Jon Stein, founder and CEO of Betterment

As the founder and CEO of Betterment, the largest independent robo-advisor in the field today with $4.4 billion invested, Jon Stein has stayed committed to his vision of creating a company that not only transforms the financial services industry but improves its customers’ financial lives. His goal is to build the most transparent, customer-aligned company in wealth management. A graduate of Harvard University and Columbia Business School, Stein is a Chartered Financial Analyst (CFA) charter holder. Before he founded Betterment in 2008, he worked for First Manhattan Consulting Group, which consulted with some of the largest financial institutions in the world.

New York Financial Press (NYFP): Tell us a little bit about why you founded Betterment.

Jon Stein: Generally, the industry at large is incentivized to make customers make bad decisions, especially as they tend to make money on transactions rather than on actual relationships and advice. I was in a unique situation where I was working with banks, I was a CFA, and I found myself making all the wrong investment decisions. I just wanted something where I could put my money and the right things would happen automatically, like rebalancing dividends and optimizing for taxes. It wasn’t just me. My friends who worked in finance were also saying to me, “Hey, what should I do with my money?” So, to bring all of these experiences together I set up Betterment.

NYFP: How did you get started?

Jon Stein: We were really bootstrapped to start and we didn’t formally launch until May of 2010. It took a long time to build the platform and to go through the regulatory process. We started to work on it before things got really bad in the economy and continued to work on it while things got especially bad. Certainly there were lots of people around me who were saying, “There literally could not be a worse time to start a financial services company in the history of the country. You should probably rethink that idea.” I said, “You know, you might be right, but we’re going to give this a go.” And we’re very, very fortunate to say that we did!

NYFP: What’s Betterment’s mission?

Jon Stein: Ultimately we want to be the answer to the question: What should I do with my money? I think we’re answering part of that question now but we’ve certainly got a long road ahead of us to really become the definitive answer to it. Right now, we are the best place to manage your investments.

NYFP: How so?

Jon Stein: If you come to Betterment and you want to save for your retirement, we’ll look at about 25 different data points, and we’ll give you a comprehensive plan so you can reach that retirement goal. We’ll get you on track. We’ll give you the action plan and then we’ll go execute that plan for you.

NYFP: Is there a minimum?

Jon Stein: We’ve got no minimum, which I think is kind of the guiding principle of the firm, as well. We think that fundamentally everybody should have access to investing the right way. So, from Day One, we’ve had no minimum. We’re willing to take customers right when they’re starting their investing life. We also have customers who have $10-million-plus invested with us. We run the full spectrum.

NYFP: What’s one of your biggest challenges at Betterment?

Jon Stein: Our biggest challenge is really prioritizing the right thing at the right time. The company’s growing very fast. We’ve got 155 employees, all based here in New York City. We’re getting new customers, and the existing customers are trusting us with more assets. We’ve got a really incredibly talented team, which I’m fortunate to have. Certainly we are in an industry with deep-pocketed competitors and it takes a lot of capital to follow the vision that we are pursuing.

NYFP: What is happening to the industry you’re in?

Jon Stein: Technology has unquestionably improved every aspect of your life, with the possible exception of financial services. So far, all of the major advances in technology have been benefiting the institutions, whether those are the larger banks or the hedge funds. They were the ones reaping the benefits. They would use it to drive profits for themselves. There had really been nothing to fundamentally improve the normal, everyday retail customers’ returns. That was simply unacceptable.

NYFP: What makes Betterment different?

Jon Stein: With Betterment, we’re able to use modern technology to build a new financial services company from the ground up that is technology driven and guided by experts. Our customers get a globally diversified portfolio. We have fractional shares so you have no cash in your portfolio and be completely invested. We can do lots of tax optimization that traditionally has only been available to people who had millions invested with the high-end financial advisors. We can take that type of practice and bring it to everybody through technology, whether they’ve got a hundred dollars with us or $10 million with us.

NYFP: How would you describe your customer relationship?

Jon Stein: We are completely aligned with our customers. We do what is in their best interests. At Betterment we have made a strategic decision to not make our own ETFs [exchange traded funds]. We don’t want to make our own products. We want to manage those products for you. We’ve done this because we should not be incentivized in any way to sell our own products. We want to pick the best funds in each asset class regardless of who makes them. And we want the flexibility to change in the event that, let’s say, Blackrock comes out with a new ETF that is perhaps better than a Vanguard small cap [fund]. That’s part of our 100-percent customer alignment-acting in the clients best interest. The other part is that really all of the other robo-advisors do two things: they do asset allocation and they do some sort of portfolio management. When you come to Betterment, we actually find out your financial goals, and we give you advice on how to reach them. It is all delivered online in a really great, seamless customer experience that is totally transparent. You log into Betterment and you immediately see what you paid in fees. We don’t hide them like what is expected of our industry, which is unfortunate.

NYFP: What’s it mean to be named a CNBC Disruptor 50 two years in a row?

Jon Stein: CNBC puts together a list of the 50 most exciting, disruptive companies in the country that are really making a large impact on the industry they’re in. We’ve been fortunate to be selected.

NYFP: How do you see Betterment getting better?

Jon Stein:  There is a clear appetite for new companies in financial services that deliver better experiences and are more customer-aligned. We want to become our clients’ central financial relationship. Previously when you logged in at Betterment, you could only see what you had invested with us. Now at Betterment you can see all of your external accounts, whether they’re an external brokerage account, checking or savings accounts, or even a mortgage or a credit card. You can see your comprehensive financial picture. We can tell you if you have idle cash sitting someplace that should be invested. We can tell you what you’re paying in fees for outside-held accounts. I think that is a big step as we look to provide advice on everything in your financial life. We’ll just keep evolving, keep improving and keep doing what’s best for our customers.