Episode 6: Jay Shah, CEO, Personal Capital

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Wealth Management v2.0: The AdviceTech Revolution, Episode 6

with Jay Shah, CEO, Personal Capital

Gavin Spitzner (President, Wealth Consulting Partners, LLC):

Welcome to the "Wealth Management version 2.0: The AdviceTech Revolution" podcast, where I'm joined by Jay Shah, CEO of Personal Capital. 

On this podcast, we are focused on the business of the business, the business of advice. And specifically, we study and celebrate firms that are leveraging the combination of technology and humanity – some call it hybrid -- to deliver better advice and better outcomes to more people through that combination. I call that the advice tech revolution and Jay is on the front lines of that revolution and has been for more than 10 years now.

Personal Capital has ridden a unique model of free personal financial management capabilities combined with sleek portfolio analysis and recommendations engines, combined with remote advisors delivering advice virtually – out of choice from day one I should add, not our recent necessity…doing that for more than 2.5 million users and nearly 25,000 advised clients with over $12bb in AUM.

So Jay we'll get to your recent news about being acquired by Empower Retirement in a deal worth up to $1 billion dollars -- I thought, by the way, you might record this with a field of unicorns in the Zoom background or something -- but let's start with your more humble beginnings -- I guess a decade ago now -- when you were thinking not about $12 billion, but maybe that first twelve dollars, where that would come from. Let's start with you the way I start with everybody: tell us your origin story, the mission that guided your early days, and then we'll fill in the middle and ultimately get to how you became a unicorn.

Jay Shah (CEO, Personal Capital)

Great, well first Gavin, thanks so much for having me on your podcast. I really do respect the work that you're doing. A lot of people that are trying to track what's going on in what we call digital wealth management or the advice revolution…there's a lot of confusion that's going out on what's really happening on the frontier… but I think you have a very clear and succinct vision. So I really appreciate being here and you allowing us to tell our story. 

OK, so our humble beginnings… I do always start with our mission. It’s transforming financial lives through technology and people. Seven simple words. It's always been that way since inception. And it's been delightful actually to start that way and persist the same vision and strategy that we've had ever since day one.

A little bit more about the backstory. And maybe before I talk about the inception of Personal Capital, I will talk about a little bit of my background. I spent 20 plus years in executive leadership, predominantly in technology and in operations… I'm an execution specialist. And I go back to the some of the original old school FinTech stuff, you know, back in the dot.com era. 

The thing that I point to most readily is time I spent E-Loan, a public company predominantly focused on the consumer credit marketplace -- mostly mortgages, but also auto lending -- but a lot of the traits in that industry, in that vertical, have very similar patterns to what we see in wealth management. 

When I say that, what I mean is a consumer that is generally confused about what capabilities and what they should look to in getting trusted advice in a massive space -- a $10 trillion industry, if you want to look at mortgages -- but a great opportunity in a fragmented industry to use technology and data, not only to tell a story to the consumer, but to empower the financial professional.

So that's what we did. Back in my time at E-Loan again, really big space, great opportunity, and did that in consumer credit, but also in banking, both of which were very, very instructive in walking into an opportunity at Personal Capital. And it takes me back to the, way back in the time machine back in 2009, it was the summertime and I met our charismatic visionary, our founder, Bill Harris… very esteemed background, his heritage of running Intuit, also being the CEO at PayPal, he just had a very, very succinct vision. It was very interesting. I got to know him at the time and it was really simple, in Bill's words, let's turn this entire industry on its head. 

Account aggregation  -- and that was the principle project, and I'm going to talk about that in a minute -- that's how we got started, but let's turn this thing on its head and rather than using aggregation, you know, it was a barnacle on the back end of the ship after a client has come on for whatever financial service and then allowing them to link their financial life. Let's invert that and let's start this relationship with connectivity -- robust connectivity -- across all of their accounts to create this consumer in the middle and surround them with all their financial information. And in this industry it made so much sense where, if we're in the business of offering holistic advice, what better way to start then by surrounding the customer with all of their financial information. There's a metaphor to medicine… it's whole medicine or holistic medicine, and how could you possibly diagnose and prescribe something for that patient unless you have that holistic view?

So, that was the vision that got us started. Then there was a project…it was the technology project, our founding engineer, our chief engineering officer, if you will, our other CEO in the company, a gentleman by the name of Ehsan Lavassani was running a project out of Bill's pool house, and integrating the aggregation platform that is still the core of what we do, of that personal financial management system. And before we even had dollar zero, that was the initial project and that vision that Bill had, and this mission of transforming financial lives, which really got the whole story started. So that was back in the days of 2009. And we were in stealth mode for a good couple of years before we launched, but that's really what set the stage for Personal Capital as people understand it today.

Gavin:

Right. And it's interesting because you came along and you were looking to disrupt it...you weren't beholden to existing business models. And so that whole focus on starting with account aggregation and helping people see their whole financial lives.. I think to your point, that really set the tone of -- this is about you, and we'll get to the human advice layer, but this is first and foremost about you and you getting control and around your financial life versus we’re the all-knowing wizard, everything comes through us and then we'll dispense advice and sell you products. 

I think that's something -- certainly when you got started -- it was very noteworthy for me and you've stayed true to that throughout your history. And you really were the original hybrid combining technology with human advice. Now everybody's remote of course.  Everyone's scrambling to create their own Personal Capital hybrid model. I get calls every week from firms that are trying to replicate that model. How do we optimize in a remote environment? So tell us more about how you thought about that. Everybody around the same time as you was coming out with robo solutions, pure robo…some of those firms have pivoted over time, but talk to us about how you came up with that model and how that's evolved.

Jay:

Well, thanks for the recognition. You know, a lot of people don't know who got this started, but we feel like we were the pioneer in the space, particularly with the hybrid model. And that's really showing its full bloom these days. I guess it's no surprise that there's so much that's happening in the robo space. When you take a step back, if you look at the households in the U.S. I think 70% of that marketplace is within that core retail segment. There's a Silicon Valley edict behind it too, which is proliferating throughout the country about software is going to eat the world. And I think in some measures that can be true in certain spaces, but as it pertains to wealth I think that might be true in the simple part of the business or where people are starting with a relatively simple customer.

But I guess there's two ways I think about this. One is when we went in and tried to abstract what's going on in the industry, I think it's true that two thirds of the country is in retail and might be thinking about getting into starting their wealth because when you look at, when you permeate that and look at the asset view, it's only low single digits in terms of investible assets. 

So when we surveyed the industry and saw that action, and there's been a lot going on in the brokerage space and in retail and it's intensely competitive and pressure-packed. And in many ways it's a race to zero in terms of the fee opportunity for advisors in that competitive realm. And then if you flip on the other side -- the 1% if you will -- the ultra high net worth… tons of assets, probably 40% of the assets, but it's only by definition 1%.

And I think because of that heritage of providing a lot of professionals at the high end of the market it, it has its own form of competition, but not through using technology and data and distribution. So when we look at that middle market we see about a third of the households, but very importantly, greater than half of the assets in the U S marketplace. And so when we thought about this notion, bringing forward consumer technology -- that nascent aggregation program which blossomed into our personal financial management solution -- that's the face to the customer, but the customer in that middle market also demands the human. They want to have a personal touch. They don't want just the data and the technology. And so when we examine that customer, not just the TAM we realized that customer wants to have personalized advice and a connection with a behavioral coach, or a Sherpa, if you will, that is going to guide them along the way.

And so in doing that for personal financial management, we also thought it was really instructive to focus on another customer in the segment, not just the consumer. A lot of times folks look at the consumer as being synonymous with the customer, but the advisor is every bit as much of a customer in this process, too, because to our mind, the shared experience of somebody who has a connected life, the consumer with an advisor, who's empowered with that data and a shared experience and the productivity and the digital tools to be able to engage in a strategic discussion… that's paramount and missing that other customer is frankly is what was not designed for at the early stages for many of the robos that came after it. But we did. And I spent a lot of my time doing the principal work, thinking not only about how are we creating this personal financial management tool, but what's happening behind the curtain with the advisor. 

And how do we triangulate this experience between the consumer, the advisor and the planning tools and data that elicit those strategic discussions? So part of our design was based on dissecting the industry, but also very much based on what the customer mindset was and building the solution set with the advisor in tandem with the consumer, it kind of all comes together. And if you do it the right way, the line's really blur. It just ends up being a shared strategic experience between advisor and consumer.

Gavin:

Well, that's really interesting. And I agree with you completely starting with that paradigm in mind, you're going to come to a very different place around the engagement and how an advisor interacts with the client versus simply starting robo and lumping in an advisor on top of that experience later, or vice versa, trying to just digitize something that's all driven through an advised relationship. 

The other really fascinating part of your model is again, unlike your robo cousins who have in some cases, no minimum or very low minimums, literally zero, maybe $500, $5,000… your minimum, and correct me if I'm wrong. I think it's been this way maybe from the beginning, or certainly for a long time is $100,000. Your average client on the advised side has over $500,000 with you. So it really flies in the face…a lot of folks out there keep equating robo and digital as those are the young poor people, maybe HENRY's but not people with wealth, they all want to start with a traditional advised relationship and you and I know that's not true. 

Back then you know, everyone was saying, no one's going to entrust that amount of money to a virtual advisor. People want that face to face relationship. So tell us how did you come to that decision? And let's kind of use this to pivot to your client profile. What do they look like… how that profile and the client base you have has driven your capability set beyond just the typical, very plain vanilla all-ETF very, very simple, basic robo solutions.

Jay:

Absolutely. So you had a very interesting word that you mentioned in there, Gavin, which is trust… trust is paramount, right? And I think there are a lot of naysayers when we went into this, and of course when we were starting it and building this thing in stealth mode, there was a little bit of self doubt, you know, is this really going to work? Do we think that we can enter into this game and have somebody trust us to their nest egg? And in many ways, that's why we started with a personal financial management tool and allowing this consumer, and it also speaks to the consumer…time-starved typically, you know, head of household or in a relationship… may or may not have children. The way we think about that financial journey is they're right in the middle of it. In many ways we characterize it as being the entire catastrophe, nobody ever plans it, you might get in a relationship, you have a job, you start accumulating accounts. And before, you know it, you have the whole thing. And, you know, it's 15 to 20 accounts and many times more… multiple financial services relationships. 

Gavin:

That’s me!

Jay:

That's right. And so it's hard enough to remember all your usernames and passwords to get to those end points, let alone know how it all hangs together. And so what that created was an opportunity to connect the entire financial life of this customer. And then begin to tell them stories about the non tactical things, the nontrivial things, the strategic insights that they were otherwise missing from not seeing that hole and what happens by telling these stories and illuminating this financial life, not only where they are today, but where they're headed.

You’re galvanizing trust and by virtue of galvanizing trust through this free experience and that engagement with the customer, they start opening up their ears and their minds to a conversation with someone they might trust as an advisor. And as you say we decided to go into this middle market. And we dropped down it at one point down to $25,000, but we found that we do our best work in that really complex situation of a mass affluent consumer. Their life is chaotic and they don’t have a lot of time or interest in developing expertise, rather they'd like to delegate and take on a coach to help them. I mean for us it's analogous to that same financial journey, and you might start off doing your own tax prep. You might find a free service, then you start doing it yourself.

And then suddenly you reached this inflection point where there's just so much complexity. It might be alternative minimum tax, whatever the rule might be. And you just say, I need to hire a professional. And that similar inflection point or metaphor that you see in bringing on a tax advisor is similar in a financial coach. And a lot of times people don't see that story and that strategy that's before them. But it's a very simple paradigm, you know, that we all learned back in grade school, which is, show, don't tell. And we found through the technology and showing rather than telling, it's not the wise person from Wall Street telling them, and talking down to that consumer about how they should do things. It's showing them the story and also showing side by side an opportunity of how they might change things and implement a financial plan and other aspects of portfolio management that they otherwise aren't considering.

But when you show them that information it simplifies that complexity creates an opportunity for a conversation and allows us to get to that into that middle market. And you're right, we do have half million dollar relationships and greater than that, and that's really grown and enriched over the course of time. And those are new relationships. This isn't a byproduct of market appreciation. And what we see is we have a little bit more than a 50% wallet share of those consumers. So these generally speaking on average, are million dollar clients that have a million dollars in net worth -- in liquid investible assets. That's the customer that we work with and addressing that complexity first, building that trust to usher in a conversation with an advisor is really what this is all about and how we've garnered those relationships that we've gained over time.

Gavin:

Absolutely. Any lessons learned you can share with your colleagues out there in terms of moving to the remote environment, how you've adapted… you had some advantages, obviously in terms of the virtual practice, but like you said, the remote world is different. Anything you've learned along the way that you would share?

Jay:

Well, I don’t know if it's anything I learned along the way, but just this framework that I talk about and being a purpose-driven company and being so mission-oriented, but also reflecting on our values. I mean, that creates culture and it's very palpable culture. We have a very, very spirited community of people that are on this rocket ship, all the stewards of Personal Capital. And probably, not probably, the biggest stress for me was how are people doing? How are people doing remotely and how are we maintaining our culture and sustaining that momentum. We thought that we had the strong base and strong platform, but we've continued to reinforce and nurture that. So just remaining connectivity with our employees, persistently surveying them, what's really on your minds, reaching out to them and staying connected with them.

Having virtual get-togethers…we are literally doing everyone’s sessions over video about every seven to 10 days. And we found that's been incredibly important just to remain connected with people and so far, so good. And I still think we have a long runway ahead of us in terms of operating virtually and remotely. One thing that's really helped us is because we've scaled up and we had critical mass when we did pivot to virtual, as opposed to being, up this really steep part of our enterprise growth. It's really, really helped us to maintain that continuity of personnel. So I think the big lesson for me, or the reinforcing thing is the importance of mission, culture, values, and being able to use that as your compass for how to step forward, but remaining connected with our employees. That's been the most important thing for us and so far, so good.

Gavin:

That's great. So in the middle of the pandemic, you struck a deal, just a little deal. On June 29th I think you announced your news to undergo a business combination with Empower Retirement, the second largest retirement plan provider in the U.S., so what does that mean for you for Personal Capital, your customers, future customers? What’s it mean? What do you hope for the future and to come out of that combination?

Jay:

Sure. It's a great question. So yeah, it's amazing that something like this can happen during such a time, but, in many ways I think it was a big wake up call for everyone to say, you need to have a virtual delivery model. And as you might expect, Gavin, we've been really an attractive profile for many. We've had conversations with many an enterprise over the course of years. And for us, you know we've had the luxury of being a very successful growth enterprise with enough legs to stand on our own in perpetuity. So, nothing by way of necessity, but rather by way of opportunity and what we found in our discussions with Empower and, maybe no surprise here, but the  mission oriented, value-driven culture that we have, and what we learned, across the enterprise of Empower was something that was just so shared.

When I look at the values that we have…we have five values… they map just almost perfectly to Empower. And another thing is because we're in adjacent spaces, if we look at this as being -- my data's probably a little bit antiquated here -- but if it's a $48 trillion industry and $36 trillion of that is discretionary wealth management, and $12 trillion is retirement…we're both facing different segments of the industry on the one hand. 

So what that means is for Personal Capital is we have someone that's philosophically aligned, committed to innovation and sustaining growth as our independent enterprise in Personal Capital and what we're doing to go win relationships and continue to serve clients every single day. But at the same time, it affords us the opportunity of partnering with somebody with greater scale, having that belief and sustained investment and certainty in very uncertain times is very, very powerful for us. And what's more, the advent of being in these adjacent businesses also has some interlocking capabilities too. One, it allows us to provide some benefit to them. But I think also some mutual benefit for Personal Capital and Personal Capital’s clients -- current and future. So, great opportunity for us and we think we found a wonderful life partner and we’re right in the middle of having announced signing at the end of Q2 and we're in the middle of the journey, expecting a close sometime in the back half of this year.

Gavin:

Terrific. Well, best of luck with that. The synergies are definitely clear. What do you see it doing for when you think about Empower or just that business line generically, for their clientele, we see a lot of retirement plan firms that have all these participants…they’re not just living in this world of retirement plans, they have a financial life. I'm sure there are many clients you have that are participants in those plans and others. So what do you see this combination as doing for people in those types of plans?

Jay:

Sure. As I said, the benefits for us and the longevity and benefits for our clients, are very, very clear. As it pertains to Empower and their existing business, what I would say in the retirement management, or more specifically, in the defined contribution business, it's really what's happening at those plan sponsors of those employers and that customer, that's the buyer they're looking for more than just a portal that you log into and, pick from a fund lineup in a 401k or whatever vehicle you're using in order to deliver the retirement investment solution. They're looking for something far more vast, and there's a tsunami that's happening within that retirement management space and it's all about wellness and it's broad-based wellness. And it's about that same holistic nature of their employee. It's not just about that investment solution, it’s about providing wellness and security and ease of mind for their employees. It's removing stress. And there's industrial logic behind that because stress is more costly for employers to manage. So this commitment to wellness that's happening out on the frontier of the plan sponsor is very instructive for what our technology affords in the context of wellness when bringing that to Empower -- either their legacy customers or their new customers that they will garner. 

And so if you double click past that plan sponsor or that employer and go to the consumer, the consumer doesn't care, it's their money. And they want to have certainty and wellness and feeling like they're not missing out and making bad decisions and they're doing the right thing with their money. And, yes, they think of the sleeve of their retirement, that's their nest egg and something they're investing in, tax deferred typically, but they're also looking at just their money and their stress is not parsing out the different accounts and breaking out the taxonomy of their investments, it’s about having success. And so that shared mission and set of values that we have with Empower, over the arc of time I would anticipate that these lines get blurred. And again, it's all about the customer and putting the customer in the middle and how do you deliver the most innovation success for that customer and do right by that customer? We've got a good track record for the last 10 years of doing that within our space. And I think it's going to add immense value for Empower and for their business and ultimately their consumers that are in tow.

Gavin:

Right. And in terms of empowering that journey and wellness with a holistic view, you recently launched the Financial Roadmap tool. Can you tell us a little bit about that and maybe use that as a springboard to talk a little bit more about your roadmap… where you get inspiration from, the role that both clients and advisors play in where you go with your platform?

Jay:

Yeah. It's a great question. And again, thank you for having such an astute understanding of what it is we're doing, because it's nuanced. It's all kind of in this realm of planning. And as I mentioned, we have a cashflow view for the households. We have the ability to put in spending and savings goals over time and understand your probability. But in order to create the day-to-day behavior to reinforce the long-term benefits, we introduced our Financial Roadmap. It's really just breaking down planning and it's using that consumer data, the rich data that we have, and using that and developing models to say, what is the next most important thing that you need to do -- client -- and mapping that out. It's literally a lifeline of milestones and what we think is the next best thing and it's actually engaging that consumer. 

One really important thing..I haven't shared this and again, it's not an obvious thing… is the level of engagement that we have. We talk about the complexity of the consumer, and having them gain value by the insights. One way that I really know that it's working -- it's one of the statistics I'm most proud of Gavin -- is the persistent engagement we have with our consumer. And so we have millions of people that are using our technology, but those that are really deeply engaged -- and particularly this mass affluent high net worth client with complexity -- when we look through our data and those that are connecting, which is a vast population of these customers…the stat that I know that we're winning, because we all talk about what we're doing and the advice tech revolution and how we have game-changing -- we use all these emphatic terms of describing how great we are. 

At the end of the day, it's what the customer chooses to do or not to do. And so we have these free tools and we've been out in the wild for coming up on nine years now. And we go look at all of those cohorts of people that are qualified for this core mass affluent wealth solution. When we look at those that have come into our platform in the last quarter, that number is greater than 75%, all of them over that arc of time. And what's even more profound is when we look through, how frequently are they using the system, they're using it every other day. They've made this part, this is the principle of how they see and understand their finances. 

And that's winning for us. That's what we wanted to do. That's how you garner their attention by using award-winning technology to actually have something that's usable, not because they're paying rent on it, or, we don't guilt them into using it. They're using it because they're finding utility. And so the Financial Roadmap is another great way that we can just break this down into the small nudges and behavioral things that consumers can do to improve their outcomes, because that's what it's all about. And we actually show the probability score and we show the results of that over time. One thing we're really proud of in the first half of this year -- just another stat to throw in there -- is we increased our likelihood of retirement success in the first half of the year, by almost 10% for our existing clients. When we go look, just look through the day and look at that score and that's profound for us.

And that's the type of thing we're doing. And the Financial Roadmap is just another tactic that we're using to pull it off. There's another part of it too, because that guides the consumer on what to do next. And as I said, it's not just that dimension. It's also the access of the advisor. We also have something called Advisor GPS. What's the most important thing that you need to do across the portfolio of your clients that you serve? And we prioritize and rank that and serve that up for our advisor. It's just another way that we're mapping our technology and the innovation, not just for the consumer, but to the advisor to make sure that we're prioritizing their activities too. And our advisors love it. It’s kind of a self-tuning way of understanding what's most important for you in managing all your relationships.

Gavin:

That's great and that stat around engagement every other day is pretty mind-blowing. I think virtually everyone listening to this or watching this will be envious of that because everyone at this point has some kind of a client portal, aggregation capability, planning…but to me, what it says is there's a real art and science to how you present it and just the effectiveness of doing it in a way where, if I've got all these choices, like you said, people have accounts all over the place, I've got all those choices, what's going to be my go to, where am I going to live… in my phone, on my laptop? How are things served up in a way that it really is empowering me?  So my hat is off to you sir, on that stat. That is impressive. 

Jay:

Thank you. Back to those humble beginnings. When we thought about that little project that was happening in a pool house, who knew that we'd be able to influence so many people, and this became the principle destination of how they manage their finances. And we haven't seen anything like it, frankly. We've canvassed a lot of other financial services and FinTech solutions and it is really a standout. So thank you Gavin. We appreciate that.

Gavin:

Let's bring this back to you now, Jay. You've been with Personal Capital since really the beginning, since ‘09. What's the new partnership with Empower mean for you, your position…are you going to ride off into the sunset on your rainbow unicorn? Or do you see yourself staying involved in the next chapter?

Jay:

Yeah, that's a great question. We announced it and, on things like LinkedIn, there's just an influx of compliments and high fives and “wow, that's impressive”. A lot of ooh’s and aah’s. And, the term that I saw from many, it was like, “wow, great exit”. And I actually took a step back from that. And I issued a blog post a few weeks ago just to speak to this. Because a lot of even our clients had that…what does this mean for Personal Capital and its leadership? 

For me, it’s not an exit. For me, this is an accelerant. So when I think about what we've done over the decade plus that we've been on this journey, one way to look at it is, when we talk about all those headline stats about the addressable market in discretionary wealth or even retirement, it's not lost upon me that we've been at this for a decade -- we have over $13 billion in assets under management, the most that we've ever had -- but on balance, that's still relatively small.

What the alignment of our philosophies with somebody like Empower and the scale that they have…we have I think $800 billion of connected investible assets on our platform. I mean, they're managing nearly that amount. They're supporting 40,000 enterprises and 10 million consumers. 

So what I think about myself and as well as what's inspirational for my leadership team is the opportunity to do everything that we're doing and in many ways, keep doing what we're doing, the journey and the mission that we're on, but we have this step function opportunity to just increase our scale. And that's exciting. I mean, you know when I talked to Fritz Robbins, our head of technology, he said, when I think of scale at this level, it makes my heart go pitter pat. And I think that's true for all of us.

So what this means for myself as well as for my executive leadership team, Gavin, is we've made a multi-year commitment to continue the journey. We’re fired up. We didn't look at this as being an exit path or an out. We looked at this as being a springboard and the ambition that we have in tandem to the CEO, Ed Murphy at Empower Retirement, we're just getting started. We're really excited about the interlocking capabilities that we have and for us, the acceleration that we have. So no, for a kid like me, an opportunity like this, this is absolutely an accelerant. So I'm excited about the future.

Gavin:

That is really exciting. Well, thank you for spending time with us today, Jay. The next 10 years, who knows what's going to happen? We’ll be keeping our eyes on you. And we won't wait 10 years though to check in on your progress. I think there’s going be a lot of exciting chapters between now and then. Thank you so much for the time today.

Jay:

Thank you Gavin… really enjoyed the conversation and would love to keep in touch. Keep up the great work…really appreciate it.

END