#JTBD: Showdown at the Investment Portfolio Corral
Here’s today’s link to Quora, which I find to be most interesting because it shows two CEOs going head to head to define how one’s product is different than the other’s offering.
Can you spot the CEO who might have a knack for Jobs-to-be-Done?
Jonathan Stein, Founder and CEO of Betterment, describes his product in comparison to Andy Rechleff, founder and CEO of Wealthfront.
Though the question asked how the two differ from each other, you can see two really different characterizations of the investment market.
Here are the first two slices of the answers. From Stein, who we have covered before:
Betterment does a better job of harnessing behavioral finance and next-generation investing theory. At Betterment we anchor customers with smart defaults and show them real-time feedback about how the outcomes might change as they play around. (This is a far superior approach to spurious, old-fashioned “risk questionairres” like those used by Wealthfront.) We show how other people like you are investing, as a point of reference and sanity check. We encourage auto-deposit and overall automation of your finances – which has been shown to lead to better outcomes (when we take ourselves out of the equation, we do better). We let you set up multiple accounts for different goals – e.g., one for your house down-payment, one your kids’ college savings, one for your IRA for retirement – and each can have its own asset allocation and linked auto-deposit plan, if you like. You can transfer between them and manage them freely. We do this because it’s convenient, and because when you have a goal in mind, you’re more likely to stick to your plan. It’s behavioral finance working for you.
And then from Rachleff (I didn’t know Wealthfront existed):
Determination of Risk: Wealthfront reviewed a great deal of academic research to write a number of algorithms to pinpoint your true level of risk tolerance (the critical input to determine your ideal allocation in modern portfolio theory) in only 10 questions. Betterment asks you to allocate yourself. Behavioral economists have shown that humans consistently overstate their risk tolerance which frequently causes them to sell when markets turn down which leaves a ton of return on the table. We could have simplified our service by only asking one question but the result would be far worse
Even though I had not heard of Wealthfront, and even though this is the first exposure I have had to its product offering, I still come away thinking that Better’ment’s CEO has a clearer vision of how to disrupt and find white space in investing. I like how what he pinpoints in his answer is not the fine points of investment theory or even how to make the action of investment better.
Stein focuses on how to make the customer experience better. He actually focuses on things that would make the job of investing easier for the customer.