you think technology cannot do?
Jon Stein: There’s a misconception that technology can and will replace humans. Technology is nothing without the people behind it. Betterment’s industry experts guide everything we do, from the tax tools we build to the funds we choose for our portfolio. We don’t believe robo-advice is about humans versus technology—where one will win and one will lose. We believe it’s about how humans employ technology to make their lives better, easier and more efficient.