[podcast] Where Blue Elephant’s Brian Weinstein is finding opportunity investing in marketplace lending

blue elephant capital looks for investments

Brian Weinstein of Blue Elephant Capital
Blue Elephant Capital’s Brian Weinstein
What would it take to get a managing director, managing a hundred billion dollars of fixed income assets at BlackRock, to jump ship to a start up asset manager? That’s the question I posed to Brian Weinstein, Chief Investment Officer of Blue Elephant Capital Management. His firm is a quickly growing investor in the peer to peer and direct lending space.

In Brian’s investment universe, the world is starved for yield and addicted to liquidity. When looking for his next investment, Brian and his firm pore through loan portfolios that are accompanied by lots of data to stress test performance assumptions. In his world, banks really ARE good at lending, so he’s looking at spaces where the banks aren’t participating as much in a pursuit for returns.

Brian joins me to discuss how peer to peer investors like him find opportunities by filling in some of the voids left behind by banks. We’ll hear what types of peer and direct lending he’s looking to invest in and what spaces he’s avoiding. We’ll also talk about boat finance. Yes, I said it, boat finance.

Listen to the FULL episode

What you’ll hear on this podcast:

  • Brian’s story of how he got to Blue Elephant: Why Brian left his PM role at BlackRock, managing $100B, to pursue investing in the burgeoning field of marketplace and direct lending
  • The type of research Brian and Blue Elephant conduct to determine the investability in loan portfolios coming out of marketplace and direct lenders
  • What spaces in direct lending Blue Elephant is looking at and which investments it’s staying away from
  • Why Blue Elephant likes the boat finance industry
  • Brian’s view on what banks are really good at and where they aren’t (or don’t participate)
  • Whether institutional investors should take equity positions in the marketplaces they participate in


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Photo credit: Beshef via Visual hunt / CC BY

TipRanks’ Uri Gruenbaum on the need for accountability and transparency in stock market analysis


Uri Gruenbaum is CEO of TipRanks.

What is TipRanks? What was the inspiration behind creating it?

TipRanks analyzes big financial data using proprietary Machine Learning and Natural Language Processing (NLP). Our “Financial Accountability Engine” is a multi-award winning platform that allows investors to evaluate investment advice published online, including ideas from market gurus, sellside analysts, and financial bloggers. At the same time, users can see what the most accurate ones, who’ve outperformed the markets, say about their portfolios. TipRanks has a consumer facing website for retail investors and APIs used by the world’s biggest hedge funds, banks, and online brokers.

The idea started after I followed an investment idea published by a technical analyst in a leading financial news website. The investment lost more than 50% in the following 6 month and i spent 2 days googling everything else that the technical analyst recommended only to find out he was usually wrong. This made me realize that everyone should have a service that helps them distinguish between outperforming and underperforming experts – today, we call it a “Financial Accountability Engine”.

Analysts have a lot of influence on stock price movement but it’s traditionally been hard to tell who’s worth following. How is TipRanks changing the way we analyze expert stock market opinion?

Traditionally, Wall Street relied on analyst ranking services that use metrics unrelated to the analyst’s performance (anywhere from how much the analyst earned to how fast he got back to his costumers). Retail investors had no service at all to evaluate how good an analyst is while many of them lost money following poor advice they came across online. TipRanks changes all that by measuring the actual performance of these analysts and answering the simple question of whether they are good or not.

We see leading websites such as CNBC and others that add the TipRanks star ranking near analysts they quote and we see research firms, analysts, and bloggers placing their TipRanks star ranking on their websites and profile pages as a quality stamp.

Who’s your typical user and how have you attracted him/her to your service?

We serve a variety of investor types. Our website has simple services for the layman investor and more complicated screeners and signals for day traders. We also have an internal quant team that creates investment strategies we license to some of the biggest hedge funds in the world.

Our marketing is mostly focused on content and social media. Since we cover the calls of thousands of analysts and bloggers, we have an “army” of people promoting their own TipRanks profiles around the web. We also enjoy broad media coverage, which can relate to our efforts of bringing accountability into the financial markets. In the near future, we will start focusing on outbound marketing, as well.

How are you monetizing the site? How is freemium working?

TipRanks provides many powerful free features that help the everyday investor with decisions. On top of those features, we offer access to more analytic data and signals based on that data as premium features.  We found that freemium was the best business model for our consumer-facing website, as it allows our users to understand the value we bring and the how the premium features will provide additional value.

What should we expect to see in 2016 from TipRanks?

We expect to continue seeing growth both in our consumer website and in our enterprise products. We started licensing an API in early 2014. Our API became an immediate success in Israel, where we started working with all the big banks and brokers and then, in the US. We are now putting efforts to expand our reach to Europe and Asia and expect to see results in 2016 as well. In early 2016, we are also releasing the next generation of a “Smart Dashboard”, allowing users to import existing portfolios and get ongoing insights based on what 50,000 experts are saying or doing – we hope — and believe — it will be a very successful feature.

DriveWealth’s Robert Cortright on the benefits of building a global investing platform

drivewealth's global investing platform

Robert Cortright is the CEO of DriveWealth

Investors used to be satisfied investing at home, but technology seems to be opening up investment opportunities internationally. What’s driving that and how do you think that plays out?

Robert Cortright - CEO, DriveWealth
Robert Cortright – CEO, DriveWealth

US investors have always had the ability to invest globally through the US ETF market and, in the last decade, we have seen many US investors buy into “BRIC” assets through the US listed securities market.  However, international investors have not had access to the US listed securities market, which offers access to global ETFs and ADRs in a liquid and relatively secure environment.

Over the last decade, emerging market individuals have built a wealth of investible assets and they are looking for a place to invest those assets as their domestic markets are becoming more volatile and continue to be limited in size and market cap. DriveWealth gives these individuals the opportunity to open a US-based, SIPC protected brokerage account and build globally diversified portfolios.

Why is it important for investors to access to international investment opportunities?

Diversification is important to every investor, but US investors have historically had the most choice. It’s important to give all investors the same choice. Diversification is one of the most important tenets of investing and goes beyond asset classes and sectors- a well balanced portfolio will give investors exposure to different geographic locations as well. With a platform like DriveWealth, investors all over the world can build globally diversified portfolios of US listed stocks, ETFs, and ADRs.

Why is it important for the institutions that service investors to provide international investment opportunities?

As I mentioned earlier, investors in emerging market economies are looking for a place to invest their wealth and the US listed securities market provides an opportunity for them to do so in a liquid, regulated environment. By gaining access to the US listed securities market through a US-based brokerage account, international investors will have the ability to build globally diversified portfolios.

Furthermore, many large international companies, such as Alibaba, are listed in the US, which means that Chinese investors cannot own Alibaba without a US brokerage account that offers the ability to trade ADRs of global companies. DriveWealth gives investors around the world this ability.

Increasingly, customers are realizing that they can get global exposure through US listed ETFs and ADRs for an affordable cost. The US stock market is becoming an attractive place for people, domestic and international, to deposit money.

Doctors don’t go into surgery without practice — but investors seem to do that. Why? Is there a better way?

Investors need to be financially educated, especially if they are investing in the US Stock market for the first time. Often, investors begin investing without practice because they simply don’t know that there are resources out there to help them. In the past, people weren’t given the knowledge and tools to invest affordably and with confidence. This is one of the reasons which DriveWealth has developed an intuitive way for people to invest.

With the release of our Passport 2.0 investing app, DriveWealth is offering fractional shares to help people build diversified portfolios over time by investing a fixed dollar amount in the companies they know. With Passport 2.0, people don’t have to be stock pickers or experts, they can invest in a portfolio over time and get the benefits of dollar cost averaging. In addition, investors will have the opportunity to invest in the products they use in their daily lives.

You’re building a global platform. For fintech companies looking to expand internationally, do you have some advice on build/buy decisions? Things you would do differently in retrospect?

Financial services is a highly regulated industry. Most fintech companies focus on product because it doesn’t require a deep, full-carrying license to operate, but the real key is distributing all the great financial services products that the US market has to offer. A strong fintech company also has strong licenses behind it. If businesses have really great financial products, they should look to partner with someone that can distribute their products.

At DriveWealth, we believe strongly that “FinTech” disruption will come thru the global retail distribution channels rather than the traditional “face to face” banks and brokerage business relying on hired registered representatives. We view ourselves as a platform where we aggregate retail investors and give them access to the best financial products. With ecommerce firms expanding rapidly in the emerging markets and clients having smartphone technology in the palm of their hands, customers will expect to have the ability to execute financial transactions with the few clicks on a mobile application.

What’s in the plans for 2016?

We will be releasing Passport 2.0 in early 2016. With Passport 2.0, investors will have the ability to invest real-time in fractional shares and create dollar-based, self-directed portfolios. If you want to start investing with $20 and own 10 stocks, for example, you can do it. The introduction of fractional shares and dollar-based investing means that our investors don’t have to be speculators. They can build well-diversified portfolios for a low, fixed cost and become disciplined investors and savers. We believe that giving retail investors globally affordable access to save and invest through their mobile phone is extremely powerful.

Also, as wealth is transferred from baby boomers to younger generations, it becomes increasing important to offer intuitive investing tools in a mobile environment to cater to the lifestyles of our mobile-first, cashless society. With Passport 2.0, younger generations of investors will be able to manage their entire financial life from the palm of their hand. Owning a Brokerage account providing access to the powerful products of the US Securities markets will be a key to their long term success.

Photo credit: Mukumbura via VisualHunt.com / CC BY-SA

ApplePie Capital’s Denise Thomas on enabling investors to lend money to the right franchises, franchise owners

interview with Denise Thomas, CEO of Apple Pie Capital

Denise Thomas, CEO of ApplePie Capital, first met with Tradestreaming earlier this year. We sat down with Denise to catch up on the state of her business, drill down on what’s working for the marketplace lender to get a view on where she’s taking the business in 2016 and beyond.

What is ApplePie Capital?

Denise Thomas, CEO of ApplePie Capital
Denise Thomas, CEO of ApplePie Capital

ApplePie Capital is a marketplace lender that focuses exclusively on the franchise market.  We follow in the footsteps of other marketplace lenders such as Lending Club, Prosper, and SoFi, who have transformed the way consumers access loans online.  We are bringing this efficiency, speed, and flexibility to franchises businesses across the US. And for investors, we are opening up a new asset class of franchise debt, which has never really been accessible in a scalable way before.

What’s your background — why did you start Apple Pie?

Throughout my career, I have been passionate about increasing access to capital and creating new asset classes for investors, something I achieved as an executive at multiple companies prior to ApplePie. While researching needs in the small business loan market, I found out how difficult it can be for franchise owners to obtain the capital necessary to buy or improve a franchise unit — even though franchises are far more likely to be successful than your average small business.

There are nearly 800,000 franchises operating in the US, and it’s estimated that 1 in 20 working Americans–over 8 million people–are employed through the industry.  I founded ApplePie Capital because I believe in the potential of the franchise industry, and I want to fundamentally democratize access to the capital markets so that individual entrepreneurs can gain access to the capital they need to be successful. And, I believe this is an excellent fixed income offering for investors.

How do franchisees normally get funding? Is there an inefficiency in the market?

Many people don’t realize just how big of a market franchises represent. There’s an annual capital demand of over $45B. To date, that financing has been mostly through traditional banks and SBA loans and 401k rollovers.  Since 2008, the banks have moved upstream with their lending activities, and have been doing less and less originations of under $1M.  For them, the cost of originating a loan of $200k is the same as $2M and their processes are slow and inefficient, so there is little incentive for them to focus on smaller loans.

And SBA loans, which are loans that banks issue that are backed by the government, entail a ton of red tape and overhead and require a borrower to pledge their personal real estate and other assets as collateral.  For borrowers the SBA is a nightmare. We hear horror stories every day about the inefficiencies of the SBA process. We are providing an alternative for high-quality franchise brands and their franchisees that bypasses those headaches.

What’s the investment case on the investor side? Why is investing/lending to franchisees a good idea?

Well it’s really all about investing in the right franchise brands and the right borrowers.  And that’s why our proprietary credit model and underwriting process are so important. We have spent the last two plus years immersed in the franchise industry, examining the data, and understanding these businesses inside and out.  Franchising is all about systems and replication – the best brands have proven systems that make it easy for franchisees to achieve success. They also know what kind of people make successful franchisees in their system, and what types of locations work. The brands serve as a great initial filter for us on borrower and site quality.

We partner with established brands that have these systems in place, and that meet our rigorous requirements on historical success.  We take the brands through an intake process where we get to know what a typical unit looks like, and how long it takes to get the business to cash flow positive, and how much capital it takes. This is a real differentiator for small business lending – with ordinary small businesses, you don’t have this depth and breadth of predictive data.

Once we partner with a brand, they direct franchisees looking for capital to us. Since we know so much about the business model, we can really accelerate the time to money, funding in 30 days or less.  For borrowers, their credit profile and experience factor into the rate we offer.  And our borrowers are very attractive on both of these factors.  The average FICO of our borrowers is about 725, and the median net worth is $2M.  We see a high percentage of multi-unit owners with deep franchising experience.

For investors, this means high quality loans with attractive yields.  We’ve already raised about $45M in capital commitments, and continue to receive interest from institutions and family offices.

How does an investor size up potential investments? What should they be looking for in making an investment in a franchise?

It’s our belief that the brand is the most important element in sizing up a loan investment. We have 25 partner brands signed so far, seven of which have never experienced a closure in their system. This type of diligence on the brands is invaluable for investors looking to invest in franchise debt.

We list loans on our marketplace where investors can research the brand, the borrower, the use of funds, and the location. We also have a proprietary ApplePie rating system that considers these factors, and we place a rating on each offering that we display to investors.

As with any asset class, a good risk management strategy is to diversify.  We just launched an Automated Investing program where accredited investors can easily create a diversified portfolio of loans for as little as $1,000 per loan.

Can you give us an example of a past deal? What was the franchise? How much did they borrow ApplePie? How many investors were in that deal?

Just last month we funded a $250,000 loan for a brand new Marco’s Pizza outside of Salt Lake City, Utah.  The loan was funded through our marketplace, where ten investors invested in fractional shares of the offering.

Marco’s is the fastest-growing pizza delivery company in the U.S. with over over 570 units in 34 states. The borrower has a great credit profile and track record, having already opened and successfully operated two other locations. He considered financing the unit using his own cash flow but ultimately decided he could get more leverage by partnering with a financial institution.

However, not only did customer service at his local bank leave a lot to be desired, they took nearly two months to get back to him about a loan. He wasn’t impressed, and he didn’t have time to wait around, so when he heard about ApplePie from Marco’s corporate, he jumped at the opportunity to work with us.

What are the profiles of your investors? Who should find this type of investment interesting?

Our investors range from institutions who prefer to buy whole loans, to family offices and high-net worth investors who invest in fractional shares on our marketplace.  We’re also receiving significant interest from investors who are looking to invest with self-directed retirement assets. Our projected yields are attractive compared to what you’re seeing in treasuries or high-quality corporate debt. Our offerings have been prequalified by PENSCO, the largest self-directed IRA provider, so investors with them can easily get started investing with us.

What are your future plans for the marketplace? Ramping the supply and demand? Will you move into different parts of the value chain?

With marketplaces, you are always balancing supply and demand. We have a strong advisory board who makes introductions to brands and now that we have been in the industry speaking on this alternative lending option, we receive a lot of inbound inquiry. We will continue to sign brands that exhibit good historical performance, and each brand we sign increases the pool of potential borrowers, many of whom are multi-unit operators who we have the opportunity to repeat business with.

On the capital markets front, it’s a multi-pronged approach and we are just scratching the surface. As our portfolio gets more seasoned over time, we will see a broader swath of institutions interested in participating, including the banks that we are starting to displace today. And the marketplace momentum can’t be underestimated either – we are actually seeing investors who are from the franchise industry. They know the brands and like our approach, so that has been very validating for us.

As for moving into different parts of the value chain, since we are building such strong relationships with our brands, we discover all kinds of new opportunities where we can add value. We are really at the beginning of what we think will be an amazing journey.

Stephen Klein: LOYAL3 is turning IPO stock into a powerful, new brand engagement currency

Stephen Klein, LOYAL3

LOYAL3 first burst onto the investing scene a couple of years ago with a simple premise: connecting people with the brands they love and providing an easy, cheap way to invest in them. The company provides a creative model that’s fee-free for investors. LOYAL3 has grown to include IPO and secondary stock offerings to its investors.

Stephen Klein, Chief Marketing Officer of LOYAL3, joins Tradestreaming for an interview about the company’s roots, how investing in stocks has changed and is changing, and how LOYAL3 is approaching product and distribution in 2016.

What is LOYAL3 and what was the genesis story (what was the inspiration the founders had to start the company)?

Stephen Klein, LOYAL3
Stephen Klein, LOYAL3

LOYAL3 is a financial technology company that is transforming the capital markets and concept of stock ownership. For small retail investors, our platform provides a new, easy and affordable way to invest in today’s top brands, and gain access to IPOs at the same time and price as large institutions and investors, with no fees to buy or sell stock. And for companies, we provide an innovative way to engage their affinity groups and allocate IPO and public stock to their employees, customers, partners and fans.

The idea for LOYAL3 stemmed from the thesis that ownership builds loyalty, and that enabling employees, customers, etc., to own shares of a company’s stock creates a net positive— for companies, individual investors, and the investing model as a whole. Ownership is a powerful branding and behavioral currency, and everyone should have the ability to invest in the companies they have an affinity for. In short, people care more about things they own than things they don’t, and this principle works for brands.

Has electronic trading and indexing changed the way investors think and behave with individual stocks?

Definitely. There’s been a fundamental shift in the way individuals invest. Investors are more engaged and want to have greater direct control over how they invest. There used to be a very limited set of investing options. But now, there’s a growing array of solutions that simplify the process, reduce or eliminate the fees charged by traditional brokerages, and cater toward each individual’s own personal investment needs.

Are you targeting experienced investors or investors newer to the markets?

We believe investing should be easy and affordable for everyone, so we designed our platform with newer and smaller investors in mind—ease of use, no fees to buy or sell stock, and the ability to purchase fractional shares of coveted stocks with high per-share prices. LOYAL3’s platform also attracts more experienced investors, but because we do not permit short selling or share lending and batch our trade orders, this limits the appeal to institutional investors or active traders.

LOYAL3 - investing in IPOs

What’s your IPO offering? How would investors invest in IPOs before using LOYAL3?

Historically, the ability to “invest in IPOs” had been limited to Wall Street and their core clients. It was nearly impossible for the general public to purchase shares before the first day of trading, unless they had a brokerage account and met “requirements” set by that firm, which were most always large sums of money in the investor’s accounts. Now, through the LOYAL3 platform, small retail investors are able to gain new access to IPOs, with the ability to purchase shares for as little as $100, at the same price and time as these institutions and large investors.

How are firms selling their stock via IPO using this service?

IPO issuers work with LOYAL3 because they see the value of offering IPO access to the people who really care about their company, employees, customers, partners, etc., and will bring us into the IPO process as a co-manager or part of the selling syndicate. They see this as a way to thank the people who made their success possible in the first place. So in essence they’re using IPO stock as a powerful and new brand engagement currency. We provide the same IPO services as a traditional investment bank, but also develop customized, branded digital content that enables B2B and B2C companies to engage these groups during their IPO in a more personalized way.

Is your success, in a way, a throwback to what investing used to/should be: affiliating with brands we love, etc.?

Investing has become cumbersome, expensive and overly institutionalized, and we wanted to change that. The idea of being able to own a piece of a brand you know or love makes sense and really resonates with people. It’s the difference between investing and speculating. It’s such a simple concept—if an individual already has an affinity for a company, why shouldn’t they be able to affordably invest in it? We would love to see a day where everyone is able to “own” a piece of the companies that matter most to them.

What’s next for your product service? What should investors be looking out for in 2016?

LOYAL3 regularly explores different types of opportunities that will facilitate new ways for people to invest and will be complementary to our existing offerings. We’re really excited by the possibility of stock loyalty rewards and custodial accounts, and we hope these are two things we’ll be able to offer in the future.

Fundrise’s Brandon Jenkins on the need to keep raising the quality of real estate deals online

Fundrise is a leader in online real estate investing and it’s soon to get even more interesting as recent regulatory changes are making it easier for crowdfunding platforms to incorporate even more investors. It’s an interesting time for the firm: it recently announced it had raised $50M for an e-REIT in light of the new Regulation A+ changes.

Fundrise COO, Brandon Jenkins joins us to talk about the state of his business, how competition in online real estate investing is changing the market, and how he thinks 2016 is going to turn out to be a huge year in his industry.

What was the inspiration for creating Fundrise? What was the genesis story?

brandon jenkins, COO of fundrise

The idea behind Fundrise came out of the personal experience of our founding team as real estate developers in Washington, DC. After an unsuccessful experience seeking funding for a new type of real estate project with local tenants, we saw an opportunity to open up the world of real estate investing to a broader audience.

More players are entering the online real estate investing space — how do you differentiate yourself? How do you think the market is organizing (is it around debt/equity or residential/commercial?)

First and foremost quality. We only work with the best quality real estate companies and search through hundreds of deals a week selecting only the top 1% to actually offer as investments.

Second, we focus on providing unmatched customer experience by creating a one-of-a-kind platform. Our technology is 100% designed and built in house…from scratch, so that the experience of investing on the platform is as straightforward and enjoyable as possible.

How big a role does education play in investor acquisition?

When you democratize an asset class for the first time, you’re naturally going to connect with investors who’ve never picked their own real estate investments before.   

To that end, we take education very seriously.

Our biggest concern right now is around the quality of deals being done by other platforms in the space. We’re seeing other companies do bad deals, with bad prices and bad terms so we feel that we have an obligation to give investors the tools they need to make smart, informed decisions — whether that’s a deep dive into our underwriting process or a rating system for understanding risk-return tradeoffs.

You moved from a brokerage model to more of an origination model — why? how did that position you differently?

Funding all our investments upfront using our own $25M balance sheet has a few key benefits:

1. You see higher quality investments: We can negotiate better deals with top real estate companies because they require certainty of funding. By funding real estate projects upfront, we believe we are able to achieve superior pricing and terms, and source more investment opportunities from the best companies in the country.

2. You start earning immediately: Interest starts accruing as soon as your investment settles—typically within five days—eliminating lengthy escrows. This model more closely resembles stocks, bonds, and other publicly-traded securities.

3. Your interests are the same as ours: Fundrise pre-funds every real estate project, using our own balance sheet. This puts our “skin in the game” and shows our conviction in the deal.

Where is your business/market headed in 2016 and beyond?

Since we founded the industry back in 2012, real estate crowdfunding has seen tremendous growth. But it’s really just beginning. 2016 will be a huge year for the space. I think we’ll start to see consolidation of platforms and some platforms really start to own one and dominate an asset class — like the SFH market. Investors will begin to enter the space in droves.

AssetBuilder CEO Kennon Grose has an answer to $2.5B in new, daily retirement assets and it’s automated

[dropcap size=big]A[/dropcap]ssetBuilder can be considered one of the first asset managers to seriously engage with the Internet as a distribution model , setting off a trend of low-cost, investment advice delivered over the Internet. The Texas-based money management firm has provided long term portfolios to its clients using some of the most-trusted educational content around.

The firm’s Chief Investment Officer, Scott Burns had been a widely-read, nationally-syndicated personal finance columnist since 1981. As part of his writing, Burns devised the Couch Potato Portfolio— a super-easy-to-manage portfolio of equal amounts of low cost index funds. In 2006, Burns turned to Kennon Grose and the pair launched AssetBuilder.

Kennon Grose, CEO and President of AssetBuilder, joins Tradestreaming to talk about the genesis of his company, how it pioneered reality-tested low-cost portfolios before the term “roboadvisor” actually existed, and the big push his firm will be making in 2016 to address the asset management and financial needs of retirees with a novel, automated income solution.

What is AssetBuilder? What was your genesis story?

Kennon Grose, CEO of AssetBuilder
Kennon Grose, CEO of AssetBuilder

AssetBuilder is the money manager that offers a disciplined, low-cost, reality-tested approach to investing. Consider us an antidote to the ways of Wall Street. We started with a simple idea: give investors a more disciplined, lower cost, reality-tested approach. We said, let’s be transparent every step of the way, and clear away all the big fee firms that populate Wall Street. We believe that by combining the inherent advantages of DFA Funds with our use of mean variance optimization, we can add more value for a fraction of the cost.

AssetBuilder, a SEC-registered Investment Advisor, employs a long-term investment strategy. We are not market timers. Not surprisingly, we look at our relationship with our investors as long-term as well. We want to earn the trust of all we serve.

We employ a clear strategy of diversification, smart indexing and smart asset allocation to fit your reality. And although we apply science and proprietary algorithms to our portfolios, we also apply a deeply human and personal approach to everything we do. It’s a methodology that works, proven time and time again.

Here’s the creation story. Scott Burns has been a newspaper personal finance columnist since 1977, starting at the Boston Herald American. His column has been nationally syndicated since 1981. One of the most popular ideas advocated in his columns is the Couch Potato Portfolio— a portfolio anyone who can fog a mirror can manage by buying equal amounts of low cost index funds.

In August of 2006, on the night Scott committed to retiring from the Dallas Morning News, he had dinner with me, a friend and former Microsoft executive. I suggested that startingt an online RIA firm based on low cost index fund investing. Do-it-Yourself investing, he said, was a good idea for some, but most people would love to avoid the chores and responsibility, particularly if it could be done at low cost. Since its start in late 2006, AssetBuilder currently has $680 million in AUM, with 1230 clients in 46 states.

You have an impressive team — can you talk about who’s on the team, how that impacts your service offering, and how your clients benefit?

AssetBuilder is made up of people who are genuinely interested in helping their clients by putting their needs first. Unlike robo-advisors, which rely on algorithms and provide no human touch, we provide the benefit of a financial advisor to guide our clients through questions, concerns, and options. And unlike the big legacy firms, we don’t push products that our clients don’t need.

We also learned an interesting lesson along the way—people want to talk as much about the psychology of investing as they do the numbers. Something that requires a human touch.

As a fiduciary, we promote investment strategies that keep each client’s best interest at heart. That passion for serving others helps alleviate clients’ concerns about how their money is handled, so they can think about money less and enjoy living their lives more.

Because we are an organization with a no-nonsense approach not only in investing but also in how we operate, AssetBuilder is committed to a simpler way to invest. That means being up front with our clients, educating them on our strategies in ways they understand, and providing an easy and effective way to execute.

Our business was designed with the mission of advocating for everyday people who are planning for their futures–to come alongside them and provide for a better way to invest. The members of the AssetBuilder team are passionate about making sure people are treated fairly and not taken advantage of. We are here to simplify. We are here to do the right thing. We are here to help. The desire to advocate on behalf of everyday people and provide an alternative (and better) way to invest further distinguishes us from many others.

Can you talk about your portfolios (Lazy and Couch Potato, for example)? What are they and why are they different than other options out there?

If you’re a “do-it-yourselfer,” and you like the idea of engaging in the process of investing, then you may find the “Couch Potato” portfolios a great way to manage your own money, reduce management expenses, and avoid speculative thinking.

If on the other hand, you buy into the idea of index investing, but don’t want to do it by yourself, AssetBuilder is a very good option. AssetBuilder offers 8 risk-calibrated models ranging from capital preservation to aggressive growth.

AssetBuilder offers these preconstructed, risk-managed portfolios comprised of Dimensional Funds (DFA) mutual funds and cash investments. Clients select from a menu of Model Portfolios that AssetBuilder constructs using asset allocation. Asset allocation is the division of a portfolio’s investments among asset classes to balance expected risk and expected reward. These asset classes include small and large stocks, value and growth stocks, domestic and international securities, emerging market securities, real estate, commodities and government bonds.

AssetBuilder’s approach to asset allocation is influenced by the work of Nobel Prize laureates William Sharpe and Harry Markowitz, who shaped the role of financial science in investing through their development of Modern Portfolio Theory. Modern Portfolio Theory states that a portfolio diversified across asset classes offers the best opportunity for an investor to achieve the highest possible return for a given level of risk.

What’s it like building out an asset management firm from Texas? Buffett used to say that he appreciated being in Omaha vs. spending time in the NYC echo chamber. Is there a certain Texas flavor to your business?

When you reference a “Texas flavor”, the first thing that comes to mind is Main Street vs. Wall Street. People like working with people. They are not just a number! They have names. They have a story. They all have an investment experience. We work hard at listening to establish an authentic customer connection.

It looks like you put a lot of thought, time, and effort in your content and education.

We believe the credibility of our content is gifted to us by our audience. In our business, we have our customers and our clients. Customers are the people who visit and read our website content (about 29,000 people a month). Average time on site is 210 seconds as opposed to the industry average of 90 seconds. Clients are the people whose money we manage.  We have intentional strategies to service both of them.

We just made a recent change in our website. Shifting our vast content into a Knowledge Center. The search capabilities more user-centered. And we’re not kidding about “vast”— you’ve now got easy access to 20 years of Scott’s columns on every aspect of personal finance. Andrew Hallam—known as “The Millionaire Teacher”—and Dr. Amy Rogers are also helping build the Knowledge Center. They add different perspectives and address different concerns.  As we move forward, our Knowledge Center will be the foundation for future releases as we move toward predictive content tailored to an individual’s profile of interest.

In addition, with our new website, it represents Scott’s transition from providing content for our customers to being our Chief Investment Strategist for our clients and being part of the team creating a new and better way to learn, understand and invest.

How does the Internet play a role in your business?

The internet allows us to remove the geographical boundaries associated with the traditional Registered Investment Advisory model. We have built our company upon four pillars. These pillars are intentionally radiated through our internet presence:

  1. simplicity
  2. transparency
  3. integrity
  4. fiduciary

Who do you see yourself competing with?

Firms that charge high fees for their asset management services.

What’s next for AssetBuilder? New portfolios, services, etc?

10,000 people are turning 65 every day and the average investable balance is $250,000. That equates to $2.5 billion a day transitioning into the retirement market and this trend will continue for the next 17 years.

In addition to the sheer volume of retirees entering the market, we have our own clients asking us questions around the subject of retirement:

  • How do I convert my wealth into a monthly income?
  • How long will my money last?
  • Do I have enough to retire?
  • Am I going to be OK?

And behind them all—hiding in the dark—is the one question everyone fears most: “What if I run out of money?”

We have spent the last year developing a retirement solution which solves our client’s need and also represents a solution to the broader retirement market. It is designed to convert the wealth you have today into a steady and certain standard of living for retirement—monthly payout.

Our retirement solution has the following characteristics;

  • Unlike an annuity, doesn’t require the retiree to give up control
  • Personalized, dynamic, flexible and tailored to the retirees individual needs
  • Deliver current income for spending needs and addresses increased longevity risk
  • Instills confidence in retirement

We believe competition for our retirement solution will be annuities. Annuity sales in 2014 represented $236 billion in both fixed and variable annuities.

Our retirement solution is the automated investment service that takes the mystery out of retirement planning. And when the mystery is gone, you get a better return on life.

We expect to go live with this service in 2016.

Computers vs. Humans: Who wins the investment game?

computers vs humans: who's the better investor

We’ve entered an era in investing where we read daily about billionaire stock pickers who’ve built large fortunes off their uncanny ability to invest in winners. There’s an entire cottage industry of websites that track all the investment moves of large fund managers in the hope for gleaning the next big homerun investment. Books like John Reese’s Guru Investor have deconstructed the strategies these top investors use so that investors at home can play along.

Here’s Estimize’s founder, Leigh Drogen on the humanness of great investing:

But here’s where it gets interesting. The best humans are still leaps and bounds better at investing than the best computers and the quantitative analysts behind their algorithms. Why? Because we’re just starting to scratch the surface of artificial intelligence in investing, and algorithms are still relatively dumb and inflexible. The best humans are still incredible at pattern matching and adjusting when correlations fall apart. Call it intuition, call it whatever you want, humans still have something extra that computers don’t (for now).

There is still something innately human about being able to identify and manage a great investment. No matter how good computers are at this point, they can’t recreate that special something.

On the other hand, much of today’s investing is happening via algorithms, via machines programmed to do what humans can’t — stick to an investment strategy. Trading volume in certain markets, like government bonds, is estimated to be 90% comprised of algorithms. That means buying and selling is happening machine-to-machine.

Machines can do something that behavioral finance experts know that humans just aren’t built to do: turn off their emotions and stick to a strategy. Algorithmic platforms enable quick filtering of investment candidates against standardized investment criteria and removes extraneous pressures and can make quantitative sense of conflicting signals.

So, which is it? Experts tend to say it’s a little bit of both. It’s the confluence of machines and humans that makes for the best, most successful investing. It’s the computer-enabled research and strategy building that enables a human, in spite of all his or her biases, to pull the trigger, when and where he or she determines is most appropriate.

According to Matthew Klein, the founder and CEO of Collective2, a platform for humans to devise, test, and manage algorithmic trading strategies, new investors should stick to the type of investing that plays to our strengths:

So if I were asked to give advice to some young hot-shot kid MBA at Harvard wondering what kind of investing field to pursue, I would say: Focus on the stuff that requires physical carbon. Do stuff that requires that you stand up at a podium and deliver a speech. Be a short-seller like Andrew Left who can scare the bejeesus out of investors by emailing a really cheesy PDF file to people in your rolodex.

To explore this concept further, Tradestreaming recently invited machine-human investing experts Matthew Klein, CEO of Collective2 and Leigh Drogen, CEO of Estimize to a frank conversation on the relative merits of algorithmic investing and stock picking.

View Can A Computer Do It Better? on Dealbreaker.

Equity crowdfunding: The next leg in online investing

In 2007, I dipped my big toe into the online finance space when I joined Seeking Alpha.

Since then, we’ve seen so much happen in fintech: the past few years have witnessed the rise of the personal finance manager (PFM), the roboadvisor, a new type of currency and underlying infrastructure with Bitcoin, tools to mimic hedge funds and mutual funds, and more.

The history of online investing

I’ve tried to outline what I feel to be the historical signposts along this road toward online investing.

The momentum that kicked off when Charles Schwab launched a new way to invest in 1971 — a way that prized independence, low fees, and a do-it-yourself attitude that no one can manage your own money as well as you can — is ramping today.

When Wealthfront gets another $1 billion under management, when LendingClub and Prosper underwrite another $1 billion in marketplace consumer loans, when another asset class gets crowdfunded, this is what I’m talking about.

Can all asset classes be crowdfunded?

TechCrunch ran this story over the weekend about CrowdJustice — a platform that

allows communities to band together to access the courts to protect their communal assets — like their local hospital — or shared values — like human rights. Successive governments have made access to justice harder and more expensive but we are using the power of the crowd to try and stem the tide

When cryptocurrencies meet social networks, when peers fund peers, when we move our investing opportunity online, we deconstruct old markets and create new ones.

Crowdfunding is already changing the way young and small businesses find financing.
Equity crowdfunding — drawing relatively small investments from the crowd to early stage companies — is just getting going.

Simply invest like a hedge fund — with Mike Kane

andrew hallam

In the world of investing, there’s a lot of excitement around roboadvisors.

These automated and cheap investment platforms, like Wealthfront and Betterment, are attracting billions of dollars.

But, according to Mike Kane, there’s a big problem. Their investment strategies aren’t best of breed and investors will get hammered when markets go south. The CEO of Hedgeable joins Tradestreaming host, Zack Miller to talk about his roboadvisor that uses sophisticated tools — the like employed by hedge funds — to manage retail investor money.

Listen to the FULL episode

About Mike Kane

Hedgeable CEO, Mike KaneMike is the CEO of Hedgeable. He co-founded the company with his twin brother, Matt, and Mike oversees Hedgeable’s investing, strategy, business development, and branding initiatives.

Resources Mentioned In The Podcast

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