#ItzOnWealthTech Ep. 91: Creating a Gravitational Pull Towards Your RIA Platform with Jason Wenk, Altruist

“The most compelling thing you can have when you go to market in any industry is simply providing immense value to your users. So the combination of people who are frustrated with their current solutions, so it’s not like we had to go manufacturer demand, people are not super happy with what they have today, and then you come in and you offer a solution that they’re looking for and you’re doing it at 90% lower pricing than everyone else, that creates a gravitational pull towards your platform.”

— Jason Wenk, Founder & CEO, Altruist

334 years ago in 1687, Sir Isaac Newton published his seminal work on physics Philosophiae Naturalis Principia Mathematica which sent shockwaves through the global scientific community. His theories put the final nail in the coffin for geocentrism, and revolutionized humanity’s conception of reality with his universal laws of gravitation and motion.

Just two years ago, Jason Wenk launched his third startup called Altruist which is now sending shockwaves through the RIA market for advisor technology and custody.  Way back in 2019, the experts didn’t give Altruist much of a chance since he was going up against the dominant Big Four RIA custodians. But as LinkedIn founder and startup guru Reid Hoffman once said, it’s actually pretty easy to be a contrarian – it’s hard to be contrarian and be right. However, Jason has proved that his idea for Altruist as a low cost, fully featured technology and custody platform for RIAs was right. His firm has become the fastest growing RIA custodian platform and is causing the now Big Three custodians to look over their shoulders.

I spoke to Jason about the secret to Altruist’s phenomenal growth, the opportunities created by the Schwab-TDA merger, and a whole lot more on this episode of the WealthTech Today podcast.

Come on in, sit back, and enjoy episode 91 of the WealthTech Today podcast. I’m your host, Craig Iskowitz, the founder and CEO of Ezra Group Consulting. If you work for an enterprise wealth management firm, an asset manager, an RIA aggregator or one of the many technology vendors in our space, then Ezra Group can help you make better technology and business decisions. This podcast features interviews, news and analysis on the trends and best practices all about wealth management technology.

A couple of quick housekeeping notes before I start, be sure to subscribe to the show wherever you listen to podcasts so you won’t miss a future episode, and please go to our website and register for our upcoming webinar, The Journey Towards Data-Driven Wealth Management. If you are involved at all in the data infrastructure or data asset strategy or anything regarding technology at your firm which requires data, you will want to attend this webinar. You can find all the details on our website, EzraGroupLLC.com. And now, onto the interview.

Click here and schedule a free Discovery Session to find out how Ezra Group can help your fintech firm grow revenue in the wealth management space.

Companies Mentioned:

Topics Mentioned:

  • How Altruist is Changing the RIA Landscape
  • Why Bundle Great Tech and Custody?
  • Opportunity Created BY Schwab-TDA Merger
  • Major Success With Minor Marketing
  • Contrarian Hiring Strategy

Complete Episode Transcript:

Craig: I am happy to introduce our guest for this episode of the WealthTech Today podcast is Jason Wenk, founder and CEO of Altruist. Jason, welcome.

Jason: Thank you so much for having me. I’ve got to admit, I’m a big fan and I’ve learned you now have 90+ episodes, I’ve listened to at least half of them in the last six months, so it’s a real privilege to be on, thank you.

Craig: We love having fans of the show on the show, it’s the best.

Jason: Well consider it a double win then, we’re both happy to be here.

Craig: You know, we talk offline a lot, and I feel like it would be great to share some of the things we talk about with the industry because you’re a wealth of information and leveraging what you guys are doing, how you’re changing the RIA landscape over at Altruist. So if you could just give us the 30-second elevator pitch for Altruist?

How Altruist is Changing the RIA Landscape

Jason: Happy to, yes, so we started Altruist because I’ve been in the RIA space for 15 plus years and I’ve been asking every other vendor out there, “why wouldn’t you do this?”, you know if you find that you have an itch and no one else is scratching it, you finally scratch it yourself. But basically it was a real challenge to deliver an incredible user experience to clients and to do it at scale so you could serve everybody, regardless of the level of wealth, people had. And that’s what led me to start Altruist.financial advisor technology

Happy to, yes, so we started Altruist because I’ve been in the RIA space for 15 plus years and I’ve been asking every other vendor out there, “why wouldn’t you do this?”, you know if you find that you have an itch and no one else is scratching it, you finally scratch it yourself. But basically it was a real challenge to deliver an incredible user experience to clients and to do it at scale so you could serve everybody, regardless of the level of wealth, people had. And that’s what led me to start Altruist.

Craig: And this is not your first company, so can you give us a little quick overview of your history in the industry? You’ve started a couple companies so you’ve really got a lot of experience.

Jason: Yeah, I’ve been doing this for a long time I started my first RIA in 2004, and I think at that time there was only a few 1000 RIA firms in the country. And it’s wild to see it now I read recently that, that would pass 40,000 registered entities which is a lot of growth obviously. I got into the business as an engineer first so I built productivity software before I started actually an RIA firm and then the RIA business was sort of an extension of the inability for software by itself to solve the problems I was trying to solve. Our mission at altruist is to make financial advice better, make it more affordable and accessible to everybody. It’s that same ethos I’ve had for 15 years, first it was all about software and then it was well, I’ll build an RIA firm and then it was let me build another RIA firm that’s got a little bit more tech integrated, and now all these things are coming full circle.

My last company was nesting sort of our own software platform on top of the existing custodial infrastructure that exists you know for RIAs, primarily Schwab, TD and Fidelity, and we had a really good run, but I always tell people that once you have a business that’s growing really fast, things that today a typical advisor will say, look this is a this is a pain in my ass but I can deal with it, you know, something as simple as opening an account or doing an ACAT, the processes aren’t great today but people will accept them because they only are doing maybe 20 new accounts a year. When you start opening 100 accounts a day, and you do that for a sustained period, multiple months on end and if there’s any type of not in good order rate, you know 10% or something like that, before you know it you’re sitting there and you’re going wow I’ve got 400 or 500 accounts in the follow up status because of some type of you know paperwork snafu or something. These were the things that, at my last company it was a very successful technology enabled TAMP, I realized that until someone actually tackled the infrastructure layer of the space and really made it a lot easier to operate at scale would it be achieved like this, what is now our mission. And so, yeah, I’ve been doing this for a long time and I hate to age myself like that but anyway it’s been a very good journey and I think unless I’d gone through a lot of years of kind of pounding my head against the wall trying to make things work that just weren’t designed very well I wouldn’t have been in a position to properly tackle a product as ambitious as Altruist.

Craig: So three things, number one you’re not that old. Alright, number two, I run a consulting firm and we work with a lot of tech companies and broker dealers and some of the tech companies come to us say, hey we have new product idea. What do you think, would you think these types of firms would be interested? And sometimes they’re talking to RIA firms, and we check with some RIAs and different representative firms, different sizes and shapes, and ways they work and it’s exactly what you said, they’re willing to accept poor efficiency and bad user experience, if it’s a low volume process. So some firms only open 10 accounts a month, they’re still successful firms, they just don’t open a lot of new accounts. So coming up with some great new new account technology, they’re not going to change their custodian, change their onboarding tools just for that. So it really has to be something that they do more often or a higher volume practice.

Jason: Yeah, totally agree. I think one of the observations we’ve made and this is something that I tell people is a core innovation Altruist is this idea of vertical integration, because anything standing alone by itself, unless you’re doing it at a really high volume is probably not a big enough pain point to take action. But if you’re wasting 10 hours a month on account opening and 20 hours a month on rebalancing, imagine if those things all just worked. And it was like it was, it wasn’t even push button easy, they literally just happened automatically. Now all of a sudden, you start to kind of stack the areas of value creation. And if you can do all of that simultaneously with 90% or better cost savings, then you really have people’s attention. And I think that’s a lot of what we’ve been trying to do here is by integrating what today are kind of a lot of disconnected processes that maybe we accept being inefficient because they’re done in sort of a micro setting, stacking those together and then in a really major way compressing the cost. It’s not really a difficult sales process. We’ve seen a lot of attention and a lot of new users really just by providing immense value instead of some snazzy marketing campaign.

Why Bundle Technology and Custody?

Craig: We all know how expensive and sometimes those snazzy marketing campaigns don’t work so well. And I want to get to that, you’re getting ahead of my questions here. So, what I want to go back to, why bundle custody with technology? There’s so many firms that are just tech out there, there’s so many custodians that are giving away their tech. Why did you come up with the idea to build great tech, which is obviously a great idea, but also bundle custody with it?financial advisor technology

Jason: I think this is one of these things where if I go back in time, and give some props where I think some people were very innovative, maybe a little bit ahead of their time. I remember my first RIA I worked with TD Waterhouse as my custodian, you know, pre TD Ameritrade largely because they’re the only ones that would take me, I didn’t have a lot of assets under management they were the only custody custodian that would even consider a sub $10 million advisor back then. And so this was my first exposure to the conversation when they bring you on and then they kind of introduce you to, I think they call it their affinity center or something like that, where they had this kind of section of the website with all of these other companies that you can kind of use to do different things.

And I remember our sales rep saying something like, one of the things you’ll need to find is a portfolio management system or portfolio accounting system to do things like fee billing. And I remember being like, why wouldn’t you guys just build fee billing right into your platform? It’s so silly that I have to go buy some other software for this and they kind of like smiled and nodded and then didn’t really think too much about my question. And then some of them also have you know performance report where you can aggregate a client that has five households into one really nice performance report and you can put your brand on it and I thought again, why don’t you guys just do this? That seems so silly that I would have to go find another company to do this. And you can imagine this conversation kept going right, it kept going on and on. I ran into Folio Institutional, maybe a couple years later, and I think if people weren’t familiar with them back then they had digital account opening, and digital ACATs, and fee billing was integrated, they had model based portfolios that traded fractional shares.

Now, I will say it was quite expensive because they were charging asset based pricing, this was way before commission free trading. So if you’re paying like 20 to 25 basis points for the sort of this bundle, it definitely wasn’t cheap. But all of the tech was there. It was a different structure than a typical custodian, but it was there, you could do a lot of things and I remember then going back to my TD Ameritrade folks and going, man, it’d be so cool if you guys just bought them, and that way I could kind of have like the best of both worlds. I wouldn’t have to pay like this, you know trust company oriented basis point pricing, could get a great brand, all this tech integrated. And obviously, 15 years later Goldman buys them and so we’ll see what Goldman does with them. But you know what happens is, again, all these things if we really peel back the layers of the onion, there’s a reason why they’re not tightly integrated with most companies today and a lot of it has to do with things that most advisors don’t want to talk about which are going to be things like soft dollars and the way that we historically were able to at the custodial level pay for all this software without having to develop it, but only for your top really really big customers. So if you’re running a multibillion dollar firm you probably got enough soft dollars directly paid to your portfolio management system, that sort of felt like it was free, like it was all kind of in one. Yeah, they were disconnected systems but you weren’t paying out of the box for it.

Flipside of that, if you’re that small advisor and you’re paying $50 per year per account or $70 per year per account or have a $10,000 or $20,000 minimum for the software, it’s pretty painful right. What’s weird is innovation generally happens from startups, not always, but generally happens from startups. This also is the case with advisors, meaning the actual RIAs themselves. So I look at things and think, Well, if we want to create innovation from the RIA channel that means we have to build systems that a brand new startup advisor could jump into and have a really good chance of being successful at. We shouldn’t build everything just to take care of the huge multibillion dollar firms, but that’s what was happening and it had been happening for a very very long time.

So think about why bundle the custody and the tech, one it’s just overdue. I think every advisor’s had that same conversation I had 15 plus years ago, Why wouldn’t this just have fee billing like you have all the accounts you have the assets, why couldn’t I just like toggle a couple of buttons, you know and have the percentage of AUM fee or whatever my fee billing mechanism was. Again and again, on and on with these other elements of the platform. So everybody’s had that conversation, we all wish it was just integrated, for the most part. And it’s overdue, and then the second part is I think only when you integrate can you compress the cost structure and you can also engineer sort of the actual sort of custody experience with things like fractional share trading I think is really critical. I’m so glad that Folio did it way back in the day, I certainly hope everyone eventually gets there.

But these are things that will allow an advisor to give the same idea with $100 a portfolio that normally they would have to have half a million for you know because of the fractional ability to deploy at scale your same model portfolios across a lot of client accounts. These are things that are really important to me maybe not to everybody but I do feel like if we want to have a lot of innovation in space, I think it’s important for consumers that they get access to more great advisors. We had to put these things together I think keeping them separate creates way too much complexity and way too much cost and that stifles innovation.

Opportunities Created By Schwab-TDA Merger

Craig: Lots of things stifle innovation, and that leads me to my next question, which is a combined question. We’re going to talk about how the Schwab-TD merger creates opportunities. And by definition, when the firms get larger, they have a harder time innovating because they’re just too big and they have too much legacy business, and also your decision to switch your custodian partner to Apex. So can you talk about those two things sort of in a group there?

Jason: I’m kind of working backwards here so on the clearing side, whenever you start a company like Altruist I think there’s essentially three layers of the clearing and custody relationship. So for those again who don’t know, most people just think well I work with Fidelity, but they don’t realize if they unpacked Fidelity there’d be three components. So you have a broker dealer component, you have a clearing firm component and you have a custody component, these three kind of pieces. If you’re a start up, you’d be I think a bit crazy to say, I’m going to build all three of these things out of the box all at once. That would be probably a $50 million, five year build, way too high risk, you know, before ever finding out if you have product market fit, which is why you don’t see people doing it. There’s only been a couple of firms that built full self clearing in the last you know 20-30 years, Robinhood and Vanguard.

So that means you have to have a great clearing partner and there’s a lot of good clearing and custody partners out there, like we could have launched with Pershing, we could have launched with RBC. We could have launched with Apex, we could have launched with DriveWealth. We initially built our platform with DriveWealth as our clearing partner and I was saying that Drive does a really elegant API architecture with a great experience working with them. I would say it’s no fault of their own that we had to move on. I think that they have a really bright future. But one of the things that they ran into this is the politics of finance, they were only at the clearing layer right so as I said there’s a broker dealer clearing partner custody partner, they were actually using a vendor for custody, that vendor got bought by a company called Peak6, Peak6 is the parent company of Apex Clearing, you can probably imagine that they didn’t really want to be helping one of their competitors at the back end custody. And so Drive had to go find a new custody partner. And that just delayed their ability to ship certain features that we needed right away, for example like a trust account was going to be six months later on the roadmap because they had to go to a whole new integration with a custody partner. I have no doubt they’ll figure it out, they’ll be a force to be reckoned with down the road, but they just aren’t there today, at least in the advisor channel space. There’s too much complexity in terms of account types and security types you need to support day one to help advisors and they were going to be a ways down the road before they could.

Apex on the other hand has been around for a while longer than people realize. Going back to their Penson days they have a lot of infrastructure that is easy to plug into. It’s not as easy as people think, it’s not turnkey, you still need to have a pretty good sized engineering team and really know what you’re doing and have a decent budget. But those were all things that we checked the boxes on. I really appreciate how good of a partner they’ve been because we came to them in did a lightning fast six month integration, one of the fastest B2B integrations they’ve ever done, if not the fastest, and they’ve been a great partner since we launched. So that was kind of the backstory right inside baseball, how do we end up with Apex, I’ve always liked them I’ve done integration with them before in the past company. We thought we’d try the new kids on the block wouldn’t DriveWealth and they were great. They just didn’t quite have the sophistication to serve advisors.

Now, when I took that backwards is this just underscores you know right like the politics sometimes of financial services, I don’t know what will happen with Schwab and TD Ameritrade I’m sure eventually it’ll be something that we look back on and we won’t really think that it was a difficult integration. I think you know five years from now we’ll look back and go, Yeah, we just know Schwab and we kind of remember the old TD days but it won’t be like front center as it is today. That being said, they’ve got a tough, you know, next year plus probably a year and a half, two years, maybe even just integrating those two businesses, much less the actual clearing and custody platforms. Platform integrations are hard, and for anyone who doesn’t know, my last RIA merged with another large RIA, two multi billion dollar RIAs trying to put all their systems and pieces together and I’m sure you know this from a lot of consulting projects, they’re hard. You have to have a plan, you’re talking 12 plus months even for just putting two meaningful RIAs together, putting two huge custodians with retail businesses and institutional businesses and asset managers, business and banking charters, it’s a big big big project. So I think that for a while they’re going to be heavily focused on that as they should, that’s got to be their core.

And advisors are already feeling a little bit of that. You know, in, and this isn’t like you know fairness, Schwab and TD are doing the right things by really working their integration plan and advisors, rightfully so are frustrated with maybe it’s bad service or difficulty in a phone queue or whatever it might be, I can totally understand why they might be frustrated. But I will say for us, I started this company before that happened, this wasn’t in response to Schwabitrade, just sort of like this is the thing that occurred in the past two and a half years. And I think it certainly gets advisors thinking, if nothing else. I don’t know that a lot of people are necessarily going to change. I mean, some will, some won’t. I think there’ll be certainly a lot of frustration expressed on social media and conversations advisors have with each other and things like that. But I don’t think that it’s going to result in this mass exodus of advisors to be frank. I think most people will stay put. It’ll be a difficult maybe year or so, but certainly there’s people exploring right and we’re a benefactor of that as our other sort of custody alternatives.

And interestingly, the kind of story that’s not told as much is has also affected Fidelity you know Fidelity, I think has had to think about their business because it was one thing to compete with Schwab and TD separately, and to be a clear number two, like you know kind of like in the Schwab/Fidelity/TD big three. Now they’re obviously cemented at number two for a while, but they have a much bigger player sitting next to them. In one that is very diversified like they are, whereas TD had a much more kind of, I’d say like, independent business model, whereas you know Fidelity’s and Schwab’s look a lot alike, whereas TD was always kind of the outlier in that crew. So it’s made Fidelity I think rethink how they do business, which has actually created opportunity even there in terms of their service model and their pricing models and the way that they actually taking care of advisors. And on top of all of that, the 0% interest rate world is affecting all three of them quite a bit actually more than people realize. This is then making it much more difficult for them to continue doing things like soft out, which I mentioned earlier, so we’re seeing soft dollars get yanked in a lot of cases are significant modified, most cases being fully taken away. So now RIAs are sitting there going, boy like I’m gonna have to pay for a lot of these things out of pocket, and they’re paying a lot more attention to their technology decisions than they were before. So, it’s interesting how the sort of butterfly effect if you will have not just that merger but all these other things happening combined COVID, a global pandemic in the mix, it’s definitely created a really unique time for anybody offering better solutions to advisors. In other words it’s an extraordinary opportunity, great time to be in this business, I believe.

Invest In Others

Major Success With Minimal Marketing

Craig: I wanted to touch on some of your success you’ve had even before the Schwab-TD merger, as you said, that your firm has been growing phenomenally. I know last year we spoke you were planning on having over 600 RIAs on your platform by the end of the third quarter. How’s it going, and how do you explain your success? What’s the secret, it’s got to be more than just the name, having a great name. And you don’t really do a lot of marketing, so what is the secret to having all these RIAs dropping whatever they’ve got to switch over to you guys?

Jason: Right now we’re adding around 110-120 new RIAs per month, so it’s still growing very rapidly and we’re really excited about that. I think at some point in 2021 we’ll reveal, you know, kind of our total count but it’s going to probably surprise a lot of people. It won’t surprise you, you and I know, but there’ll be some people like whoa, I would have never guessed that there was this much interest.

And you’re right, we’ve spent very little on marketing. Our marketing budget since the day our company was founded, is probably like less than a lot of FinTech companies are spending in a week. It’s a very, very efficient, capital efficient business for us. And a lot of that is probably, I think, the most compelling thing you can have when you go to market in any industry which is that you simply are providing immense value to your users. So the combination of a message that you have people who are frustrated with their current solutions, so it’s not like we had to go manufacturer demand. People are not super happy with what they have today. And then you come in and you offer a solution that they’re looking for and you’re doing it at 90% lower pricing than everyone else. That creates a gravitational pull towards your platform.

And so I always tell people like the analogy I would give is, it’s kind of borrowing from Ray Kroc, I think, one of his early franchise get togethers in Chicago, he was asking franchise owners you know, hey what do you think the most important thing is for a successful McDonald’s franchise? And some people would say, huge marketing budget, other best location in town, and he goes hungry customers. That’s the best thing you could ask for. Well, that’s what we have, we have this group of advisors that, again, have been just like me 15 years ago, Why aren’t these things connected? Why is everything so expensive? And then the other thing is that all of the FinTech innovation that’s really been happening has been outside of the advisor channel. So think about like Robinhood getting a $60 billion valuation or something absurd like that, you know, that’s reported secondary that market valuation that is, but raising billions of dollars. Even the robo advisors, which I think worry less about them but they still attracted hundreds of millions of investment and attracted millions of end users, even major companies like Schwab and Vanguard have invested very heavily in their consumer facing automated advice businesses or augmented to automated advice businesses.

Meanwhile, the independent financial advisor’s sitting out there, and no offense to like my FinTech colleagues, in this space, but we’ve not exactly been giving them the best tools. We’ve been giving people, kind of like, bit solutions to small individual pain points, I consider Michael Kitces a friend so he doesn’t mind me saying this but everyone looks at his FinTech solutions map that he puts out, and it’s really complicated, it’s kind of embarrassing actually, we shouldn’t have to have 700 solutions.

Think about if you want to start an online store today. And let’s say that you’ve got a small retail shop pre-COVID and you’re like, I got to go online and start selling through the internet. There’s not 700 solutions that you have to put together, you could just go sign up with Shopify and be in market within days, super easy, no code you need no third party software people to develop your add ons and stuff like that, you could literally build it yourself. Or let’s say you’re a craft maker, you just go to Etsy right, you sell through Etsy. Let’s say you have a vacation property or just your own home and you’re like look I want to make some extra cash, rent out the studio above the garage, you go on Airbnb snap a few photos, boom you’re in business. But if you want to start an advisory business it’s like, I don’t like figuring like a Rubik’s cube or something it’s way too complicated. We haven’t created this easy solution for advisors to go launch really successful businesses. It’s instead you have to go find this custodian in this portfolio accounting system this billing system this trading system this CRM this financial planning. It’s really complex and what’s funny is, none of those things, these decisions are actually the advisors job. The advisors job is advising, the planners job is planning.

There’s a lot of complexity there and thankfully for people like you, you’re at least, making it easier for a lot of these, especially bigger organizations to make smart choices, but that solo advisors that probably would have a hard time, you know, being able to get someone like you, or have some the other consultants out there to help them bespoke their platform. I mean it is a nightmare, and if you’re not already a decent sized firm they can go get a great consultant to help you put the pieces together, that one or two person shop is in a tough spot.

So, that’s how we’ve grown so much, we’ve created essentially the Shopify for financial advisors. You can come here, the core of everything and use it one spot. You don’t have any minimums, there’s no requirements to sign a contract to move $50 million or something absurd. And the irony is that that message is still really attractive to even billion dollar firms. So we have a bunch of large users that are really excited about Altruist, even though a lot of our core value prop is just the ease of doing business, and we see that using like Shopify as an example, they’re powering multiple huge billion dollar a year e-commerce stores, and they’re also supporting you know, hundreds of thousands of stores that are probably doing less than $10,000, and they’re using the same platform essentially, the same core architecture to do it. Advice needs that, financial advisors need that too.

Craig: That’s well said. I do have some speaking engagements and one thing I always talk about is how there’s really not a lot of innovation in our channel. We’re always following on, slow followers not even fast followers, and as you said most of the innovation is happening outside. Although I would disagree in that, why do we have 700 solutions, sometimes we don’t have enough solutions in some areas, you need that you need that churn of companies coming in with new ideas and starting and failing to generate the innovation. You’re not gonna have innovation without lots of people starting new ideas, but I think they don’t see our channel or our segment or niche of the industry as all that innovative or a place where there are innovations that they could start a company, they’re always going to payments or other areas that that seem more lucrative to them. And also maybe that just firms aren’t paying enough, if you look at firms that are sold some tech firms that have sold recently, they’re not getting huge multiples, some of these firms, unless they have tremendous market share. So, I think we really could use more more startups, not less. And Michael won’t mind you knocking the map for having too many logos. It’s not his fault. He’s just documenting it.

Jason: He’s just reporting it.

Craig: He’s just reporting and I actually help him. I’ve started to help him with that map, I helped him with the March version of it, mainly around the portfolio management rebalancing area where we’re experts and organizing it a little differently. Because there are so many and it’s hard to keep up as to who’s doing what and who offers what solutions so it’s confusing, but in a way that is a little bit different than other areas.

Jason: Let me just piggyback on something you said there, I think it’s important, if someone is an aspiring founder of a new idea, one of the biggest challenges we have in this space is raising outside capital to be able to go and build great, new innovative technologies for advisors and a lot of that’s because of that total addressable market kind of you mentioned. Outsiders of our industry now they don’t look at this and say oh this is a big industry, I mean there’s a reason why everybody looked at like the direct consumer Robinhood, M1 Finance, you know, public etc. And they’re going, oh these are huge markets, hundreds of millions of people then you look at advisors and we go there’s 40,000, you know RIAs that is. It’s so it’s one of these phases where it’s difficult, I saw over this past weekend that Stripe just raised another $600 million at a $90+ billion valuation. Nobody’s giving advicetech companies $600 million, not anytime soon anyway. Our biggest players in this space are actually the custodians, I’m not sure what Schwab’s valuation is these days but I think Stripe might be bigger than than now on paper.

This is something that is always going to be a bit of a challenge for us is that it’s not as sexy evidently in the sort of total addressable market, people look at the upside and a lot of great venture investors they look at somebody selling for $50 million or even $500 million is being kind of like yawn-inducing, really not that exciting. So they want to look at like, well, what what could be a $10 billion idea or a $5 billion idea in its best case scenario, what is the ceiling? A lot of the stuff that people build in our space like the ceiling just frankly isn’t there and that’s okay, we still need a lot of that innovation. I think one of the coolest examples that hopefully other FinTech entrepreneurs can look to is Riskalyze, I feel like when Riskalyze was started, compared to where it is today, I mean, it proves that what maybe at first wasn’t perceived as this really big idea, Riskalyze is a really big company now, that’s probably very valuable and Aaron and his team have done a great job there. But, but that is what’s possible. I think if people build something new and innovative and execute like crazy, and hopefully we see a lot more of that.

Contrarian Hiring Strategy

Craig: Hopefully, but speaking of execution, I want to talk about some of your staffing choices and your methodology behind that. Most people that I talk to are desperate to find industry players, smart people to bring into their firm. Yet you’re doing the opposite, you’re hiring mostly people from outside the industry. So why did you do that and how do you think that that helps drive your success?

Jason: Yeah, well thanks for noticing. So I will say, I gotta give a quick shout out to my friend Pete Dorsey who just joined. We have added some really great people from inside the industry, our CCO, Mazi Bahadori is another industry person, more FinTech than traditional financial services, spent some years at PIMCO. So we have some folks that definitely are from industry. But you’re right, the majority of our staff, I mean our team which, we just went over 100 people on the team I think we’re close to 110 now, probably 80 to 90 have never spent any time in financial services.

Now the areas that we hire specifically in financial services like the folks working on our trading tools and rebalancing our compliance programs, your broker dealer operations, those folks we definitely highly value industry experience, as we should. But we think about our brand, our user experience, our way we think about engineering and architecture that’s largely coming outside the industry from places like we just brought in a great marketing leader from Spotify, which people will hear about by the time this is played. That’s unusual for a global leader of a brand like Spotify to come work in FinTech you know financial services FinTech specifically financial advisor FinTech, that’s unusual. This is part of what makes our brand unique. It’s part of what makes our design unique and a lot of it is that I think the best products in the world, I wish I could say this wasn’t the case, but the best products in the world are not yet in advisor tech.

If we look at like, you know, Salesforce or if we look at Apple, if we look at consumer brands like Airbnb, some of these like really transformational brands you know that have built incredible technology or Stripe we just mentioned, again, these are places where I feel like if you can get people from those backgrounds, they’re going to think about things without the pre existing, hey this is how we did it at ABC, this is how we did it at XYZ. And I think it’s good to have some of that for point of reference, but I really love to bring in incredibly talented product people that just think about the problems and finding innovative solutions versus, let’s just go find people who did it one way. It’s like mixing black paint white paint and gray paint right you just get gray. We want to bring in people that are totally thinking differently than anyone’s ever thought in this space, tackling problems with no pre existing ideas of how the best way to do it really is. And I’ve built really big meaningful technology products that scale to massive scale, way bigger than our industry has ever scaled to. The largest tech companies in our space are still pretty small, you know, compared to the largest software companies. So we really want to think like what’s possible, and then go find the best people there.

I think fortunately, the brand part is really important, like bringing in like exceptional brand and design thinkers early has really helped us attract those people that are willing to leave you name it, Facebook or Spotify or Salesforce, etc. We’ve had a lot of really great people that have left fantastic prior companies, but a lot of it’s because they believe in what we’re doing and the upside here.

So this all plays into our ethos as well I think that a lot of people outside of our industry, as a consumer, are frustrated with the consumer experience trying to find and work with an advisor. So a lot of these people that are coming and joining us, it’s funny when we interview, they’ll be like, yeah I have an advisor and this was the experience was like it was terrible, and not necessarily that the advisor was terrible, but just like the, oh yeah I never know how much money I have, and I don’t have a mobile app. It’s cool to be able to see that great builders of companies and products externally, they do have an interest in what we are doing, they want to help financial advisors, they want to think of like these new innovative ways to bring their experiences into this space, and it definitely shows. Obviously when people use our product, it doesn’t take them much more than a couple of seconds to realize this wasn’t built by people from our industry. It was built by people, you know that have, in most many cases like a lot more consumer kind of feeling simplicity in the UI and the UX.

Craig: Hey wait a minute, this wasn’t built by people in our industry, what gives?? They’re shocked. So, we’re running out of time, why don’t get a couple more questions. So what can be a $10 billion idea in our industry? Do you see Altruist on a path similar to Robinhood another $10 billion a year company?

Jason: Absolutely, yeah, it’s certainly not a statement of arrogance but in my last company I think if I’d kept running with it for a few more years, I think I could have made it a billion dollar company like no doubt in my mind, that’s where it was going. And it wasn’t about the valuation, by the way, but it’s just sort of like the impact it was going to create I realized would be somewhat limited. That’s why the valuation would have probably kept out like as a billion dollar company. With this company, I wanted to do something really transformational that I could be really proud. Of in order to do that, you have to be able to make a massive impact and really serve a lot of people. In our industry, I feel like the best way and the most innovative way to do that was starting at the custody layer, I look at like in the industry as multi layers right you’ve got the custody layer which for most RIAs 99%, that’s the core layer, everything else is built on top of. And let’s find those things that the most expensive, cumbersome, high friction areas that are related to that sort of the custody side of the RIA space, let’s integrate those really seamlessly.

When you think about the size of that addressable market, it’s trillions of dollars, so we’re talking, I think it’s moving in on five or $6 trillion dollars of RIA custody assets just on the wealth manager side alone it’s like $3.5T of assets. People have to remember that Robinhood’s only maybe a $60-70B custodian. They gamified bad behavior so they’re generating revenue and client assets probably close to 2%, which is why they get a billion a year in revenue. But if you’re doing good work and serving your customers, your ROCA, as the industry likes to call it, my guess would be probably gonna be more like 30 basis points. So the question then becomes, can we be seven times bigger than Robinhood and the answer is absolutely. Seven times bigger than Robinhood is $400 billion or so in RIA custody assets. I think we get there within five years. So, is this that big of an idea? Absolutely and I think it shows in the interest you know from outside investors outside of our industry and it’s really cool because hopefully this is bringing some new attention into our space that we hadn’t been getting. When people see that there’s great ideas where you can build really meaningful companies that are transformational that really do change kind of the way people think about how financial advice and individuals are connected to advisors that you don’t have to play small. There is a lot of opportunity to do things really well here.

Craig: You got to think big. Don’t want any small thinkers around here. So last question, do you have anything you can share on the product roadmap that’s going to be coming this year, that would be exciting for either your current clients or prospective clients?

Jason: I think there’s quite a few things mean, probably like the less sexy thing that’ll be coming soon will be a really robust teams product that allows like larger advisors to really seamlessly run so they could have 50 employees and still run their entire business here, I think that’ll be really exciting. In Q3 we’ll be kicking off integrations so this will be where I think you’ll see all of your favorite products we’re going to find some really elegant ways to integrate those. We’re going to think through integrations differently than others have in the past, it’s not like this bizarre weird kind of like partially working single sign on or something like that, really deep integrations. Then in terms of like you know kind of like the more fun sexy stuff, I think what you’ll find is a lot of banking based products and crypto will happen I think this year. And so I’m hopeful I mean it’s hard to say because I never know how far our competitors are along, but I like to think that we’ll be the first RA custodian to seamlessly offer digital assets into our experience. Pretty high conviction that’ll come true unless someone’s a lot farther ahead than I think they are, but excited about that.

And then I think the banking part is really going to be important because there’s lots of like almost like banking as a service that people can bolt on to other technologies and there’s people trying to play around in that space, but there’s really no better solution than having it integrated directly into your custodial interface to where your clients, if they’re using your mobile app, they can legitimately manage their bill pay and their banking relationship directly in the same application that you’re providing for all the wealth management needs. And if you can do it with far better rates and far better user experience than what they could get from a local bank, it will create a lot of opportunity there as well. So in any event, I think there’ll be some other stuff too. We’ll keep kind of private but I think you’ll see a lot of big news this year. I have some stuff I wish I could talk more publicly about right now but we just can’t quite yet, but I think the second quarter of this year, anyone who doesn’t know Altruist will definitely know who we are and I think our users that have been patient and giving us great feedback to shape the product. I’m really really excited to see all those ideas and feedback, sort of materialize into releases that will help them better serve their clients.

Craig: Alright, that’s what we want to hear, exciting stuff coming to Altruist in 2021, going to be a big year.

Jason: Appreciate that, thank you so much for having me on and letting us share this story, Craig, I really appreciate it.

Craig: I appreciate you making some time you’re the busy guy, building a $10 billion business. Thanks for coming on and sharing with us. I look forward to talking to you again soon.

Jason: Sounds great, thanks.

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The Wealth Tech Today blog is published by Craig Iskowitz, founder and CEO of Ezra Group, a boutique consulting firm that caters to banks, broker-dealers, RIA’s, asset managers and the leading vendors in the surrounding #fintech space. He can be reached at craig@ezragroupllc.com