Fintech Panel at Boston College 12th Annual Finance Conference 2017


[MUSIC PLAYING] DAN HOLLAND: So it’s hard to
talk seriously about finance without a conversation
around fintech, the intersection of
finance and technology. And we really struggled
with how to define it and how to address it, because
it means different things to different people and
it impacts our industry in so many ways. So what did we do? We turned to our good
friend Jere Doyle– and more about Jere in a minute. But Jere told us
that we should think about it as the
use of technology for disruption and innovation. And so we have a panel that
we’ve put together today that Jere will describe. But we have disruptors,
we have some disrupted, and we have some who
are thinking about both. And no one who’s been in
the innovation economy in and around Boston probably– I don’t know how you can do
that without knowing Jere. Jere’s a terrific
friend of the school. He runs the Shea Center
for Entrepreneurship here at Boston College. I’m going to skip
the rest of his intro and turn it over to Jere. JERE DOYLE: Thanks, Dan. And so– [APPLAUSE] When I went to research
what to talk about today, literally there’s
conferences that are three-day conferences
dedicated to fintech. And we’ve got 39
minutes and 13 seconds. I do talk very quickly and
my panelists do as well, so we’re going to go real
quick with the introductions. But we have a great panel
today to talk about fintech, the disruption that’s going on. $13 billion was invested
in new companies last year alone in fintech
around both wealth tech and capital markets
tech, $13 billion backing something like
800 or so companies. So there’s a lot going
on in the world, a lot going on with disrupting. And so we’re trying
to figure out today where the disruption is
most effective, what’s real, what isn’t real, how are we
going to be effected in here, where are the jobs
that are at risk, where are the opportunities, and
hopefully where we can invest. The panelists we have
here are phenomenal. First to my left is Adam Broun. Adam’s the COO of Kensho, which
is building a machine learning and analytics platform
for customers like the US government, Goldman Sachs,
other investment banks, trading platforms. And I am a colleague of Adam’s
at a couple of angel groups here in Boston, so he’s is not
only a COO of a leading fintech company, but he’s also an
active early-stage investor. Next to Adam is Larry Restieri. Larry is a partner and
head of digital strategy at Goldman Sachs. He’s responsible for Honest
Dollar and Ayco, which we’ll hear a little bit more today. And I believe he’s
also responsible for our third panelist to the
left, which is William Hurley, or better known as Whurley. And Whurley is our entrepreneur. You were just telling
me in addition to Honest Dollar, which he
founded and then now Goldman has acquired, you’ve had
three other companies just in the last couple of
years that you founded and sold. You’ve been involved with 18
different startups that have some kind of liquidity event. And so you really are
a serial entrepreneur, so you are the disruptor. And I think we’ll have to hear
how that’s worked as you’re now rolling into Goldman. But it will be
pretty interesting. So we’re going to
break the session down into kind of two parts. We’re going to talk
first about wealth tech. I mean, there’s so many things
in fintech we could talk about. We picked two subject matters. One is wealth tech, so things
like advisors, robo-advisors, self-service platforms. What’s happening on the
investment side of stuff? And that’s going to be kind of
the first part of our panel. And then the second
part we’ll talk about is the capital markets tech,
and so the back office stuff with the investment banks
and things like that. And then maybe if we have time,
touch on blockchain and ledger technology. And we’ll finish up with
just basically trying to figure out where
we’re going with this, what the future looks like. So let’s start with
the wealth tech side. Whurley, you started
Honest Dollar. Talk to us a little
bit about what’s happening in wealth tech. Why so much disruption? WILLIAM HURLEY: So first,
I want to start– thanks for having me, but I always
avoid the word disruption. I think of it more
as displacement. When you disrupt
something, you come in, I muddy up the
water for me, I muddy it up for the incumbents. A lot of times
there’s no money there and there can be a
lot of confusion. You can start off regulatory
changes and all manner of different things. So I think of it more along
the lines of displacement. And what’s happening is
simply that technology is doing the job it’s done
in many other industries for many other years. There are jobs that
existed 10 years ago that don’t exist today. There will be jobs
that exist today that don’t exist in 10 years. So in the wealth tech, it’s
just technology being applied to do a lot of things that– Honest Dollar the goal wasn’t
to disrupt an industry, it was to displace the
retirement industry by looking at an area
that was not under-served, but completely not served. There were 70 million
people in 401(k) plans. There are almost 100
million total with no access to any kind of plan at all. And so it was, how do we use the
technology to get into a market that many had tried for
years and years to get into but failed? And were we at that
right inflection point where that
technology was going to take off and enable that? JERE DOYLE: So explain
a little bit more about what Honest
Dollar does and what you’ve seen from an
attraction standpoint, since you started it. WILLIAM HURLEY: Sure. So we started with
small businesses. We said, look, you go and you
read the 401(k) averages book and it tells you there’s a
10-person company with $100,000 in assets and this is
how much they’re going to pay for a retirement plan. And then you go look at the
numbers and you say, well, small businesses, the
automotive shop, the restaurant, they don’t really offer
401(k)s to their employees. And the fact is, as
the owner, the reality of it is I have
$90,000 in savings and then those other
nine employees have $10,000 amongst all of them. And so I don’t
want a 401(k) plan, because I don’t want to
subsidize their plan out of my personal savings. So generally, I elect
not to offer a plan. So we thought, well, there’s a
lot of legal changes happening, a lot of state and federal
government initiatives to start getting– if you
have more than 20 employees, 25 employees, whatever the
number is depending on where you’re at, let’s
go ahead and make you give some sort
of retirement plan, because there’s a savings
crisis in this nation, right? The average American hits a
$400 expense, they’re insolvent. So what happened is years
ago the payday loan industry popped up out of that. And then now that’s
created even more– kind of exacerbated the problem. And so this is
something everybody should be paying very
close attention to. And we thought,
how do we solve it? So we took IRAs and we assembled
simple and traditional IRAs in a way that an employer could
sign up in 90 seconds or so on the website. We tie into their
back end system. And then we can go out
and contact the employees. So they can subsidize this. Instead of selling it like
a financial services model, we sell it like a Google
app, so $3, $5 a head, whatever the case may be,
depending on discounts and other incentives. And then it’s a software play. So the employer doesn’t
have to do a lot of work. They don’t have
to worry about it. It’s an IRA. If the employee
quits, they don’t have to worry about
anything related to the regulations
around the plan. They don’t have to have any
involvement with the plan or any responsibility
for the employee choices. That quickly lead us into a
very new and exciting market, which is where we have
primarily been focused, which is 1099 workers. If you look at the
activities on Capitol Hill, they’ll say, well, we need Uber
and Lyft and everybody to make 1099 employees W2 employees
so that they can get benefits. And the danger of
that assumption is you’re assuming that
by becoming a W2 employee, I get benefits for free. But I pay for those
benefits, sometimes disproportionately compared
to other benefit packages. And so we thought, well, why
can’t we just take our software and make a retirement
benefit that’s very simple, very cheap, again
$5 a month, for 1099 workers? And so we launched
that product with Lyft. We continue to expand into
other 1099 businesses. And that became a
very fast-growing part of the business. So there’s about 56 million
people that are 1099 workers. And the majority of
them don’t actually have any kind of coherent plan. So it’s a really good
business to be in. JERE DOYLE: So Larry,
you’re sitting at Goldman, and how’d you find out
about Honest Dollar? What was the strategy that your
bank had and you had to acquire a company like Whurley’s? LARRY RESTIERI: So I guess
to use your terms earlier– not to [INAUDIBLE] you– I use disruption
since Jere used it. But I kind of sit in
some ways as a disruptor in terms of what we’re
doing with Honest Dollar and other
businesses, but also a disruptee in that there’s
a lot of change going on in our business. And I say to people
all the time that when I think about our business
and financial services, I would argue that this is
probably the point of greatest change I could argue
since like the ’40s, or since like the ’40 Act. I mean, this is
dramatic, dramatic change undergoing our business. And that’s a combination of
regulation and technology. And as Whurley alluded
to, what technology is doing is allowing just
things that humans used to do or whatever the
process was, they’re just doing them
more efficiently. That’s a large part
of what’s happening, so that’s where a lot of
disruption’s happening. That’s where a lot
of jobs are changing. When I think about the couple
of businesses that kind of fall under my purview, we have
a business called Ayco. Ayco is a very
traditional business. Basically we are the largest
executive counseling business across the United States. It’s a wholly owned
subsidiary of Goldman Sachs. But we provide
financial counseling, so think of it as
financial planning for corporate executives to a
large portion of the Fortune 1,000. It’s a very good business. It’s grown since we
acquired it in 2003. Consistently it’s a
very, very good business. But it’s very labor-intensive. It’s very hands-on. That’s just the nature
of the business. Then you look at– as we think about how do
we expand that business and how do we grow
it, well, part of it is how do we go deeper
into the company? How do we cover more
employees at a company other than just the
top 200 executives at a major corporation? The only way you can do that is
really with a digital solution, to have some scale
in what you do. So we’re always looking
for, how can we do that? What’s an interesting
way to do it? And then to take Honest Dollar,
if you want to really take the extreme, you look at
a lot of businesses now, it’s actually no longer–
even at big corporations, it’s no longer
just the companies that are serviced by whatever
the corporate plan may be. It’s actually they have
contract workers too that fall– so you take a
company like Amazon, they have a whole slew
of contract employees. So Honest Dollar
is kind of coming at it from the other way. So for us, it creates
in an interesting way to kind of come at our
businesses and wealth management. And one of the challenges
for someone in my seat is, how we take
someone like Whurley, which is more of an
entrepreneurial culture in a startup way, and try
to marry it with a much more traditional business. And that’s something
we work on everyday. JERE DOYLE: How has that gone? LARRY RESTIERI: I don’t know
if we’d have the same answer, but that said– [LAUGHTER] look, I
think it’s gone well. But I’m not going
to tell you it’s not without its challenges. And I think when I– when I think about
some of the things we’re trying to do
at Ayco in terms of trying to digitize
some of the business– and this goes not
just within Ayco. This is also within our
investment management division, within GSAM. When I think about some of
the things we’re trying to do, we have one culture
within Goldman Sachs. And frankly, I remember
going down to Austin to visit on Honest
Dollar and just– I mean, I was like literally,
we need some of these people and we need some of
this DNA actually back at 200 West Street
at our headquarters, because they think differently. I mean the problem
that we all have is we just– or certainly
those of us that have been in the business a
long time, you kind of just accept that this is how things
are done because this is how things have always been done. And we have a way
of doing things. So how do you change a
little bit of that culture? And part of it is
you need fresh blood. You need fresh ideas. But that doesn’t mean it’s
not without its challenges. WILLIAM HURLEY: Look, I’ll
be happy to comment on this. Maybe he doesn’t want–
maybe that makes him nervous when I say that. But I have been a part of a
lot of the acquisitions, both– when I was at IBM I was on
an acquisition committee, so bringing startups in. I’ve been on both sides of it. And traditionally what happens
in an acquisition is you acquire for a market or a tech. Every once in a while
there’s an acquihire. Several people in the
media had asked me, so did Goldman
Sachs acquihire you? And I was like oh, no. None of us would ever be
employable at that company. I was like, I can assure
you it was not an acquihire. They had 250,000
candidates for interns. They hired 1,000 of them. I don’t know that we would have
even been included in that. But we have a great– we have a different viewpoint. We have a different DNA. We have a different technology. In the same about a year from
July to July of 2015 to 2016, I transacted three
companies, one to Accenture, one to Goldman Sachs,
and one to Zynga. In the case of Zynga, it’s
already just been absorbed and kind of disappeared. In the case of Accenture,
the brand’s been gone, the technology’s been
kind of spread apart. And to Goldman’s credit,
this is truly a marriage. We wanted to do this
deal as much as they did, because this is the misnomer. We all look at it and say,
oh, the big company is scared or there’s a displacement
or this or that. And so therefore, their reaction
is to acquire the startup. Or the startup is this
and this and that. We don’t look at it
as for what it is. We needed Goldman as much
as they needed to us, just like Larry talks about taking
our DNA and putting it there, we’re in finance. We’re in a very heavily
regulated space. We’re technologists who
haven’t done this before. We need some of that
DNA in our company. And honestly, we need
some of that credibility. If you’re growing
very quickly and you start talking about signing
millions of customers instead of thousands of
customers, people at these large companies,
at these Amazons like you mentioned,
or FedEx or whatever, they want to know
your balance sheet. They want to know where
you’re coming from. Being like, well, it’s a
startup, we took $3 million in seed funding and all
doesn’t really sell for that. So there was this
kind of perfect storm, this perfect timing
of both parties needing the same
thing from each other. And to the credit,
it’s went well so far. It’s never going to be smooth. Anybody who says,
oh yeah, it just worked out perfectly, that’s
not how these things work. And I’ve been through
dozens of them. But it’s been the best
one I’ve been a part of. And I’m very happy
to be a part of it. JERE DOYLE: So let’s stay
on that for a second. And maybe Adam you can kind
of give your perspective here. 836 companies were backed by
VCs last year for $13 billion in the fintech space. Are those 836 all going to get
integrated into the big banks and into the big
trading companies and that’s how we’re going
to change the culture, like you talked about Larry? I mean, you were
at Credit Suisse. Now you have your
own company, Kensho, right here in Harvard Square. Is that the strategy? Is that what we’re going to see
over the next five years, just a lot of these acquisitions,
which some won’t work but most will work? How are we going to
change the culture? Does it need to be changed? ADAM BROUN: So of
course you’ll see a mix. Look, regulation
for the industry is both an enemy and frankly
a big defensive mechanism against insurgent companies. Of those 836, there are a
bunch that are just bad ideas. There are a lot of bad ideas
in fintech, let’s face it. There are also a huge number
of missed opportunities, because the industry
is pretty complex. It has a lot of dark
and dusty corners that have yet to feel the
breath of fresh technology come into them. But people coming from
outside the industry don’t know about them. How many people
outside the industry understand the ins and
outs of trade finance, let’s say, or business leasing? And these are somewhat old
line businesses, very large, very profitable, very
important for the economy, but where technology really
has not changed or transformed the business in any way. So you have a lot of
these startups that are looking at consumer finance. Some of those are
very important. Some frankly are
pretty superficial. Most of those will die. The ones that are
pretty important, like Honest Dollar, which is
actually driving services to– it’s truly disruptive. I know you don’t like the word. But it is in the
sense that it’s taken people who are under-served,
people who are not getting services today,
and creating a way for them to have services,
which is the definition of– the classic definition
of disruption in the Clay Christensen sense of the word. And those will either grow
to be very profitable, cash-generating companies
in their own right. They will merge where eventually
competition comes along and you need scale
because margins start to get compressed. Or they will get acquired
or they’ll become part of consortium models. And look, none of
these things are new. You can take a company like
Markit, which started out pricing CDS, Credit
Default Swaps, and just taking the
prices from all the banks and publishing those. That’s a classic
consortium model, where the banks all put money
in, and eventually spun out as its own very
successful public company. So this arc of narrative for
financial technology companies is not new. It’s been going on for decades. The things that are
new are the barriers to entry, the same
technology trends that have enabled innovation across
lots of industries, cloud computing and so on, and the
emergence of machine learning and standby software stacks and
all of those kinds of things. So what’s different is
there are more of them. More of them will fail. Some will succeed and they will
be more deeply transformative over a long period of time. LARRY RESTIERI: So
just one thing to add to what Adam’s saying, I
think in a lot of these things sometimes you find that there
are three companies that do all something similar,
so only one may survive. The market just decides
who the winner is. And that’s just how it happens. But I think one of the
things exciting about what I think a lot of
these startups can do is they can focus on a
niche in the business that me as someone
in the business I may complain about
constantly for years. But when I think
about our budget, we’re never going
to put the budget to fixing this one little
problem, because it’s just not at the top of my priority list. What a lot of times these
businesses can do is they can devote resources to
what is one niche and then it creates some– they can actually
create the efficiency that needs to be done but
that just me with a big budget still won’t finance, because
I have to manage that budget. But I think that that’s
where the exciting things are happening. ADAM BROUN: Another
thing that I often talk about is I think
the finance industry and especially banks have
suffered what I call a lost decade since the financial
crisis, where they were forced by regulators, by the market
to turn inward to focus on regulatory issues,
compliance issues, fixing the balance sheet,
dealing with stability, addressing all of the causes
of all of the problems we saw in 2007, 2008. Very understandable. But the result of
that is starvation of resources to
innovative technologies, particularly in the front
offices; a loss of skills. It used to be that if you
were a technologist coming out of a university,
going to a bank was one of the highest and
best uses of your– a great career option. And that has not been the
case for the past 10 years. You’d rather go to work for
Facebook or Google or a startup like us. It’s beginning to come back. But the banks have frankly woken
up after 10 years and gone, the world has changed. We’ve been internally focused. They’re starting now
to look externally and therefore starting to be
more bold and more innovative again. But there’s some
catching up to do. LARRY RESTIERI: One thing
I was just going to add. I think for some of the
fintechs out there, I do think– so for the entrepreneurs
in the room, one thing they need to be
careful of a little bit is thinking about what
your exit might be, just because at the end of– some fintechs that are I think
actually pretty good right now could be knocked
out of business as some of the bigger incumbents
get in and can get scale pretty quickly. And I would argue there’s some
segments you’re seeing this, whereas some other
companies it may make sense to sell sooner because
there’s a market for you at a certain size. Once you get too big,
we’re not going to– I’m just saying the market
of potential buyers leaves and it allows other companies
to come in and acquire them. JERE DOYLE: All right. So let’s look at the next
couple of years, then. Where are the big
great companies? You said the of the
800 and something that started last year,
there’s a lot of bad ones. What are the good ones? Where are the
opportunities right now? And what are we going to see? If these banks have been kind of
laying low for the last decade and not putting their
money in innovation, we’ve had this innovation
economy going on on the side, you now have a whole
bunch of opportunities. What are we going to see? If we sat down here
a year from now, where are the big
ideas, the winners? LARRY RESTIERI: I’ll
turn to Whurley. He’s our idea guy. JERE DOYLE: Obviously we already
know about Honest Dollar. What’s the next one? WILLIAM HURLEY:
I think these 800 companies, both of my fellow
panelists made great points. You’re looking at first of all,
a lot of them are bad ideas. I was very glad to
hear you say that. I say that all the time
and entrepreneurs get mad. I’ll be speaking at a
entrepreneurial conference in California tomorrow
and I’ll say that and people will be like,
oh, my idea is not bad. But it’s like everybody
says 90% of startups fail. And it’s that’s because 90%
of those are stupid ideas. I’m sorry. That’s just reality. So it’s good to hear
somebody else say that. And what Larry said is true. So you take the
800, you cut out– 837. You cut out 700 of them. And then you say, OK, now
these companies are actually across maybe four or five
areas and only one will win or maybe two will win. So I think that in
the next two years, you’re going to see the big
impact be in companies getting in and around regulatory
systems using technology. So companies that do– I don’t talk about
companies in specific, because I don’t want to– now that I’m at Goldman Sachs I
don’t want to endorse anybody. LARRY RESTIERI: Good. WILLIAM HURLEY: See, that
compliance training worked. [LAUGHTER] But what I will say is I
see three kind of areas. So companies that are going into
these under-served markets that before weren’t accessible, so
things where there’s low credit scores and low
amounts of savings and just areas that weren’t
interesting to big banks, because it would take so much
to get in there that it doesn’t work as a business model. And everybody says,
oh, the big bank doesn’t want to help the little
person because of this or that. It’s very realistic to
understand the dynamics of getting into that space. So companies that
do will do well. The second group,
companies that basically change the way they address
regulatory compliance. So what I mean by
that is for example, we got into retirement. But instead of going to a
401(k) with all of that burden, we decided to use IRAs. And because they were IRAs,
then we can do softwares and we can do different
things with interacting with individuals that made
it different than interacting with an actual business
entity, so companies that get kind of creative with that. Don’t step outside of the
bounds of regulatory compliance, but find new ways
to adhere to it that’s better, faster, cheaper. Then the third area I
think is I do see a– every year I think
you can tell there are fewer and fewer
advisors, something I’ve talked about for a long time. And that’s not to say that
we don’t need advisors, but to say you have fewer
of them registering. You have more and
more technology and self-service
models and things. So I think that third
area will be in getting that financial advice. And machine learning will be
a big part of that, obviously. The robo-advisor thing
I’m a very big critic of. That’s an awesome buzzword,
but that doesn’t exist. There’s no automated
intelligence on the other side telling me what to do. The fact that I can
write a small shell script to trade
upon certain things or whatever does not make it
some form of intelligence. But you know things going
in that direction I think will do very well,
because people have went from– just look
at the last year and a half. In the last call
it 16 months, you went from I won’t put a camera
on that microphone in my home or office to I’ve got an
Amazon Alexa or a Google Home. Apple this week on Monday
just announced their new Siri speaker. So it’s like people are starting
to embrace these technologies and to trust them. Now if you go and you
ask your Google Home, hey, what is the
weather like, you don’t then go turn on
the TV or go look it up. You say, OK, well,
it’s not going to rain today, because it
said it wasn’t going to rain. People will take that same
behavior in the next 24 months and they will start to say,
what should I do in this or that financial situation? And it will tell them, based
on either a variety of big data analysis or some machine
learning across that data, et cetera, et cetera. ADAM BROUN: Can I add one? I think those are great. I would add one,
though, as a category– and I’m only partly
talking my book here– which is companies that help
us all make sense of the world. WILLIAM HURLEY: Absolutely. ADAM BROUN: And whether
you’re an investment manager or you’re a bank or
you’re just a human trying to operate in
the world or you’re a government, particularly in
finance we’re still operating in a world where a traditional
active manager is working off of company financials
and earnings statements, essentially things that
are looking backwards and manipulated in
lots of ways and very static views of the world,
operating in an environment where we are swimming in data
that can actually tell us things that are
going on right now with a very high degree of
fidelity and granularity. But there’s a massive gap. And this is true for finance. It’s true for government. It’s true in all walks of life. There’s a massive gap
between the data that is becoming available and
the application of that data to our business processes. And I think companies
that can help bridge that gap will also be a
category that will be extremely valuable to the industry. WILLIAM HURLEY: Absolutely. JERE DOYLE: And
that’s on both sides. That’s on the back office
institution side as well as obviously the consumer side. ADAM BROUN: Yes. JERE DOYLE: Larry,
any thoughts on what’s been mentioned as far as
the hotspots, the hot areas that you’re looking at or
that Goldman’s looking at. ADAM BROUN: Look, I think
we’re always looking. And I meet with companies
all the time that– and look, I think a lot of
times you meet with them and sometimes you
say, well, you know what, they’re not right for us. I could see how they
would work with American Express or somebody else. That doesn’t fit us. So for every–
it’s a lot of them. I don’t even know what
the number would be. There’s only a few that
we end up pursuing. So I’d say I leave it to these
guys to kind of more come up with the ideas and
I’m more of a buyer than I have to come up
with the idea myself or what we’re looking at. But we’re always looking. And I think that’s– for those of you that
are kind of in industry, you just have to
have your eyes put. Now, one thing I will say– I don’t know whether this
is agreeing or not agreeing. I don’t think the role
of the financial advisor is dead, so with
robo-advising or wherever you want to call it. But that said, the financial
advisors in the United States are aging out, so that
population actually will just
demographically retire, so there will be fewer
advisors for people. And I think what technology
will enable is fewer advisors to cover more clients. So everybody will use it. And the way we at
least think is, look, at the end of the day, when
I feel sick, I go on WebMD and I look what
it is, but I still go call my doctor if I
think there’s a problem. I think certainly at
certain wealth levels, I may want to look
and figure out stuff or I may have certain portfolios
that I’m willing to do. But if I’m going to
do something big, I’m probably going
to call my advisor. WILLIAM HURLEY: Absolutely. I mean, think about it. The age old thing
that will not change is that people need permission
from somewhere, right? And one of the roles of
an advisor is to take and say, well, I have this
experience and this knowledge. And I can help you come to
giving yourself that permission on this move you want to make. People won’t absolutely
trust the technology. Advisors are aging out. There’s fewer of them. Some of those areas are
being replaced by technology. But at the end, I
think it is just going to be a smaller population
using the tools to serve the same customer base. No doubt on that. I agree completely. But the thing you have
to understand about where the technology is going
is that eventually we have to start really thinking
and planning for the future. One of the things that
attracted us to Goldman was the process,
the analysis they did when they were talking to
us, the questions they asked. We learned more in the
initial conversations than we had in the entire
time we’d been in business. And the reason was
is because they’re looking out at the future. And you have to
understand that if you’ve been around for 150 years,
you’ve seen a lot of change. If you want to be around
another 150 years, you’re going to see
even more change. I think that it’s not
something you can definitively put and say absolutely,
this technology is going to replace this or
disrupt that or displace this. You have to look at it and say
that these things are going to change throughout a
much larger stack in much more granular ways. And so there’ll be an
area of business– for us, when I got into
retirement, after all of the entrepreneurial
efforts I’d done, everybody thought
I was an idiot. They’re like, really? They’re like, what’s new? I’m like, I’m really
excited about it. It’s retirement planning. [LAUGHTER] ADAM BROUN: It’s amazing
what a little gray hair– WILLIAM HURLEY: Yeah. Everybody in my world was
like, I’m sorry, what? Literally people thought it was
a joke, like Honest Dollar was a cover company for something
really cool I was going to do. But that’s the thing
is all of these things will be affected by technology. None of us can
predict exactly how these things will be affected. 10 years ago we started
this the developer camp called the IPhone Dev Camp
to develop apps on the iPhone. And everybody
thought we were nuts. And we were telling people,
you’re going to have apps and it’s going to be
the central focus of it. And people were just
like, that is the dumbest idea we have ever heard. And we went to a bunch of
companies and none of them wanted to sponsor it, because
they thought it was ridiculous. If I would have told you 10
years ago that your phone is going to become the
center of your world and the main channel
of communications for entire new generations,
it would have sounded crazy. We knew that was
going to happen. But we didn’t know how
it was going to happen. I would have never
thought you know my wife would be the biggest
Snapchat user on the planet. So I guess the point is is
in the same way with fintech, we know that it is
going to affect it. We know there are areas
that can be affected. But it’s going to be this– it’s not something you
predict and plan for and five-year plan, this
is what we’re going to do. It’s something you have to
watch and measure and meter every single day,
because the changes are going to come up very ad hoc
and almost seemingly random. And it’s going to be how big
banks react to those changes, or rather don’t react and
respond to those changes, because one’s involuntary,
the others not, that’s going to determine who
the winners are overall and throughout that stack. JERE DOYLE: We have to
talk about the phone. The mobile phone, iPhone,
was the inflection point for the mobile world kind
of taking off, right? So it feels like the
fintech world is really accelerating now. And like you said, Adam,
this has been going on for 10 or 15 years. Nothing new, right? But all of a sudden in
the last couple of years it just feels like this is– you can’t pick up The
Wall Street Journal or read a newsletter
or an announcement about something
going on in fintech. Do you agree with that,
that is accelerating? And if so, why? What’s been the
inflection point? Is it cloud computing? Is it the fact that
the millennials now are making money and they
don’t want to talk to anybody, they just want to
go on their phone? What’s the inflection
point here? WILLIAM HURLEY: And
I’m going to jump on that one to say a
lot of these startups aren’t following any kind
of regulatory compliance. So what’s making it easy is
if you go out to the Valley and you go to some of these
tech hubs, they’re just like, right, but we can
do this, right? The computer will let us get
this data and we can take it and we can– And I will tell you
that a majority of those are severely out of compliance. JERE DOYLE: Breaking the law. WILLIAM HURLEY: Absolutely. There’s no doubt. But as they just
like put it together and it works and
they put it out, then it drives this
kind of hype cycle and this everything’s
being changed. But we met with several
in the early days that we thought, well, maybe we
should hire these three or four or five guys. And we looked at it. We spent out of our initial
budget almost 50% of the budget on law firms, on
regulatory compliance. We had a $3 million seed. Almost half of that was on just
the complexities of compliance. In what we were doing,
different states had different privacy laws. Were we taking
information, making sure that we were
completely in order. And we’ve talked to
dozens of companies where they’re like, right, but
we just wrote this software and then it does it. It’s like, well, that’s not
how this industry works at all. But I’d say that
there’s this increase in the amount of options,
therefore there’s more coverage and there’s more people hiring
their PR firms and buzz. We’re kind of in this
big hype cycle of it. But the fact is some
of it’s not real. Some of it’s not
regulatory compliant. And some of it is going
to change the world. And it’s up to Larry
and I at Goldman and the team we work with to
try to figure out who that is and how we position for that. JERE DOYLE: You were
shaking your head, Adam, about the inflection point
and cloud computing or– ADAM BROUN: Yeah. All true. But I think the driver of
it– if there’s one driver, to me it’s Amazon
that has lowered the barrier to entry to
create any kind of company to build software. And it’s the combination
of Amazon then plus emergence of
standardized software stacks, of the open source movement,
of the ability of development– this is obscure, but development
frameworks that essentially allow you to snap
together software extremely quickly, which is
allowing exactly the type of behavior that Whurley said. And yes, health care
and financial services are special cases because
of regulatory issues. So there are braking forces,
but the acceleration to me is driven– there’s one word, it’s Amazon. JERE DOYLE: And were does
regulatory issues go? I mean, we’re sitting at an
interesting– we just heard– ADAM BROUN: So something that’s
very interesting– and not in the US, but if you
look at Singapore, if you look at London,
there are a number of others that are
escaping me right now, there are governments
saying we’re going to– actively saying
we’re going to give fintechs a free pass for a while. We’re going to let them do their
thing and we’ll watch them. And we will not– we ‘ll them play, because we
want to see how this plays out. And then we’ll see how
we want to regulate this. The US is not taking that
approach at this point. But other countries are
saying, this industry is going to be disrupted. Regulation is only going
to get in the way of that. Let’s actually deliberately
and publicly back off. And that’s an
interesting approach that might be worth watching. There’s also lots of
ways around– regulation is used frankly by large
institutions and individuals in large institutions as
an excuse not to change. Yes, there’s regulation. Yes, you have to
do things right. Most of that
regulation, if it’s– it may be burdensome, but it was
done with good intention, which is usually hopefully
to protect the end consumer of financial services. There are ways to
comply with it. There are ways to go around it. There are ways to partner
in order to be compliant. It’s not that bad. And so frankly, I
see regulation more, as I said, as a political
excuse internally by large institutions who
don’t want to take risks and would rather keep
their 1,000 people than have to deal with the
disruption than actually a real reason not
to get things done. JERE DOYLE: Do you
agree with that, Larry? LARRY RESTIERI:
That’s a yes and no. I mean, I think– look, regulation is real. I mean, we deal with it. And it’s just something
we do have to deal with. And look, it’s a
challenge, right? So Whurley, we
give him a problem. He’ll run with a laptop and
in like six hours come back with a solution. At Goldman Sachs, it’s a team
of 20 people and 2 months. Now, the problem is when Whurley
comes up with that solution, to the extent we
want to integrate it, I still need that team of– because it has to integrate
into our solution. Now that said, is
that a hindrance? We’re not saying no to change. But that said, it is something
we have to deal with. And I think, look, as
this industry continues to expand and grow,
it’s something we deal with and talk
about and struggle with. Look, we talk a little bit
about like machine learning and different things
that could happen there. I mean, how do
regulators stay ahead of something that’s
constantly getting smart– it’s very hard in the US
construct to work around– I mean, I don’t have an answer. ADAM BROUN: So let me give you
a very specific example of where it’s used an instinctive
defense mechanism as opposed to a real thing. So a lot of the reason–
one of the reasons why banks are so slow
or relatively slow compared to other industries
to adopt technology is because of the fear
of cloud computing. And the blanket statement or– a lot of industries
would say, we are never putting data onto a cloud. They’ll make that statement. Really? Like where your buildings
are are not on the cloud? The email addresses of your
employees are not on the cloud? There is already lots
of data on the cloud. I had dinner with the head
of one of the world’s largest private banks, a European
private bank, who was so frustrated with his own– this was a Swiss company, so
they have very strict privacy regulations. And he goes, you know, I have
all these privacy regulations. I spend all this money
on not letting data out, and some employee sells a DVD
of data to the German government so they can chase us on taxes. I might as well just put
everything out there. This was the head of one of the
world’s largest private banks saying– recognizing the
world has changed, but either the regulation
hasn’t caught up or the fact is that it’s
easier for a compliance officer just to say no than to
actually be thoughtful and go like, you know what, that
stuff doesn’t matter. This stuff is actually
private and needs to stick. And making those finer
distinctions takes some work, but once you do that work,
then there are actually very substantial benefits
that an institution can realize by being
a little bit more thoughtful and willing to
challenge the status quo. WILLIAM HURLEY: I totally agree. And that’s part of the
reason out of the options that we went with
Goldman, right? ADAM BROUN: Yes. WILLIAM HURLEY:
Everybody thought that I was going to have the
biggest issue with compliance and legal. And it’s actually not. It’s actually I probably
disagree with the technology department more than anybody. But the compliance people
are being very thoughtful, both throughout the
process of the acquisition, but those ideas
Larry says, run off with the laptop for six
hours and pull them up, they are heard. They are evaluated. And all I need as an
engineer is for Compliance to tell me, right, but these
three things don’t work. And I can go re-engineer those. And I think that’s
what makes the kind of symbiotic relationship
we have so strong. LARRY RESTIERI: And then to
your original thing, Jere, why is accelerating, I
think one of the reasons it is accelerating is
banks like Goldman and JP Morgan and Fidelity
here are embracing technology. I mean, we all, I think– whereas maybe a
few years ago or I don’t know how many
you want to go back, people were maybe a little bit– everybody recognizes
we have to do this. This is not like– for our survival,
I mean let alone to be around for
another 150 years, for us to be around another 10
years, we have to embrace this. We have to change. And we’re all
working towards that. But it’s not easy. But we’re all
working towards it. JERE DOYLE: So before we
open up to the audience, because we want a few
minutes of questions, I’ve got one last question. With technology
comes efficiency. With efficiency sometimes
comes taking jobs out of the equation. We have a lot of
different people in here that are advisors, traders,
investment bankers, analysts. Where is the biggest risk? If I’m an analyst, should I
be worried, if I’m an advisor? Where do you think
the biggest risks are? Where does this fintech
start eliminating these jobs over the next decade? Or does it create jobs? WILLIAM HURLEY: I’m not
worried about their jobs. I’m worried about mine. I mean, realistically–
realistically because of the regulatory
complexity, because of the way machine learning
is evolving, you are starting to have
programs that write programs. You can codify things
like regulations, right? And so I actually– will
advisors be affected? Sure. Will wealth managers,
all these people– all of this stuff
will be affected. How I don’t know, probably
fairly dramatically. I agree with Larry. It’ll be fewer people serving
the same stuff using the tools. I worry about my
job, though, most of all, because if
you think about it, as finance becomes so dependent
upon technology, which it already is, and as technology
become such a disruptor, as we’ve been saying,
for that industry, then the controls on the
code, on that technology are going to need
to be automated. And so there are already
companies out there who have– Google has
software-writing software. There’s a company who
just makes software to write software, who’s
looking at three verticals. They’re looking at air safety
and finance and biotech. And so when you start looking
at these really critical things, at what point do you no longer
trust me to write the software, because it has become somewhat
commoditized because it has become somewhat normalized? And do computers replace
my job in fintech? So that’s actually
something nobody talks about that actually
concerns me more than– no offense– any of you,
because I’m not an advisor. But literally, technology
will automate many people out of a job. The thing technologists
don’t see coming, I believe, is it will automate them out
of a job potentially first in several areas. JERE DOYLE: Any thoughts? ADAM BROUN: Look,
I think there will be a large amount
of displacement of jobs up and down the stack. If your job essentially consists
of looking at a spreadsheet, moving data around
in the spreadsheet, and you’re being paid a handsome
six-figure salary for that, you should probably be thinking
about changing your skill set. I heard an estimate
earlier this week that there was
$100 billion a year being spent by
banks on compliance. JERE DOYLE: $100 billion. ADAM BROUN: $100 billion. JERE DOYLE: On compliance. ADAM BROUN: Which I believe. JERE DOYLE: Me too. ADAM BROUN: Right? Across the industry. Probably 70% of that can
go away or be automated, my guess, maybe more,
because that actually– when you step back and
say for society is that actually a bad
thing, probably not. That’s probably a
pretty good thing, because those
people are actually doing something other than
watching other people and so on. So when you step back and
you say, on the whole, this is actually potentially
a good thing for society, or at least not bad, at the
micro level, if it’s your job and you’re in that stack,
it looks threatening. But– oh. But we’ve also seen
with every disruption, with every displacement, there
are new jobs coming along that nobody even thought might
exist before that disruption. And your example of how many
iPhone app developers are there today, that was the idea
that got you laughed out of the room 10 years ago. WILLIAM HURLEY: Yeah. JERE DOYLE: Great. All right. So let’s open up
to the audience. Questions out there? AUDIENCE: How is
[INAUDIBLE] fintech learning into their curriculum? And then is there a
geographic hotspot for fintech development, other
than the Valley or Boston and the Research Triangle? ADAM BROUN: Boston. WILLIAM HURLEY: Boston and
Austin both, I would agree, Austin because a lot
of people didn’t know, but Schwab moved most
of their developers into the old Tivoli campus. And those guys are
like Austin’s great. I should go work at a startup. So we used to joke
at Honest Dollar when they first
made that move, it was the Honest Dollar
recruitment program was we won’t have
to pay relocation for literally our
choice of hundreds of engineers from Schwab. But there’s a lot going
on in Austin in lending, in retirement, in
checking and savings, and all kind of factors. I think it’s definitely emerged. There’s been– all the way back
since CyberTrader was acquired by Schwab, there’s I think
30 new companies doing this new laws that
allow you to go and do crowdsourcing finance. There’s a ton of activity
there and here as well. I actually don’t see the Valley
as being the leader in fintech. And globally, London is
clearly way ahead, I think– [INTERPOSING VOICES] –of everyone. Exactly. Especially for institutional. [INTERPOSING VOICES] Absolutely. JERE DOYLE: And from the
Carroll School of Management, I’m not the expert
to talk about it. And we can hear later
from Andy or Ronnie Sadka. But I can tell you
a lots going on. First of all, at
the Shea Center, we’re trying to cultivate the
whole culture of startups. And so a lot has
been done there. There’s been a lot of time spent
on data analytics and big data. And that’s going to be a big– a lot of that stuff’s
happening now. Also, we’ve got a great computer
science department here, a lot of really smart students
doing a lot of computer courses and coding,
information sciences. So I think the Carroll School is
spending a lot of time on this. My role is to try to
cultivate the culture with the entrepreneurship
side of it. That combined with what’s
going on in the classroom, I think you’ll see some
pretty cool things. John? AUDIENCE: So on of the big
issues in the 401(k) world is the leakage, so particularly
with the Millennial generation, people changing jobs constantly. And there’s no real system,
there’s no automated system that I’m aware of to deal
with this portability issue of people taking their 401(k)
money, in small amounts– a 32-year-old might have
$25,000 in his 401(k). But when they go to
the next company, they’ve got to deal with the
human resources, the forms, and paper. And they just say,
just give me the money. And so there’s billions
of dollars taken out of the 401(k) system
every year because there’s no real systematic way
of processing portability from one company to another. WILLIAM HURLEY: Well,
there were two big issues when we first started at
Honest Dollar we looked at. It was that, and last year was
the first year of net outflows on the 401(k)s,
because the Boomers. So yes, that’s all going to
put stress onto that system. As far as portability
goes, obviously they just need Honest Dollar accounts. Problem solved. But that was one of the
things we looked at. And one of the things
we looked at early on was could we be using
the technology we created a way to do exactly that
and become like, here’s how you make it portable. You’re leaving this company. You take it out of the 401(k). You put it into this
Honest Dollar platform. And then it doesn’t
matter anymore, because it’s effectively
an IRA, right? And the thing there that we ran
into was everybody said, right, but my 401(k) is letting me
put away all of this money. But if you actually went
and looked at it, especially in the market we
were looking at, people weren’t even
coming anywhere near any of those limits. So portability is a huge issue. It’s absolutely something
that needs to be addressed. JERE DOYLE: Go to
this side of the room. Second row? AUDIENCE: I just had a
question on Honest Dollar. By the time you’re offering a
401(k) to a lot of individuals, as you point out, after you
take out your service fees, what sort of returns
are they having? WILLIAM HURLEY: Well,
we’re offering IRAs. AUDIENCE: IRAs only. WILLIAM HURLEY: Right. AUDIENCE: [INAUDIBLE] So
what about the returns after your service charges? How are you doing? WILLIAM HURLEY: Well, our
charge is a flat $5 a month, so it depends on how
much, on where they’re at. So what you want to
think is that there’s a bunch people that don’t
have a lot of money, they’re not saving, then
that all of a sudden looks higher on average. But the fact is that it’s
not just Lyft drivers. It’s independent
graphic artists, people who are doing software
programming independently, things like that,
who are actually putting away a lot more. And in that case,
then obviously it looks much better
on that other side. AUDIENCE: So where
are the investments? How are you making
the investments? WILLIAM HURLEY: So they’re
put into Vanguard funds. So they have six portfolios
across Vanguard funds. And it’s pretty
self-explanatory from there. JERE DOYLE: OK. AUDIENCE: Are you the
fiduciary on the account? WILLIAM HURLEY: We
are a fiduciary. AUDIENCE: OK. WILLIAM HURLEY: Do you see how
I say that as a software guy? Yes. AUDIENCE: At the participant
level and the plan level, who’s the fiduciary? WILLIAM HURLEY: Well,
there’s no plan level, right? It’s an IRA. AUDIENCE: You’re the fiduciary. WILLIAM HURLEY: That is correct. JERE DOYLE: Yeah, David. AUDIENCE: Thank you. This would be a question I
think either for Larry or Bill. Within the next 10 years, and
I know you can’t– no one can really to predict the future– at what dollar level and above– or what dollar level
and below would personal financial planners
become like landlines? Is it half a million dollars? I just use the landline
because I don’t think any of us ever thought that they could
become as useless as they are, really. [LAUGHTER] LARRY RESTIERI: Yeah, look. I mean, I don’t know that
we have the answer, right? I mean, I’m just saying
I think there are– when I think about people
within our client network that we currently cover
certainly through our Ayco business, there are
probably people there who maybe have
$50,000 in the bank and require a lot
of hand-holding. And there are
people with $500,000 that actually would be fine. Part of it depends
a little bit– I mean, I think part
of it ultimately will depend on the complexity
of your account, so– JERE DOYLE: So it’s more the
complexity of the individual’s financial situation
rather than the dollar level of their assets. LARRY RESTIERI: Correct. So if you’re a single man or
woman living in New York City and just really don’t have any– then you don’t
need a lot of help. But if you’re married and
you have a couple of trusts and you have maybe multiple– I mean, then it gets
more complicated and then you need help. JERE DOYLE: OK. Thank you. I think we have
one more question. Right here in the– Did AUDIENCE: Anyone
give us a comment on the bricks and mortars at the
bank level, commercial banks? Are we going to go through
the same thing as happening in the retail generally
and lots of those we’re not going to have a bank
around the corner anymore? [INTERPOSING VOICES] ADAM BROUN: Well, who knows? I mean, we’ve been having
that exact conversation, let’s face it, for 20 years,
since the first dot com thing. There will be no more– why do you need a
bank branch anymore? And yet they’re still here
and in fact the branch network is seen as pretty valuable by
those big commercial banks, although expensive. I don’t see it
changing any time fast. And probably a rising
interest rate– if we see interest rates
rising and banks starting to make money again, if
there’s deregulation, then the cost
pressures will be off. So I don’t see that changing. The nature of the services
delivered and the cost models delivered in those
branches might change, which you’re
already seeing, more kiosks and remote advisors
and things like that. But for some reason the
branch seems to still be a pretty valuable asset. JERE DOYLE: Well, we
could go on and on. But it is lunch. And I know that I would lose
my job if I didn’t get us out of here on time. So I’ve learned to
be on time for lunch. Thank you so much. This was really great. I mean we really– a lot of really
interesting things. [APPLAUSE] [MUSIC PLAYING]

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