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The dopamine hit of social media, right?
The buzzing of your phone, you know, all day long.
Applying that to investing is not a safe idea.
The problem that we saw is basically the market was all up and to the right, right?
Saw no volatility.
And so everybody's a winner, right?
You saw a little bit of the perils of that strategy, right?
Here we talk about like eat your vegetables versus eat candy.
You asked about Robin Hood and I think like they're serving you a piece of cake, and then you wake up the next day and you're like oh, I really need a diet.
We're saying, you know, eat your vegetables, have some spinach.
You feel pretty good the next day.
That's Sarah Levy, CEO of Betterment, a digital investment platform that has grown to 55 billion in assets under management.
With the US stock market experiencing dramatic swings up and down, I wanted to talk to Sarah about how the Trump bump and then the Trump slump is impacting everyday investors and what sort of advice Betterment is giving amid the noise.
We also talk about crypto, socially responsible investing.
What makes Betterment different than Robinhood, plus how to address financial anxiety and more.
This is Sarah's second appearance on the show, and she keeps it real.
I'm Bob Safian, and this is Rapid Response.
I'm Bob Safian.
I'm here with Sarah Levy, CEO of investment platform Betterment.
Sarah, great to see you again.
Thanks for having me back.
So the investment markets this year have been kind of nutty so far, like a booming Trump bump followed by the so-called Trump slump.
Betterment's clients must be concerned about this whipsawing back and forth as we all are.
Are there things you're hearing from them?
Are there things you're telling them in this environment?
In large part, our advice is stay the course.
It can be a good moment, when markets are volatile, to think about your tax strategy and tax-loss harvesting.
So sometimes there are opportunities.
But beyond that, we generally believe that the right long-term allocations set you up to withstand volatility.
Some of the long-term tenets about investing have been questioned a little bit of late, because the market and indexes have become so concentrated in a handful of big tech names NVIDIA Microsoft Apple Google, the indexes that maybe what we've thought of as diversified investments may not be quite that way anymore currently.
Do you have a philosophy about that one way or the other?
Well, I think your point is absolutely right when you're thinking about the S&P 500, for example.
And I think the point of a diversified portfolio which incorporates international small cap fixed income right really is is an attempt to say look, when you're having these sort of anomalies, that sometimes are short term and sometimes are permanent corrections, if your time horizon is long term, that should correct itself and the right allocations should withstand the test of time.
And that's how we build our portfolios.
But it takes stealing yourself against maybe the headlines and the fear of and stuff that is prevalent around us.
But I think our advice would be don't get sidetracked by the headlines.
President Trump seems undeterred by the falling stock market or even the idea of a recession, though he doesn't use the R word right.
He talks about a little pain from tariff fallouts and whatnot.
Do you get what the strategy is of the administration?
I'll say that I find myself confused sometimes.
I think it is very difficult to get into the mind of the administration right now.
So I wouldn't want to prognosticate on that.
I think where I tend to focus is what are the things that directly are going to impact my business and on what time horizon?
Some of this short-term stuff, I'm trying to ride it out.
Are there any new products you're considering given the market volatility?
I saw that Goldman Sachs has offered clients a stable stock list to consider in case of a recession.
Nothing like a market downturn to get folks focused on risk again, right?
Well, the interesting thing for us is that we have investing and savings on the platform.
And over the last couple of years, while rates have been high, introducing bond investing has been really like kind of the next wave for us.
When there's volatility, we see more deposits flowing into cash that's still paying.
We have a high yield cash account paying four or four and a quarter percent.
Like that's still a really good thing. principle-protected return.
But we don't have anything in particular.
We're not like a shop that is asking people even to check in daily on their investments, because we just don't think that that breeds good behavior.
Your strategy for building Betterment seems undeterred in the midst of this uncertainty.
Betterment recently acquired the robo-investing arm of Ellevest.
What opportunities does that unlock?
Like, why make that acquisition now?
So I wouldn't say that Ellevest as a standalone unlocks particular opportunities.
I think this is a journey we've sort of been on.
We pioneered advice-driven, digitally-driven advice.
That's where we started 15 years ago.
And the conceit was really about expanding access to great advice.
Right.
Customers used to need a million dollars for an advisor to be interested in talking to you.
Technology really lowered that barrier to entry.
And we've taken that same premise and brought it to retirement to the 401k.
And then we're bringing it to the advisor space as well.
So Ellevest in particular hits the first one, which is the digital retail business that we have is a scale business.
And you know, a decade and a half ago, when the founder, John Stein, started the business, he was a pioneer.
It was an innovative idea.
But then over the last 15 years every big incumbent built, you know, some version of digital advice and lots and lots of folks entered the market.
And what Ellevest represents is really.
Lots of folks entered the market, but there is a very clear minimum scale and this is hard to do.
And at the end of the day, while let's call it, there were I don't know 20 entrants in the space, one by one.
Folks have sort of peeled off and cried uncle, and said like I can't really reach scale.
And so this is, Ellevest represents actually our third space. such acquisition.
We acquired in 2021 Wealthsimple's U.S. business.
Goldman Sachs' Marcus Invest product ultimately did not reach the scale they had hoped for and they realized it was maybe strategically not the right customer segment for them.
So we bought that business last year, and then Ellevest is sort of the next one.
So I would love to continue to roll up the business.
And this consolidation that's underway among these different digital investment providers.
It's a harder business than people realize it is.
It is a low-cost business, right?
At 25 basis points, which is the base price of our offering, you get a lot for that price.
Right.
You get a tremendous amount of tax efficiency, which is really the superpower of what we provide.
So we are above $55 billion in assets now under management.
Last time I talked to you in 2022, I would say that number was in somewhere in the 20s, maybe 30 odd billion a couple years ago.
Right.
And so at this point, to be a profitable business, what we realize is, number one, you need scale.
And this is what the competitors have realized.
Number two, you need to begin to round out your product suite.
Right.
And so it's not really just about, quote, robo anymore, which was a great concept.
Now what we need to do is we need to understand that we're here as a wealth building partner for our clients.
We need to bring them more account types.
We need to bring them more investment choice.
And so that's what we're doing.
And so we're moving well beyond kind of those roots, even to the point of introducing more of a human layer as well, because as your customers grow, they may want to talk to someone and have that be part of the mix alongside the digital.
And we're a.
You know that mix of digital and human interaction on your financial journey is different for every customer and is different at every time in their lives.
That digital side, like it doesn't end.
It's not like you finish with the product, right?
Like it's a race really to stay ahead or stay up with everything new that people can do digitally to engage.
That's exactly right.
That's exactly right.
So most recently, like in the last couple weeks, we launched Solo 401ks right, which is for small business owners, because we had incredible demand on that product.
Well, that's a fantastic product, that is a sort of heavily tax-efficient product that is offered that we didn't offer.
And that interestingly, is a product that's been around a long time but is incredible, incredibly paper-based.
So we launched the first completely digital solo K.
Now I looked at my marketing people and I literally said like that's really a selling point in 2025.
And the answer is yes, because these incumbents are still collecting checks and there are just so many steps that are still just clunky.
And when you think about even the LFS customers coming over here, they will have access, for example, to things that they couldn't get at LFS, for example, the savings and cash side.
Like these were things that they didn't offer.
We mentioned that term robo-investing.
Do you like that term, robo-investing?
Does it start to mean anything different in the age of AI?
When you were last on the show three years ago, ChatGPT hadn't even come out yet.
That's true.
I am totally over that term, Robo.
I have talked to some other CEOs who actually think the term may come back around.
But I think, when you think about the history of expanding access, I think what AI is going to do is going to just continue to expand that access, right.
So how do we sort of take power tools and put them in the hands of advisors?
And then put them in the hands of our employees to basically be a force multiplier.
So at the moment, AI is a total force multiplier in what I'll call the operations of the business right.
So doing, first drafts of marketing, completing code for engineers, anywhere that you can insert AI and sort of speed up your employees fantastic, and we're doing it.
And learning new ones every day.
And some work and some don't.
And then you move to the next.
So on the cost side, it's awesome.
On the customer service side, we're seeing Gen AI has been incredible.
The customer satisfaction is moving hugely up and to the right because the bot's getting smarter right.
And it didn't used to be.
So that's been like an incredibly powerful tool.
And now what I'm excited about is now how do we take that and apply that to advice?
And how do you apply that to advice and also stick within a fiduciary framework?
That's where there's a little bit of tension that I think we have to work through, which is how do you remain a fiduciary?
How do you be careful of hallucination in the tool?
And how do you basically expand the number of relationships that an advisor can have with customers, because now they have power tools?
The last time we talked a bit about the market for crypto investing and you were pretty clear that you saw crypto as a growing asset class.
And there have been more products available today for retail investors to access crypto.
But it's still very volatile.
Has your attitude about crypto changed, evolved, advanced at all?
Yeah.
I think definitely evolved.
It's a little polarizing, right?
We definitely have customers who say you know Betterment lost their way once they introduced crypto.
Like this isn't for me, right.
We definitely get those complaints.
And then there are other customers that say, I love that there's crypto available.
I'm so thankful Betterment brought this to me.
In the advisor community.
Same thing, because our advisor platform is a big part of why we develop a lot of these products.
In our advisor platform, you have advisors who think great, let's get a little bit of exposure for my clients who want the risk and want the reward.
And then there are advisors who say, no way, no how.
This thing is – is unregulated and we don't know what it's going to be.
So truly, all the way at the right, all the way at the left.
I can't help but think about Robinhood, another digital investing platform, but with a very different ethos than yours.
I had the CEO, Vlad Tenev, on the show several months back where I drew analogies between Robinhood and sports betting apps, asking if sort of the gamifying of investing might not work.
Be the most responsible thing for your customers.
How do you feel about that, about gamifying investing to bring people in?
How do you feel about Robinhood?
So I listened to that podcast, and I agree with you.
Right.
So I think that the problem that we've seen sort of with this new generation of investors is basically many of them entered the market when the market was all up and to the right.
Right.
So no volatility.
And so everybody's a winner.
Right.
And, you know, you saw a little bit, you know, I love the movie Dumb Money I like to talk about.
Right.
You saw a little bit of the perils of that. strategy, right?
Look, what I respect about what Robinhood is doing is I think they have built a brand that is connecting with a generation, and I believe we are building a brand that is connecting with a generation.
But I think that the heart and soul of those brands are very, very different.
And I think what we're trying to do is help people early in their investing journey, set up smart decision-making, a long-term framework and build good habits.
And ironically, we were seen as sort of the competition to advisors in the early days.
I actually think we're the on-ramp to advisors.
So we are a place to come and think about dollar-cost averaging and diversification and all these things that aren't that sexy but that in the end, deliver incredible performance.
Can I tell you, over 15 years, like since our inception, after fees, our core portfolio has delivered 9 annual returns.
That's pretty great, right?
And so ignore the volatility and, you know, stay the course.
You've said that younger generations are increasingly looking for financial advice from social media.
Does that concern you?
The dopamine hit of social media right, the constant attachment to your phone and the you know the beeping of your, the buzzing of your phone.
You know all day long.
Applying that to investing is is not a safe idea right.
And so I think behavioral economics plays like a huge role here, which is and that's why I say, like you know, don't pay attention to the headlines when they're screaming about volatility, right.
Because this is a long game.
Now, I think, yes, so where you get your financial advice Yes.
Does it worry me?
There is a belief among generations that that, just because the information is available to you, that therefore you should take total control yourself.
And I think the idea that you should self-direct is absolutely true.
You should invest in things you believe in.
And.
But if you don't have all day information to focus on investing, it's harder to beat the market than you think.
And it doesn't end well for a lot of folks.
And so I think that's sort of the fallacy.
And so how do you give people the sort of degrees of freedom and say look, we get it that you want to self-direct?
That's OK.
But at the same time, give them good guidance and good advice to make responsible choices.
For example, think about taxes, right?
Like, you know, we think about taxes all day long.
And I think our superpower is saving customers taxes.
That's what we aim to do.
But day trading generates taxes.
That's not something anybody's talking about.
That stuff worries me.
When you mentioned like a long-term return of 9 a year, I mean that's a terrific return if you can lock it in.
But I think for a lot of younger people they're like what?
So I put 1000 in and at the end of the year I have 90 more.
Like, I'm not going to be able to buy a new Lexus with that.
It's expectations, too, are part of this.
Right.
Look, I just came back from Vegas.
I was doing a panel in Vegas, right?
Gambling is there to make money, but not for the customers, for the casinos, right?
If you look at the net deposits on some of these platforms, the amount of leakage in a sort of gamified strategy is really really high, right.
Yeah, sure.
There's people who are making money, but then there are a lot more people who aren't.
And Even if you think about you know portfolio managers, I would love to know how many of them actually beat the market right.
It's hard to be a portfolio manager.
And those are folks who have dedicated their career to this.
So the idea that every retail investor on the street is going to have the ability to sort of outperform on average and over time, that's a big ask of people.
I find Sarah's steadiness comforting.
When investment markets are volatile, it's natural to feel some panic, but that doesn't mean it's helpful.
So how do we address our financial anxiety?
We'll talk about that after the break.
Stay with us.
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Before the break, Betterment CEO Sarah Levy talked about her advice for investing amid the Trump slump and the trap of approaching your portfolio like it's Las Vegas.
Now she talks about how to address financial anxiety and offers her roadmap of what matters most for individual investors right now.
Plus, how she's applying the lessons of the media industry to her business strategy at Betterment.
Let's jump back in.
A recent Betterment survey found that 62 percent of workers have serious financial anxiety and that that anxiety impacts workplace productivity.
What can we do about that as employers, as a society for you at Betterment?
I mean, is this just about I want to make more money or is there another leg to it?
The retirement.
I don't want to call it a crisis yet because I think maybe that sounds dramatic, but I do think the reality is you have huge, huge portions of the population that think retirement is for another day and the price of eggs is too high.
Right now.
So I got to pay my bills.
And it is true.
Which is reasonable, right?
Which is totally reasonable.
Which is totally reasonable.
That being said, the power of compounding is your friend.
And the tax advantages that the government offers.
To put away money now for the future is also real money that people should take advantage of.
And so to me, this is where employers come in, and we have a really robust 401k arm, which actually was probably less developed when I last spoke to you because it was sort of early days and a little bit of a side hustle.
And now I'm a passionate believer in this business because I think this idea of expanding access that we pioneered on the retail side is hugely applicable to retirement.
And so there's been a lot of cool legislation, both at the federal level and at the state level, basically requiring smaller and smaller businesses to support employees with retirement plans.
And even within that, there's been regulation saying, OK, it's a new plan.
It's auto-enrollment and auto-escalation.
So what does that mean?
Every one of your employees gets put in, and they have to opt out as opposed to having to opt in.
The difference between opt out and opt in is enormous.
The power of compounding on that money is really impactful in retirement.
You worked before Betterment in the media industry at Disney, at Viacom.
There's a lot of bells and whistles sparkles that are part of the media industry, which has also seen plenty of disruption and volatility.
I'm curious in terms of media business, do you have a sense about where it is right now and where it's going?
And are there clear winners and losers?
Or are things as unstable and unsure in that environment as they seem everywhere else?
I draw parallels actually from my media experience to Betterment all the time, right?
Which is Netflix, you know, as a pioneer in streaming.
Didn't do anything different than ABC, CBS and NBC, right?
They're offering great shows, but they're doing it in a way better environment.
You watch the shows when you want them, without commercials, at a lower price point.
That is literally exactly what we're doing here right, which is lower price point, better user experience, but the same core principles.
Who are the winners in media?
I think the winners are going to be the great user experiences that understand that people want it for a lower cost and they want it in their pocket all the time on their mobile device, right.
And, again, that's true of finances and that's true of media.
I think you know it's sad for me to watch, because I think there's great brands and great content that are struggling because their distribution model is not good.
And so you know again.
It's like how do we take those concepts and apply them to another industry has just been like an incredibly fun journey for me.
I've been here now four and a half years.
And I think, look, TV, yeah, TV is having a rough go.
It's down to basically sports and news and news is arguably not even news anymore.
It's opinion.
So what do you do with that?
You don't have a lot of regret about having moved away from media.
I have no regret now.
I think now is not the time for a robust future career in media.
While you ran Nickelodeon as COO, the mission was what's good for kids is good for business.
And I'm curious how much responsibility you think business has, particularly today, to be part of sort of the checks and balances in American society.
I mean in terms of being I don't know taking public stances on issues that may be more cultural or broader.
Like you're going to confine yourself to things that are in the financial arena, regardless of what your own personal, you know ethics are about it, or your personal position.
That's a perfect question for me because I've always been super private.
I'm not big on social media.
And I have always felt like the day I got here actually it was controversial, but I didn't wanna speak out on everything because I'm not comfortable doing that and because I wanna separate myself personally from the brand.
And coming from a founder-led organization where he really was the brand, I think speaking out with his opinion made a lot of sense.
Right, because they were one and the same.
And one of the distinctions I wanted to make and it was controversial with the employees, more so than anything else was they wanted to hear from me.
And I said, look, if it impacts the business, I'll talk about it loud and proud.
But if it's not about the business, we serve customers with different viewpoints.
And my perspective is we need to be a platform that offers choice.
And so if that choice includes crypto, for those who like it, great.
And for those who don't want it, also great.
Same with socially responsible investing portfolios, right?
We have a climate portfolio.
There are people who love that and there are people who want nothing to do with it.
Great.
Nobody is asking you to opt in or to opt out.
We're giving you choice so that you can pave your own way, basically.
And when at Nickelodeon you said what's good for kids is good for business, you meant what's good for kids right now like, as opposed to like what's good for kids in the long run like oh, we have to worry about, you know, the future of Social Security.
Right.
That was when we started the early days of Nickelodeon and we did a lot of research around, like preschool content, for example.
We always wanted to sort of enrich the content with, you know, with like good lessons.
There was always a lot of educational underpinning and educators helping us with it.
We were not trying to just sell kids a toy.
Now what ended up happening is, if they fell in love with those characters and they learned to count, then maybe they'd want to buy the toy that counted with them.
So there were hence why it was good for business to basically do the right thing.
And I think that's where we're here.
We talk about like eat your vegetables versus eat candy.
You asked about Robin Hood.
And I think like they're serving you a piece of cake and then you wake up the next day and you're like oh, I really need a diet.
We're saying, you know, eat your vegetables, have some spinach.
You're choking it down, but you feel pretty good the next day.
So what's at stake for everyday investors right now?
How should they think about the role of their portfolio in their lives, in their personal values, in their future?
What we always tell people is, you know, think about your money.
We call them goals, but in sort of buckets right, which is to say OK, you should always have an emergency savings account.
That is, three to six months relatively liquid assets so that you know if you get in a bind, which happens on a lot of occasions.
That's there for you.
That's like an early first principles recommendation that our folks make.
Think about retirement early, right?
Take advantage of whether it's an IRA, a Roth versus a traditional.
There are different rules depending where you are in your life journey, right?
And where your income is, where you can really get great advantages from government policies.
In terms of, you know, tax advantages.
We have a concept called asset location where we put we have different treatment for where you save money in either tax advantaged accounts or taxable accounts that can enhance your returns.
So, you know, I would say you just you want to be be invested.
Right.
To me, at the end of the day, be invested with whatever you can start early.
And in these worlds this, this time of uncertainty, people with advisors do better, because they have someone they can call, who they trust, who prevents them from making mistakes.
We believe deeply that, like human, and digital go hand in hand and everyone should choose how much of each they want and they're comfortable with.
Sure.
Sarah, this has been great.
Thanks so much for doing it again.
It's always a pleasure.
Thanks, Bob.
Sarah emphasizes the basics, whether that's diversifying your investment portfolio or giving your customers a choice of product.
Is it sexy stuff?
We rarely talk about it that way, but having financial freedom as an individual or as a business, that's pretty exciting.
Sarah acknowledges that she doesn't know how the Trump administration policies will ultimately impact the markets.
And I appreciate that.
No one has a crystal ball about the markets, despite what any social media expert or Wall Street guru or CNBC pundit may imply.
In our investing, as in our businesses, we need to be clear about the things we can control and lean into them and then trust that whatever happens in the other areas will figure it out.
For good or bad, that's just the modern reality.
I'm Bob Safian.
Thanks for listening.
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