Q&A with Ben Alden of Betterment | Innovators
Conversations with Innovators
BEN ALDEN, General Counsel
The Conversations with Innovators blog discusses new innovations, big ideas, disruptive technologies, and the thought leaders, innovators, rebels, entrepreneurs and trailblazers that make all of this possible.
This week we are talking with Ben Alden, General Counsel at Betterment, an automated investing service that takes the pain out of financial planning. Ben has a Bachelor’s Degree from Cornell University and earned his Juris Doctorate from Stanford Law School. In addition to his GC role at Betterment, he also serves as an Adjunct Professor at Columbia Law School.
With Betterment, customers can expect higher returns on their investments with a team of experts focused on their happiness and empowerment.
Tell us how Betterment builds “smarter, more efficient money management for everyone.”
Sure – I think we start by listening to our clients first – that’s the most important thing, [... ] when we build “smarter, more efficient” what that means is that I think we cover the basics well, when we think about what it actually means to invest. I think the world complicates it, but it’s not that complicated. Two, you should have financial goals, you should diversify your money, because as far as we know, diversification is one of the best things you can do, no free lunch in investing, but that’s as good as you get. Three, you should keep your costs low, it’s one of the very few controllables you have, and over time it really adds up. Four, you should stay disciplined, stick to your goals and you should avoid negative behavior, you know, the behavior gap - buying high, selling low, you know the classics retail investors do. And the fifth thing that I would add, it’s really important to manage your taxes. That’s one of the areas that you have more control over. No one can tell you what the S&P 500 is going to be at in a month, and if they tell you, they’re lying. But, what they can tell you, is if you sell a stock with capital gains, you’re going to pay taxes, so if you have tax laws, that are at a loss, that’s better than selling those for a gain, and it’s better to sell long-term than short-term. So, we built software around trying to design and help people work through these things. We have a goal-based investing platform, we layer on smart tax management through tax loss investing and tax [inaudible] portfolio to really do what we believe is best – which is control what you can control and then just lean back afterwards.
As one of the pioneer “Robo Advisors,” Betterment has led an investing revolution. We saw earlier this year that Betterment began offering human advisors in addition to its passive investment services. How has the offering gone?
At Betterment, our mission is to empower people to do what’s best for their money so they live better. We believe deeply in that. That’s why we get out of bed on Mondays. Note that nowhere in there does it say that there’s only one way to help people do that. When we think about it, technology is an amazing way to reach more people - more scalable, high quality, good control, and standardization. But not everyone wants it, and tech takes time to evolve. So, adding humans was a very useful and logical thing to do to reach out to people and also to learn and hear what people are telling us. It’s a great kind of vanguard and understanding. Then, I think what you have also seen is that we’ve taken that as a stepping-stone and, in a very Betterment way, moved to making advisors available to everyone via messaging within the mobile app.
Advisors available through messaging in app?
Yeah, it’s super cool. You can enter the mobile app and there’s a little messaging icon. You can ask questions, and if it’s a customer support question someone from customer support will answer, and if it’s a financial question one of our advisors will answer you. In that way, it allows us to give more advice to more people in a way that people like to interact. Not everyone wants to be on the phone all the time. If you have a question about something, we can answer that on a one-off, point you to more information and move more across your life. We couldn’t have done that without building human advice first. So, a lot of this is iterative. And then, none of it is a means to an end. It’s all about getting to that ultimate goal of empowering people to do what’s best for their money.
So, when there’s market uncertainty, which translates into fear, people in general, men more so than women, typically make emotion-based decisions about investing, which is usually not good for them. If you add a human advisor to passive investment strategy, how does that help the behavioral investor psychology?
Absolutely. It’s a great question. The answer is that it teeters a little bit more than just digital v. human. There’s a cascade of things we can do in a market downturn to help people manage their behavior. That obviously starts with the technology itself. We build around your goals, so that there’s no kind of abstract notions of percentages, etc. It’s just, “Am I on track to meet my financial goal?” and if you’re on track, even if there’s a market downturn, hopefully there’s nothing for you to do, and we message that within the app. We don’t talk tons about how the market performed on a short-term basis because that tends to freak people out. In a real market downturn, one thing we’ve done is that we can actually pop messaging up in the app, encouraging people to remain calm and reinforcing good customer behavior, and one of the reasons we like that is because technology can reach all of our customers at the same time, you know, around 275,000 of them. Whereas I think, one thing that gets overlooked, and it’s a fair assumption, that a human can hold your hand during that time, and it turns out that if you think about it, the market tanks, let’s pretend it goes down 10% tomorrow, how is an advisor going to talk to all of [his or her] clients? Logistically?
An advisor can’t talk to all of his/her clients at the same time in a downturn.
It’s hard to do. So, what we’ve done is we’ve tried to build it first upfront through the technology and the services we offer, and how we communicate and educate. But today, that’s not enough. You can call one of our human advisors if you have that service, or you can message an advisor within the app and wait for an answer, and it’s a lot more efficient for our team to respond that way to people. Especially if the question is, “market tanked, do I need to do anything?” That advisor can look and say, “hey, actually all of your financial goals are still on track to hit their targets, you’re cool” - which can be very powerful.
So it's reassuring to hear from a human advisor through the app, in times of fear, potentially?
Absolutely. In ways that we hope actually are more impactful and can actually reach people in a timely fashion, versus a single human advisor with 100 clients who is going to have a hard time talking to their client at the time they need it most.
You mention goal-based investing. In my experience, one of the hardest aspects of investing is that, if you talk to 5 professional investors or get 5 books on Amazon, they all disagree and they usually contradict themselves. Having goal-based investing is great because it solves one of the big problems, which is, “how much do I need to save today in order to reach a goal tomorrow?”
Absolutely, and that’s kind of how we built, we wanted to build around end-goals and end-results. We didn’t want people to have more questions than they received answers from us.
Because if you don’t have a goal, and you don’t have some way of projecting the goal in the future, then it’s very difficult to answer the question, “well, what should I save today?” Knowing how to achieve your goal and having some degree of confidence about it frees you to live your life because you’re not worried about whatever number you’re putting in every month.
That’s our mission right there. Look, worst-case, something happens, the market has a big correction; we can help you figure out how to get back on track very quickly by providing good savings advice.
One of the big things that Betterment promotes is the safety net goal. That concept is offered by several of your competitors as well. One thing I notice is that none of the Robo-Advisors safety net solutions involve more liquid cash management type solutions. You avoid capital gains if you tap your safety net. Have you guys thought about that?
It’s interesting and definitely something worth thinking about. No answers today, but potentially stay tuned in the future. These are all the types of services we would like to be offering people. Again, one of the major concerns though right now is in a low-interest rate environment and we just want to make sure you’re not losing to inflation.
Speaking of that, does Betterment have any new innovations on the horizon, that you can talk about?
Unfortunately, nothing that I can talk about at the moment, but you know it is worth mentioning, as we talked about, messaging. I believe and I don’t know that this is actually the case, but the day we launched messaging, we gave everyone in all of our plans access to advisors via the mobile app may have been one of the single-greatest expansions of fiduciary advice. Just out of the gate, all of a sudden, your phone became a gateway to receiving high-quality advice from people, and that was really exciting for us because that’s where we want to be as a company, we want to be helping you feel comfortable with your money, getting better answers and better solutions in a manner that actually you want to hear it in.
With other brokers, it’s a 1-800 experience, where you get in the queue and wait for somebody to talk to.
Totally – and that’s IF they are a financial advisor. There are services that do offer that, which is great, but I don’t know of anyone else to just flip the switch and turn it on to 270,000 customers in one day. It was pretty exciting for all of us here at Betterment to be able to do that, which we just feel is important and part of our mission.
Betterment has been a vocal proponent of the fiduciary rule, and so my question is, why should normal investors care, and how has Betterment implemented the fiduciary rule in its business?
Sure. I’ll start with how we implemented the fiduciary rule in our business. Really, we built a company around the concept of what it means to be a fiduciary. That basically means you provide high quality independent advice. Now, independent is kind of loaded, because to be a fiduciary, you don’t actually have to be independent, you can be receiving payments from investments you recommend, as long as you clearly disclose it, you still satisfy that requirement. So, in many ways, being a fiduciary really isn’t even the highest standard there is. The highest standard is best in class, private sector actors. We believe that if you build a business where you get paid by the customer, and really only the customer, it allows you to act in their interest at all times. We have a team of investing professionals who are 100% dedicated to finding what they believe is the best portfolio for our investors. There are no considerations of, you know, get paid to do more X versus Y type of funds, so it allows us to know and give you that belief and that trust that we are here on your side and on your team working hard for you. When I say that, people are like, "no no no, really, let’s talk more about the law, let’s talk more about the rules, that sounds like a sales pitch," and if it sounds like it, it’s only because it’s just so uncommon in the world today, that your financial advisor should be on your team and you should be paying them and that’s it. The fiduciary rules are built around protecting investors; you know, 1/3 of the FCC’s mission is investor protection. One way they do that is by having Congress pass the Advisors Act of 1940 which is about the fiduciary standards for conduct but that just says disclose, and what we would like to do more is we would like to give trust and give you tangible reasons why you can trust us.
So why should investors care? Well, investors should care because it’s their money and their relationship. And if you don’t know how your advisor is getting paid, how do you know he’s not getting paid in ways that aren’t in your interest? If you don’t understand what type of investment products you’re put in, and if your advisor is not explaining them, why is your advisor not explaining them? You know, I think the White House and the Obama Administration put out a report that basically said that Americans lose more than $17 billion a year to conflicted advice. We believe that Americans have the right to direct, honest, independent financial advice, and it’s our mission to provide that to people.
We noticed that Betterment recently redesigned its website. What drove that decision? Is that because you started adding additional services?
Yes, we felt like a brand refresh would help us reach our customers in better ways. It had been a long time since we thought it through holistically. We took the time and have a great marketing team that led the effort.
How would you describe an ideal work environment?
I would describe an environment that has autonomy over what and how you work, where you can become a master at things and you are respected. I think those are some of the core tenants that are critically important. I think you can see that coming out of some McKinsey studies. I also read a pretty amazing study of engagement at Facebook. A Professor at UPenn, together with I think, with Facebook’s team, put this together, and it basically said that engagement, or what actually gets people excited and happy about work is highly correlated with pride, and pride has three components. One is optimism about the future of the company. Like, an ideal work environment should be a company that is growing and succeeding, but then also one that has a really important social mission, provide the social good. So that when you come to work you’re not just trying to hit a number, you’re trying to provide advice to more investors everywhere, you’re trying to provide higher quality advice, you’re trying to make Americans who may not know what to do with their money, feel better, feel empowered, and actually have that be right. Then, the third is that you should really buy into your mission, and one of the things I think is important is that social good and social mission really line up. I think we really have that at Betterment – we have an environment that allows you to kind of grow and be professional and become a master at something, while at the same time having a deeply held mission here that we all believe in that is connected with, I think, I believe, a real social good.
What would you say if asked about Betterment’s company values and culture?
Our mission is the first and most important thing that we’ve got. But you know, stemming from that, we have this thing called the “Betterment Way”, and the “Betterment Way” is sort of our internal document that answers: what are our values, how have we built this thing, and how do we want to keep building this thing? There are a few ways we do that, it starts with the mission, it goes to the vision, and then when we talk about values, we really get into things like wanting to be, to build an institution: it’s the pursuit of happiness, it's institution-building, it’s efficiency, it’s iteration, it’s like we talked about, it’s about empowerment, as well; about empowering everyone here to do the right thing for our clients. It’s about making, realizing that you could have a great working environment that actually contributes to the bottom line. It allows you to recruit and retain, and to do what our CEO says, which is do the best work of your life.
So, what’s one piece of advice that you would give to an entrepreneur that’s starting their first business?
Man, you know it’s such a good question. I’d say this – there is one thing that an entrepreneur has to know more than maybe any other type of professional, and that is, everything is your responsibility. What that means is, you are responsible for making things happen, for the vision, you are responsible for hiring people and helping them and empowering them and holding them accountable for those things as well, you can’t look around and say its someone else’s job or someone else’s fault, even if its someone else’s fault, it still could be your responsibility, and when I look at entrepreneurs, the most successful ones that I see really live that, they just believe hey, oh, that’s a problem, I’ll fix it, or help someone fix it, or find someone to fix it, but they don’t ever say, not my responsibility, ever.
So, what would you say is your one thing that most drives your professional success?
I love learning.
What are you reading right now?
I am piling through Harvard Business Reviews classics at the moment, which is just because I never got a business school education, so I am reading all of that back. I am reading, and this is where the responsibility comes from, there’s this great book by Mark Manson, called (apologies, you might have to edit this) "The Subtle Art of Not Giving a F*ck."
For Conversations with other thought leaders and innovators in the financial industry, see innovator Priya Malani of Stash Wealth and innovator Brian Bollinger of Simply Safe Dividends.
For more information about related legal issues, read our Professional Services industry page.
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