Tag Archives for Investment
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.
Betterment CEO Jon Stein told me today in a brief interview that consumers of retail investment portfolios are spoiled for choice but that this abundance of choice actually spoils the market for investors.
Global markets have been rocked by a lot of chaos. Political uncertainties, most recently in Greece, Italy, and the threats those posed to bond ratings and yields left many portfolios –again — wilted or left fragmented by radical shifts in volatility for weeks at a time. People, normally, are wary about putting their money into any kind of investment vehicle. But this recession has really provoked confusion and lack of clear choices.
It’s interesting, then, that Betterment.com is only one and a half years old. It means it was started up, and remains in startup mode during one of the worst recessions in modern global financial history. You’d think then that whomever would start up a choose-your-own adventure style investment vehicle would have to be a radical Mark Cuban-like entrepreneur.
No. Stein very much seems the sane and soft-spoken economics scholar he claims to be in our phone interview today.
A life’s work for Stein, Betterment.com is a super-simplified portfolio investment tool for retail investors, who can invest amounts as minimal as the range between $1 to $25,000, but they do so in a way that kind of makes the investors themselves into the financial advisors.
Stein, who worked for many years consulting with banks after studying economics and psychology, said that he found so many practices in investment banks seemed to exist just to thwart consumers, and take away the feeling of control and satisfaction they sought out in hiring portfolios to handle their retirement or investing needs.
“Most financial products were made by people who believed in pure rationality. It wasn’t about designing a product for real people for what real people want, it was clear that people really need that,” says Stein.
How does Stein’s Betterment.com do this. First, it makes the choices really simple, and it does away with some of wishy-washy language found in financial advisors marketing material. It’s almost like investment consumesr can tweak the dial of their investment choices around the nuances of their life goals and their expectations about the arc of their lives.
Financial advisors do that, but there is something awry. Portfolio offers and IRAs are always pitched as super complex products that the financial advisors have to be paid large sums of money to control. It’s like they are in charge of a multi-headed serpent tucked away in some deep labyrinth somewhere, and they must receive gold tokens for braving the dark night of the soul they must endure to ensure that a consumer’s money is safe.
Stein says, it’s better to position a product on the simpler side of the complexity equation. People are actually really good at making cohices that are right for them, if they are given a tool that dictates the results and the meaning of those choices for them. And in some cases, they don’t even need that. they just need something that’s really simple to understand. Like, a button for example, that lalows them to tweak how much risk they can endure. Tap into a consumer’s ability to communicate with you about those sets of rules and values, and you can help them make choices, for less money.
I always say that the problem is not that there is not enough financial education. You hear this clamoring for more education in college, help them to understand how to invest.
Those are all good things, and they are all well-intentioned, but we should not have to teach people how to get a mortgage. People understand that. It’s that the products are to complex.
Stein’s way of helping consumers get the job of investing done is just to offer them simple cohices, and few of them. He related to me that there have been studies that show that if you give people 20 choices, for example, about 40% will sample the choices, and about 12% will buy.
Common sense would tell you, well, if you offer more choices, the sampling rate will go up, therefore more people will buy. Well, it’s true that with an increase in choices offered almost 60% sample, but only 4% buy.
More choices, or more complex ranges of chioces are just meant to maek the offer look like they can provide abundance. But consumers experience choice in the markets like they experience relationshiops with people. You don’t want something big, bold and overly dramatic. Save that for the movies.
You just want something simple, sane and compatible.