#FASuccess Ep 051: What Robo-Advisors Can Teach Human Advisors About Evidence-Based Behavioral Finance with Dan Egan

What You’ll Learn In This Podcast Episode

• What Betterment is and what it does. [4:37]
• What a financial plan looks like in a Betterment context. [10:07]
• The perception vs. the reality of the assessment onboarding process for Betterment. [21:39]
• Why one-third of new assets Betterment is receiving is coming from clients over the age of 50. [28:09]
• The logic behind Betterment’s unique fee schedule. [40:40]
• A common misconception about behavior management. [51:05]
• Why robo-advisors may be better positioned to help clients with certain behavioral issues. [54:06]
• Why advisors tend to be disproportionately focused on the people who need the most behavioral help from a human advisor. [56:59]
• How proactively communicating with clients during times of market volatility can backfire. [1:08:01]
• What evidence-based insights all financial advisors can use to improve how they help clients. [1:11:59]
• The ways in which Dan says human advisors will continue to be superior to technology. [1:33:27]

Resources Featured In This Episode:

• Dan Egan – Betterment
• Betterment for Advisors
• Betterment for Business
• Betterment Advisor Network
• RetireGuide
• Sarah Fallaw - Episode 39 FAS Podcast
• James Choi study - The Effect of Providing Peer Information on Retirement Saving Decisions
• Can Robo-Advisors Be Fiduciary RIAs Or Are They Really Registered Investment Companies?

Full Transcript: What Robo-Advisors Can Teach Human Advisors About Evidence-Based Behavioral Finance with Dan Egan

Michael: Welcome, everyone. Welcome to the 51st episode of the "Financial Advisor Success" podcast. My guest on today's podcast is Dan Egan. Dan is the Director of Behavioral Finance and Investments at Betterment, the so-called robo-advisor, that now manages more than $12 billion of assets under management for over 300,000 clients. What's fascinating about Dan, though, is not simply that he was an early employee and director of Betterment as the company has grown over the past five years, but specifically his role as the Director of Behavioral Finance at a robo-advisor at a time when the primary criticism that financial advisors typically levy at robo-advisors is their supposed inability to help clients with their behavioral issues when it comes to investing.

In this episode, we talk in depth about the nature of the robo-advisor movement. While the reality is that Betterment and its ilk aren't really in competition with financial advisors in the first place because they serve a different kind of consumer with different needs, how Betterment over the years has built increasingly more robust goals-based financial planning process for its clients, and the challenges and opportunities that come with trying to deliver financial planning and investment advice at scale, in a world where Betterment serves more than 300,000 clients, while the typical advisory firm is no more than 100 clients per advisor.

We also talked about what Betterment is doing, specifically from the behavioral finance perspective, how Betterment actually tests behavioral finance interventions to help their clients using a robust scientific process, the kinds of evidence-based insights they're gleaning about how we can all help clients better, including to have a conventional wisdom of strategies, like, proactively communicate with clients during times of market volatility can actually backfire, and the ways that companies like Betterment may actually be better positioned to help clients with at least certain behavioral issues.

Because unlike most financial advisors, Betterment doesn't have to rely on third-party technology firms and instead can build its technology tools to do exactly what its clients need. And be certain to listen till the end as Dan discusses some of the insights he's gleaned about, where and how he believes human advisors will continue to be superior to technology in some areas even as technology makes other aspects of what advisory firms do today less and less valuable for clients because it becomes more and more automated for everyone.

And so, with that introduction, I hope you'll enjoy this episode of the "Financial Advisor Success" podcast with Dan Egan. Welcome, Dan Egan, to the "Financial Advisor Success" podcast.

Dan: Thank you very much. It's great to be here.

Michael: I've been looking forward to this episode because you are certainly, I think, a little bit of a different type of guest for us to have on the podcast that come from a little bit of a different background. You are the...

Dan: It's a very polite way of putting it.

Michal: Yeah, you are the Director of Behavioral Finance and Investing at Betterment. So we are talking to a robo-advisor or a representative of a robo-advisor, since I've met you and I know you're a human and not actually a robot.

Dan: Are you sure?

Michael: All right, fair points. Not entirely sure, you could be doing the whole cyborg effect. And, you know, nobody could tell Schwarzenegger was a cyborg until he started doing bad things to people. So, you know, maybe you've got some secret metal shell underneath there, but I think you're very human. And so, I've been fascinated, obviously, from the start around robo-advisors and the dynamic of robo-advisors, and human advisors.

And as you well know, you know, one of the criticisms that's been levied at robo-advisors from the start is this whole idea that eventually markets will do crazy things that markets do and then clients need someone to hold their hands, and walk them off the ledge, and robots can't do that the way that humans can, and this is all a behavioral finance discussion. And so the fact that you are literally the Director of Behavioral Finance at Betterment, I think, just right out of the gate adds a little bit of an interesting shade or context to, maybe, how companies like Betterment are thinking about this potential challenge whenever the next big market comes at some point.

Dan: Definitely long it.

What Betterment Is And What It Does [4:37]

Michael: Yeah. So, maybe just to start, can you just tell us a little bit about Betterment and what it does? Obviously, there's a lot of media buzz out there about, "It's a robo-advisor, and robo-advisors do and don't do," and all that. But, like, from me, your perspective. Just, what does Betterment do? Who do you serve? Can you help us paint a little bit of a picture of what that looks like?

Dan: Sure. So, I'd like to think of Betterment as a online financial advisor and investment manager. And there's kind of a couple of key elements that stick out to me, the first is that we are a fiduciary, first. So we are registered as an RIA, and we don't receive any revenue from any kind of conflict of interest set up. We don't receive payment for order flow or kickbacks through mutual funds. So, one of the first sort of key elements to me is...you know, I'm actually an economist first, and so, I believe incentives really, really matter. And we are set up from a business perspective, and from an incentive alignment perspective, to try and help our customers grow their wealth as much as possible. And that's how we make money.

We charge 25 basis points of assets under management up to a cap of, I believe, $2 million because there's just not much marginal cost in serving people or accounts above that value. And it's very interesting, Betterment is goal based, so we have a very different experience than you would get from a brokerage account. So a new customer, who comes to Betterment, a lot of the time, they're going to have been referred from a slightly more savvy friend or family member. They will have read about us on the internet a few times in forums and gotten comfortable with the idea of it, and they show up, and they start telling us about themselves.

So their age, how much they earn, where they live, their family circumstances, and from that, we start sort of incrementally bootstrapping a financial profile that helps us build out a financial plan with generally a focus on goals, the easiest and most consistent one being retirement, and some sort of a reserve fund. A liquidity buffer or some kind to deal with unexpected expenses or reductions in income. And from there, we just kind of encourage them to think about other goals they might have, things like house down payments or paying for their kids' college education.

Things that they...we kind of want them to think about the future now as much as possible and that leads into a really different conversation or depiction of their financial world in terms of future liabilities and how well they've planned to offset those or, you know, kind of the leeway they have and how much they are going to be able to achieve them.

And so, generally, the focus on goals allows us to do things like building out a retirement goal across you and your spouse's accounts, taking advantage of 401(k) matches etc., and getting sort of to a goal based back from the bottoms up sort of a holistic financial plan. And I'll give some context of where we are today versus where we started. So I started with Betterment in 2013. Betterment started taking client money in 2010. Obviously, since 2013, it's grown dramatically faster, which is mostly because I joined.

Michael: Really? That's fantastic.

Dan: I was employee number 20 and we had about 10,000 customers and $85 million in assets under management. And today, we have 300,000 customers, over $12 billion in assets under management, and about 200 employees. So its really been a very fast growth trajectory over the past few years. Over that period of time, we've really seen our client demographic shift upward in a nice way. We used to have an average account size. I actually remember back when I started, I had an average account size of somewhere around $5,000, now our average account size is $40,000. Nowadays, about a third of our assets come from people over 50.

So there's those elements of kind of growing up as a, I don't know, respected substantial advisor that people take seriously. Obviously, when incumbents start copying you, that gives us a lot of tailwind. But, also, we moved into different lines of business. So, I think, two or three years ago, we started offering "Betterment for Advisors" which was a white label solution for RIAs and planners who wanted to outsource the investment management side of things. And, you know, we built a sort of digital custodian solution for them where we take care of a lot of the back-office investment side of things.

And then, a year ago, we launched "Betterment for Business", which is the 401(k) plan of business where, effectively, we take on a lot of the responsibility and liability of doing the record-keeping and 3(38) fiduciary work for a company's 401(k) plan. So, over the time that I've been here, we've rolled out features and services like tax loss harvesting, and asset location, charitable giving. We've also increased lines of business like "Betterment for Business". So it's really been a masterclass, to me, and kind of, like, entrepreneurial growth of figuring out where all the opportunities are, adjacent to what you're doing right now, and taking advantage of them.

What A Financial Plan Looks Like In A Betterment Context [10:07]

Michael: So, let me dig into a few of these a little bit more, you were...obviously, this is a podcast of financial advisors that are doing financial planning, so you talked about in this goal building process with clients of building them towards a financial plan and financial planning recommendations. So can you talk to us a little bit more? Like, what does building a financial plan and planning recommendations look like in a Betterment context? So, at least for our traditional advisor world, this was like gather giant volumes of data, do in-depth analyses on savings, and investing, and tax strategies, and retirement, and estate, and college funding, and all these different areas that we have in our CFP curriculum, and it culminates in this voluminous physical financial plan document, maybe now we deliver it as a PDF.

So, like, that's how we think of "The Plan," like, capital "T," capital "P." "The Plan." So, what does creating a financial plan for Betterment clients look like? What kind of information are you gathering? What kinds of analyses and things do you do? And then, what do you actually deliver in the end? Like, what do you aim to serve up that culminates that process?

Dan: Yeah. I think...and I'll go on a little bit of a historical tangent and then bring it back around. I think there's probably 80%, maybe 90% overlap, with what a financial professional would do in a planning conversation with a client. But the pareto sort of 80/20 rule, it's the most scalable consistent 80% of the set of things. So before I was with Betterment, I was at Barclays Wealth both in the U.K. and Europe, and then here in America.

And one of the things that sort of struck me, so we built out a client advice and suitability framework, the financial profile personality assessment. And this was a questionnaire that we constructed from a behavioral perspective to understand kind of the strengths and weaknesses of each investor from investing in financial planning viewpoint. And a funny thing was, you know, we first put it together, this questionnaire, and it literally went out in paper PDFs that the client had to fill out an in meeting with the advisor and then the advisor went back to a workstation and put it into a computer.

Michael: Oh, today's...

Da: And then, also...I'm old enough, haha, to remember like I made a clickable PDF which seemed like a leap forward, at some point, because the global PDF would then spit out the data to an Excel spreadsheet which you then could put into the computer. And eventually, I think, in sort of 2012 or so, we put it on a website and sent clients a login. And they filled out the questionnaire directly and it came right back in our systems and the report was immediately generated both for the clients and for the advisor, who was then going to kind of, like, take the client through the ramifications of their profile, and dovetail it with circumstances, and build out the kind of overall financial plan.

And it was at that point that I was sort of saying, I was thinking, you know, "Some large percentage of what I see advisors doing with their days is repeatable consistent processes that involved taking client information in, applying a set of rules and heuristics to it, and then having a conversation with the client that explains to them, you know, like, what we think you should do, having a little bit of back and forth about it, and then trying to get them to commit to it, and actually stick to it, and be accountable for it."

And I think that we've taken a lot of that element of things, asking the clients about themselves for that information and building up a view of their circumstances and what they're looking to achieve, etc. We do that, the first sort of, I don't know, three-fifths of that conversation very well. In that, sometimes technology lets you do things that it would be very difficult for an advisor to do. Clients authorize us to take a look at their bank accounts, which means that we can analyze their saving, and spending behavior, and when they seem to have excess cash in the account, and all sorts of things like this that would require a lot of legwork for an advisor.

But on the opposite end of things, you know, like, the experience, once we've taken in all this information and we're saying, "These are the goals that we believe you should be planning for and here's how we prioritize savings across all of the different account types that you are eligible for," there's still sort of, like, execution and accountability element, which, you know, we can lead a client to water but we can't necessarily get them to drink.

So that's what I think, we, I would say for, I don't know, 80...probably more, 80% to 90% of individuals in the United States, Betterment offers them, I don't know, the vast majority of the value that they would need from a financial planning relationship up until the point that it comes to either very complex insurance or state planning other things but also the ability to kind of have an accountability partner that says, "Hey, you said you were going to do X and you haven't done it yet, what are we going to do about this?"

Michael: Well, and it strikes me as well. So a few things, one, as you noted, like, Betterment may only serve, you know, call it 80% of the consumer public and the rest get more complexity, need more accountability, need other things that move up to, we'll call the other the full fledge human financial advisor experience. But the reality, if you actually look at the landscape, like, that's pretty much how the landscape is segmented already. Like, if you actually dig into typical minimums for fiduciary advisors, based on either the planning fees we charge, the hourly fees that we charge, the asset minimums that we have, you know, what you quickly get to is, you really only serves somewhere between maybe the top 15% to 25% of households.

You know, the median household income in the U.S. is, I think, $53,000 of annual income. The median retiree lives off of Social Security for 85% of their income, so the other 25,000 a year of income and that's the median levels, and those are drastically below where most financial advisors are serving. And so, there's a piece of that discussion that strikes me that just, basically, at the end of the day, you're serving huge swaths of the market that we, as human financial advisors, frankly, weren't serving very much in the first place.

And the subset of people who have those complexity and accountability needs or desires that may move up to full fledge financial advisors. Frankly, we're probably already doing that and...like, I don't even know how much Betterment actually really ends out competing with human advisors at the end of the day because the people who seek about what you do aren't looking for the human advisor and the people who seek out the human advisor, want what the human advisor does, they're probably not necessarily looking for what you do. I mean, there's got to be obviously a little bit of overlap but I'm not sure how much overlap there really is.

Dan: Yeah, my impression is generally that there isn't, my impression is that most clients, and I think this is something that we're going to chat about a lot as I have shifted from high-net-worth asset management to working at Betterment, I have a newfound respect for the idea of self-selection. You know, that the clients who my high net worth advisors are serving is very different than the clients who choose to be Betterment customers and that has ramifications for things like behavioral coaching down the line. But what you see predominantly, when we look at where assets are coming from, the lion's share are coming from people who did not have a viable advisor to outsource this too in the past.

Michael: So get you transfers because you can literally look at just, like, literally, where is the money transferring in from and get some understanding of where you draw assets from. So I'm going to imagine, like, it's lots of self-directed platforms like Schwab retail and TD Ameritrade retail, or its frankly bank accounts and money that comes in from cash because they weren't investing with an advisor anyways, as opposed to, like, money coming from a mirror prize, and Edward Jones, and LPL, and places that were advice or driven in the first place or the RIA community from the institutional side.

Dan: Correct. I think of them as...there are a lot of reluctant DIYers out there. At a good price point, they would have liked to outsource it but there wasn't a solution that seemed, I don't know, competent, or easy, or had features that they really needed such that they would ever do it and ended up kind of, like haphazardly managing it themselves.

We do see some transfers from the...you know, it's funny, there are a couple of large names, generally more wirehouse or brokerage type platforms, where, at some point, some advisors sold a, like, $80,000 to $100,000 investable asset portfolio on their funds with a few single line stocks smattered in for fun. And after that hasn't worked for a while, the client kind of goes, "You know, maybe I'm just not interested in this approach. Maybe I want something that's a little bit less complicated or more simple." And so, again, I think there's a strong self-selection.

We're never going to get the person who strongly believes that they should be investing in, you know, 20 single line stocks at different municipal bonds single issuance. But for the people who, you know, are not interested and want something a little bit simpler, easier to handle, and that still gets tax efficiency and plan in there, we're a great option.

Michael: Well, and I think it's striking as well just, you know, you're now doing this for 300,000 plus clients, and in a world where most of us are advisors, like, somewhere around 75 clients, we start feeling like we're at capacity. Most advisors, if you're even over 100 clients, it's virtually certain that you don't see all of your clients on a regular basis unless you're hyper-efficient. Like, there's just not enough time in the day and your brain just can't keep track of that many different people. So, you know, we build businesses that cap out at 100 clients per advisor before you got to hire more staff.

You're running 300,000 clients on 200 staff, not all of whom are advisors. So it's just a bunch of engineers, and management, and the rest. So, like, the core and the model there is 1500 clients per staff member when we try to run like 50 clients per staff member.

Dan: Yep.

Michael: Which just means you both can and have to live at a level of trying to systemize and scale at a whole different way than what we do as advisors, which, again, I think, just makes a good point that the subset of people who like what that ends up being because it does get very low cost for what you've done, will self-select into that, and the people who want more in different things just go by a different surface.

Dan: Absolutely.

Michael: Work of advisor, or the fully self-directed investor, or wherever they are on that spectrum.

Dan: Absolutely.

The Perception vs. Reality Of Betterment's Assessment Onboarding Process [21:39]

Michael: So I got to ask a little bit more about this planning process, though, because, you know, at least early on the...frankly, I think one of the big criticisms around robo-advisors was, all based to all they're doing is asking like a five-question risk tolerance questionnaire around, you know, time horizon and what would you do if the market crashed? And they matched them up with the portfolio and that, basically, the criticism was, you were just doing risk tolerance light with a time horizon and then putting someone straight into a goal based portfolio, and it sounds like from what you're describing here, like, that is not really an accurate reflection of what that assessment onboarding process looks like anymore.

So can you talk a little bit more about that, like, was that a bad understanding in the first place, or is that something that evolved over time, or is that still like the baseline but then a subset of people move up in the more if they want more? What does that look like, like, where's this gap perception versus reality gap?

Dan: Great question. So part of it is definitely that Betterment has evolved very quickly over time. And one of the wonderful influences has been our director of advice, Alex Banke is a Certified Financial Planner but he also comes out of a technology product management background. He was at JPMorgan previously. And so, very quickly, because he was very good at helping to build and get tech product delivered but he was also a CFP, those two things got kind of, I don't know, dovetailed together to where, I remember very early on, he and I worked together on RetireGuide which is a sort of our holistic retirement planning and advice solution that isn't just a sort of a calculator that says, "Oh, this is how much you need." It does give you lots of leverets.

My favorite part of it is it says, "Okay, where are you living now? And it uses that information to look at state tax rates and everything. But it also gives you options to look at where else you could retire. So that, you know, the standard like I live in Manhattan and then I'm going to retire and move down to Florida because the income tax rates are so favorable there. Well, that influence is how much I would have to save.

So there is some element of it that lets people play around with those what-ifs and scenarios around retirement planning but it also, you know, brings in real time any external accounts that you have, looks at the rate at which you're saving into them, looks at things like employer matches in 401(k) plans and gives you advice about kind of the waterfall of where you should put your money first. So, you know, "Put the first six grand with the employer 401(k) because you have 100% match there and then you know waterfall it into a Roth IRA."

Michael: And so, the back end of this, like, now that you have to divulge all the secrets but, I mean, I'm imagining at the end of the day, like, basically, the back in your planning software has like a giant series of flowcharts that is more or less the flowchart thinking all of us as advisors use anyways, right? So, like, "If client needs this then do that, if not then go down this other path," right? Like, that's sort of how we all think through these client problems at the end of the day. You've just built this giant series of decision flowcharts on the back end to take this information and try to steer people towards the right recommendation or at least the most common normal recommendation for someone in that circumstance.

Dan: Yeah, that's pretty correct. I often feel, when I'm working with Alex or any of the other CFPs who we have on staff, that I am effectively extracting an algorithm out of their heads. That they kind of, like, they would have had a very hard time expressing that that's what it was but you kind of sit down with them, and you say, "All right, let's talk about which IRA somebody should have, what questions are you going to ask?" And Alex says, "You should ask this.” You sort of talk to me like, "How are you going to use that? Okay so here's if this, then that, and here's how the tree branch is," and after a while, you actually get to a pretty good understanding not just of...you know, about at a 90% of cases, we can give an answer that we have pretty high confidence in is going to be the correct answer and we've identified the 10% of cases where given client circumstances or what they've said.

Well, you know, we can say, like, "Here's what we think but here the caveats to that, that we need to sort of discuss with you." So it's definitely kind of knowing how to get true positives but also knowing how to guardrail against false positives in that process.

Michael: Interesting. And right now, I mean, I guess, as the name implies, like, RetireGuide, you're primarily building the depth for this around retirement. I mean, are you getting into college planning, estate planning, insurance related issues, like, some of the other areas that at least we tend off from the financial advisor to classically think of as part of the plan?

Dan: Not yet. To date, what we think of as our...we stay very close to places where we feel like there's a really strong broad-based customer need out there both from existing customers but also prospective customers, and we're using technology or being a fiduciary as an unfair advantage. And there are some areas that we look at and there just isn't a strong advantage that we would have over our existing solutions. So in those cases, we do look to either refer people out, for example, in the case of insurance or accountancy to experts that might work with them.

Even in the case of a client who comes to us, who, you know, might have come to us a few years
ago when they were, I don't know, 30 and had a much simpler financial situation, and now they are married and thinking about having kids, and, you know, things get complicated quickly, and they start to want to have a conversation with a human advisor who has kind of, like, a longitudinal relationship with them. We have the "Betterment Advisor Network," where, when the client hits that point we can actually refer them out to a financial planner who's going to go through that is more complicated scenarios with them.

So, one of the ways we'd like to think about it is, you know, we should be really good at what we do and comfortable saying when we're not going to be good at something and look to help refer clients out to somebody who is going to be good at that.

Why One-Third Of The New Assets Betterment Is Receiving Is Coming From Clients Over The Age Of 50 [28:09]

Michael: So a few other things that just struck me is you were talking about, you know, the model for what you guys are doing and who you're serving, you mentioned a third of the new clients are over the age of 50.

Dan: A third of our assets today.

Michael: A third of the assets, okay.

Dan: Are coming from clients over the age of 50. I don't know the exact numbers on number of new client.

Michael: Right, because folks tend to skew with a little bit larger dollars because they've had more time to accumulate dollars. Okay, you know, still, so a third of new, I guess, dollar flows come from over age 50. So this is a world where at least the...we call, like, the original terms of the landscape of robo-advisors was, "This is a millennial thing, like, boomers are still going to use human advisors but maybe those digitally need of tech-savvy millennial people will use robo-advisors and then a third of your flows are coming from folks over 50.

And I know, some other digital platforms are even higher or, I think, personal capitals flows are more than half or over age 50 although their model looks a little bit different. So I'm curious what you guys...I feel like you've learned about the age dynamics of who does and doesn't engage with digital platforms.

Dan: Yeah. So, it's interesting. Again, one of the things that I think is kind of hardest to grasp or communicate is how quickly Betterment is growing, and changing, and evolving compared to other firms. And so, again, I've been here five years and I've seen absolutely incredible changes in what we do, and who we serve, and the breadth of the offering in just a five-year period. I don't know of many other places would say that they not only bid off, you know, while gambling for advisors and a 401(k) plan of business in that period of time.

So, likewise, 100% when I started, you know, like, the target customer was somebody in their mid-20s who was like really at the earlier stages of accumulation but also needed like some small spending goal type things. Over the past five years, it's absolutely, as we've grown really changed to the point where now our, sort of, I don't know how to put it, like, target or archetypical customer looks like, I believe, myself and a lot of the more tenured people here are going to look in 5 to 10 years, you know, sort of mid-40s-ish kids' parents who were retired and who are starting to ask their kids about what they should with their money and various other considerations.

Michael: And their kids refer them to Betterment.

Dan: Yes.

Michael: Glorious.

Dan: There's also been a really interesting switch in the belief in this space. So when I started here, people were saying, like, you know, "Should I use a robo-advisor? Is this safe? Is it okay?" One of the best things to happen to us was when Schwab was the first in companies that we're going to have a robo advisor because the question changed from, "Is it okay?" to "Which one's the best?" And I am much happier competing in terms of innovation, customer satisfaction, delight with the user interface, etc., on which one is best than like, "Is this category something we should worry about as consumers at all?"

And I'm sure you've had this experience as well. My parents are in their 70s. The idea that they are tech-phobic is, like, kind of laughable. They have a Roku, and they stream DVDs, and the way that I give them pictures of my daughter's WhatsApp.

Michael: And you know, they can FaceTime with the kids. There was point, 10 years ago, where maybe the technology was a little harder and less intuitive, but I've experienced the same thing both in my family and just frankly with clients and our advisory firms where we're a very pinnacle, as a very boomer centric firm, just where we do retirement planning for affluent baby boomers. That's been our business model for a long time, and like, yeah, we've got a subset of clients that are a little more technophobic and not so inclined, but then we have clients we meet with GoToMeeting because they're globe-trotting and they just want to meet by video, and it's totally fine. They just bought their iPad, and hit the button and off they go. And, like, the technology is not that big of a deal. It got pretty easy and pretty good over the past 10 years.

Dan: Yeah. Absolutely. I think we're still, you know, sort of coming back to that idea, despite my best efforts, my parents probably still only have a third of their wealth with Betterment which still makes them a wonderful customer from Betterment's point of view, but they do still have more complicated setup with multiple different sort of income sources and we're planning multiple years into the future in a complicated sort of if this then that fashion. They want to have a conversation with a independent...they have a monthly retainer or financial planner who they talk through this stuff with.

And I think that that's, you know, there's kind of an evolution that I'm seeing both for us but also for the CFPs who work here at Betterment and also the CFPs who use our weight label platform in that...you know, coming back to your question about is it...you know, are we competing with advisors? And to be honest, aside from advisors who charged a lot and didn't really add a lot of value, we never thought about it that way. We were just looking at providing a good value service to as many people as we could.

And I think that the concern around it mostly comes from the fact that there should be change in what an advisor spends their time doing, I think mostly for the better. I don't think most advisors necessarily want to sit around doing rebalancing trades or, like, you know, running that software issues.

Michael: Yeah, it's not actually very fun running that software now.

Dan: So, like, if we can pick off, if I sort of think about my parents financial planner and what they did and say, you know, like, "Betterment is going to be really good at doing asset location across your retirement accounts and doing some sort of trade monitoring, all of the tech back-end stuff," but you still want to have that conversation with a financial planner to get onto the same page, to know what you're going to do if things change, that's a really good symbiotic division of labor. And it's the one that I kind of want to tell advisors about, to say, "This change is going to be really good for you. That it is taking all of the pain in the butt back-office stuff that I don't think necessarily helps you earn more money and it doesn't help your clients end up in a better financial situation. That's, like, the stuff that we, as the computer programmers, absolutely, love to do.

Michael: Yeah. Well, and it reminds me, I started in the business, like, right at the tech peak in early 2000. You know, the internet boom was underway, and I landed in financial services. And I still remember getting flak from a couple of friends and family members that basically said something the effect of, "Michael, you're an idiot. Don't you understand that the internet is here? You can now buy your investments online, it's so easy a baby can do it," because we'd all see the e-trade commercials at that point. Like, "why would you become a financial advisor when the internet is going to make all of this stuff just happen easily online?"

And now, 17 years later, we look back and what we actually find is, first of all, e-trade is still here, right? So that model was viable, but e-trade serves a giant swath of self-directed investors that just wanted to use that cool technology to do their thing on their own because they were never going to hire an advisor anyways. And then, the entire rest of the industry also adopted the technology to the point now that we all run our businesses using the internet and it's so ubiquitous. No one even goes out there and says, like, "I'm an internet-enabled financial advisor because I use the schwab.com institutional portal.

Like, it's just the technology we all use and we've gone with our days but we also got ridiculously more efficient in the process and, you know, technically there's like a whole lot of admin jobs that would have been around into financial advisors from 20 years ago that are completely gone at this point because the technology just made it so much easier, and faster, and more expeditious that we win all those jobs down, we deal with technology, the firm gets to run more profitably, and then we can serve more clients and bring down our costs, and do lots of good things for consumers.

And so, I still, at least from my end, I look at this...the introduction and deflection point of a lot of the robo-advisor movement and sort of tools to be the same thing. I think we're going to end out with a channel that is direct-to-consumer for consumers that like that technology and want to use it themselves as, you know, you've got literally hundreds of thousands that do so. And then, the technology also gets translated over to the advisor side and, you know, you have a "Betterment for Advisors" platform, obviously, a number of other incumbents have been buying or building robo style solutions for advisors as well. I think we just end out in a world where it's the technology we're all going to use.

The real challenge then becomes if all you actually did in your advisory business was what the technology is now automating, your business is in serious trouble. Not actually really even because, you know, robo-advisors will put you out of business, like, you'll be in trouble because my advisory firm will put you out of business because I'm going to start giving away that stuff super cheaper for free because it cost me almost nothing to do since I run it all in a giant piece of technology anyways. And just, good advisors that leverage technology will put the rest of the advisors out of business regardless of whether the robo-advisors do it to them.

Dan: Yeah, this is a great much of progress where, you know, more people get, I don't know, the level one financial planning and investment management that used to be just for this rarefied few. And, you know, the rarefied few, they're advisors, get to spend time on even higher value-add activities. So this is...its always been strange to me about antagonism because, you know, as long as you are an ambitious advisor who wants to grow and do stuff, this is just freeing you up to actually have more and do more clients and do more valuable work with them.

Michael: Yeah, I mean, the biggest thing that I have to put out there for some folks and advisory firms, like, just when I look at the future of how I think this plays out, like, the jobs, I think, that are most threatened by this is a subset of advisors that are really, at the end of the day, not doing a lot more than just creating us allocated portfolios and the bad news the technology is just going to keep doing that cheaper and cheaper. And frankly, a lot of operations jobs in advisory firms, I think, actually risk going away in the future.

So, you know, for maybe even people who listen to this podcast from an operations job perspective, I would be looking really hard at how either you move up into management, you move over to the advisory side, or you become the guru of the technology because the one good news is the more complex the technology gets at least on the back end, someone's got to be really knowledgeable in order to run that.

Dan: Absolutely.

Michael: Yeah, I know you guys have some very, very smart engineers that queue up what your software does there. I think we see a growing level of that in advisory firms as well but, like, be an advisor, be in management, or actually be the technology expert that knows how to run the tools well because I do see a lot of operational and administrative jobs in advisory firms going away as this technology...

Dan: If they are not investing in their human capital, I couldn't agree more.

The Logic Behind Betterment's Unique Fee Schedule [40:40]

Michael: So, the other thing that you mentioned, as you were talking about client demographics and who you're working with, was...you know, it struck me that you pointed out your fee schedule as 25 basis points up to a cap of 2 million, which strikes me, A, because you have a cap when almost no one else does that, and B, that, if you have a cap at 2 million, it presumably means you have multi-millionaires which, I think, is not how a lot of people think of Betterment when we're talking about account sizes with tens of thousands of dollars. So can you talk to us a little bit, like, what's the deal with Betterment and Rick Ferri?

Dan: It's interesting. There are our customers who fall into that segment. I want to just throw a quick shout out. I listened to your conversation with Sarah Fallows, and it was excellent. I was able to catch up with her and our sort of high net worth customers are those millionaires next door. If you look at them, they are doctors, or lawyers, or some sort of white-collar professional who, through the course of a good career, amassed what is a very impressive amount of money. And those customers kind of bring with them a very specific demographic of being smart and professional but also really wanting to get a good deal while, I don't know, making it easy for them to manage their finances.

I'm sure advisors hear a lot about the, I don't know, the new retiree at 65 to 70, who has a hard time stopping working but wants to make sure that his finances are set for his spouse and kids if something, you know, doesn't go well. So, we have a surprising number of them who, likewise, are part of the growth segment for our 401(k) plan of business where, again, doctors, offices, small law firms, these are great clients for the direct-to-consumer line of business but who also want to open up 401(k)s for their office space.

So there is a nice sort of symbiosis there. It's definitely, I don't how to put it, it's not something that we market to say, you know, like, we're a great service for multimillionaires because they usually are going to think of it as sort of a different relationship than what we bring. But for those people who want tax efficiency, a phone relationship with a CFP, and really sort of good value for money investment management, we're a great solution.

Michael: Well, I think it's just...like, when you get down to, "Hey, I just want someone to oversee the money, make sure it's rebalanced, make sure it stays on track, do a layer of tax loss harvesting and asset location, like, there are a lot of affluent people who want that and just want someone to do it simply. And, you know, I mean, it makes sense to me, like, you provide a very effective targeted service for the people who just want that like, "I don't want all the other stuff that advisors do granted we would love to offer them all the other stuff that we do as an advisory firm, like, if that's not what they want because they got other resources, or other experts, or whatever it is, and, like, they just want to solve this one thing.

To me, I mean, that's the virtue of any well-targeted business. If you just do a particular thing really, really well, you can attract all sorts of folks to you who just want to buy that one thing because you solve their problem.

Dan: Exactly. And this is something that, I believe you've written about. I do believe the internet has played a very empowering role for us, not through the obvious channel, you know, that we're a website but also that most of our clients are referrals who hear about us from somebody who they view as being financially savvy, who's done the due diligence on Betterment. You know, regularly, we have MBAs or finance professionals, you know, their friends ask them, "What should I do with my money?" and they say, "Listen, for you, put it in Betterment. It's going to be the best option for you."

And the ability of the internet to provide those independent opinions about, you know, like, obviously, we know we're discussed on web forums, and people write up articles, and reviews about us, that would have not been possible without the internet. It used to be that the vast majority of material out there was from somebody who is trying to sell you something. So we pay a lot of attention and I think we've been very good at being client-centric to deliver things that are going to make clients want to be evangelical about us or say that we're a really good solution. I think that there's kind of, like, I don't know how to put it, the openness of the internet to allow people to voice those opinions has gone a long way and helping us.

Michael: So, one other thing I want to ask about in terms of Betterment and the Betterment model was the rollout of Betterment premium, which for those who aren't familiar essentially on a Betterments tier, so you can get the straight managed account with all the services that go with it and the technology for a RetireGuide that you can use on your own at 25 basis points. Or at a higher price point of 40 basis points, you can have access to CFP financial professionals that are available, you can call in the Betterment and ask a CFP your questions.

And, you know, I think, from the external ends, you know, there were some people that thought like, "Mm-hmm, interesting. Betterment is adding humans and a human layer tier." Frankly, I know there were a few folks that viewed it like the ultimate capitulation, "Haha, even Betterment had to hire up human advisors and do what human advisors do but obviously you're certainly not staffing that at the level and the nature of how advisors or staff of our firms like, because we staff, one advisor for 75 to 100 clients and your numbers are much different than that.

So can you talk to us a little bit about, like, what does the human CFP experience look like, a Betterment clients and, like, how are particularly given what we talked about some of the self-selection bias ease of who chooses Betterment in the first place? Like, how are your customers actually using human CFPs, like, do they call? What do they call about? What does that service look like and how are clients actually using it?

Dan: Yeah. Absolutely, it started off as kind of a response to what we felt like was demand from the client base. And as we were moving up in asset levels, and sort of complexity of client needs, either in terms of family circumstances or income in existing assets and so on, I think, you know, I'm not the financial planning professional, so you know if you want a really good deep dive on this I would need to refer you over to Alex or one of our planners but there's kind of a couple of different elements.

The first is that it's a big commitment to move a lot of your wealth to a provider and people wanted to just have a kind of a set up conversation that was a combination of, "Okay, I have a few questions about Betterment that sometimes they're a little bit in the weeds or sometimes they're just about expectation alignment and I want to have that direct conversation with somebody that will include a smattering of financial advice that one of our customer experience associates wouldn't be licensed to give." So we saw sort of a, I don't know how to put it, like, there was a bottleneck there about serving clients in the way that they wanted.

Another element of it is that, you know, these conversations were somewhat a la carte or ad hoc. It wasn't that they needed a quarterly call to go over performance or anything. You know, they had a specific catalyst in their life where they changed jobs, or some options vested, or something happened that they wanted to talk through a game plan with somebody about, and that was highly sort of idiosyncratic an event-based. It wasn't something that we needed to kind of provision for all the time but we could definitely do it if we had CFPs on staff. And the last element of it, that's really interesting, is thinking about the medium rather than the message.

And so, when we rolled out our messaging which is available through our smartphone, is completely secure, you can upload sensitive documents to it and have one of our CFPs only look at it. That change, it was very interesting because that's kind of the relationship that a lot of our clients...or the medium that a lot of our clients were very comfortable interacting with. I fall into this trap of, if I go to a website to try and get some advice or a resolved decision, I kind of don't want to get on a phone with somebody. I prefer asynchronous conversation where I can write out my problems, you know, add some supporting documents, and get their response whenever it's convenient for me, and work through it that way.

So, we need to have licensed professionals to be answering those questions but it wasn't kind of a, you know, we needed to have a lot of resource on-call sitting there just in case we got slammed with calls at some point of time. The last element of it that's been great is, we use those CFPs to look at what questions our clients are answering, or asking, or need responses to. We build in-house tools to help the advisors kind of like get more efficient on that side and then start thinking about, "How would we deliver this directly to the end consumer?"

Michael: It actually becomes like a feedback mechanism and sort of a innovation road mapping mechanism for you guys. Just look at what you get a volume of questions on, if this is what you guys have volume questions for Betterment premium users and you probably have more of those questions in the general user base as well, so if you can build an automated tool for it to serve even more of the 80% needs then...

Dan: You got it.

Michael: ...you just got it, basically. Your clients paid you to tell you what else to build for the rest of your business.

Dan: You got it.

A Common Misconception About Behavior Management [51:05]

Michael: So when we look at what's happening with Betterment premium, you seem to have this subset of questions around financial planning issues as you noted, like, you're not necessarily getting a lot of, "Hey, can you talk to me about my quarterly statement?" Because, you know, they can just look on the app anytime they want, apparently the reason they're tech savvy because they open the accounts, like, they can probably look on the app just fine and figure out what's going on.

But then we have the infamous looming risk of the bear market and I guess the idea or question of...so when the proverbial blank hits the fan and we have some horrific bear market and people are freaking out, do you even have the capacity to handle the number of calls that may come in when you've got 300,000 clients and, you know, half a dozen, or a dozen, or however many CFPs to try to handle that kind of inbound call volume or do you just think that's not even actually a risk because the kind of people who choose Betterment are not the people who are going to call in the first place? How do you answer criticism of you guys are still doomed when a bear market comes because you just don't have the people to talk to your clients off the ledge?

Dan: Yup, it's a great question, and I have answers based on my experience but obviously, I haven't been at Betterment through a bear market. We have seen some nice whiplashes. I think, in early 2016, there was a drawdown of about 20% in U.S. markets which we definitely felt, and kind of saw, and there have been a fair number of these sort of, like, I think of them as market head fakes along the way," the taper tantrum, the Greek debt crisis, threats about the government shutdown. So strangely enough, those have been very helpful to me because every one of them is actually the case where we'd see a large behavior gap become manifest.

Michael: Meaning you would actually start seeing people do all the bad behavior gap trades that we talked about as like some sets of people that do and screw up, and start selling when markets go crazy.

Dan; Yup. I think, yeah, there's a misperception. If I have a very simple model of a client that says whenever they see a peak to trough drawdown of 10% or more they sell, the problem with that is that, 9 times out of 10, when the market goes down 10%, it then rallies and that's why they're underperforming. In the 1 out of 10 case, where the market goes down 10% and then continues to go down 30%, that client's going to look like a genius. So the behavioral management isn't about managing the tail, it's about managing the frequent false positives that clients have in the market where they miss out on rallies because they went out too soon.

Why Robo-Advisors May Be Better Positioned To Help With Certain Behavioral Issues [54:06]

Michael: I like how you put that, the behavior management isn't about managing the tail, it's about managing the frequent false positives. It's a really good way to put it.

Dan: Thanks. Yeah, I think, we've had...you know, I kind of joke with people sometimes that there's, like, three people who really get happy about market downturns, people who are permabears, people who are actually short at the market and behavioral scientists because we finally get to test whether or not our crazy ideas are going to work. And so each of these kind of downturns has been a great proving ground for ideas about behavior management. So, one of the reasons I joined Betterment was that, at my previous firm, we were doing things to try and improve client outcomes but we weren't testing it.

There was no feedback loop that gave us any idea about how effective, or how high fidelity, or how differently these interventions were helping clients. And one of the strengths of having a large customer base that's diverse is that you can actually test if interventions are having the impact that you want. So each of these downturns, we have had kind of, like, a ready-to-go game plan of something that we think is going to help clients, that we put out a couple of different variations, a couple of different treatment arms, if you will, and we hold back a set of people in control, and then we look at how effective they are.

And that's led to a couple of counterintuitive outcomes, you know, that kind of pattern, or dispute, or go against conventional wisdom when it comes to behavioral management that I'm happy to chat through. But I absolutely do think that there is a huge difference. This is one of the kind of the misalignments and misunderstandings between, I don't know, sort of old and salty dog financial advisors and us, is that they are seeing a very different kind of client than we're seeing. They are not seeing a representative sample of human beings. They are seeing the kind of people who self-select to talk and pay a human financial advisor about things.

And my other benchmark here is that, Vanguard put out a study of IRA, it might have actually been 401(k) or two, I think they referred to them as just retirement account holders. Both DIY, that are in 401(k) programs through the 2008-2009 financial crisis and something like 85% of them did nothing, absolutely nothing. So, I think, some incredible proportions, 60% never even logged in. And if I had to guess, I would put a lot of money on that Betterment client base is going to look a lot more like a Vanguard IRA client than it is an e-trade trading client. These guys are just, you know, they're in it for the long haul. They're here looking at goals and tax efficiency. We are not a fund trading platform, so I think that our clients are going to be much better behaved than the average person.

Why Advisors Tend To Be Disproportionately Focused On The People Who Need The Most Behavioral Help [56:59]

Michael: Well, and I think, again, it's a powerful thing to recognize those self-selection biases, or we use financial advisors, or we just get down to, "Who decides to delegate their investment portfolios?" A non-trivial number of people who decide to delegate their investment portfolios are people who have literally not delegated them in the past, had bad things happen, horribly screwed up, probably more than once, to finally get to the point of saying, "You know what? I need to just not do this myself because I lost most of my money in 2000 and then I lost most of it again in 2008.

So I really just need to hire an advisor and not and not do this," which basically means, we, as advisors disproportionately end out with the client set that are most prone to blowing themselves up because the reason they choose to hire us is they've already done this to themselves repeatedly. And I think, you're right, it gives us a distorted perception of the "average investor" because we don't see all the disciplined investors, because if they start out doing this on their own and they're reasonably disciplined, they don't blow themselves up, and they tend not to call us because it's going fine. Because they're being disciplined and they're not selling at the bottom and doing all the bad things.

So, we only tend to get the ones that are the worst behavioral offenders which doesn't make it wrong that we talk about how much we have to do on the behavioral side to help our clients but it means we are sort of disproportionately focused on the people that maybe need the most behavioral help from a human because the average investor may actually not even be calling us because they're not blowing themselves up enough to want to call an advisor and get help with it.

Dan: Yup. So one of the examples that I used, which I think really hits to this idea how advisors add value differently depending upon the customer, during the Greek debt crisis, which now feels like ancient history somehow.

Michael: Way back one, yeah.

Dan: Way back one. You know, in markets, it was very scary. A lot of people were worried about markets going down and one of the pieces of conventional wisdom out there is you should get in contact with your customers and give them your point of view before they call you. That, you know, basically, you should have an outbound communication.

Michael: Proactive communication to clients who are inevitably freaking out because, you know, it's all over the news. So call them before they're calling you in a panic.

Dan: Yup, and I think this speaks to maybe financial advisors get clients who are more like themselves and more likely to follow the news. So we did this, we sent out a couple of different variations of email to clients about what we thought was going on there as well as holding back a control group. And what we found was incredibly insightful to me, which was that, let's say something like...let me put out there kind of my hypothesis about the nature of clients, something like 8 or 9 out of 10 clients are not following financial news. They have other things in their life that are really important to them. They're worried about the presentation they're going to give at work on Friday or their kids algebra test and whether or not they're going to get into a college and those are the things that they're kind of focused and stressing about.

Michael: Life is busy, and I would imagine particularly for people who outsource, whether to a human advisor or to a company like Betterment because the whole point is, "I got other things going on with my wife that's why I'm outsourcing my investment portfolio to someone or something else.

Dan: Absolutely. So when we sent this out, we saw, you know, there might be 1 in 10 or 2 in 10 clients who are looking at it and concerned. And so what we kind of saw was this really interesting effect of the people who are emailed, we could sort of see that we caused anxiety on average in them. That, you know, they were more likely, you know, like look at the email and then log into the account.

Now there was some benefit there and that I think on average we saw net deposits in response to the email. We were telling people, you know, like, "If you want to top up your goal, to get back on track, or if you want to do this to avoid a taxable rebalance, this is a good opportunity to throw some cash in on to the market." But we also saw people who, you know, hadn't logged in for a while, logging in and going like, "Oh, actually, I think I want to take this money out now. Now I'm concerned."

Michael: So you actually...you caused them to get more concerned by pointing out to them that markets were turbulent in a good-faith effort to communicate why the turbulence was not concerning but actually made them concerned by telling them?

Dan: Exactly. Exactly. So this is why this is a good example of, I think, why testing is pretty important. The real world is messy and complex, and we should really be thoughtful about the impact that we have on clients not just in a like trying to do good ways. You know, I sort of think back to...there's now a movement in investing about evidence-based investing which very much mirrors the movement in evidence-based medicine.

And I do think that a lot of doctors in the middle ages genuinely believed in humors and genuinely believe that bloodletting was a good thing to do for their...you know, this is what all of their peers are saying, and everybody says that it's right thing, but nobody was really doing sort of good science to test whether or not the outcomes we're better if you drain somebody of a little bit of their blood.

So it's very important to me to say, even as me, as an individual, I know I'm trying to do something good for clients but I'm not infallible. So I'm going to try and test these interventions especially when it has to do with managing client behavior to see if it actually is having the impact that I want, is that having differential impacts among different client bases that I can identify and can I, therefore, target interventions in a more effective manner.

Michael: Well, and I'm personally fascinated by this idea or just recognition that so much of even what we're taught as financial advisors, about how to handle difficult clients and sort of challenging called challenging behavioral finance situations, really is sort of in medical terms. Like, our client interventions that we do to try to help clients is basically all conventional wisdom and just sort of personal intuitions about what might work, none of which has ever actually been tested.

Dan: Mm-hmm.

Michael: And I mean, what fascinated me about platforms like Betterment from the start is, you know, granted you've got a certain type of subset of clients which may or may not perfectly mapped to who we work with his advisors but more generally, like, you actually have an actual laboratory to do evidence-based behavioral finance coaching, that we don't typically do as advisors. And frankly, I'm not sure how well we could do it because we don't actually have a sufficient volume of client and tend not to be able to do it consistently enough because there's multiple advisors serving multiple clients who do things different ways. Like, it's difficult for us from everything, from, you know, experimental design to sample sizes, and kind of the research terms to be able to try this in our practices.

You've got a couple hundred thousand clients, like, you can actually test behavioral finance interventions and figure out what works and what doesn't. And, you know, that was part of what fascinated me the first time I heard about this piece that you guys had done, like, it is, I think, pretty well accepted conventional wisdom, frankly, in the advisor world that best practices is when crazy stuff starts happening in the markets, you should communicate with your clients proactively. And that the more proactive you are in your communication, the better it tends to go.

Not all of us even have the time and resources to do it, but it's sort of viewed as an aspirational best practice until you come along and point out that for 80% or 90% of your clients, you actually may be more likely to point out that they should be freaking out then dial them back from freaking because they may not have realized the problem in the first place.

Dan: Yup. So it's interesting because part of what excited me about Betterment was this idea of how we design the interfaces, how we portray perform in terms of goal fulfillment or tax efficiency to clients, that being a really new and different way of doing behavioral coaching or behavioral interventions but part of what's really important is that I have a lot of respect for us. I hope conventional wisdom comes through trial and error like informal experimentation but we're doing something genuinely new.

Now I can stand on the shoulder of academic research, which is usually done in a far less messy real-world setting than what I'm dealing with but it's important to me that I'm not certain that these interventions or design changes are always going to work. So it's actually, to me, part of my fiduciary responsibility to test whether or not this is having the desired impacts that I want. And I would be concerned about doing certain design changes just based on, like, my assumptions of what I've seen in the research.

There's a great study done by James Choi and some colleagues where there's a lot of findings about things like giving to charity, reducing electricity consumption, and voting, where if you tell people that a lot of their peers or their local neighbors do those good things it makes them more likely to go and donate to charity or vote. And so, they did an experiment where they said, "This seems like a win-win if we just tell people about, you know, like, that a lot of their peers are saving in their 401(k) plan will motivate people to save more."

They did a randomized control trial with a few different 401(k) plans and actually found that putting that peer information in backfired and it reduced savings rates. People are saving below average, we're demotivated, and people who are saving above average, you know, sort of thought, "Well, maybe I don't need to be saving this much. Maybe I'm doing something wrong here."

Michael: Right, if you're behind, you just feel like you'll never catch up, and if you're actually being a good saver you start saying like, "Oh God, the average person saves only 6%, why am I saving 15%, am I an idiot?"

Dan: Exactly. Exactly. See there's a lot of these things which I'm very wary of unintended consequences especially at the scale that operates at. So running randomized control trials of advice changes or design changes is a big part of what we do.

How Proactively Communicating With Clients During Volatile Times Can Backfire [1:08:01]

Michael: I do want to come back really fast, though, just to this piece of the sort of the risk actually of being proactive in in communication because you risk alerting 80% or 90% of your clients who may have been oblivious to the chaotic financial news that there's actually some bad stuff going on. I'm presuming though that means, for the other 10% or 20%, who may have actually been paying attention to notice that crazy stuff was happening, proactive communication is at least helpful for them because they may be looking for information and perspective and you'd give it to them, was it at least useful for those folks just to...?

Dan: Yes, very much so. The iteration that we made then was, "Okay, so how do we target this kind of market commentary intervention to just the people who need it?" And the answer, which is somewhat straightforward, is the next time there was a market downturn, I think it might have been August of 2015, and I think it was an interesting one, there wasn't sort of a narrative around what was going on at that point. I'm living off of the top of my head here, so don't hold me to it too closely.

Michael: Right, right.

Dan: We didn't email everybody but if you logged in either on the web app or on your smartphone app there was a little kind of pop-up notification which said, like, "If you're if you want to understand our views on what's going on in the market, you know, please, read this and we'll tell you what's going on." And that was an incredibly lightweight thing to do. And what we found is that it had exactly the kind of effect that we wanted. For people who did login while the market was down, a very large percentage of them read that piece. They were more likely...and, again, we split tested this. So some people got the notification and some people didn't.

People who got the notification were more likely to deposit, they were less likely to change their allocation. They were less likely to withdraw all of their money referencing market concerns as part of it. It wasn't sort of a panacea. It didn't drop all the bad behavior to 100 or to zero but it was effective. And I think the kind of hidden benefit to it that we weren't able to measure as much as we didn't alarm or cause anxiety in all of the customers who didn't log in during that period. So that kind of behavioral targeting of doing the right thing just in time, right at the pointer just before the client goes ahead with an action that you would worry about, that's pretty powerful to me.

Michael: So I guess from the...I'm imagining this in the advisor context and I think what it means for us. Most of us have a sense of, like, "I know who our nervous Nellie clients are, like, the ones we've been working with for a while and pretty much every time there's scary market news they start calling, or emailing, and get anxious." So you tag, in your CRM, who your nervous Nellie style clients are and for those, you know, right up your market commentary when something a little happens, and send it out to them, and be proactive but don't send it out to all of your clients. Just send it out to the ones that you know tend to be nervous. And for the rest, have it ready that if they call or contact you, you could say, "Hey, here's something that we wrote to give you more information or we'll talk you through it." But don't default to sending it to everyone because most of them you may actually scare them.

Dan: I've seen a few other RIA shops get very good at using a blog for this purpose. One of them actually said, "Our clients never have to call and ask us what we think about something because we have already written it and published it on our blog." And the answer is, I like that out from a advisor perspective because it forces you to sit down and write out your thoughts about it and then it's scalable once you've done that. But any client who wants to know your views on something kind of, like, you know, logs on to advisor.com, and sees your commentary, and they're done, and all you had to do is write it once.

What Evidence-Based Insights All Advisors Can Use To Help Clients [1:11:59]

Michael: So what else have you found from tests? Are there other things about the behavioral finance testing that, you guys, have done or from the research you have done? I know you've published a couple of articles around this, as well, over the years, like, you know, like, I feel we sort of just slayed a sacred cow here of being proactive in communication with all your clients the market turmoil may not actually be a good thing. So, what else have you guys learned in the in the on-site research and the other testing that you've done of...like, what's actual real evidence-based behavioral finance techniques to help clients?

Dan: So, one of the really interesting findings, back in sort of the mid-1990s when academic behavioral finance people got their hands on brokerage datasets was there's this weird thing that people trade much more actively. If you have a one person and they have both a tax-advantaged account and a taxable account, they'll actually trade a lot more in the taxable account, and usually, because the tax-advantaged account has this label on it of retirement. This is like serious long-term money.

Michael: Even though, like, from the nerdy tax perspective, like, why are you rapidly trading at a taxable account? You know, you can't do it in your IRA because it's tax-deferred. There's no cap gains every time you make a change.

Dan: Exactly. So I'm not going to go out and tell clients that they should really be actively trading in their IRA, they seem to not do that. So I'm pretty happy with that but they are...we did see more activity when we do see slightly higher behavior gaps in taxable accounts, and, like, there's kind of a double whammy here. You can think about a behavior gap at a gross level where they're just missed timing the market but then you can also think about it at a net of tax level where they're going to pay taxes on whatever gains they've realized.

So, in this case, I wanted to take a kind of, like, let's do some real-time informative provision of information to interrupt the way they're thinking about things. And one of the benefits of Betterment being a sort of full suite digital custodian is that we know the cost basis of every single tax lot. We know exactly what trade we would do if you told us to go from 90% stocks down to 30% stocks because you're worried about the market.

So we built out a feature called Tax Impact Preview. And what Tax Impact Preview does is when the client goes in and moves their allocation from 90% stocks to 30% stocks, it simulates what trades we would do in order to hit that new target allocation. Takes a look at the cost basis of the sold lots and says, "If you go through with this, it's going to cost you $500 on April 15th, of next year," and obviously this is only relevant for taxable accounts.

What we found, it was just, absolutely...it's still one of the most amazing effects that I've ever seen, regardless of account size. So this is true for a $2,000 account or a $2 million account, if we tell you that you're going to owe more than $50 in taxes, there's less than a 1 in 10 chance that you're going to go ahead with that allocation change, which is down from sort of 50/50, if it's sort of under $1. So people, they really strongly dislike paying taxes. I think this is a smart rational thing because if I make the allocation change, you know, like, maybe the market goes up, maybe it goes down, I'm not really sure, but it is certain that this is going to impact my tax bill at the end of the year in some fashion.

And that's sort of certain cost versus an uncertain benefit, it's a good way of backing people off. And it has a secondary effect that, because of how we do trading, if they said, "Okay, well, what if I just went from 90% stocks to 80% stocks?" In that case, they might only owe, like, $12 in taxes because we kind of are very tax efficient with which lots we're selling. So, you saw, this kind of iterative process that people follow where they came in and they were going to do an extreme thing, and we said, "If you do this extreme thing, if you go from 90% to 30% stocks, you're going to owe a lot of money to the IRS."

And they said, "Okay, well, what if I just did something less extreme, I'm comfortable. I feel like I've done something and I'm not costing myself a lot of money in taxes." We saw allocation changes in taxable accounts. Again, this was done in a randomized controlled trial, dropped by about 80% through the course of that experiment. So, again, you know, there are still kind of some interesting improvements that can be made there but it was really effective.

Michael: You know, this one makes me sad because, like, don't know how we do this in our advisory firm. I feel like we may have to pass this podcast along to Black Diamond, and Orion, and Tamarack, and all the portfolio reporting tools that we use as advisors to say, "Hey, it would be really nice if you could build something similar when clients are looking at their accounts online and wondering about making transitions, if you could just automate, showing them how much in taxes they're going to incur by doing this to maybe help dissuade them."

Dan: Yup. It's one of the kind of interesting advantages Betterment has as a firm that is direct to retail and where they've got a lot of employees who are kind of like our own target customer. We are very motivated and passionate to build things for ourselves but also hear what's going to be useful and effective to our clients. And so, there's a good sort of virtuous cycle there, of, "I know this works on "Betterment for Advisors" as well that when a client goes in to change an allocation, there's kind of a guardrail prompt to say, "Number one, you should probably talk to your advisor about this before you do this. Here's their phone number. Please, call them." And number two, if they start to go through with it in a taxable account, it's going to show them the tax bill before they go through it.

Michael: Interesting. So what else have you learned, like, I'm fascinated by these. You know, you can you can use client hatred of taxes for good and dissuading them from making trades. You'd be wary of how proactive you actually are with your communication or at least targeted better to the nervous Nellie's and not everyone. So, are there some other insights or tests that you guys have done that have been particularly striking and impacting consequences?

Dan: This is interesting. There are some things which we haven't done experiments, if you will, on but which we have done research on, they're quite leading. So one example is that, the more specific the goal, the more well behaved you are about it. So if some client comes in and has a goal that's, like, "Get-rich-quick," they're very unlikely to exhibit good behavior, good savings behavior because sort of in behavior in that goal. On the other hand, if you put down a goal that's like, "Sarah's college education fund," man, you are going to be well behaved with that goal. You're going to, like, save consistently, you're going to look for ways to not withdraw from it if you go to Vegas.

So there's kind of a lot of little behavioral design elements around nudging people towards goals, having goals feel specific, bringing that future outcome of the goal closer to the client today that, I think, has been very helpful, at not just helping clients plan but helping them stay the course because they're thinking about the impact of their actions that they are going to have on the future rather than, you know, what the impacts the past has on their present.

And one of the really subtle ways, this is really interesting to me that we've started to change things is, if you go into most investing websites or apps, there's a convention that's going to show you historical performance and losses are going to be in red, and gains are going to be in green. I happened to be at Bloomberg's offices yesterday which is full of Bloomberg terminals and it's like a sea of Christmas trees of red and green everywhere.

And I think there's something, you know, fairly primal about like our brain processes color really quickly. And, you know, like, I can show you a screen of, like, red and green and you're going to be able to pick out the big winner and loser faster than if it was a number, right? So the use of color is visceral and quickly parsed by our brain. So the use of color, in an app, is extremely important. And so, at Betterment we use red and green...we don't say just like don't use them, we say we're going to use them to indicate likelihood of success of a future goal.

So if you come in and you see a warning color, like a sort of orange or yellow, that's because there is something wrong that you can fix today, that's going to have implications for your future. Red and green are never used to depict past performance because you can't change them. I always think about it as, what we have in the investing world is, like, imagine a weather app that told you what the weather was for the previous week or the previous month, and like, you know, it was like, "Wow, it rained yesterday." You would very quickly be like, "This is not useful. I don't know why you're telling me this. I'm not going to use this app," for some reason in investing it persists.

And what we're trying to do is move closer to this sort of, you know, satellite GPS navigation systems that, say, "You're trying to go from A to B it really doesn't matter that you've already come 200 miles, all that matters is that you've got 300 miles left, here's where you're going to need to stop to pick up some gas. There's a really nice scenic overview over here, you know, like, let me know if you want to avoid tolls.

Michael: Well, and I feel like a lot of this, frankly, what you're talking about now sort of affirms what I feel like we tend to experience as advisors as well which is when we build these plans, we get very specific with goals for clients. We tend to get very future-focused about, "What are we doing to get there?" So you feel like what you're talking about effectively does help to validate what we see and practice as well that seems to work for us around helping clients focus on goals build towards goals, have plans towards goals, and then actually be able to sharpen them forward towards them.

Dan: Yup. I think one of the toughest thing about being especially is somewhat of an independent advisor, an advisor in general, is how little control or investment there is in the technology stack and design in terms of how it influences the end client but also you. And I think, you know, a lot of advisor tools are built for advisors and for advisor workflows, and don't necessarily...you know, a lot of times the company building those tools doesn't have access to or doesn't interact with the end investor or their incentives are not such that they really want to maximize wealth growth of that end investor.

And you can see that come through in design decisions either by commission or omission. So it's not necessary that people are intentionally doing things, it's just that, you know, if you're not incentivized to grow customer wealth in certain ways, you're just not going to invest in design or innovations that might drive it, especially not when design is such a tricky thing with needing to interact with the end client. I think that advisors are kind of in a very awkward in-between space there where they are absolutely responsible for the plan and behavioral coaching, but they can't modify the statements that clients get. I've heard of advisors building out their statements themselves and it's just like, "That's incredible."

Michael: Yeah, a lot of us spend time, you know, we build our own custom reports. We build our own custom portals at least if we're at the size and wherewithal to be able to do it and then basically spend time trying to tell clients, "Don't look at all the stuff that you get directly from the investment providers because it's just going to scare you or confuse you. We've tried to make the simpler thing for you but we have to build it ourselves and not all of us even have the tools and resources to do that."

I think, frankly, that's part of what made a lot of the advisor industry so cognizant of what was happening in the robo-advisor space, you know, there was...obviously, early on, there was a lot of the discussion of, like, our robo-advisors going to replace human advisors and we did a little bit of that back and forth. But, I think, the secondary effects that came from it use so much of advisor technology, we compared to each other, right? Like, "Our tools are a little bit more usable than those guys' but, you know, we're not car software's and quite as efficient as that company over there, so we're going to try to get a 10% better and fix that."

And we all thought our technology was reasonably okay because it was reasonable compared to everybody else's technology, and then companies like Betterment, and Wealthfront, and some of the others showed up in that first crop of robo-advisors with just a technology user experience. I mean, I think, literally it was like an order of magnitude or two better that what all of us use collectively. And I feel like the whole industry kind of had an "Oh, crap" moment of realizing, "We spent way too long comparing to each other's similar mediocre technology and not nearly enough time pushing forward to what it can look like it should look like," which I think is part of why you too took the credit of the robo-advisor companies like Betterment and Wealthfront.

I think your companies did and out spurring a massive reinvestment into financial technology from within the industry because it took companies like yours, coming from the outside and showing what's really possible for us to all collectively realize just how far behind we are with the caveat. We're still playing catch-up, like, our tools and interfaces are still not nearly as nicely designed to think as what Betterment, and Wealthfront, and the directed consumer companies made.

Dan: It's really interesting because I sort of think one of our advantages is a weakness that we have and that we don't kind of receive compensation from mutual funds, and we don't make money. We actually pay money when we trade on client's behalf. So there's this real need, for us, to innovate and to sort of be that order of magnitude better in the experience so that we can justify the 25 basis points, you know, like, fee that we charge for all of these things. It needs to be materially better because so many of the incumbent competitors have other questionable incentive alignment systems of ways of getting paid.

And so, it's interesting because they're the less incentivized to innovate and to drive improvements in these things especially if it would mean cannibalizing existing revenue streams. We're almost at the opposite side of that where we absolutely have to go out and talk to customers and say, like, "Don't worry about what's possible." We regularly have kind of like Henry Ford, you know, they tell me to make a faster horse moments where we have to be like, "It's not your job to worry about whether or not it's possible, it's just your job to figure out, where do you feel pain? What do you think you could do?" And it's our job to make it possible.

And that kind of built-in structural need to make things better continually, because we know that people are going to copy our designs over time and so on, it's a really nice place to be for somebody who likes building things.

Michael: So I do want to come back once more to this question. I still feel like lingers out there, you guys are doing really cool stuff around what, I guess, I would call like digital nudges, really just all the different ways you can adjust the architecture the platform and where you give people information, and how you present the information to try to nudge them towards good behavioral outcomes and, I think, have a lot of opportunity to demonstrate how powerful digital nudges can be at scale. But there's still this looming question like, yeah, yeah, but then we're going to get a 40% bear market at some point because they've, you know, kind of come along once or twice every decade or two. It's just market cycles, and then people start calling.

And I guess, I'm just wondering, like, how do you guys view that? Do you think the whole idea of 300,000 people calling is just overblown because your client base just isn't that self-selected type? Are you trying to figure out other nudges to help handle this, or, like, do you just have a giant, "If the market crashes we're just going to have all hands on deck, and even the engineers will be answering the phones, and we'll just deal with it?" How do you guys look at this question of what happens when the big bear market comes along and, you know, are people going to start calling or what happens if they do?

Dan: Absolutely. I think there are a couple of different elements. So, yeah, I'm betting a lot on the people who have chosen our service by virtue of kind of what they've come to expect from us are not going to be as reactive or as anxiety provoked as kind of like, I think, trady type client. So I'm definitely, partially, betting on that. I also do think we've kind of built over all of these short-term downturns, that we've seen, a series of things that are pretty good at dealing with short-term downturns.

So, generally speaking, when downturns happen, we're good at having people change allocations less than they would otherwise but the assets kind of stay on the platform, which is nice because, you know, the mistake around a downturn is actually a two-step process. It's that you get out but it's also important that you not wait too long to get back in. And if I can, you know, say, like, "Listen, guys. Okay, the markets dropped 20%, and freaking out, right now, you can commit to...you want to be out of the market for the next three months and I'm automatically going to pop you back into the market at the end of that three months."

That's actually kind of like an "okay compromise," to me, that's probably going to have clients be better off than if they said, "I don't know, I'm just getting out of the market." And then, you know, they sit out worrying about a dead cat bounce for the next three years. Another element to it, which I think maybe used to be truer but it's still true, which is you have to consider the broader environment that these things happen in. And I was a young behavioral finance person at Barclays. I started in 2007 and then 2008 September, hit.

Michael: Oh, good timing. Good timing to become a behavioral finance researcher, yeah.

Dan: And Barclays's actually has the second largest brokerage platform in the U.K. I think it's something like 27%, they have 27%% market share. And what actually happened during the crisis was that they had more new accounts opened from new different types of customers than they'd ever had before. People who historically had cash sitting on the sidelines or who had an active manager who failed to deliver to the mandate of, you know, like, upside but no downside.

So, while part of my focus is on making sure we deal with our existing customers and protect them from hurting themselves, another part of is thinking about a downturn as an opportunity to gather assets that either were locked up because of embedded taxable gains or we're an active manager hadn't underperformed during a downturn yet, etc. So, I think, there's actually a lot of potential...this is going to sound horrible, in some ways I'm looking forward to a big like downturn in bear market.

Michael: It's okay. You already said like, you know, "Who looks forward to bear market… short seller and behavioral researchers."

Dan: So we'll get to really see how everything shakes out. Hopefully, it's a question that I'll stop having to have discussions about, about whether or not Betterments going to last through a bear market but we're also going to see a really, I believe, a really interesting shift. There's already been a big move towards passive investing, towards being aware of cost and tax efficiency. So, I think, that's something that makes people start paying attention, makes them start considering things and thinking about it. I don't think that we're going to, like, outperform or anything investment wise but I think we will offer a lower risk place to bring your money in terms of getting what you pay for.

The Ways In Which Humans Will Continue To Be Superior To Technology [1:33:27]

Michael: So let me turn this around for a moment, you know, having gone through a five-year cycle now with Betterment and all of the humans versus robos discussion, I'm curious, from your perspective, like, what have you learned about what human planners do that you want to, or maybe already have brought in on the Betterment side?

Dan: I want to kind of start by answering that the opposite way which is, I've been to a number of FPA conferences and spoken to a number of financial planners, and some of the work that they do with their clients is just amazing to me. I was speaking with a planner who specializes in effectively couples who come from very different money backgrounds, and getting them to kind of, like, onto the same page or at least happy with the fact that they think about money differently, and that it's causing stress in their relationship, and they're having problems being a team, and coming together to make these sorts of decisions.

And when I think about kind of, like, the impact upon that couple, and their children, and their life in general, you know, hat off. That is amazing work to be doing that I don't think I can ever automate in any fashion whatsoever. So, I think one of the things...that's the kind of experience and sort of I've grown in over the past few years is how human some of the work needs to be that has absolutely nothing to do with investing.

Michael: Yeah, well, and I would imagine you've a version of this within your family as well, right? You had mentioned your parents are still working with a human financial advisor on a monthly retainer, so I'm going to presume if only from the nature of that business model, like, that is not a very investment-centric financial advisor relationship that they have but it is a human financial advisor relationship that they chose for some other stuff beyond the investments.

Dan: Yup, absolutely.

Michael: So, are there pieces you're trying to bring in? I mean, I guess, it's sort of figuring out where the lines are of what can you effectively do in volume at scale for the people who self-select into Betterment in the first place versus what just has to remain the human domain and either you guys won't do it, or you try to build out your Betterment advisor network, and do it jointly. Use the Betterment for your investment platform and then use the financial planner for your financial planning.

Dan: Yup. I think it's effectively being even better at dividing of labor between human and machines in terms of exactly what is managed, so that's very broad. So, let me give an example, communication of questions and answers. We get lots of questions and some of them are like, you know, "What ETF do you use for your small cap U.S. exposure?" There no need for a human financial advisor to answer that question.

So getting more efficient in terms of pairing off the set of questions that we can answer automatically and kind of upping that such that the human financial advisors spend more and more and more time on things like...me and my wife think about money very differently and I think this is the interesting part, you'd be surprised how...there's this thing in computer science called the Moravec paradox, which is that, when we first started creating robots and everything, we thought, you know, you have this vision of like robots and androids that look human-like and everything, and it's like we're nowhere near that, like, we're barely getting to the point where robots can, like, run and stuff.

On the other hand, they're crushing us at chess, and complex games, and various kinds of learning, and highly defined tasks. So there's this paradox that, like, humans are good at things that these sort of computer algorithms find very difficult like, I don't know, going up a set of stairs and the machines are really good at stuff that the humans find very difficult like being very good at chess or Go.

Michael: Yeah, I think I had heard some quote from Steven Pinker, it was something, like, you know, "The fascinating revelation of all this robot research is basically that hard problems are really easy for computers and easy problems are really hard for computers."

Dan: Exactly, yup. So I think that we're going to have that kind of experience, I think, which is going to be really interesting. I talked with some of the young financial planners at Betterment and I do not think that they need to double down on understanding deep investing knowledge or crazy sort of, like, ways to execute tax strategies because anything that seems complicated, and technical, and quantitative, a machine's going to be really good at that. And it's a weird thing for us to hear because we put a lot of work into getting to the level of intellectual expertise where we understand that, and we're proud of it, and we kind of, like, have our ways of communicating it to clients.

On the other hand, being able to communicate efficiently and effectively with various different people, to be able to read people sort of more EQ type skills. I would be pushing much harder into that area because the machines aren't going to compete with me there.

Michael: So, as we come to the end here, I'm wondering what you view like the forward path for Betterment from here? As you said, like, you guys have evolved a lot over just the 5-year time horizon that you've been there, and, you know, the company itself has gone from, like, under a $100 million to over $12 billion in assets, of 10,000 customers to 300,000 customers, so now you've had lots of growth, and now you have more resources to do things, and you have both the opportunities and challenges, maybe of a wider mandate around building and growing. So, what are you looking forward to doing from here? Where does it go from here?

Dan: I think it's a great question. There's a wide variety of areas that are kind of adjacent to where we are today that we would love to expand into, and all of them are about, like, making it easier and less complicated for people to live really good financial lives. Everything from, like, cash flow management is really interesting one especially from the behavioral perspective. If you look at, like, "Why save more tomorrow and auto-enrollment and auto-escalation," in 401(k)s were so effective, it wasn't that they went out and, like, educated people, it was that they said, "We're going to default you into something that we think is probably going to be good for you and you can modify it and opt out of it if you really want to."

I think that when we look at sort of the savings issues or how people are saving inefficiently or how people...I mean, I have this myself. And that like I do this for a living, and I find myself getting frustrated with my cash flow between different banks, and different bank accounts, and where my mortgage is and I'm like, "I know how to do this stuff. It must be...no wonder people carry $40,000 cash balances because they have no idea how to actually optimize their cash flow management."

You know, there are areas where, I think, people aren't using resources because they're scared of them or because they're worried about getting taken advantage of, where reputation of being a fiduciary and doing the right thing will go a long way especially if you're sort of doing it at scale. So it's a great question. I can't give away any of these…

Michael: I do understand. Yeah, some internal business clients have to stay private until they're public, I understand.

Dan: But I think it'll be...I'm kind of interested because my, you know, like, would you have expected Betterment to deliver charitable giving, right? Where, like, we're quite literally saying, "Hey, do you know, like, this is a good thing people should be doing it rather than giving cash. It's not necessarily a game changer AUM wise, but it is useful for our clients. So I think it can be a little bit strange or unpredictable, what we do, if you're looking at it from a business point of view but it makes a lot of sense if you're looking at it from a build the right thing from the client point of view.

Well, I thought what you launched for charitable giving was a great example. So for advisor or unfamiliar, you know, Giving Tuesday so, you know, the giving day following Black Friday and Cyber Monday. On Giving Tuesday, Betterment have launched a service that essentially automates the process of when clients say they want to make a charitable gift rather than gifting cash, you can gift appreciated securities. So, you know, make the capital gain disappear, and get the deduction for fair market value, and Betterment just automatically identifies your lots that has the highest appreciation, and would be most efficient to give and essentially makes it feasible to gift appreciate securities with the same ease of just writing a check, but you get a better tax benefit.

Dan: Oh, you heard me there. It's even easier than writing a check, are you kidding?

Michael: Easier than writing a check. Just click a button, that's true. Checks, I got a write out by hand and mail to someone or hand them, yeah, like it's just a click. And I mean, to me, it's just a great example of like, "Here's the thing we could do, that's valuable advice, that has tax savings, that most of us if we do it at all right now, as advisors, is very manual, right? We're going to run a report with all the cost basis, look at the gains, figure out the shares, identify they were one of the biggest embedded gain, then figure out who we're donating to, then get their transfer information," there's so much manual administrative stuff that you just made a technology button click. And I feel like it's a good example of both cool things that you guys are doing and just the kinds of gaps that exist for our advisor software tools that we still have to do these things manually.

Dan: Absolutely. Makes me very happy to hear that.

Michael: So as we come to the end here, this is a show about success and one of the things that we always observe through what success means different things to different people and in different contexts. And so, as you look at what you're building with Betterment and, you know, cost infusing this behavioral finance layer into a robo-advisor that most people criticized for not being behaviorally finance savvy. I'm curious as you look forward here, like, how do you define success for your own path?

Dan: Wow. So I can start off by saying what it's not. People often ask me, like, if I'm excited about Betterment IP owing or something, really, like, not. I didn't get into this gig for the money. I'm very excited about us being that stable profitable company so that we continue to invest and then try and figure out these sorts of things about, like, what we can do to help clients. Success, to me, actually looks like a long career at Betterment or a place like Betterment where the company's really behind and incentivized to deliver new useful things to their clients, that there's a really strong customer focus on where I can be proud to say, you know, who I work for, and that people think we're doing good work and good things.

But also, that, like...and this is a really an important thing to me, when friends or family say, well, you know, like, "Should I use your company?" I want to be able to, instantly without hesitation, say, "Yes, we're the best thing for you and we're going to do the right thing by you." And having the kind of comfort and confidence that Betterment has the right incentive alignments and also the ability to commit to doing new things, means that I could have a long happy career here.

Michael: Well, amen. Well, thank you for joining the "Financial Advisor Success" podcast and for sharing.

Dan: My pleasure.

Michael: I think it's a really interesting perspective on just what you guys are doing there, the both the opportunities for learning and implementing behavioral finance, and I think, to me, just the biggest takeaway that hopefully we're moving well past this sort of robots versus humans discussion with...I think, what the biggest takeaway is, is just recognizing that power of self-selection, that there's a certain set of people that are going to choose an online platform, there's a certain set of people that are going to choose human advisors, and, like, those are different people looking for different things in the first place. And so it's not a verse kind of conversation, it's, we serve different people in the landscape and there's probably a lot we can actually learn from each other in the process as well.

Dan: Yeah. Let's stop doing silly fighting. Let's start working together.

Michael: Amen. Well, thank you, again, for joining us.

Dan: My pleasure. This has been great, happy to do it any time.

Michael: Thank you. Thank you.