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In this episode of Influencers, Andy is joined by Betterment CEO Sarah Levy as they discuss the changing environment on Wall Street and the rise of the retail trader.

Video Transcript

ANDY SERWER: 2020 was a year of change. Entire industries were brought to a standstill, creating new opportunities for fintech companies like Betterment, where Sarah Levy became CEO in the depth of the COVID winter. Previously a top executive at Viacom, Levy left the media industry behind as she stepped into the role of CEO at Betterment, a popular online trading platform that favors long term thinking and aims to make finance easier for investors.

Under her leadership, the company has seen exponential growth, fueled by an economy on the rebound, and a surge of Wall Street newbies trading stocks for the very first time. In this episode of Influencers, I’m joined by Sarah Levy as we discuss the rise of the retail trader and the phenomenon often described as the democratization of finance.


Hello, everyone. And welcome to Influencers. I’m Andy Serwer. And welcome to our guest, Sarah Levy CEO of Betterment. Welcome, Sarah.

SARAH LEVY: Thank you. Thanks for having me, Andy.

ANDY SERWER: So why don’t we start off by talking a little bit generally about Betterment. What services does betterment provide? And how is it different from other online trading platforms?

SARAH LEVY: Sure. So we are the largest independent digital investment advisor. We have $31 billion in assets under management. And we provide services really across three sectors. We’re an investing platform that goes direct to consumer. So one of what was once called Robo Wealth Advisors, one of the original Robo Wealth Advisors, and then we have two other key constituents. One is small and medium sized businesses where we sell a 401(k) product that we’re expanding for that audience.

And then we also license our technology to advisors as a SaaS platform for advisors building wealth management practices.

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ANDY SERWER: You have an unusual background for a fintech executive. And we’ll get to that in a little bit. But let’s stick with Betterment for a while, Sarah. How does the model work in terms of the P&L?

SARAH LEVY: So each of the businesses is a little bit different. But at its core, the model is really intended to be a low cost solution for young investors seeking to build long term wealth. And so if you think about it, we take 25 basis points off of assets under management in the core business. And then if you want human advice as well added, we have a premium tier where we take 40 basis points. And then on the advisors side, and the employer side, there’s also a per seat fee, both for firms and for participants on top of the basis points.

ANDY SERWER: Speaking of basis points and fees, you’re competing against those zero fee platforms. So how do you do that?

SARAH LEVY: Well, what’s interesting is I think we think about differentiation really through the lens of guidance and advice. And so what you’re really paying Betterment for, first of all it’s a delightful technical solution. Easy to use, easy to onboard, quick to understand. But we also have an incredible range of sort of tax advantaged technology benefits. And those benefits actually deliver 148 basis points annually in incremental returns to an average investor. So if an average investor were to invest in the same portfolios that we construct, but not via our technology, they would do that much worse.

So just the tax savings alone, more than covers the fees.

ANDY SERWER: And did you mention how many customers you have and how fast that’s growing? I know you said you had $30 billion plus in assets. But what about the customer base?

SARAH LEVY: We have 650,000 customers. And in our B for B business, which is the 401(k) business, we have nearly 850 employers on the platform.

ANDY SERWER: You talked about robo advisors, and robo a little bit like it’s in the rearview mirror. Is that still what this business is called?

SARAH LEVY: Right. Well, I think that that’s really table stakes. So having great technology kind of gets you part of the way. But then the question really becomes kind of where do you go from here. And I think if I were a betting woman, I think the idea of customization and personalization is only becoming increasingly important. And so robo sort of speaks to kind of a theme of set it and forget it, which I think that’s the part that we’re maybe going to leave a little bit in the rearview mirror.

The core principles around long term diversified investing continue to hold. And we continue to believe and to look at the data and to understand that over time, you’re much better off as an investor investing in a diversified long term solution. But it’s reasonable to assume, and we’re seeing increasingly both with existing customers and prospects, that millennials, Gen Z, they want to vote with their values. They want to invest in companies they believe in.

And so the idea that, yes, maybe you’ll set it and forget it. But you want to make some choice in that setting. And so I think as we evolve, the platform evolves, I think this is true of the competition as well. We need to find ways to comfortably educate our customers so that they can have more agency over the choices they make.

ANDY SERWER: I think in the first quarter of this year, you had something like 100% growth in terms of deposits and new users. What’s going on? What’s turbocharging your business?

SARAH LEVY: We did have a great quarter. Thank you. We delivered, yes, both net deposits and new users were both up well over 100%. 116% and 118% respectively. And I think I attribute it both to what’s going on in the environment and then also to sort of moves that we’ve made. In terms of what’s going on in the environment, it should be no surprise that kind of meme stocks and digital investing became sort of all the rage. And there was a lot of conversation.

And interestingly, while the discussion really has centered around day trading and single stock picking, the reality– we’ve recently done some research. And the reality is that even day traders are only putting a sliver of their investment dollars in those single stocks. And what’s happened is there’s really been a bright light shined on digital investing generally and sort of a comfort, a generational comfort, but now even beyond the core millennial generation.

COVID was a moment when people said, hold on. I’m going to do more digitally. And I’m going to get more comfortable with digital brands. And so I think there was really a moment of acceleration that happened there. And now there’s really no turning back.

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ANDY SERWER: So you guys are really benefiting from the meme stock frenzy. And I’d like you to talk about that a little bit more. It sort of is a sea change, right?

SARAH LEVY: Well, I think there are a lot of things happening. So this idea of democratizing finance has really been around nearly a decade. And we were pioneers in that idea, which was making investing much more accessible to the common investor. I think what’s new, and what’s happened in this most recent year is the removal of transaction fees, which has sort of heightened the speed of transaction as well as the introduction of mobile as a platform where people can really be investing all day long from their pocket.

But I think one of the other things that’s happened is really gamification. And that’s something that I think is very attractive to investors but is not always the best thing for investors. And so we don’t want to pass judgment on that. I think if people have disposable income that they’re OK to lose, then they can feel free at the margin to sort of play the game, so to speak. But I think when we think about what makes the most sense for securing the long term future of an investor, that’s really where Betterment plays.

And we think about retirement, and we think about what are the choices you can make now that can give you a better life long term. And so our hope and our research shows that it really is true that even those who are day trading are spending only about 30% of their dollars trading in that way. And 70% of what they’re investing is really in long term solutions, largely in ETFs, some mutual funds, and that’s really where we play, which is explaining to investors and helping them along the journey of a diversified kind of long term outlook.

ANDY SERWER: You said last month, Sarah, that you’re not ready to offer a cryptocurrency on the platform. Is that because you’re skeptical of it as an asset, or because it’s too volatile? What’s your thinking there?

SARAH LEVY: So personally, I’m a big fan of crypto. And I think it’s a really interesting asset class to add into the mix. And in particular, because it’s countercyclical, there’s an opportunity really to help your diversification plan with crypto. But to your point, it is volatile. And a lot of what we do depends on, for example, tax less harvesting, and things that can take advantage of that volatility. And so we know investors increasingly have an interest in crypto. And so what we’re doing is really trying to figure out, is there a way that we can offer crypto with a guided wrapper so that we can help educate along the way?

And I think how that will manifest itself will be more through a lens of a long term buy and hold the asset as a smaller portion of a portfolio rather than as sort of a trading opportunity short term. And to the extent that we capture any value from volatility, I think that’s more likely to be through tax less harvesting.

ANDY SERWER: I’m wondering if you guys practice payment for order flow. And if you do, or if you don’t, what’s your take on it?

SARAH LEVY: So today, we do not practice a payment for order flow. But we’ve not ruled it out. I think what’s important about payment for order flow is sort of two things. One is best execution. And the second is transparency. And so for me, I think that the opportunity to give customers better outcomes, better financial outcomes through best execution, can come with keys off or not. And that really depends on the provider. So I don’t take a strong opinion either way, except that the customer has to come first. And that’s what’s most important.

ANDY SERWER: Let me ask you, Sarah, how do you think we strike the balance between democratizing investing and then protecting retail traders from themselves?

SARAH LEVY: Well that is the multi-billion dollar, or perhaps trillion dollar question. I think what’s a little bit disheartening is the notion that retail traders don’t understand. Many of them don’t understand how difficult it is over the long term to make money, picking stocks. And they don’t necessarily understand the asymmetry of information and the idea that people who do this professionally do have a tremendous amount more information than they do.

Now, there are some things that technology has obviously advanced in terms of day traders and investors’ ability to sort of band together to drive outcomes. But the notion that you’re always going to be at sort of the right moment in that groupthink, I think is unlikely. And so it seems to me that there is likely to be more regulation and that the government in particular could do a better job of education. And so I think where we at Betterment think we can be helpful is through education and guidance.

We don’t plan to be a platform for day trading. But I do think we can be a platform that is empowering with information. And so the hope is that over time, investors will get burned in ways that are not catastrophic, but that teach them important lessons about how to balance your long term safety net, for example, with your play money and gambling. And I think it is in that dichotomy that they’ll get the best outcomes.

ANDY SERWER: Yeah. I want to ask you a little bit more about regulation. Do you feel that the pressure to regulate fintech is coming mostly from legacy companies? Or are there legitimate questions? And what do you think the SEC is going to end up doing here?

SARAH LEVY: It’s really hard to predict. I mean, I think at the end of the day, we need the process to play out. And I’m not really a prognosticator on these things. I think that the biggest challenge is making sure the regular investor does not get hurt by the system and the tools available to them. There are complex tools being put in in the hands of many. And just like power tools, we wouldn’t expect anybody to be able to use a nail gun. I mean it’s sort of a similar concept that with training comes better outcomes.

And so I think training and education are the pathway. And by the way, I do think the government could play a hand in helping to require more of that education. But beyond that, I can’t really predict the specifics because this is really complex. And it’s evolving incredibly quickly.

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ANDY SERWER: Recent analysis by “The New York Times” of federal reserve data shows that the top 10% families in the United States own 84% of the equities in this country. Do you think that this inequity is beginning to change? And do you have any data that shows that?

SARAH LEVY: So I think definitely, we saw sort of a K recovery, or we’re seeing a K recovery as they talk about coming out of COVID. And I think there’s no question that owning stocks and equities is a privilege of the few– it is a privilege of the few to your point with your statistic. And so I would say to you, no. While we’ve democratized finance to some extent, we’ve made it accessible. You still need funds to be able to put into those vehicles. And there’s still an incredible wealth disparity in this country.

And so we know that as stocks rise and as taxes are put on corporations, the lion’s share of that wealth is accruing at the upper end. I think obviously as we see in the government, there’s pressure around minimum wage, and raising minimum wage, there’s pressure through transparency around the disparity between the salaries of CEOs and their employees.

So I think there’s a lot of information being brought to bear. But we’ve got a lot of work to do as a country before the market is really an equitable place for all to acquire more wealth.

ANDY SERWER: I think you said, Sarah, that you guys have an IPO in your sights. What is the timeline then? And is there a performance threshold you’d like to cross first?

SARAH LEVY: Well, I think we think about an IPO as a great ultimate outcome for betterment. But right now, I wouldn’t say I have a timeline. And in particular, I’m really focused on growth. And I’m really focused on building a great resonant financial services brand. We play in a really, I think, interesting space in that we sit at the intersection of being a trusted brand who is now a decade strong, but also an innovator. And innovation, the beauty of being a private company is there’s room to make mistakes if you need to.

And so as far as I’m concerned, I want to drive hard against growth. And when we’re ready, we will certainly consider an IPO.

ANDY SERWER: Sarah, you took over as CEO during the pandemic. What was one of the most surprising things that you saw?

SARAH LEVY: Well I would say my transition was surprising on a lot of levels. I’ve spent the last 25 years in the media business and then transitioned both to fintech, to being a female fintech CEO, which is pretty unusual, and to doing it all largely from my den. So I think what’s been amazing about the transition is that Zoom and kind of half remote life has brought you, while you’ve never met your employees in person, it’s actually brought you into all of their homes. So there’s sort of an intimacy to that first meeting that you might not have had meeting them in the office.

And I think digital life has also allowed us to be more inclusive in a lot of ways. For example, people who aren’t as comfortable speaking up, they can offer another dimension of insight via chat. That’s been a really nice, I think, dimension to how conversations have evolved. When you used to be limited by the size of the room and the hierarchy, now you have an opportunity to include more people in meetings, and more people in discussions. So I think there’s a lot actually to be said about how technology has advanced our ability to be more flexible, both in how we communicate, but also in how people kind of lead their lives while having careers.

So I think there’s been a lot of good that’s come out of it. For me though, the challenging part has been, we have an incredible culture at Betterment. And we’re very mission driven. And that mission of making people’s lives better is what brings people to Betterment. And being able to do that in person and to share in that culture, I think, is a really important part of who we are. So it’s been a challenge. It’s been a learning and growth experience. But ultimately, I see us coming out the other side stronger. But I do see us returning to work more days than not.

ANDY SERWER: You mentioned working in entertainment for Viacom for two decades. How did you make that transition? Why did you make that transition? Was it difficult? It’s really going from an apple to an orange practically, right?

SARAH LEVY: Well, it’s been incredibly invigorating. So my first decade at Viacom was really sort of the growth years of cable. And then my second decade was more about kind of transformation and the evolution to streaming. And so the questions changed a little bit. But the disciplines really changed. We were scaling and growing operations. We were building brands. And then we were transforming and building platforms and becoming more efficient. And so throughout all of that journey, I felt like I learned everything really there was to learn on that path.

And I was ready to learn something new, really, and to take that brand building and operational excellence and bring it to a company that was ready to scale. And so I really actually feel fortunate and lucky to have found Betterment when I did. I met John, the founder, last summer as I was thinking about my next move. And I was just really compelled by the mission of the company. And I thought, wow. If I can find a company that I believe in and really build that brand, what an opportunity would that be for me? And thankfully, they felt the same way.

ANDY SERWER: Yeah, I want to ask you about coming in and working with John Stein, the founder. What was that like? He’s the young startup guy. And you’re an experienced corporate executive. Talk about that relationship.

SARAH LEVY: Well, I think that was sort of the magic. And I think I haven’t experienced other leadership transitions up close like this, but I did experience a handful of leadership transitions over my two decades at Viacom. And I think this was really one of the most seamless transitions you could have hoped for, in large part because he was a pioneer. He was an inspired innovator. But he acknowledged that as the company was getting to this next stage of growth, he might not have the experience that was quite a fit for that next stage.

So he really had come to terms with that idea himself, and so hand selected me really through a pretty, as I understand it, arduous process. And so I think what worked well was, I came in as a consultant, we worked together, we got in a rhythm, I understood what was important to him. What was important to the brand, and then was able to kind of pick up the ball from there. So he’s still on the board. And he provides as recently as Friday, he was providing important advice.


So I think we really managed the transition well. And I’m really thankful that he’s stayed on in that capacity.

ANDY SERWER: Sarah, both entertainment and fintech have struggled with diversity. What’s similar and what’s different about the challenges in those two businesses? And what are you doing to address the issue at Betterment?

SARAH LEVY: Look, I think diversity is incredibly important. I think it leads to better business outcomes. It’s not just to be inclusive. I think it actually makes you better and stronger to hear different points of view. And I think when I joined Betterment, that there was a journey underway to really focus on diversity, inclusion, and importantly belonging. We have a really great ERSG culture, which is our Employee Resource Strategy Groups, around different underrepresented groups.

So it really does, I think, diversity runs through every thread of this company in a very organic way. But our representation was still not where it needed to be. What’s exciting about being a growth business is that we do have a lot of open roles. And the best way to build a diverse organization is to invite more people in. And so I feel really fortunate. One of the challenges when I left media was that we weren’t really growing so much as shrinking. And when you’re shrinking, it’s much harder to balance the needs if you don’t already have a diversity in your population.

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You’re not hiring that many people. And so it’s much harder to kind of change the composition of the team you’re building.

ANDY SERWER: I want to ask you about ESG a little bit. Is the growth in ESG investing sustainable? Or is it just connected to the pandemic and racial justice reckoning and maybe will go away? Is this important for your customer base?

SARAH LEVY: That’s hugely important for our customer base. And I’m glad you asked that question. We call it socially responsible investing. ESG sounds a little corporate, I think, for our kind of fintech culture. But when you think about this generation, it extends to investing. But it really starts with the clothes they wear, the brands– the place they get their coffee. Every part of millennial and Gen Z’s attitudes towards the companies they want to associate with starts with their values, and finding that value’s alignment. And I think one of the reasons why SRI has become a hugely important part of our strategy is because that’s really a perfect fit with the DNA of our company.

And so last fall, we launched a series of SRI portfolios, one focused on climate, one focused on social equality, and a third that’s a broad impact portfolio. And in less than six months, we have attracted more than a billion dollars in assets just in those three portfolios. And in fact, we just made an announcement. We partnered with Engine 1, who is the company behind the recent Exxon Mobil kind of board seat changes. And they have launched a new ETF. And we are a launch partner with them for that ETF.

And the idea behind it, it trades under the ticker vote. But the idea behind it is you can be in a passive index fund. But we are going to vote with our values. And we are going to make change at companies. We’re not going to select companies who are already doing good. We’re going to stick to a diversified approach, which is consistent with how Betterment has always operated. But we’re going to be active in those companies. And we’re going to push for change from within.

And I think it’s a really exciting next step in where investing is going, which is how can the little guy have more of a voice at the table and have an impact through their vote? And so we’re really excited about that as kind of the next leg of our SRI growth story.

ANDY SERWER: Sure. So Sarah, where do you see Betterment 10 years from now? And where do you see yourself generally 10 years from now?

SARAH LEVY: That is a great aspiration. Well, I would say I look forward to my children graduating from school, I would like to remain in my very happy marriage. So that’s sort of my life goals. I believe that Betterment will be one of the great financial services companies of this next generation. And I think we will do that in large part by connecting with both consumers and employers. But I think our focus will turn increasingly to employers as a great pathway to helping their employees live better lives.

And I think this theme of financial wellness will be one that you see from us because we really want to make a difference. We want to make people’s lives better. And we can do that through their employers and through their benefits solutions. And we can do that by educating them and helping them to make better choices with their money so that long term, they have retirement options. And that’s really, I think, the business we’re in is in the business of long term happiness. And so if Betterment, and happiness, and long term security can be synonymous, I think we’ve done our job.

ANDY SERWER: Quick last question here, Sarah. You’re at a cocktail party and people say, Sarah, this market is crazy. What do you think? You’re in financial services. How do you respond to that?

SARAH LEVY: I say, I invest for the long term and so should you. Long term diversified investing gets you where you need to be. And the volatility is a distraction. So steal yourself, stay long term focused, and you’ll have a better outcome.

ANDY SERWER: Sarah Levy, CEO of Betterment, thank you so much for joining us.

SARAH LEVY: Thank you, Andy, for having me. It was a pleasure.

ANDY SERWER: You’ve been watching Influencers. I’m Andy Serwer. We’ll see you next time.

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