Hurley: So the role of your firm is to provide tools to enhance the capabilities of self-directed investors?

Stein: Yes. But only a small percentage, about 1%, of people today have access to a real, fiduciary advisor. We’re now making that fiduciary advisor accessible to anybody.

Hurley: What is the profile of the clients of robo-advisors today, and what will it be in the future?

Stein: Today it is primarily early adopters, people who tend to be more comfortable with technology, the kind of people who were the first to get iPhones. That is starting to change, though, as we now have more than 100,000 customers.

Hurley: With a net worth of … ?

Stein: The average net worth of our customer today is $230,000.

Hurley: The “pre-emerging affluent”?

Stein: We have customers in every state, some with more than $10 million with us, others who are just starting out. Customers who are 96, others who are 18. Twenty-five percent are 50-plus. Many have a lot of money, many are in their 20s and are just starting to accumulate.

Hurley: So robo-advisors are best suited for people who are early adopters of technology?

Stein: But who’s going to use self-driving cars? Is it going to be early adopters of technology, or is it going to be everyone? My hypothesis is that it’s eventually going to be everyone.

Hurley: But that ignores that the best wealth managers don’t give advice; they diagnose and help solve client problems. They have an expertise and insight into extraordinarily complicated problems shared by clients that would be very hard to build into technology. Given this, why won’t they simply add technology to offset any advantages of robo-advisors?

Stein: They will. And it will be ours. We are building better and better technology for advisors every day, and for consumers too.

Hurley: Let’s turn to client recruitment. You have raised $105 million in capital but have only about $2.6 billion of relatively low-fee assets under management. How does any robo-advisor get big enough, fast enough to generate a sufficient return for its investors?

Stein: We’re already profitable on a per-customer basis and are growing incredibly quickly. Already this year, we’ve added 50,000 new customers to the platform, and we’ll add another 50,000 before the end of the year.

Our average customer today has $25,000 with us, only about 10% of their net worth. Over time, not only is their net worth increasing rapidly, but so too will their average balance.

The average customer balance at TD Ameritrade and E*Trade is at $100,000 and at Schwab it is $240,000. Over time we will approach that.

Hurley: So you view yourself as a direct competitor to those organizations?

Stein: Yes.

Hurley: This includes Fidelity, that by any measure is extraordinarily well-capitalized and that spends stupefying amounts on technology. And Schwab is a public company with a $38 billion market cap. How do you keep pedaling fast enough to stay ahead of them?

Stein: If we are successful in this business, we will have a lot of competitors. But consumers tend to not like these [older] companies. There is an increasing appetite for a new, major financial services company that is aligned with their customers. I don’t think you understand how difficult they [make it for customers to use their technology]. Technology is not any of the incumbents’ strong suit.

Hurley: Which points to an interesting question. You have a partnership with Fidelity?

Stein: We do.

Hurley: So you have a partnership with a future direct competitor?

Stein: It’s widely speculated that Fidelity is building a competitor to us. They bought eMoney, and that would be the logical move.
At the same time, they wanted to partner with the best firms out there to learn what they could and recommend a digital offering to their affiliated advisors. I think they have probably learned a lot, and we’ve both benefited in the partnership.

Hurley: There have been predictions going back two to three decades that tele-medicine was going to fundamentally alter medicine. It hasn’t. Similarly, Financial Engines, the original robo-advisor, was launched in the 1990s based on many of the same arguments that you are making for Betterment but is now a very different kind of business. How long do you think it will take for your vision for Betterment to become a reality?

Stein: Financial Engines, a very smart company with a lot of very smart people. We’ve studied them. They tried five different business models before partnering with Vanguard and other 401(k) providers. Their front-end technology just wasn’t there. ETFs weren’t there. Zero transaction costs weren’t there. So they couldn’t deliver a delightful user experience to customers.

Hurley: So Financial Engines failed [as a robo-advisor] because it was not easy to use?

Stein: Advice, service, experience. Those are the things that people are magnets for. We have amazing customer support. People love that they can call us seven days per week. Consumer Reports just named us as one of the best customer service providers in financial services.

Hurley: But you have only one staff person for every 10,000 customers?

Stein: It’s amazing how much that person can do, and the service works.

Hurley: Let’s take this further. Are you arguing that traditional advisors will be extinct in 10 years?

Stein: Traditional advisors are not going anywhere. Both advisors and their clients are getting older. But they have a trusted relationship with their clients and for some serve as outsourced personal assistants. The idea of having someone to call who will do anything for you is pretty appealing. If you have a lot of money, you are going to want that. But people with $10 million or less cannot afford that kind of service.