THE INTERVIEW

Ashley Johnson of Wealthfront

Earlier this year, Financial Venture Studio hosted an exclusive event for startups and venture investors and other fintech stakeholders, and we were joined by some special guests who shared their views on where things are headed in fintech.

While it’s edited for length, a fireside chat we held with Ashley Johnson, CFO/COO of Wealthfront, was super interesting. Given the recent news that its cash account offerings and new financial planning tools have helped Wealthfront grow to a whopping $20 billion in assets, we thought we’d share.

Tell us more about Wealthfront.

Wealthfront offers online financial planning and investment advice. It’s a solution that’s tailored to help people understand complex decisions like how soon can I retire? How much house should I or can I afford today? And if I stretch for that house today, how does it impact my ability to retire when I want to and live as comfortably as I want to in retirement? Can I afford this and send my child to college and pay for all of it? Complex decisions that involve a lot of math-like compounding, understanding inflation, understanding the rapidly rising cost of college education, things like that, and actually makes it simple and fun. And with that, it provides the investment advice that helps you then build the investment strategy underlying your financial plan.

How did Wealthfront get started?

Wealthfront was started originally back in 2007, and pivoted to its current business model in late 2011. It was founded by Andy Rachleff, who was also the founder of Benchmark Capital — a very successful venture capitalist who’d retired from venture capital and was teaching a class on product-market fit at Stanford Business School. And often students would leave his classroom, go off and become successful in their own right and perhaps sell their company to the next Cisco or Amazon or whoever it might be, and come to him and say, “I now have $5–10 million that I want to invest. I’d love to get advice from you as to what I should do with it.” And very embarrassingly, the advisors that he would typically point to had much higher minimum investment sizes than even these founders, now wealthy in their own rights, would be able to meet.

But how did Rachleff go from pointing people to investment advisors to creating one?

When he wasn’t able to offer suggestions as to who they should turn to for really sound investment advice, he built a platform, called KaChing, that was meant to match investors with investment advisors. But what he found through that platform was that when he was laying out investment strategies and matching the investor with the investment strategy, and then ultimately with the investment advisor, the feedback he was getting was, “I would rather you actually just deploy that investment strategy on my behalf and manage all of my money for me.” And so that’s where we pivoted to in 2011 with what’s now called a robo-advisor…and I’ve noticed the newspapers really like putting robots in the pictures, but we have no robots at Wealthfront.

Very funny. Someday you might! So what do you think about the whole robo-advisor term?

Wealthfront basically tailors the investment strategy to one that matches your risk profile, both based on quantitative factors like how old you are, and how much money you have, and what type of financial responsibilities you have. But [it also considers] your own risk appetite, how you react emotionally to big dips like we saw in December [2018]. Or other factors that might change somebody’s risk appetite. These factors are added into a portfolio based on modern portfolio theory, and it invests and manages those assets using that automated strategy. And when we pivoted to that, and actually managed the assets for our clients directly, that’s when the business really took off and online investment advisory services really became a thing. It was dismissed often by the bigger platforms in the early years, but I think now it’s well understood that “robo-advisors” are here to stay. And when you look at last year, I think net outflows on mutual funds were significantly negative, but net inflows to certainly our platform — and I believe the industry at large — was significantly positive. So the trend in general is moving in our direction, whether it’s the trend in passive [investing] or the trend in wanting to work with a software platform over wanting to work with a human.

Who is your customer?

So, our target profile is an older millennial, I guess you could say. So someone in their 30s or 40s, typically households. And their target investable assets are around $100,000. And we have seen this be the content driver of our business. Now, we also get outliers on the high end and in the low end, so we lowered our investment minimum to $500 and so we certainly have large numbers around those small assets, and we also have people who give us tens of millions of dollars to invest on their behalf. Those are low numbers of high assets, but still our average account size is $50,000 and as we’ve continued to grow and expand our client base, we’ve seen that average remain constant.

So why offer a cash account through Wealthfront?

We know that when somebody is saving for a wedding that they’re going to do next year or a house that they’re intending to put a down payment on in the next 12 to 18 months, we need to be able to offer them an alternative versus an investment account, which we know is meant for long-term goals. And so really what we see is an opportunity to highlight for our consumers that they’re not getting a return on their investment in a pure savings account in their bank…they don’t need to keep opening up accounts in different places to try to chase the absolute highest rate, but there does need to be something that’s for those kind of more intermediary goals that a long-term investment account doesn’t make sense for.

So is it more or less the traditional wallet share-based strategy of continuing to hold on to all financial elements of the consumer?

It’s both gaining wallet share from a business strategy perspective, and from a consumer offering perspective, it’s being able to meet the consumer’s needs, and not having to tell them, “For this specific goal, you should probably open an account somewhere else.” We know from talking to our clients, they don’t want to have multiple places where they’re thinking about their money, they want to have everything in one place. So we want to have an offering that aligns with the different goals that we know our clients have.

If you were to create a startup yourself, what would it be?

I think the extension of where we’re going with Wealthfront, my kind of dream is that everything is through my phone and it’s completely secure, and it’s stopping me from making bad decisions. So, if I’m spending on something that I really didn’t need to be spending on this month, it’s alerting me as I’m trying to press that authorize button. It’s also telling me when it’s the right time to refinance my mortgage and it literally is as simple as a push of the button and not this incredibly arduous process that the banks put you through for refinance of your mortgage, which should be very simple. It’s all of those things. The day when I don’t have to carry a separate wallet with credit cards and IDs and everything else. I just have everything on my phone. And my phone is also offering me up that advice in the moment when I need it, that’s when I’ll be really happy. So, if we can keep extending Wealthfront to the point where that’s what it ultimately offers, then I don’t need to invent any new FinTech companies!

To learn more about Ashley Johnson and her trek to the C-suite of Wealthfront, check out this Women of Wealthfront blog.

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