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A fintech pioneer shares the strategy that got his company through the Great Recession, and his best tips for entrepreneurs looking to scale in a rapidly changing market

Betterment Jon Stein
  • When Jon Stein had the initial idea for Betterment in 2008, the concepts of "fintechs" and "robo-advisers" were practically unheard of.
  • Thanks to his day job and observation of the world around him, Stein was able to identify an opportunity where customers were being underserved.
  • Ten years after Betterment launched in 2010, the company serves more than half a million customers, with more than $20 billion in assets under management.
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When Jon Stein had the initial idea for Betterment in 2008, few investors (if any) had heard of a "fintech" or were willing to trust their capital to a "robo-adviser."
During Stein's 2010 TechCrunch Battlefield presentation, judge Yossi Vardi said, "People like to invest in institutions they feel confident in, like Lehman Brothers and Bear Stearns."
But he knew he was on to something. Ten years after Stein launched the platform, Betterment now serves more than half a million customers, with more than $20 billion in assets under management, and the industry he pioneered is seeing booming growth — even in an extremely volatile market.
In an exclusive interview with Business Insider, Stein shared how he spotted the opportunity to offer real value to customers in a highly regulated industry and how his company is growing in a rapidly changing market.
"We were born out of times like these and were built for times like these," he said.

Pay attention to where people are dissatisfied

As a Wall Street financial adviser in the years leading up to the 2007 financial crisis, Stein had a front-row seat to the disconnect between the big banks and their customers.
Stein said his friends and colleagues counseled him against launching a financial-services company on the heels of the worst banking crisis in a generation, but he disagreed with them.
"I thought it was actually a really good time to be starting out with my vision of trying to build this more customer-centric financial services," he said. "I thought people have now lost trust in the banking system."
Stein recalled walking through Occupy Wall Street encampments in New York's financial district to get to meetings.
"It felt like we were part of the movement," he said of founding Betterment. "It felt like we were the advocates that were building the antidote to what had caused the financial crisis."

Mine expertise from your day job or passion project

Most people are an expert in their day job. For Stein, that was financial advising. When it came time to found his company, he knew exactly where the pain points were for customers in his industry.
I addition to American households not saving enough, Stein said, many don't use their savings in ways that benefit them most. And part of the reason for this is that banks make money off pushing customers to take on debt, charging fees for things like late payments and overdrafts and not paying interest on their cash, Stein said.
"Those are very profitable things to do because people don't pay attention to that stuff," Stein said. To address this, Betterment uses artificial intelligence and machine learning to provide individual financial advice to its customers.
"Building a more customer-focused cash adviser will make a big impact in people's lives, and I think we will change the financial-services industry even more than we have in the last decade."

Distinguish between gimmicks and real 'value add' for your core audience

Stein describes a lot of new financial apps as "the same old tricks of old financial services with a new gimmick on top."
To make decisions about what his company offers and how the product works, he stays laser-focused on what his core audience wants. Though Betterment has a diverse group of customers, Stein's core base is made up of millennials, perhaps with a family, who are somewhat established in their careers and looking to make the smartest decisions with their money, he said.
These customers don't want to risk trading actively on the stock market, and they don't want to be tricked into borrowing what amounts to a payday loan.
These may be easy ways to make a buck off your customer, but it's not the way to build a lasting company, Stein said. Betterment is a fiduciary institution, which means it is legally required to act in the financial interest of its customers. This status enables Betterment to tout a 1.5% annual advantage on returns for their customers for following the strategy of what they estimate to be an "average" investor. Over the life of a retirement account, that adds up to a whopping 38% more savings.
It may not give off the same rush as a well-timed stock pick, but Stein said his algorithm has performed extraordinarily well as the markets reached new levels of volatility in recent weeks.
"We're building this sustainable investment platform that that does the smart thing for people in all market environments," he said. "In many ways, the machinery that we've built comes to life during this time."
SEE ALSO: Mark Cuban explains how entrepreneurs can build 'America 2.0' using a strategy from his early startup days
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* This article was originally published here.
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