Samantha Sharf
Forbes Staff
For the first time, Forbes is bringing together 1,000+ members of the Forbes ‘30 Under 30’ list with some of the globe’s top leaders and mentors to create partnerships that will change the world over the next 50 years. The Under 30 Summit will take place in Philadelphia from Oct. 19 – 22.
Jon Stein graduated from Harvard University in 2001, “heady days” when he says 40% of the school’s graduating class went into finance or management consulting. Inspired by the disconnect he saw between courses in economics and human behavior Stein set out to find a career where he could “help people pursue happiness.” No such career surfaced – Harvard doesn’t mint many ice cream men – so Stein took a job as a consultant advising big banks.
The experience was soul crushing. “What I found was that it was this crazy place where they had almost lost touch with reality and with who the customer was,” says Stein, 35. “We never, in meetings, talked about: ‘Who is the end customer.’ We talked about: ‘How do we optimize this product for profitability? What fees can we add on?’”
A few years later, then armed with a Columbia MBA and a CFA, Stein was struggling to take control of his own seven-brokerage accounts and still fed up. So he taught himself how to code and designed software that would invest for him. In 2008 his toiling turned into Betterment, an early leader among automated investment advisors, a new breed of money managers that leverage technology to make investing largely human free and online only. Betterment mostly invests in funds and charges between 0.15% and 0.35% of assets depending upon the size of your account. Stein will join FORBES at our Under 30 Summit in Philadelphia next month in a discussion with other entrepreneurs about why financial services are ripe for some youthful disruption.
“You can think of us like the next generation of target date funds,” says Stein, comparing his company to the buckets of assets that fill many 401(k) accounts (for example, a 20-something might be invested in a 2055 fund). “Target date funds were a great evolution as well. They improved upon people having to go out and pick a bunch of funds and adjust the allocation overtime by automating that piece of it. What they didn’t do very well is they didn’t personalize it. You are still in a bucket with millions of other people.”
When looking for investment advice or planning for retirement only 20% of American investors use investment websites or online financial planning tools, according to a Wells Fargo/Gallup Investor and Retirement Optimism Index survey released last month. That’s less than half the 44% of investors who the survey says use a dedicated personal financial advisor and fewer even than the 29% who say a friend or family member helps them out.
In a recent FORBES cover story Janet Novack and I profiled Betterment and some of the early front-runners in the burgeoning online financial advice market. Money focused apps and sites of varying practicality have appeared like pop-up windows and venture capitalists have plowed more than $1 billion into tech-driven personal finance startups in the last three years.
Among the most talked about (and heavily funded) disruptors are so-called “robo-advisors” like Betterment. One might expect the Gallup survey to send shivers down the spines of the CEOs running these companies. But based on what he told us, Stein probably isn’t losing much sleep over such statistics. If anything, he sees is as an opportunity. “The products are getting better and have changed the nature of investing,” he says.
Stein sometimes sounds more like a hippie Boomer circa 1969, than the CEO of quickly growing financial services company, yet his laid-back lingo is backed by big ambition. He envisions a highly personalized world where your financial life is controlled entirely by software which would re-calibrate your account with every cent that comes in and goes out in order to make sure your savings are on track.
“I want to go to the store, buy television and have that payment come from the most tax efficient account it can come from, have my automatic deposit change and tell me how much I should save this month.”
Betterment is not there yet, but the New York based company now has $840 million in client assets, managing 45,000 accounts that hold more than $18,500 on average. Stein has also raised $45 million in venture capital funding which will help him build toward his wildest dreams.
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