This week, we speak with Jonathan Stein, founder and CEO of Betterment, an online automated firm with $16.4 billion dollars under management.
At Harvard, he studied under Martin Feldstein, chief economic advisor to President Ronald Reagan. There he noticed the distinction be academic theory of economics and how different investor behavior was in the real world. He believed this created opportunities for improvements that Wall Street was overlooking.
The financial crisis was an excuse to go to Columbia Business School, and he arrived with Betterment mostly formed in his mind. B-school allowed him to learn more details about corporate leadership. He even used Betterment as his case study for his thesis for his class in Entrepreneurial Finance. Jon notes that the feedback allowed him to enhance the financial services offered by Betterment.
He explains how the industry has changed over time, and how acquisition costs shift as the firm grew. We also discuss the competition and some of their foibles: We discuss Wealthfront’s Risk Parity problem; Schwab portfolio’s outsize cash position, and Vanguard’s Personal Advisor product. Stein’s position is that online advice is built into his firm’s DNA while it is an add-on for all of these other firms.
You can stream/download the full conversation, including the podcast extras on Apple iTunes, Bloomberg, Overcast, and Stitcher. All of our earlier podcasts on your favorite host sites can be found here.
Next week we speak with Chris J. Brightman, Chief Investment Officer of Research Affiliates.
Jonathan Stein’s favorite books
Thinking Fast and Slow by Daniel Kahneman
Sapiens: A Brief History of Humankind by Yuval Noah Harari