Transcript: Sarah Kirshbaum Levy, CEO Betterment


The transcript from this week’s, MiB: Sarah Kirshbaum Levy, CEO Betterment, is below.

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This is Masters in business with Barry Ritholtz on Bloomberg Radio.

00:00:07 [BARRY RITHOLTZ] This week on the podcast, I have an extra special guest, Sarah Kirschbaum Levy, CEO of Betterment has a fascinating background in media, brand building, marketing, as well as finance. She started out as an intern at, at Goldman Sachs. She had stints at at Disney before going on to be Chief Operating Officer at Nickelodeon, and then eventually the Viacom Media Network. I, if you want to see someone who’s been immersed in branding and media and marketing for a whole career, it’s harder to find somebody with Sarah’s breadth of experience. The pivot into digital asset management and Betterment was a little bit of a surprise, but a lot of the skills are very transferrable and she’s really done a, a, a substantial job at Betterment. They’re now over $40 billion. I think they’re the largest independent digital advisor that’s out there. Yeah, Schwab and, and Vanguard and Fidelity have their own, but obviously they’re coming off of trillions of dollars. This is a company that’s barely a decade old and is ramped up to over $40 billion pretty quickly. If you’re interested in marketing, branding, asset management, how do use digital tools to not only make the process less expensive and the, in the user experience better, but just to give customers what they want? I think you’ll find this conversation to be quite fascinating. Full disclosure, my firm, OLTs Wealth Management, works with Betterment, which powers our digital investment platform. With no further ado, my discussion with Betterment, CEO, Sarah Kirschbaum Levy.

00:02:00 [Sarah Kirschbaum Levy] Thank you so much, Barry, for having me.

00:02:02 [BARRY RITHOLTZ] Thank you for coming. I’ve been looking forward to this since we started chatting. What was that? At Futureproof in September, right? That’s right. So it’s been a couple of months, so, so let’s talk a little bit about your early career, which is kind of fascinating. You work as an analyst at Disney, and then you’re a summer intern at Goldman Sachs. What was the career plan?

00:02:24 [Speaker Changed] So, I don’t know if it was so much a plan. I was just at a college and I loved the media business, you know, thinking about how did, why did I land at Disney as my first job? I always looked to my parents and their careers in terms of what they loved. And I had a belief early on that if you loved what you were doing, you were gonna give your all and you were gonna excel and, and you were gonna wanna make it, you know, a a bigger and bigger part of your life. So my father was a book publisher and my mother was an antiques dealer. And if you asked them on the weekends, you know, what do you wanna do? My father would roam bookstores and my mother would go antiquing it at, you know, flea markets and things. So I thought, what do I love?

00:03:05 And I loved the movies, so I thought, is there a way to be in the movie business? Well, as a business executive, once you learn a little bit about the movies, you realize the movie business is not so much a great business. But Disney as a brand really excited me. And so I thought I could learn sort of beyond movies and I could learn intellectual property and I could learn brands and all that. So, so I started at Disney and I was in the corporate group where we did a lot of m and a and strategic work on behalf of the film and television division. And my summer pivot was really, I was doing deals and I was doing media. And so the question for me was, is it media I love? Or is it deals I love? And I tested that thesis by spending the summer at Goldman, and I worked, I had a great experience there. Again, great brand, great company learned, learned as much as you can learn in a summer, summer job, but really loved the media project I was working on more than the other projects. And so that kind of led me back to media for full-time

00:04:08 [Speaker Changed] From Goldman Sachs as a summer associate to Nickelodeon. I guess you made the decision that it was media over banking.

00:04:17 [Speaker Changed] I did. That’s exactly right.

00:04:18 [Speaker Changed] And and how did it go when you began as a, a, an early employee at Nickelodeon?

00:04:24 [Speaker Changed] Well, the thing that I was attracted to at Nickelodeon really hearkened back to my Disney start, which was, it was a great brand and they had a great mission, which, which was what’s good for kids is good for business and or I dunno if that’s a mission so much as a, a good,

00:04:40 [Speaker Changed] Good slogan. Anyway, good tagline,

00:04:42 [Speaker Changed] Good tagline. But, but I think it’s, it was really what kind of powered our thinking about our products and our services was how, you know, how can we enrich the content we were making for kids? And if you told people you worked for Nickelodeon, sort of like, if you told them you worked for Disney, they would smile. And I, you know, I really loved that and I thought working for a brand that everybody loves is a really powerful idea. And so I started in strategy and, and I didn’t know where it would take me, honestly. And grew up at the business, it was, it was the time. I mean, hard to look at it now, but at the time, cable was in its growth innings and, you know, we were growing 30 plus percent a year, and it was fun.

00:05:21 [Speaker Changed] I can imagine that was a lot of fun. So from strategy, tell us about the rest of the career path you took at Nickelodeon and eventually we’ll get to Viacom.

00:05:30 [Speaker Changed] Yes. So Nickelodeon in fact is a division of Viacom, right? And so at the time each of the brands were run as their own distinct business units.

00:05:40 [Speaker Changed] Siloed was that? Because as I was looking through your resume and you start looking at Viacom, it’s MTV, it’s Nickelodeon, it’s Comedy Central, it’s bt there’s like a dozen or more brands, I wasn’t sure. Are these all run independently or are they run as part of a big conglomerate or a little bit of each?

00:05:59 [Speaker Changed] So over my two plus decades at the company, the answer is yes and yes, right? So there was a lot of organizational change, but in the early days when we were growing really fast, the organizational design principle was really around audiences, right? And what audience you served. And so each of the brand groups, so to speak, were designed around really un understanding your customer segment and super serving them. So my group was the kids group. We then grew up into the kids and family group and added other brands into our portfolio. But there were a lot of organizational design changes over the years. And then fast forward to my second decade, when I started to move up to Viacom and expand beyond Nickelodeon, in those days, we moved to more of a platform where each of the brands certainly had separate leadership, but that leadership was really focused on content and marketing. But all of the commercial execution was, was put together.

00:06:54 [Speaker Changed] So as you’re moving up the ladder at Nickelodeon, you end up as COO at Nickelodeon. That’s right. Is that right? That’s right. How long did you do that for and and what was that like?

00:07:02 [Speaker Changed] I did that for over a decade, I think.

00:07:04 [Speaker Changed] Oh, really? That long? Yes. Yes. And, and is that, was that the springboard to COO at parent company Viacom?

00:07:10 [Speaker Changed] That was the springboard. So what happened was to your organizational design changes point is basically we started to merge different pieces of the business and realized that we needed to be a more efficient platform, right? Obviously the pressure of streaming  started and we started to see, you know, a lot more pressure on the ad business. So you had a top line that was challenged and you had to rethink the organizational design. And so we started to put the pieces together and I emerged and moved up to corporate to oversee essentially the combining of the various brands.

00:07:41 [Speaker Changed] Does does anything at Viacom today, what, what’s their streaming business like?

00:07:46 [Speaker Changed] Well, now it’s, they’ve renamed the, the company, and so now it’s called Paramount Global. Right? And so they have Paramount Plus, which is a

00:07:53 [Speaker Changed] We’re a client, we’re A subscriber

00:07:54 [Speaker Changed]  Okay, there you go. And they also have Pluto tv, which we bought while I was there, which is an ad supported, I think they now call them fast channels, but ad supported streaming channels, free

00:08:05 [Speaker Changed] Ad supported television. There you

00:08:06 [Speaker Changed] Huh? That, that, that’s really interesting. So, so you are there really in an amazing transition. You’re there as we, as the internet explodes, like when I was growing up with the internet in the nineties, it was kind of pokey and dial up. It wasn’t until a little later that there was any real bandwidth post implosion. You’re there as streaming ramps up as video games become substantial. How do you think about how you guys did handling those changes? And then I want to ask, how do you think the rest of the media industry has done?

00:08:44 [Speaker Changed] Look, I think one of the reasons I made the career pivot I did is because it’s really hard to be the analog incumbent who is needs to, you know, fight a fight in a digital war when the, the new, the newbies, so to speak, have cheap capital, right? And have the ability to candidly, to invest and lose money in ways that the incumbents can’t. Right? So I think, you know, definitionally, we were risk averse, so you know how no.

00:09:12 [Speaker Changed] Also giant legacy infrastructure…

00:09:15 [Speaker Changed] With great economics wants that, right? A giant legacy infrastructure that had dual revenue streams and that had incredible margins. And, you know, it’s always hard to compare a dollar invested in the core business that’s gonna return, you know, 60 cents versus a dollar invested in the new business, which you know, is your future, but that’s gonna lose money outta the gate, right?

00:09:34 [Speaker Changed] Cl classic innovator’s dilemma. There

00:09:36 [Speaker Changed] You go. So, so I think, you know, again, this is sort of the catalyst for my career pivot later, but, but I think the reality is how did we do, you know, the streaming businesses ate our lunch, but they had a structural advantage and we were not brave.

00:09:51 [Speaker Changed] Huh. That’s really interesting. By the way, it’s easy to eat people’s lunch when you’re willing to lose billions of dollars a year to establish a brand and, and capture market share

00:10:01 [Speaker Changed] And when capital is largely free or cheap, right? So I think the combination of those things just put us at a disadvantage. And it’s interesting to watch now actually, because one of the insights, right, the insights that the streamers had were all about the customer experience. They were about, you know, ads being, you know, interruptive to the content, right? And consumers didn’t like that, right? So they went at it and said, we’re gonna, we’re gonna design something that’s delightful for the consumer. I think what, what they are now learning is that the economic model that they started with was not a sustainable economic model, meaning they’re now introducing ads, the dual revenue
stream they’re seeing, and the price point at which they were offering, call it unlimited content, really just more content was again, not sustainable,

00:10:44 [Speaker Changed] Right? And they’ve all raised their prices dramatically. Although I would push back on the phrase delightful, because if you’ve ever gone, and this is true for everybody from Netflix to Amazon, to HBO, if you’ve ever tried to surface content, Hey, I like these movies. Show me that, show me what else I might like, they’re not especially good at that. I, I don’t think anyone’s been good at that since back in the days of the Netflix DVD by mail. But everybody is, my wife is like, are you really gonna just spend a half hour scrolling through nonsense? It’s, they don’t seem to have figured that out yet. And I’m surprised.

00:11:24 [Speaker Changed] I I agree with that. I mean, I think the sort of, you know, the algorithmic recommendation was sort of the holy grail, and I think it hasn’t, it hasn’t worked as well. It’s not that good. It’s not that good. But again, if you think, again, think back to the cable days, what our brands did is our brand’s organized content around audiences and interests, right? And so you sort of had an advantage, right? Net what Netflix is trying to do is serve everybody. And so you have this sea of content and how do you sift through it? So it it’s a a difficult challenge.

00:11:53 [Speaker Changed] Yeah. That, that recommendation engine that people who liked A, B, C should also like 1, 2, 3. I, I’m surprised that it hasn’t gotten better. But la last subject before we pivot. So you’re at Viacom and you’re driving a lot of change. You’re spearheading new, new segments. You’re, you’re pushing into retail, digital, gaming, consumer products, even Broadway shows, things like that, theme parks, video on demand. I’m gonna assume you don’t think that you thought that was necessary, but not sufficient to fight off the big streamers.

00:12:32 [Speaker Changed] Well, I think that wasn’t about fighting off the streamers so much as about expanding the business. If you, if you think about really the kids’ intellectual property more, so when I joined Nickelodeon, it was really about joining a kids’ brand because I understood the power from my experience at Disney of kids love and passion for characters and stories and how you could deepen their engagement with your brand through products and experiences. And so one of the reasons I went to Nickelodeon was really on that thesis, which was they were a cable channel and really a platform more than anything, right? They were, they were a platform. We were at that time sort of pre YouTube. We,
we had 60 or 70% of all kids entertainment time was spent on Nickelodeon. It was an amazingly powerful platform. And so the question was, you have their attention, you’re building these characters and stories they love, how do you take that love and immerse them more deeply in your brand?

00:13:27 And those characters from SpongeBob to Dora the Explorer to the Teenage Mutant Ninja Turtles, right? These were the, the great brands of my tenure there. And so, so that’s what we did. We said, okay, you know, look at Disney, right? They have theme parks, they have hotels, they have toys and t-shirts, et cetera, et cetera. And all of that was opportunity. I think that was less so an opportunity in the, in the adult targeted brands, right? Adults don’t, you know, when they fall in love with a character or a story like there’s only so much Jersey Shore you wanna wear on your t-shirt. Right?

00:13:57 [Speaker Changed] To, to say the very least, so we discussed Nickelodeon’s entrance into gamings and products and other things. How did you come away from that experience? Was it just about maximizing revenue or was it really about building out the brand?

00:14:16 [Speaker Changed] I think for me it was about building out the brand and it was also about scaling and optimizing an operation.

00:14:25 [Speaker Changed] So I just picture a big boardroom when you’re going in to make the pitch, Hey, we have to go beyond just doing shows for kids. There’s a whole universe of ways we can monetize our intellectual property. What, what was that pitch like? Am I, am I remotely close to, you know, that, that stereotypical image and and how difficult was it to get a big giant and already successful company to embrace a whole new set of revenue streams?

00:14:57 [Speaker Changed] So I just shivered when you put the image of the big boardroom back in, in my mind, right, that I think you’re well,

00:15:02 [Speaker Changed] Is that accurate?

00:15:03 [Speaker Changed] That just a Well, no, that, that’s accurate for sure. I think, you know, the pitch, the way in which we entered the business, and again, back to my comment earlier that, you know, I don’t think we were brave. We were, we licensed the content so it didn’t require an enormous investment, right? So we would work with toy companies, we worked with a hotel business, we worked with cruise ships and basically lent them our characters in exchange for revenue. So there was a, a really a lot of scrutiny around kind of the brand impact and the brand risk potential. Thinking about the downside of doing some of that, right? Right. What if a kid gets hurt with a toy? You know, that kind of thing. Okay. Right. So I think we put, we, we thought about that quite a bit and there were products and services we were unwilling, like people would pitch us things like a kid’s credit card, right? And encouraging kids to go into debt was not exactly part of the brand plan, right? It’s, it,

00:15:54 [Speaker Changed] It’s, it’s great ’cause they’re not 18, so they could walk away from the, the debt, right? Or did did their parents have to go?

00:16:01 [Speaker Changed] Think the what’s good for kids is good for business, really prevailed on that one. So in any event, we, we considered all sorts of things and people would pitch us.

00:16:10 [Speaker Changed] SpongeBob’ Bow and Arrow didn’t, didn’t take off?

00:16:12 [Speaker Changed] It didn’t, it didn’t make the cut. No, not at all. But I will say that we did have a few times when we had some sort of braver ideas around, you know, investing more deeply in some of these segments. And those did require pitches, you know, exactly as you exactly as you say. And we ultimately didn’t decide to go forward with bigger investments, right? Buying a part of a theme park, you know, franchise for example. So we, we never, we never made that move. Other companies made other decisions there, right? NBC Universal, right, right. Disney, et cetera.

00:16:43 [Speaker Changed] It, it, it’s interesting to see that the more successful a company is, the more risk averse they tend to be. They don’t want to, you know, don’t kill the goose that lays the golden eggs.

00:16:55 [Speaker Changed] It’s, I mean, it’s inevitable, right? You’re also, you’re a public company, you’re living quarter to quarter and the considerations are different

00:17:02 [Speaker Changed] To say, to say the, the very least. So, so let’s talk a little bit about media as so different than finance, but really does it all come down to these are consumer brands and if you can build a brand and show its value proposition and present it in a, in a smart way to an audience, it doesn’t matter whether it’s digital investing or kids programming. Branding is branding.

00:17:30 [Speaker Changed] I mean, I think from a branding and marketing standpoint, yes, I do think it translates incredibly well. And I think ultimately your brand needs to meet a need or solve a pain point for a consumer, right? And so it all starts with the consumer and the consumer research. And that was something that we were incredibly good at at Viacom with all of these really, really targeted niche brands. We, we really invested a lot in our research and in understanding that consumer. So I think that translates incredibly well. Te

00:17:56 [Speaker Changed] Tell us a little bit about what that process is like. ’cause you always picture a bunch of people in a room with a two-way mirror and ask, showing them clips or showing them toys. What was the, the consumer research like at Viacom?

00:18:11 [Speaker Changed] So, I mean, there’s so many levels, you know, both, both quantitative and qualitative. So there were a lot of focus groups, there was a lot of instant feedback in the form of ratings and analysis, sort of, you know, post facto, right after you air the programming, there was pilot testing. I mean, we would sit with kids and show them pictures of characters and you know, they would comment at every step of the way. We were basically bringing things to kids and watching them react. Do they laugh? You know, do they hug the the toy? You know, are they, are they drawn into the character? So, so we tested storylines, we tested characters, and then that was sort of early days in content. We did less. I think now when you think about digital testing and you think about sort of ab testing messages, right? The ability to do that really was transformed kind of over time as we started to build a digital footprint.

00:19:02 But again, all of this was in service of asking the right questions of your consumer and getting to them in kind of different ways, and then triangulating where to next. And then we had to take these brands of course and move them off of television, not just into toys, but building a digital footprint was sort of the next, you know, the next act, right? And you realize, and there was a tension in that too, right? Because there was sort of, are you giving away your content for free? Or are you immersing your audience in the content? And understanding each of these platforms was different. And so I think all of that really translates as you build a brand, you, you have to think about what platforms are you on and what’s the purpose of being in those, you know, on those platforms.

00:19:43 [Speaker Changed] So Really, really, really interesting. How, how different is children’s programming when you’re doing that sort of research to adults? ’cause there are so many infamous stories about shows testing poorly and hanging on, and that Seinfeld comes to mind tested really poorly, goes on to become one of the most popular shows of all time. And things like Raiders of the Lost Ark couldn’t get, couldn’t ma Get Made or Star Wars had trouble finding a studio that nobody liked the tests of it. Is it different with kids or they more unguarded and immediate? And then how do you figure out how to apply that when you are at looking at BET or Comedy Central or even MTV, which is sort of in between age-wise?

00:20:29 [Speaker Changed] We thought of everything as an input, right? And so I think you have to take everything with a grain of salt in the sense that let’s say you’re doing, you know, three or four focus groups, you’ve got 10 or so people in each of those focus groups, you’re trying to pull  themes and insights. Sometimes one loud person in the focus group can impact everybody else. So you’re watching for that. I think in kids, what you’re really looking for is you’re just looking for sparks and you, and sometimes their physical reaction is, as much as they’re, sometimes they don’t have the vocabulary, we, we had preschool television, right? Right. Sometimes they don’t have the vocabulary to articulate in the way that adults do. You know, I didn’t like that character, he was mean or whatever. Right? But you could just see them shiver or you could see them smile or you, right.

00:21:10 [Speaker Changed] They’re authentic and organic. You don’t have to worry. The words don’t matter.

00:21:13 [Speaker Changed] That’s right. And, and some stuff is, again, we do quantitative testing, qualitative testing. Sometimes you would do dial testing, right? During you’d, you’d air an episode and you’d see like, what are the places where they either laugh or turn up the dial or down the dial. So all sorts of different tactics and methods, but it’s art and science. I think that’s, you know, the great creators have an instinct and it can’t just be about, you know, what happened in that focus group.

00:21:40 [Speaker Changed] So now let’s pivot to thinking about digital investing platforms and betterment. How transferable are these skills when you are looking into what does an online investor really want?

00:21:56 [Speaker Changed] So I think there are transferable skills and then there are, there’s a ton I had to learn, right? Ah, so in terms of transferable skills, you know, we were talking earlier about branding and marketing, right? I think that media is particularly excellent at that, right? And we had not just a house of brands in terms of Nickelodeon and MTV and Comedy Central, but then each of our intellectual properties, each of our shows was effectively a brand, right? You had to launch it and you needed to have a brand plan. So SpongeBob had, and I’m sure has today a 10 or 15 year brand plan at all times, 00:22:28 [Speaker Changed] 15 years for SpongeBob. You’re out ahead, out ahead. Like, let’s plan on these kids who will be born in a decade. That’s right

00:22:35 [Speaker Changed] That’s right. That’s, you’re thinking about movies, you’re thinking about television series. You’re thinking about how to, you know, how to, how to keep the excitement alive, themes. So anyway, so all of that discipline is I think, an incredibly good learning ground that then can apply to any brand building. I think similarly, as we were talking about all the platforms, right? The idea of how do you expose your brand? Where do you expose your brand? So all of that I think, I think works incredibly well regardless of industry operational excellence is something that in any business, right? You need to figure out, which comes down to setting, you know, setting the rules and the parameters and what do you measure, right? And how, how important is efficiency relative to growth, right? These are all concepts that travel across businesses. And then I think people management and organizational design is, is a really important part of, of, of any business, right? Is how do you build a team that works well together and how do you put sort of the right structure around that team and the right organizational design. And, and I had a lot of learning there because, you know, we reorganized every, I don’t know, 12 or 18 months over my 20 years at, at Biocom. Wow. So I think that all of that is, is transferable.

00:23:50 [Speaker Changed] Huh. Really, really intriguing. So let’s talk a little bit about 800,000
customers. That’s a lot of customers. Yes. It’s, what is it like trying to stay on top of all of that? That, that
seems like that’s an immense number of, of users.
00:24:06 [Speaker Changed] Well, we, we’ve been at it a long time. So, you
00:24:09 [Speaker Changed] Know, when, when did Betterment launch?
00:24:11 [Speaker Changed] Betterment launched in 2010. So
00:24:14 [Speaker Changed] 13
00:24:14 [Speaker Changed] Years strong. So it seems,
00:24:16 [Speaker Changed] Seems, I mean, my firm is 10 years old and it went by like that 13 years
seems not, you know, not, you guys are relatively new, not as new as we are, but still relatively young,
00:24:29 [Speaker Changed] Sure. I mean, in the, if you think about the arc of the wealth management
business, sure. We’re relatively young, but I think when you consider the digital wealth management
space, we were, we were early and, and one of the OGs, if you will, sure. But we, those 800,000
customers actually are across three lines of business. So we are best known for our, what was once
called a RoboAdvisor. I like to think of it as a digital wealth management platform. Now,
00:24:56 [Speaker Changed] I hate the name RoboAdvisor. I agree with you. It’s not a robot and it’s not
there to provide advice. It’s a platform that you build on top of. That’s, at least that’s how I think of it.
00:25:06 [Speaker Changed] Well, I think that in the, I think that’s exactly right. I also think that in the
early days, it was a simpler idea, right? Which was fulfilling a simple promise of low cost and automation
and bringing access to investors who previously didn’t have access to great advice, bringing sort of the,
the simplest and clearest advice to that group, and therefore expanding access. Now what we’re
learning, and we’ll get, we’ll get into sort of the, what’s happened over the last decade is that that’s
really only the beginning. And so for us, I think we think of sort of the Robo-advisor as the first act. And
we then took that platform and thought long and hard about what do the clients really need? And some
of them want human advice, for example, right? That technology is not an, is not sufficient unto itself,
right? So we extended that platform to the advisor community to RIAs, right?
00:26:01 So the idea there was we have great tools, great technology that can scale and that can help
advisors scale their practices. We don’t need to compete with advisors. We can actually enable their
success. So that was the next business line. And then we added a third business line, which is a 401k
business for, for small and medium sized businesses. And so that is interesting because in all three
business lines, they’re very different. The customer segments are very different for sure. But what they
share is that the big guys and the established incumbents all serve enterprise incredibly well and serve,
serve wealthy people incredibly well. And in all three instances, we are expanding access through the
use of technology.
00:26:41 [Speaker Changed] So, so you mentioned low cost and automation, and I wanted to circle back
to that because the automation is what enables low cost, in fact. So for, again, good, what we do with
liftoff is we have Betterment power our digital platform, but we attach a live human advisor to that. And
that wouldn’t be financially viable if you’re doing everything the way a traditional RIA does it, ’cause
that’s pricey. There’s a lot of people, there’s a lot of work, there’s a lot of costs. You guys on the backend
plugged into this, make it very, very cost efficient so that the minimums go away, forget 5 million or 1
million, there’s no minimum. You wanna open an account with $10,000, you can and a person can talk
to you about it. But the process of opening the account, funding it, onboarding it, all the labor intensive
human activities, that a $10 million client wants someone holding their hands, you guys have come up
with a really, really great set of technologies to automate that. Thank
00:27:48 [Speaker Changed] You. That’s exactly right. I couldn’t have said it better myself.
00:27:52 [Speaker Changed] So, so what made you, early on, some of your competitors thought the RA
industry was very much their competitors. How did you guys look at, and I know some of this predates
your, your tenure, but what made Betterman say, Hey, this is a, a part of the industry that we shouldn’t
00:28:14 [Speaker Changed] It does predate me. I think that’s right. So I, I’ve been in the CEO seat for
three years. So John Stein, our founder, he really saw around corners, right? And I think, you know, what
was so great about him, and, and I think tends to be true of founders in general, is they’re always
innovating. They’re always thinking about the next idea. And I think there were sort of two motivations
for him. You know, one was, well wait a minute, why, why don’t the RIAs, why don’t the human advisors
like us? Why do they see us as a threat? And as he started to dig in, he said, well, wait a minute. We
don’t have to be a threat. And this is another, this is another way to meet customers where they are,
right? Because some customers, you know, young digital savvy, you know, not a huge amount of assets
yet may be okay with a completely digital solution.
00:29:03 But what he started to understand and through, you know, talking to customers was that as
customers became more sophisticated and had life events, right, got married, bought a home, their
needs became more complex and they wanted to talk to someone. And so understanding that he
understood that there were limitations sort of to the, to the reach that you could have if you were only
serving customers directly. And so rather than say, you know, we’re anti-human in interaction, we said,
he said, let’s embrace that and let’s understand that technology plus humans is better. So how can we
be techno great technology and great service? And the way to do that was through the RIA community.
But, but you’re right that in the early days, it wasn’t so much that we saw the RIAs as our competitors,
it’s that they saw us as a competitor. Right? And so one
00:29:51 [Speaker Changed] Of your competitors, who I won’t mention by name, was very adversarial
with the RIA community. They have, you know, a fraction of your assets, but they also aren’t really
working with advisors. Recognizing the different market segments seem to have been a big win for you
00:30:08 [Speaker Changed] Yeah, I mean, I, I think that it’s a mistake to not embrace the whole market,
right? And to not recognize that, look, there are customers who feel comfortable. I’ve had a financial
advisor myself personally, for 20 years, right? And, and that provides, you know, peace of mind and it
provides, and it’s a relationship, right? This is a relationship. Technology is never going to replace a
relationship. Technology can enhance the service that that relationship provider can give you, but it’s
never gonna replace it. And I think recognizing that is one of the things that differentiates us as a brand
00:30:46 [Speaker Changed] To say to Absolutely. So you mentioned John Stein, you come in to CEO of
Betterment following a founder, that’s always a tough spot. Tell us a little bit what that was like.
00:30:58 [Speaker Changed] Well, it’s funny. So I came from such a different world, right? I came from
the corporate world and I didn’t know from founders and, and so I had no expectation. And in my
experience, changes of leadership were somewhat commonplace, right? Oh, you know, when you’re at a
big company, things change all the time. And so I met John through a, actually a business school
classmate of mine knew a board member at Betterment, which was kind of my path to Betterment. And
so I first met this board member and she introduced me to John. And I think he was at a moment in his
career where he was thinking, look, I built this thing and I’m sort of, I’m getting antsy. I’m, I’m kind of
ready for the next, and I want this to be a big business to scale, whether it goes public or whatever the
next act of this business is.
00:31:46 It’s an act that I have not had experience in. And he was self-aware enough to understand that
now maybe was the time, if, if Betterment was gonna kind of take the next step, maybe there was a
different kind of leadership that could help do that. So he was meeting candidates and we met and we
got along incredibly well. He’s still on the board, so he’s a sounding board for things, but we brought
really different skills to the party, right? He was not a marketer and a brand builder, right? And I think in
the early days, there was a thought here that sort of, if you build it, they will come. And this idea that
like, you know, a product led grow, product led growth was the sort of holy grail, right? And I think that
in the early days, that was a good theory. I think the reality is what the, what John and others who sort
of innovated around his time did, is they pushed the whole industry to embrace technology, maybe be
faster than they would have, right? Out of fear, right? Not unlike my experience in the media business,
right? Which was, you can’t ignore, you can’t put blinders on and ignore streaming. You gotta jump in.
00:32:49 [Speaker Changed] It’s so funny you say that because it’s streaming and media, it’s Tesla and
the rest of the auto industry and EVs, it’s Amazon forcing everybody to have some online retail. A a
technological disruptor comes in. And it’s not just that one company. The entire industry has to take
notice and say, either we adapt or we get left behind. That’s right. That’s right. And, and that’s really,
really substantial. So from where you sit, coming from a media background, is it safe to say leadership is
leadership? It doesn’t matter what the product is that you’re selling, you’re leading people.
00:33:28 [Speaker Changed] I, I think so. I mean, I think that there’s certainly, you need some experts in
the mix, right? I’m not gonna say that, you know, no industry experience needed here, but you can do
that within the context of a balanced team. And so I think, you know, I happen to, I happen to have a
fantastic team, and the team is really made up of a bunch of folks who were here before I was and are
really deep experts in the space. And then we complimented them with a handful, four or five new folks
who I brought from the outside who had a fresh perspective and maybe had a different skillset.
00:34:01 [Speaker Changed] Huh. Really intriguing. So let’s talk a little bit about the history of the digital
investment platforms. These more or less launched after the financial crisis, kind of 2010s or so. There
were some great expectations when some of the initial companies launched. Many of your competitors
have not lived up to those lofty expectations. How do you look at the field and say, why have some of
these companies just not gotten it done?
00:34:35 [Speaker Changed] So I think in general, there was a sort of a fear, fear slash expectation,
right? That digital was gonna, you know, take over the business, right? And so that obviously had big
dollar signs in people’s eyes.
00:34:48 [Speaker Changed] There was a gold rush for a while, right? People spent a lot of money buying
digital platforms. Many of those purchases did not work out, but it was pretty, it looked like, hey, these
guys are come and eat our lunch,
00:35:01 [Speaker Changed] Right? And I think, look, that’s not unlike the sort of digital boom and bust
in every industry, right? Which is think about Amazon, right? Amazon won, but there was, there, there
was a lot of roadkill by the side of the road, right? Whether it was eToys or you know, to right to
remember just a brand name, right? There were a whole number of these firms.
00:35:20 [Speaker Changed] is the one that sticks out to me, right?
00:35:23 [Speaker Changed] Like they all emerged, they all, I mean, Amazon was books, right? It wasn’t
the everything store, it was books. And I think, you know, they, they won because they were excellent,
right? And they delivered. They, they had, they were maniacal about the consumer, right? And they, and
they just continued to build off of super serving that consumer. And I think
00:35:43 [Speaker Changed] Regardless of profit, they’re willing to postpone joy in order to do the heavy
stuff super
00:35:47 [Speaker Changed] Serve upfront, right? Because they knew that referrals and customers who
loved them was the holy grail, right? Yeah. And so, you know, they won. So I think the same can be said
in, in any industry, right? I mean, Netflix has, is is the clear leader in the streaming space. And I think,
you know, I intend for Betterment to be the clear leader in the digital wealth management space.
00:36:08 [Speaker Changed] So what does Betterment have to do to distinguish itself from the rest of
the pack? And the rest of the pack includes Vanguard as well as a bunch of other much smaller clean
sheet startups in, in the space.
00:36:24 [Speaker Changed] So my aspiration is sort of what, what Amazon did for Walmart, right?
Which is it pushed them to be better and, but ultimately there’s room for both. I think that is very true
in the wealth management space as well. So I think, you know, Schwab and Fidelity and Vanguard, like
those are the great brands. Those are my parents’ brands, right?
00:36:44 [Speaker Changed] And and they all have their own in-house digital platform.
00:36:47 [Speaker Changed] That’s right. Because they knew that that has to be part of the mix. And I
think similarly, right? If I think about those as brands, I think the technology is a start. But I think building
a brand that understands the customer segment you serve is gonna be critically important in terms of
who wins and who loses. And so what I aspire to for Betterment is that we should become the millennial
and Gen Z wealth management brand the way Schwab or Fidelity serves our parents.
00:37:17 [Speaker Changed] Huh? That, that, that’s intriguing. So when you’re doing the sort of
customer analysis that you did back at Viacom, at Betterment, what are you finding from both your
existing clients and, and people who are potential clients, what is it that the consumer is looking for in
advice from a digital platform?
00:37:39 [Speaker Changed] So I think first and foremost, they’re looking for great technology and great
00:37:44 [Speaker Changed] So, so when you say great technology, I think of ease of use, user interface,
those sorts of things
00:37:51 [Speaker Changed] That That’s exactly right. That’s exactly right. And, and they’ve grown up
right with a phone in their hand, so to speak, right? And so I think what, what worked for customers a
generation ago, I think the expectations are just raised right? And so in terms of what technology can
deliver, it has to be on mobile, not just ease of use, but ease of use on mobile. I wanna be able to do
everything on my phone, don’t make me sit down at the computer, for example, right? And that’s
actually not the way we were born, right? A decade ago. These digital platforms were online as opposed
to digital. And we’ve moved the word online to digital because really we need to be mobile first, right?
Right. And I think, I wouldn’t say that Betterment was sort of first in its class on recognizing the power of
mobile in this space.
00:38:35 Because when we were, when we originated the brand and the business, we thought this is a
considered purchase. And as a considered purchase, people are gonna sit down at their desktop and
they’re gonna do their research. And that still is true for a lot of folks when they sign up. But once you
have this, your, your wealth somewhere, you wanna be able to check it and you wanna be able to check
it wherever you are, you know, in the bathroom, online, wherever you are. And that’s on your phone.
And so that’s been a huge push, you know, during my tenure the last couple years is, is saying we need
to think mobile first. So that’s just an example of sort of usability and where you need to be, and
perhaps obvious, but critical.
00:39:11 [Speaker Changed] All right, so you started with an online platform. You go to mobile. If we’re
looking at the next great technology, it’s almost a cliche to say AI is gonna change all these things. How
does a digital online investment platform use AI to make itself and its products more desirable to its
00:39:33 [Speaker Changed] So ai, think of it as supercharging everything we do, right? So it’s causing us
really to re-litigate every process we have and say, can we do it better, stronger, faster? And how can
technology enable that? So we’re starting really in the back office, and that’s both internal and customer
facing. So think about, you know, writing first drafts of marketing pieces, right? Get, you know, putting
some inputs, giving an assignment to the AI and letting them draft something that you can then use as a
jumping off point. Think about customer. That’s just an example. Think about customer service, not
necessarily, I think a chat bot can answer simple questions, but also you can have AI develop more
sophisticated answers that then the human service operator can translate for the consumer, right? So
speeding up every one of those interactions. Think about a brand new engineer joining the team who
doesn’t know you know anything about betterment and needs to find, you know, find his or her way.
00:40:32 You know, we have an opportunity to get them up to speed faster, right? Because there’s just
more information easily accessible at their, at their fingertips. So what I don’t see AI doing, or at least
not yet, is replacing the, the fiduciary role that we play, right? Which is we have a responsibility to our
customers that is highly regulated and that requires that we act in their best interest. And there still is a
lot in the technology where there’s what they call hallucination, right? Are they giving good advice? So,
so we think that the, the technology is an enable enabler, but not so much a replacement for.
00:41:10 [Speaker Changed] So, so I love the term hallucination. You never worked at Roku and you
never worked at UBS, but when I’m done with my research, I’ll then run it through chat GBT four and
perplexity, which are, one is clawed and one is the, I forgot the other driver, just to see what comes up
and, oh, I missed, how did I miss Roku? How did I miss UBS? Turns out I didn’t, they were wrong and
hallucinating, which is why you have to have a human bubble double check it, but it, it, it still has this
reach and depth that it’s so quick and so easy. It, it really creates, you know, a first draft is really a good
way to think about it, as long as you’re fact checking it and aware that it, it’s often wrong.
00:41:56 [Speaker Changed] That’s right. And you have to have guardrails, right? And so I think we’re
being very thoughtful in, in how we deploy ai, but I think we would be foolish not to be embracing the
technology because, you know, if we can speed everything up, we do by 10% or 15% using the
technology, then, you know, better, stronger, faster,
00:42:13 [Speaker Changed] Right? And, and we usually measure productivity gains in, in, you know,
single decimal points. 10% or 15% is just immense. That’s, that’s a game changing improvement. Yeah.
00:42:25 [Speaker Changed] I mean you talk about do more with less, right? I mean, this is the greatest
example. Yeah,
00:42:29 [Speaker Changed] Absolutely. So before we get to our favorite questions, I have a curve ball
question to throw at you. You are currently a board member for the Lucius and Lit Tower Foundation, as
well as Funko and catalyte. Tell us a little bit about those organizations. Sure.
00:42:46 [Speaker Changed] So I’ll start with Lucius Littauer is a foundation and we support access to
opportunity and we support a series of Jewish causes. There was a, a man named Lucius Littauer, and he
passed away without any heirs. And so we have a group of people who are entrusted to carry on his
legacy. So that’s, that’s been a, a, a great one for more than 10 years I’ve been doing that. Funko Inc is a
pop culture company. It’s a public company. You may have heard of Funko Pop, which are like little sort
of plastic characters. That’s the signature item we sell. But really when you think about fandom, it’s a fan
company. And that’s been, again, a lot of fun. That’s been my first public company board. And then
Catalyte is a more recent board that I joined, and that is a company that sits actually at the intersection
of AI and diversity and inclusion. And it’s about creating pathways for underrepresented groups who
don’t have four year college degrees into higher earning jobs using AI to understand aptitude and
likelihood of success. Huh. And it’s cool company.
00:43:53 [Speaker Changed] Sounds really interesting. All right, so we only have you for a few more
minutes. Let’s jump to our favorite questions that we ask all of our guests starting with you are the
perfect person to ask this question. What are you streaming these days? Tell us about what you’re
watching on Netflix or Amazon or Hulu or Disney or Paramount Plus or anything you might be streaming. So

00:44:16 [Speaker Changed] I binge constantly the new season of Slow Horses

00:44:21 [Speaker Changed] Season three, right? Season

00:44:23 [Speaker Changed] Three. That, that’s one that, that I’ve recently streamed. I

00:44:28 [Speaker Changed] It’s a really interesting show.

00:44:30 [Speaker Changed] It’s a, it’s a great show that’s on Apple. I love it. That’s on Apple. Yep. I lovedalso on Apple. I loved Lessons in Chemistry, which I read the book first.

00:44:39 [Speaker Changed] Oh really? That, that’s likeQ and I haven’t gotten to it yet.

00:44:41 [Speaker Changed] That’s a good one. I really liked it, but I also read the book. So, so those,
those are two of my, I I love. Oh, I just watched The Pacific, which is an old, which is a spinoff of Band of
Brothers, HBO must have recently sold a bunch of stuff to Netflix. So it surfaced in my algorithm and it
was a spinoff of Band of Brothers. And it was about, it’s about World War ii.

00:45:02 [Speaker Changed] Didn’t Band of Brothers end up there also?

00:45:04 [Speaker Changed] It did. It did. But I had seen that and I had never heard of the Pacific, but it,
it surfaced then I watched that it was about the Pacific Theater during World War ii. Really interesting.

00:45:13 [Speaker Changed] Since you’re mentioning wartime shows, have you seen all the light you
cannot see?

00:45:19 [Speaker Changed] Oh, so not only have I seen it, but it’s one of my favorite books. Fantastic.

00:45:23 [Speaker Changed] And they did a great job

00:45:24 [Speaker Changed] On They did, they did Hugh

00:45:26 [Speaker Changed] Laurie’s great. It’s just, what is it, six episodes? Something like

00:45:28 [Speaker Changed] That. Yeah. I wanted it to keep going.

00:45:29 [Speaker Changed] It was real. Yeah, it was real. It was one of those things you’re, when you’re
sad when a show ends. Yeah. It’s like, that’s how, you know, it’s a really good a a really good show. Tell
us about your early mentors who helped shape your career.

00:45:41 [Speaker Changed] My early mentors were, were really my bosses. So I worked early on for a, a
guy at Disney named Peter Murphy, who was a, a great mentor to me. And then a woman named Dan
Sarnoff, who became, ultimately was running the Warner Brothers studio. She, she was my first job
outta business school. And then a fellow who was the COO at Nickelodeon before I was named Jeff
Dunn, who went on to run Sesame Workshop. Those were probably my three.
00:46:10 [Speaker Changed] Let’s talk about books. What are some of your favorites? What are you
reading right now?
00:46:15 [Speaker Changed] So I love historical fiction and I love a good beach read. So right now I am
reading the Elon Musk biography and I’m also reading Demon Copper Demon Copperhead, which is a
Barbara Olver, which is fantastic

00:46:33 [Speaker Changed] Demon copperhead. What is, what sort of book is that?

00:46:35 [Speaker Changed] It’s about a little boy who grows up in foster care and I think it’s gonna be
about the opioids crisis, but I haven’t gotten to that. I haven’t gotten to that part yet.

00:46:45 [Speaker Changed] Huh. You know, we mentioned Innovator’s Dilemma earlier. Did you ever
read Loon shots?

00:46:50 [Speaker Changed] I did not.

00:46:51 [Speaker Changed] So it, it’s by, by a professor, I’m drawing blank on his name at the moment.
But it’s how every company is really two companies. One is that small startup and the other is the
company that has its own ongoing revenue source. And how do you balance the need to not eat your
seed corn, but at the same time take occasional moonshots. And it, it’s a challenge for a lot of
companies. Apple is an example of a company that is willing to cannibalize their own products in order
to stay ahead of the competition. Really, really just fascinating. And I thought of it ’cause of, of what you
had said earlier, big companies tend not to do these moonshots. The name, name of the book is
Moonshots. I’m sure I’ll, it’ll pop into my head later. Our, our last two questions. What sort of advice
would you give to a recent college grad interested in a career in either media or investing?

00:47:54 [Speaker Changed] So I always think the training per the investment banking training programs
are a good way to start. They’re sort of like bootcamp for a couple years where they, you know, teach
you to understand p and ls and financial modeling. And I think that’s a really transferrable skill. So I, I
think those are fantastic programs. I also think these days, you know, whether I’m a financial company
or a technology company is sort of a question we ask ourselves every day. Sure. And I think the answer is
both, but engineering and computer science is an incredibly fabulous career these days, and I think
opens a lot of doors. But that appeals to a, you know, a certain, a certain segment of the population.

00:48:30 [Speaker Changed] And our final question, what do you know about the world of branding,
marketing or technology and investing today? You wish you knew 25 or so years ago when you were
really getting started?

00:48:45 [Speaker Changed] Well, the world of investing, I would say I did not fully appreciate the power
of starting early and the power of, you know, compounding. You know, save what you can. I think I also
underappreciated really until I got to Betterment. I underappreciated how much costs and taxes can
undermine investing returns. And so to be, to be cognizant of those things. And then lastly, I would say
take advantage early on of the, of what the government offers in terms of tax advantaged accounts.
’cause that can be a real step up. So whether that’s for participating in a company 401k or IRAs, right.
These are all great opportunities for saving.

00:49:26 [Speaker Changed] Well, well thank you Sarah for being so generous with your time. We have
been speaking with Sarah Kirschbaum Levy. She is the CEO of Betterment. If you enjoy this conversation,
well check out any of the previous 500 we’ve had over the past nine years. You can find those at iTunes,
Spotify, Bloomberg, YouTube, wherever you find your favorite podcasts. Sign up for my daily reading Follow me on Twitter while it’s still around at ritholtz. Follow all of the Bloomberg
Family of podcasts at podcast. I would be remiss if I did not thank the crack staff that puts these
conversations together each week. My audio engineer is Kaylee Lap. Anna. Luke is my producer. Sean
Russo is my researcher. Tika Val is my project manager. I’m Barry Ritholtz. You’ve been listening to
Masters in Business on Bloomberg Radio.




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